The following is a repost of a piece over on my own blog at www.legalgamer.weebly.com.
Okay, your game rocks, you’ve nailed the pitch and relationships are good – but what the hell happens next? Well, now it’s time to start negotiating. And this is where things often go from tough to tougher. But don’t panic! This article aims to arm you with 10 tips I’ve picked up over the years as a video games lawyer that can help lead to stronger preparation, smoother negotiations and hopefully better deals overall.
Just as a heads up, this piece focuses more on the actual process of preparing for and negotiating a deal rather than the content of a good deal (which I’ve written about previously in the context of publishing deals here).
1. Letters of Intent: you should use letters of intent (LOIs). An LOI should ideally just be a brief, non-legally-binding outline of the key commercial (and sometimes high-level legal) terms of a deal. There’s no specific form this needs to take so it can be done in a formal document, via email etc. The greatest advantage of LOIs is that, when done properly, the process can expand the parties’ minds beyond “wow, we really want to work together” and prevent rushing into full paperwork - where important issues are often lost.
It can also be a waste of money getting into long form paperwork if there’s no real deal in the first place. Instead, LOIs allow parties to focus on the realities of what a deal could actually look like in practice at an earlier stage. Full form paperwork can take a while to negotiate and LOIs serve as helpful tool in preventing either side from drifting too far away from what was originally agreed.
2. Bad Templates: be prepared to receive some pretty bad template documents – this is true even at the highest levels of games deals. These documents can be poorly written, overreaching or potentially even materially inconsistent with what you’ve been discussing at a commercial level. There are a number of possible reasons for this, some nefarious and others not so, but regardless of the cause it’s unfortunate as it can often actually inhibit the progress of a deal rather than encourage it. I’ve even seen things so bad that we effectively had to completely scrap the first agreement presented and start from scratch.
You can read a lot into the first round of paperwork provided (e.g. whether they can be bothered to tailor their template publishing agreement for you) and it can be a good indicator of how seriously the other party is investing in the relationship and how they see the power dynamic. There’s not much you can do here aside from picking your partners carefully and being prepared to fight your corner. If you’re the one providing the template, take a moment to think how this reflects on you and whether there’s anything you can do to improve this, which in the long run will make deals much smoother to negotiate.
3. Speak to Legal (Early!): a good lawyer will be able to help you with not only the dusty (but important) legalese but also the commercial aspects of the deal. They may even bring to light things neither side has thought about yet, particularly re what happens if the relationship or game fails. After all, lawyers are probably the people who see more deals go before their desks than anyone, so they should have a good idea of what’s ‘market’.
Not only should you get a good lawyer, but also remember to bring them into the project early enough (ideally around the LOI stage). This can save you time and money in the long run, but a lawyer can also help formulate how to prioritise and structure negotiations.
4. Timing: negotiating can take ages. I’d estimate that even with the best will in the world, most deals take roughly 2-3 times longer to close (assuming they do) than the parties originally intended. Holidays, illness, internal discussions, aligning calendars, bringing in new stakeholders, drafting and reviewing, dealing with surprise new issues, waiting for internal sign off – these all take time.
I’ve had indie publishing deals open and close in a matter of days whereas others take months. I’ve had service contracts that were seen internally as ready to sign take six months to negotiate once the importance of those services had been fully considered. That’s not to say that it’s impossible to do deals quickly – sometimes time constraints are simply unavoidable – but this often comes with trade-offs in terms of bargaining power or the fullness of the negotiation. Try to give yourself enough time to negotiate so that you can get the best deal available.
As Shigeru Miyamoto once said, “a delayed game is eventually good, a bad game is bad forever” and the same is true for deal negotiation.
5. Get the right stakeholders involved: making a game is like baking a cake – you have to have all the right ingredients involved from the start. And in order to know what kind of deal you want to strike, you need to have the right internal stakeholders involved in the discussions from the get go. Obviously, you’ll need the biz dev team to drive the deal, but you’ll also need producer input to know what you can commit to re milestone dates, dev input re what the game actually is, tech input re integrating the counterparty’s SDKs, finance input on what the team’s burn rate is etc. That’s not to say that each of these people needs to be involved directly in negotiations (in fact they definitely should not be), but they should be up to speed on the project at hand so they are ready to be consulted with internally as negotiations require.
