About developers and advances

[Akafrank]

In a recent thread on DRM issues I suggested that piracy hurt the developers the most. Someone asked me to "prove it" which made me, well, want to prove it. My understanding of Publisher/Developer contracts is actually based on the music industry, from a course on entertainment law in my college days. Thanks to Gamasutura, I got to see a developer/publisher contract and the deals bare great similarities.

In a general contract between a publisher and a developer (where the publisher issues an advance) the developer's royalties are 100% dedicated to paying the advance before they ever see a penny. So using a modest $3,000,000 advance for a game and what is admittedly a guess at what the per/unit profit would be, $40 (not exactly easy to find) and a fairly standard 20% royalty for the developer . . .

Advance: $3,000,000
Net Unit Profit: $40
Publisher Cut: $32
Developer Cut: $8

With these values the Publisher gets a return on their investment after 93,750 units where the developer doesn't see a single penny until after the game has sold 375,000 units.

In a model like this the publisher has actually made $11,999,968.00 before ever owing the developer royalties.

But if this game only sells 374,999 units, it will be considered that the developer has never paid off the advance and will receive no royalties. These numbers are all for the sake of example but the values are relative and still represent the scale.

Pirated copies don't count. If a game is pirated before the developer's royalties have paid off the advance, it actually reduces the possibility that a developer will ever be paid for a game. Insult to injury, often the publisher owns the IP as well. Meaning you didn't make a cent and never will from that IP.

This is of course all based on the advance system. I am sure that larger developers can negotiate better deals and there are of course tons of exceptions. This is just the most basic of relationships.

 

[Calabi]

I think its the same in every entertainment industry. The middlemen have become so powerful and greedy, they are squeezing the entertainers till they pop.

I dont see why the middlemen are needed so much in this day and age. Of course you do need them if want to sell huge numbers with advertising campaigns and whatever. But there are plenty of other avenues that developers could go down, but they may not be as profitable at the start.

As long as developers are willing to accept this then surely its only going to get worse.

Anyway I'm not sure how that proves that piracy hurts developers, you have to first prove that piracy hurts sales.

 

[Akafrank]

Anyway I'm not sure how that proves that piracy hurts developers, you have to first prove that piracy hurts sales.

Tobacco lobbyists used a similar argument. They claimed that even though a correlation between lung cancer and tobacco could be proven, (80% of lung cancer patients were smokers) they posited that the causal link between cancer and smoking could not be made. The fact that cigarettes were preferred by people who were genetically predisposed to lung cancer was not evidence that inhaling carcinogens was causal. Many oncologists disagree.

Just because people are acquiring copies of software without paying, and pc sales are suffering, doesn't necessarily mean that there is a causal effect. Many developers disagree.

 

[Lvl 64 Klutz]

There's one problem with your argument, it's pure spin. If the developer doesn't make money until their advance is paid off with what they'd be making in royalties, They still make the money because of the advance. In fact, the advance can only benefit the developer, because if the sales of the game are less than the advance was worth, the publisher loses the advance they paid, but the developer has more money than they would've made. And if the game sells more copies, the extra royalty money goes to the developer.

Hence your argument actually proves that piracy hurts the producer more than the developer.

 

[Akafrank]

And if the game sells more copies, the extra royalty money goes to the developer.

Hence your argument actually proves that piracy hurts the producer more than the developer.

Advances are budgeted amounts that don't exceed the budget of the project. It is not profit. Yes developers get to work and be paid for that period of time. But companies don't survive on advances. I'm not sure about this in games development but in music the artist actually owes the record company the advance whether royalties cover it or not. It is generally added to the next album's advance, if they are continuing.