While most publishers will let a developer retain the intellectual property rights to the game, this does not mean that the developer is always fully free to make new video games within the franchise. Many video game publishing agreements include clauses that restrict how future games in the same franchisee can be developed or published.
These clauses often take the form of:
- The right of first negotiation
- The right of first refusal
- The right of last refusal
- An exclusivity clause
Please note that terminology varies widely between contracts. A clause labeled “right of first refusal” may actually function as a “right of first negotiation,” depending on how it is drafted. Always check the exact obligations in the text.
The right of first negotiation
The right of first negotiation is a clause in a publishing agreement which requires the developer to first negotiate with the publisher about any derivative game (e.g. sequel, prequel, spin-off).
The goal of this negotiation is to assess whether parties can come to a publishing agreement for this new game as well. Only after the developer and publisher do not come to an agreement, the developer is allowed to negotiate with other parties.
From the publisher’s perspective, this clause protects their investment in building the franchise by giving them priority in negotiating future titles.
Example of the right of first negotiation in a video game publishing agreement
Below is an example of a right of first negotiation in a video game publishing agreement which we have seen in practice, so that you can recognise a similar clause in your own draft:
“During the Term, if Developer decides to: (a) further exploit the Game (which includes without limitation sequels, prequels, spin-offs and new editions); and/or (b) develop another game on any platform, it will first provide Publisher with reasonable details of the proposed project including all material financial terms. The parties will then engage in an exclusive negotiation with each other in good faith with respect to discussing Publisher publishing such project for Developer for a period of up to 2 (two) months. If at the end of that period no publishing agreement has been reached by the parties despite their commercially reasonable efforts, Developer will be free to proceed with the proposed project as it sees fit.”
The right of first refusal
The right of first refusal is a clause in a video game publishing agreement that gives the publisher the right to enter into a publishing agreement regarding a derivative game under predetermined conditions already set in the original publishing contract.
Unlike the right of first negotiation, there is no new round of free negotiation. The developer is bound to the deal terms agreed upfront for the sequel, prequel or spin-off. This means that developer has little to no room for negotiation.
Example of a right of first refusal clause
Below is an example of a right of first refusal in a video game publishing agreement which we have seen in practice, so that you can recognise a similar clause in your own draft:
“Developer hereby grants Publisher the exclusive right of first refusal to publish any sequel, prequel, spin-off, downloadable content, or other derivative work based on the Game (“Future Game”). The commercial and financial terms for such Future Game shall be substantially identical to those contained in this Agreement, including without limitation the royalty structure, recoupment provisions, and revenue share percentages, unless otherwise agreed in writing. Developer shall notify Publisher in writing prior to offering any Future Game to a third party. If Publisher elects to exercise this right, the parties shall enter into a publishing agreement for the Future Game on the same terms as this Agreement. If Publisher declines or fails to respond within sixty (60) days of Developer’s notice, Developer shall be free to enter into an agreement with another publisher.”
Why rights of first refusal are problematic for developers
Generally, I would advise against a right of first refusal. When publishing a first title, it is still very unclear whether the game will be commercially successful. This is also reflected in the actual deal terms.
After the first game is released, it is easier to assess the appeal of the franchise, because there is already a game out there, which is being sold. In case the first game performed well, a publisher would like to publish the sequel against similar terms as the initial game. In case the first game performed poorly, a publisher will not exercise their right of first refusal, which means that the developer needs to find a different source of funding.
This puts a publisher at an unreasonable advantage and prevents the developer to freely negotiate better deal terms in case of a commercial success of the first game.
The right of last refusal
The right of last refusal allows the developer to negotiate freely with other publishers. However, once the developer receives an offer, they must disclose it to the original publisher. The original publisher then has the right to match the offer. In case they do, the developer is obliged to sign with them.
Key Differences:
Compared to first negotiation: Developer is free to shop around initially, which is not the case with the right of first negotiation (where you first need to negotiate with the current publisher)
Compared to first refusal: No predetermined terms, the market sets the deal, but the first publisher can match it. With a right of first refusal the terms are predetermined in the first publishing contract.
Example of a right of last refusal clause
Below is an example of a last refusal clause in a video game publishing agreement which we have seen in practice, so that you can recognize a similar clause in your own draft:
“If the Developer receives an offer from a third party to license the publishing and distribution rights to any derivative game, the Developer must promptly notify the Publisher in writing and share all deal terms of that offer. The Publisher then has fourteen (14) days from receipt of the deal terms to decide whether to accept the offer on the same conditions. The Developer may only accept the third-party offer if the Publisher rejects it or fails to respond within the fourteen (14) day period.”
Why rights of last refusal still limit developers
While less restrictive than a right of first refusal, a right of last refusal still limits the developer’s freedom. Even after finding a better offer, the developer may be forced to stay with the original publisher in case the original publisher matches this offer. This does not sound problematic, except in situations where the collaboration with the publisher was not to the developer’s satisfaction. Therefore it is important to include carve outs for these situations.
Exclusivity clause
An exclusivity clause prevents the developer from developing, announcing, or releasing derivative games within a specified timeframe.
Why include an exclusivity clause
The reason for including an exclusivity clause is to grant the first game a certain period of time during which it gets the full attention. This can be in the best interest of both parties. Announcing a sequel too soon after releasing a first game can actually cannibalize sales. However, from a developer’s perspective it is (also) important that no valuable time is lost or that the developer is not prevented from focusing on a new game which is very important for the future of the studio.
Example of the exclusivity clause in a publishing agreement
Below is an example of an exclusivity clause in a video game publishing agreement which we have seen in practice, so that you can recognize a similar clause in your own draft:
“Developer agrees that, for a period of twelve (12) months following the initial commercial release of the Game, Developer shall not develop, announce, market, or release any sequel, prequel, spin-off, or other video game that is substantially similar in theme, gameplay, or branding to the Game (“Derivative Game”) without Publisher’s prior written consent.”
Points of attention when negotiating an exclusivity clause
One of the most important safeguards is to remove any prohibition to develop any future game. In case a new game is not announced or released, this cannot cannibalize sales of the game that is already released. Any other interest of the publisher that the team is sufficiently available to fix bugs and develop features or DLC is already sufficiently covered by the Key Personnel clause.
Before you sign: summary and next steps
Future game clauses can limit a studio’s freedom if they’re too restrictive. Negotiating fair rights of negotiation, refusal, and exclusivity ensures publishers are protected without blocking developers from building sustainable franchises.