6. Decide a Negotiating Approach: this might seem a silly one, but it’s worth thinking about carefully. Do you want to play hard-ball, try and strike a reasonable and fair deal or are you okay for things to be fairly imbalanced? All are viable options, but involve different types, lengths and complexities of negotiations. Importantly, you’ll need to think hard and truthfully about your own bargaining power as well as that of the counterparty. Are you a small indie fortunate enough to strike a negotiation with your dream publisher? By all means aim for as fair a deal as possible, but be flexible and prepared to compromise where reasonable (but not a pushover, as that can set a bad precedent going forwards). Are you a well-renowned dev looking for a peer co-development partner? Then you have a much greater case for equality. Whatever your approach, remember that you either have to work with or operate separately in the same industry as them afterwards!
7. Decide a Negotiating Method: the high-level commercial terms of a deal are often struck in person, but how do you want to handle the detailed paperwork negotiations (e.g. email, phone, video call or in person)? There are pros and cons to each approach. Emails give you the benefit of breathing space and allowing internal discussion, but often drag on longer and can lead to miscommunications. Calls often lead to more direct discussion and resolution of the issues at hand but require careful agenda planning and having the right decision makers on the call to actually close points. In-person meetings are more personal but they require much higher time commitments and there are obvious practical difficulties.
That said, rarely is one approach right for the entirety of negotiations. Emails are often most appropriate for early discussions and handling purely “legal” matters whereas calls are often helpful in discussing and closing more commercial and complex issues.
8. Confront Problems Early: there are always going to be surprises during a negotiation. Maybe you’ve forgotten to discuss which party is hosting the game. Or maybe it turns out that rather than being developed in-house, the developer is outsourcing the work to a third-party studio. When these surprises inevitably occur, the most important thing is to remain calm and confront them early and honestly. Yes, sometimes these can add complexities to and delay a project, but a lot of the time things aren’t actually as big a deal as they might seem at first. Either way, it’s almost always better to air issues before signing rather than sweeping them under the rug and hoping they don’t ever come to light, because 99% of the time they will.
9. Assess the Whole Deal: when negotiating it’s easy to tunnel-vision on a particular point without looking at the deal as a whole. For example, a developer might fight to retain IP ownership but in the process end up giving away broad and exclusive distribution and exploitation rights to the publisher which effectively negate the benefits of the developer retaining ownership. Or maybe a detailed milestone schedule and payment plan have been worked out but there’s no detail on what a publisher’s acceptance testing process actually is. The point is, by all means fight for the things that are important, but remember to take a step back and look at what the deal as a whole actually looks like and means for you.
10. Question Yourself: repeatedly ask yourself during negotiations if this is still the right deal for you and if it’s not, get out of there. It’s completely valid for feelings to change as you learn more about what it would be like to work with a particular partner. And ask yourself how the deal in front of you now compares to the deal you thought you had agreed informally several months ago. Things change and not every deal completes - that’s just a natural part of business. I’ve had deals fall over after months of in-depth negotiations because things had just moved too far from the original proposals. Always have a plan B and try to avoid giving in to the sunk cost fallacy (i.e. continuing with a bad deal just because you’ve spent time and money getting to this point).
And there you have it! These tips only begin to scratch the surface on what really goes on in deal negotiations but hopefully you’re now better prepared for your next deal than before. If you want to find out more, check out my other posts over here or follow me on Twitter @LegalGamerUK.
Obligatory fine print: needless to say this note is not legal advice, so please do not rely on it exclusively - always take advice specific to your facts and circumstances.
I'm an interactive entertainment lawyer at Purewal and Partners in London specialising in commercial deals negotiation, IP protection and regulatory compliance. I've spent a large portion of the last 3 years advising clients on a variety of games deals (e.g. development / publishing / co-development / licensing / porting) ranging from indie to AAA and have the absolute privilege of working alongside a bunch of the most interesting names in games today.