Overview
Borut Pfeifer
<borut@whiteknucklegames.com>
Much has been written about developer-publisher contracts ([Rogers02], [Powell02]), and rightly so—for a new game development studio, their first game contract can have a profound effect on the success of their
business. However, while agents similar to those employed by writers, musicians, and actors are growing in popularity in the game industry, there is little documentation on contracts between a developer and an agent, and how to go about selecting one. Should a new studio decide to sign with an agent, this might be the first legal contract they will ever enter into. This article describes some of the pros and cons of selecting an agent, to help a studio decide whether an agent is right for them, and some of the clauses in typical agent contracts.
Is an Agent Right for You?
Let's look at the services that an agency provides to a developer, and at the corresponding costs.
Pros
Location and travel. For a team that is not located in California, it can be difficult to work with publishers who want frequent contact with their developers, at least in the initial stages of the relationship. An agent located where the major publishers are located expedites this process for the developer. Even agents who are not located in California can still help the developer in this manner, since they will still save the
developer from having to travel as frequently to see the publisher, letting them focus on what drives them:
making games.
Knowledge of publisher needs. We would all like to think that exceptionally fun gameplay can sell a demo, but publishers often look for key, hot features, depending on the current state of the market. A good agent will be aware of what features publishers are looking for. They will also know what types of games a publisher is looking for at any particular time, and will therefore be able to tailor the search to the publishers that are looking for your type of game.
Contacts in the industry. A good agent has strong relationships with the right people at the major publishers.
Negotiation. An agent is usually a skilled and practiced negotiator; this will come in handy not just during the initial contract negotiation, but also during the development cycle if some monetary dispute arises between the developer and publisher.
Business knowledge. For an inexperienced team, an agent can bring general business development knowledge to the table.
Cons
Commission. The agent takes a percentage of all income you receive from the publisher, as well as income from sequels or derivative works, and also potentially from the purchase of your studio.
Negative publisher image. Publishers might think that a development contract is going to have an artificially inflated price if there is an agent involved, to account for their commission. They still tend to deal with agents, however, since it is a convenient way to find new teams.
Potential loss of control. Typically, an agent does not interfere very much with the studio and its work.
However, if the studio wants to control every aspect of development, including publisher relationships, then the presence of an agent might prove incompatible with the studio's objectives.
What to Look for in a Particular Agent
The ideal agent is strong in most (if not all) of the service areas listed in the preceding section. In addition, consider these factors:
Attitude. Do you feel the agent is trustworthy? Can you easily get along with him? Remember that you will
have to work in close partnership with this person, possibly for a long time.
Experience. Many agents come from other parts of the industry. Some are former publisher or developer employees. The more experience, from as many diverse sources in the industry, the better the agent will be at helping you in general.
Representation. How much time and how many people will the agency use to represent you to the fullest?
Analysis
Now that we've gone through some of the pros and cons, let's consider the situations where it would be most and least desirable to use an agent.
For an inexperienced team, one located far away from industry centers, or one without any significant expertise and/or interest in performing the work required by a sustained sales effort, it's probably worth the cost of going with an agent. Obviously, this is not to say that this team would have no chance to succeed without one, but the benefits of agent representation would likely outweigh the costs.
On the other hand, if the team is heavily experienced, it might be able to get a contract based solely on that experience. A good agent could still give this team feedback about the game and thus prevent the negative impressions that might arise from approaching a desirable publisher with an unpolished demo.
It is also worthwhile to study the monetary implications of the agent's presence, and whether they seem
reasonable or not. Suppose that an agent secures a $2 million, two-year development contract for you, over the course of a nine-month negotiation process. (It can easily take up to six months to finalize a contract, in
addition to the time required to prepare the pitch, visit publishers, and obtain a letter of intent.) If the agent's commission is 10% of the contract's value, you're paying them $200,000 for those nine months of work, but you're also paying for their contacts, the time you didn't have to spend traveling, and for that wonderful benefit, the part about not having to do the sales pitch yourself.
Further, you should consider how many people the agency will assign to your case: is it one person full time, or multiple specialists? Do not make the mistake of simply computing an hourly rate. Keep in mind the qualitative factors mentioned earlier before you use the cost analysis to make your final decision.
Contract Details
If you've decided to go with an agent, it will be useful to know some of the typical clauses you'd see in an agent contract.
