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Why so many developers close their doors

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Why so many developers close their doors

Editorial - posted by VentilatorOfDoom on Fri 9 December 2011, 10:18:53

Tags: Larian Studios

It looks like Larian Studio's Swen Vincke started his own blog "Lar's World". Here's a funny story giving some insight into the relationship between a small developer and a big publisher.

This post gets a bit technical, but if you ever need to deal with a publishing agreement, you need to be aware of the stuff that follows. Not enough developers are!
I told you about a friend developer who had a 50% royalty rate on a game that cost 2MUS$ to create and that sold over 500K units. I tried guessing how much money my friend developer received from the game. (Note that the numbers have been simplified for making my case and preventing identification of who I’m talking about, but the message stays the same.)
The game retailed at 49US$ so the price in wholesale must’ve been something around 39US$, meaning that on 100K units, 3.9MUS$ revenue would be generated.
Of those 3.9MUS$, the publisher could reasonably argue about 1.5MUS$ in costs, split over such esoteric goodies like sales cost, MDF, marketing, logistics, freight, first party royalty(it was a console title), dry goods & assembly.
That left 2,4MUS$ profit.
Since over 500K units were sold, in theory there was 12MUS$ in profit, but obviously some further price reductions needed to be taken into account, so let’s say they made 10MUS$ .
Of that 10MUS$, I guessed my developer friend should get 5MUS$, but since he signed what’s called an advance versus royalty deal, the 2MUS$ he received for development should be subtracted from the 5MUS$.
That meant he should get 3MUS$.
But he got nothing. After querying him, he told me that other than the development budget , all other the costs were also deductible from his royalties. (yeah, he’s not always very bright)
That meant that the 20MUS$ revenue from wholesale was split in two, and from my friends half, they took 9.5MUS$ (publishing costs+development cost), leaving him with 0,5MUS$. (and the publisher with 10MUS$ profit)
Checking with him again, I was startled to find that I was wrong again. My cost estimates were too low. He told me they were about double what I estimated. That meant 15MUS$ instead of 7,5MUS$.
I said that’s impossible, what do they use to ship their boxes, a limousine? You should audit them!
His answer: I don’t think we’ll find enough during an audit enough to cancel out all of the costs we’d need to cancel for me to get some money. Besides, I would risk my relation with the publisher and they promised me some work for hire. And to be honest, I can’t spare the cash for an audit  and everything that entails.
Knowing a thing or two about how it works at a publisher, you can be sure they didn’t spend 15MUS$ in costs, so they probably made more than 10MUS$ on this deal, whereas said developer ended up with zero and is now begging them for another deal.
Pretty sad if you ask me and unfortunately quite common. It’s one of the reasons so many developers end up closing down. He obviously is to blame for signing a bad contract whereas the publisher definitely is to blame for inflating costs.
This is btw a publisher that’s quite well known, and they actually market themselves to the public as being there for giving small developers a chance. Yeah, right.

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