The publisher takes all the risk and other lies

A reply to my piece about “Why so many developers close their doors” explicitly contained one of the big myths about publisher-developer relations i.e. that the publisher takes all the risk.

I’d like to argue that actually it’s the developer that takes the highest risks and that a lot of publishers happily use the “we take all the risk” argument to squeeze developers into deals they shouldn’t be signing in the first place.

This is a big topic and I can write a book or two about it, so be aware that my arguments here miss nuance.

In classic deals, development is usually split up into multiple milestones and the developer gets paid for the work he’s done once a milestone is approved. It’s the publisher that does the approval, and the publisher typically has the right to terminate the contract if he’s not happy with the work done. (I’ll write about the abuse of this another time)

If unhappy the publisher typically has two options: Terminate the contract and take the parts that have been developed to another developer or terminate the contract and demand that the developer pay all the money back plus any potential damages.

In both cases, the publisher’s loss is lower than that of the developer – either he obtains all the development assets and can continue development elsewhere, either he recuperates his money from the developer. The developer, being reliant on the milestone payments for its payroll, usually goes under.

But surely, all the money pumped into promotion and cost of goods defines a big risk? Well, by the time the budgets for this part of a release are needed, in general the money is already earned back through minimum guarantees from distribution & retail partners. Most publishers don’t overextend themselves in that area.

I’m over-generalizing, but in a lot of cases break-even is already reached before a game hits the streets. Mind you, there are exceptions here, but you’d be surprised how often this break-even-before-release situation is part of the business plan.

If it looks like it might not be reached, you often see projects being terminated (and in more than one case through abuse of the milestone approval contract clauses)

The big risk for a publisher is that he invests in a product for which there’s no market, which happens, and here the poster has a point.

However, the unleashing of big promotional budgets for such products to the point that a publisher makes a large loss, is I think a rare occasion, and to blame in such a case are the sales & marketing departments not doing their jobs correctly – they should see this coming.

More than often however, the funding for such failures didn’t come from the publisher, but rather from investors. Other people’s money or OPM is one of the favorite statements of a well known and flamboyant industry figure, especially for risky projects.

Much more to be said about this, but it is Saturday night, so I’ll leave it for another time.

Ceterum censeo malignos editores esse delendos