Agent's Responsibilities
Agents must try to obtain the best possible offers and contracts for your team. They must be required to keep you informed about all such submissions, rejections, and offers of your game to publishers. The agent might also want to review royalty statements from your publisher to ensure that you (and they) are getting the correct amount of royalties. Most agents will also serve as intermediaries throughout the course of the contract, in the case disputes arise between the developer and the publisher; for example, if the publisher is unduly delaying milestone acceptance.
Developer's Responsibilities
The developer's main responsibility is to send anyone interested in purchasing their titles to the agent, so that the agent can manage all dealings effectively. Providing the agent with past business information (e.g., prior contracts) will also help him to better understand the developer's current business situation.
Commission
The agent is paid by commission. The commission is usually set as a percentage of the developer's gross revenues from various sources of income:
Any regular game development deal you sign with a publisher.
Subsidiary rights—sequels, add-ons, ports, etc.
Derivative works—translations to other media, movies, TV, action figures, etc.
Purchase of your company by another.
Each of these categories might have a different commission rate attached to it, in general somewhere between 5 and 10%. Note that when considering derivative works, you should keep the commission to a minimum:
migration of a game's intellectual property to other media might be a rare occurrence, but if it does happen, you'll probably have to hire another agency to represent you in these other media—and therefore pay another commission.
Terminating the Contract
Termination of the contract is typically allowed by either party, with some period of notice to wrap up any existing business. However, several contractual clauses still apply after termination. Specifically, the agent's right to perceive commissions on the developer's earnings will expire a specific amount of time after the contract is terminated. For example, if, within 24 months of terminating a contract with an agent, the studio develops a sequel to a game for which the agent negotiated a contract, the agent will still receive his commission for that sequel.
Agents will also want you to be prohibited from dealing with publishers they put you in touch with and/or negotiated a deal between the two of you. For a publisher they have closed a contract with you, they will typically want the length of one development cycle, to discourage developers from terminating the contract with the agent and immediately closing a deal with one of these publishers (thereby avoiding the agent's
commission). They will also want to prohibit you from dealing with any publisher to whom they have presented your work, but not closed a contract; since the relationship is less advanced, the limit on this is typically shorter.
Indemnification
In most contracts of any type, there is typically a clause or clauses that indemnify each party from a wrongdoing by the other side. Simply, if the other party in the contract breaks the law without you knowing about it, you can't be sued for their wrongdoing. This includes being sued and any financial obligations due to a suit.
Competition
Since agents typically represent multiple developers, you might be worried about an agent working with a client who is a direct competitor of yours (e.g., based on the genre of the game you're working on). You should be able to request their list of clients to ensure to your satisfaction that they are appropriately handling any conflicts of interest. However, don't expect more information on other clients than that, since the agent will typically be bound by confidentiality agreements with regard to clients' projects, technology, and other property.
Payment Procedures
The agent might want to take funds the publisher is to pay to you and have them place it in a trust instead. This way, they can deduct their commission before the money gets to you. This practice delays your receipt of payment by a few days. Normally, this is isn't an issue, but in tight situations, this delay could mean the difference between paying your team's salaries on time, paying them a week late, or, in the absolute worst case, even going out of business. For this reason, you might want the representation contract to specify that the publisher will send you the money, and that you will then have a short period of time to pay the agent his
commission. In this case, you must also give the agent any records of publisher payments upon request, so he can be sure you're paying him the correct amount.
Non-Game Related Work
If you're a small studio, chances are you might occasionally pay the bills with contract work of various sorts.
This might include contracting out your art staff to do graphic design for a magazine, or having programmers consult on a networking company's software development projects. If so, it should be clear in the contract that the agent does not receive income from this type of work (unless, of course, they obtain it for you), and that you are not required to fulfill the responsibilities described previously to the agent with regard to this work.
Conclusion
Signing with an agent can help small developers looking to break into the industry to get an edge over the competition. The popularity of game agents has increased to the point where publishers have grown to expect their presence. However, agent representation might not be suited to every team. Study the pros and cons; an agency's services might be what your team needs to increase its odds of success.
References
[Rogers02] Rogers, D. and Summers, M., "Publishers Speak 2002," Game Developer's Conference 2002 Proceedings.
[Powell02] Powell, J., "Negotiating Contracts that Protect Your Title and Team," Game Developer's Conference 2002 Proceedings.