I got another publisher's interest in Betty's Beer Bar. However, their royalty seems to be low :

22% of the gross sale of the games distributed through Company, less any amounts paid for taxes, refunds, returns, bandwidth costs, and contested credit transactions.

Refunds and returns seem to be normal, but bandwidth costs and taxes? I'm confused by the term "gross sales"... that's what they actually charge, right?

Is there any chance for a small and unknown indie like us to negotiate this terms with a big publisher, or it's take-it-or-leave-it usually? What's your experience?

22% of gross is 22% of the total price they sell it for, less costs stated.

Lets say they sell it for 10 dollars, you get 2.22 dollars and then they start taking costs out of it.

Uh, there is always room for negotiation... but it is important to note that by the sound of it, you are paying for 100% of the costs (im no lawyer, but thats how I read it). So you get 22% but pay 100% of the costs (taxes, refunds/returns, bw, and transaction fees.)

That could work out badly if I read that right... but get another opinion beyond mine! (preferably from someone with a legal background)

Joseph Lieberman

I agree, this seems like a very poor deal. All of their costs are deducted from your share, so they get 78% and it is all profit.

They are taking zero risk (the game is finished), they are making zero investment, they incure zero costs (all deducted from your share) and yet they get 78%. Unless they are spending a lot on marketing I would expect a minimum 50/50 split and they pay their own costs. These guys are basically just distributing your game for you.

I would also suggest you go to their site, find some of the developers whose games they have published and email them to ask what they think of the publisher.

For that kind of deal you can only hope that they have a huge pool of potential customers to offer you... they obviously think they're pretty hot stuff to make a deal like that. Or, they have mistaken you for scum...

22% of the gross sale of the games distributed through Company, less any amounts paid for taxes, refunds, returns, bandwidth costs, and contested credit transactions.

22% of gross does not seem too low to me, as many contracts would be for 22% of net, which means all of the publisher's costs are taken out first. It is not as good as pure gross, since the listed costs are taken out first, but still better than net.

It is not clear to me if they are taking out the listed costs from gross sales or from your 22%. If they are going to take them out of your 22% then you are going to be paying 100% of those costs. If true, this seems to be an unfair arrangement since they have some control over these costs and you have none.

If the publisher is letting you retain ownership of your intellectual property then that is good for you and a consideration for the value of the contract. My understanding is that many retail publishers take ownership of this.

In general, a "small and unknown indie" has nearly no negotiaing power with a big publisher. You basically have the strength of their desire to publish the product being negotiated. If you can gauge that it would help you determine how much negotiating room you have.

Percentage contracts get confusing because it is not always clear what the percentage is a percentage of. Although not always possible to negotiate, a fixed dollar amount for each copy sold (and not returned) is much easier to understand.

You may also want to make sure you have the cabability to audit the publisher in the future to make sure they are reporting the correct number of sales to you. This is not to say that a publisher will try to cheat you, this is to say that everyone can make unintentional mistakes and without audit power you will never know.

Of course, the most important thing you can do if you want to better understand or alter a contract is to consult an attorney. Never rely on the other party in a contract (the publisher) or their attorney to clarify contract details.

I am not an attorney myself, these are just nuggets of wisdom I have picked up in my years of being a business owner. They are pessimistic views because I have found that a pessimistic, selfish point of view is the best way to read contract details. That is certainly how you will want your attorney to view them.

-Tom

Normally the cost of goods sold is deducted from the gross price and THEN the percentage is calculated. If it's unclear in their contract you have to clear it up. But be cautious because if they're not honest they can use COGS to screw you over by deducting more than you're expecting and more than they're actually paying. You want to make any deductions extra clear. Generally speaking you probably want to make sure that the COGS are not paid to a subsidiary company of theirs as well. For instance I could have a contract that states transaction fees will be deducted and then form a company and get a merchant account and have the sub company charge twilight a high processing fee and pocket the difference and still be within the terms of the contract.

A few things I would do if I were you...

