One of the most asked questions by developers is what the red flags are in video game publishing agreements. This is a difficult question to answer in general, because red flags depend heavily on the context of the video game and the specific deal.
In our experience, the biggest risks usually do not come from a single clause. Instead, they arise from how multiple clauses interact with each other. When combined in the wrong way, otherwise common provisions can create harmful loopholes that place developers in a very vulnerable position.
An article about red flags that only concludes with “it depends” would not be very insightful. That is why we still want to share a few situations we have come across in our careers.
Please note that the examples below describe relatively extreme situations and are not representative of how most video game publishers operate. In our experience, the majority of publishers are as hardworking and passionate as developers, and certainly not “evil”.
Termination for convenience combined with an obligation to repay development funding
Some video game publishing agreements include a termination for convenience clause. This means that a publisher can terminate the agreement at any time and for any reason.
In most publishing agreements, this is balanced by compensation for the developer. For example, if the publisher terminates the agreement for convenience, they may still be required to pay one or more upcoming milestones. This gives the developer some financial breathing room to survive and potentially find a new publisher.
On its own, this is not unusual.
However, we have seen publishing agreements that combine a termination for convenience with an obligation for the developer to repay all funding already provided when the contract is terminated. This creates a severe financial crisis for a developer.
In that situation, the developer not only loses future funding, but must also repay money that has likely already been spent on development. At the same time, the are forced to look for a new publisher or investor to complete the game.
The result is a worst-case scenario: the developer loses funding, faces immediate debt, and must scramble for new financing just to keep the project alive.
Termination for convenience combined with a transfer of intellectual property rights
While we have not seen this exact combination of clauses in a single publishing agreement, we have encountered situations where this outcome arose over the course of development.
We advised a developer who had entered into a publishing agreement that included a termination for convenience clause. During development, the developer failed to meet several milestones, and the publisher expressed concerns about progress.
To address this, the publisher provided additional funding. In return, the publisher requested the transfer of the intellectual property rights to the game.
Individually, neither a termination for convenience nor a publisher acquiring the intellectual property rights is particularly uncommon. However, in this case, the combination led to a very exploitative situation.
Shortly after the transfer of intellectual property rights, the publisher lost confidence in the developer and terminated the publishing agreement for convenience. Because the publisher owned the intellectual property rights, they could continue without the developer. The developer was left empty-handed.
A perpetual exclusive license combined with a publisher who does not commit
As a general rule, we do are cautious about perpetual exclusive licenses. Such licenses give a publisher an exclusive license to publish a game indefinitely.
Whether this puts a developer in a good or bad position largely depends on the obligations imposed on the publisher under the agreement.
One of the most problematic situations arises when a perpetual exclusive license is combined with a clause stating that the publisher has no obligation to (continue to) publish the game.
This creates a contractual deadlock. The developer cannot publish the game themselves due to exclusivity, while the publisher has no duty to publish it either. Because the exclusivity license is everlasting, the game can effectively disappear into a contractual black hole.
How to navigate red flags
he examples above show that red flags don’t always come from obvious “bad” clauses. Instead, they often emerge from the interaction between multiple provisions.
Practical tips for developers:
- Look at combinations, not just single clauses. Even a “standard” clause can become problematic when paired with another.
- Ask “what if?” questions. Consider worst-case scenarios such as termination, poor sales, or publisher inaction, and assess whether the contract protects you.
- Pay particular attention to repayment obligations, intellectual property transfers and license terms. These are common risk areas.
- Engage a video game lawyer.
Before you sign: summary and next steps
Because red flags often only become visible when clauses interact, having a publishing agreement reviewed as a whole can help identify risks that are easy to miss when reading it yourself. If you want to be sure your contract does not contain these kinds of hidden pitfalls, getting input from a lawyer who regularly reviews video game publishing agreements can provide valuable peace of mind.
If you’re wondering whether that is financially feasible, you may also want to read more about what it typically costs to have a video game publishing agreement reviewed by a lawyer.