1) Ask how many they intend to print and sell as a minimum

2) Ask for half of the minimum sales estimate up front. So if they say they will print and sell at least 10,000 units then ask for the royalties for 5k units up front. If they say no to this strongly consider backing out. If they're really serious about the estimates they're giving you this should be no problem. If it is it either indicates they're unsure of their own estimates, or they're dishonest, or they're financially unstable. There might be other reasons but it's a bad sign. If they're saying they can do X sales at a MINIMUM why not up front half their worse case scenario cost? What have they got to lose?

3) Try to add a lame duck clause into the contract whereby if they don't meet certain minimums you can cancel and get out. You don't want to get locked into a 5 yr contract where they just end up sitting on it and doing nothing and then all the other opportunities pass you by.

Thanks for your replies so far. Just to clarify, I never said "retail".

UPDATE : It wasn't that bad :
out of the gross price of $19.95 the transaction company clears 7%. We then deduct the hosting fee (about 2%), so we're left with approximately $18 or so. Then, you get 22% of that sum (about $4), and we take care of the rest (channel's fee, which is anywhere from 35% to 50% of the gross, and all other expanses).

That still sounds like an appallingly bad deal. I wouldn't even reply to someone offering terms like that. I've got far better tgerms than that from fairly big online publishers.
Don't do it.

With all due respect to cliff: Never listen to anyone who tells you to do or not to do anything. The only person here with all the information is you. Use advice to help you think about things from different angles and make an informed decision from that.

Sorry cliff, I just hate to see someone say do or do not without knowing every single detail :-)

Joe

No probs ;)

if the negociation is still open there is not Yes or No to any deal...
If it's seem that's a bad deal, he can ask for more (with argument).

Boy... sounds pretty darn familiar, bet know the publisher :-)

Is the publisher going to market it directly or via 3rd parties? If direct it's not good. If 3rd parties then is decent. I'm guessing this is online and not store shelf related? Figure most 3rd parties take various processing fees right off the top then take their approx 50%, the publisher approx 25%, and you get leftover 25% give or take.

I'd make sure that "processing fees" and what the % is of and other various factors are well defined. Also set reasonable caps in place for undefined things such as processing. Cliff's idea of lame duck clause is also great idea.

I've seen better deals than this one, even for online-only publishing. But they were exclusive rights :)

The question is: it's retail or online distribution? (or both)?

If it is retail, I'd go with them for sure: they reach a different target of people.
If it is online, think twice about it and make some calculations. You can sell it online on your own, if it is a game with good known CR, you only need to make some more marketing.
I know your point of view ("I want to make games, not marketing"), but if spending 1 day a week in marketing can bring you 50% more revenues... ;)

Good input Jack. By "online only" it sounds like you are referring to a publisher that tries to get it on 3rd party sites?

For online publishing, seems the real big sites such as yahoo games, msn zone, etc. are only interested in dealing with bigger publishers with many titles or guys like popcap. Is that true? If so would it not make sense to do a deal for such large potential exposure? Here "potential" is the keyword where the lame duck clause becomes important.

Hope nobody minds me asking, what are some of the better % can see under such a publishing arrangement with exclusive terms?

For "online only" I mean that the publisher had a big portal site and was going to sell through it (mainly).

I won't make his name, but he offered me even 50% royalties (gross, so I had to deduct expenses) for exclusive rights of USM, BUT it wasn't a official offer, he was just making examples when USM was still at beta stage.

So it's not much indicative :p

For online publishing, seems the real big sites such as yahoo games, msn zone, etc. are only interested in dealing with bigger publishers with many titles or guys like popcap.

If they have any sense, they would be interested in whatever product they feel would be most profitable to them, regardless of who developed it.

Originally posted by Anthony Flack
If they have any sense, they would be interested in whatever product they feel would be most profitable to them, regardless of who developed it.

I think this is how it is. They're interested in whatever they think will sell. However there is a proviso. Someone like popcap has had several top 10 hits and it's not always so easy for the guys at Real to determine whether something will catch on or not. I'm sure a few games that they thought would do really well didn't and a few games they weren't too sure of ended up being hits. What popcap brings to the equation is a good track record. They're a better risk. Also some of these bigger companies might even have x title contracts where they pre-negotiated that real or whomever would guarantee to publish 12 games from them in 2 years or somethign like that. I suspect the deal Real made with sega was along those lines.

I have the same impression as svero. So we finally agreed on a fixed amount per copy sold, no matter where is the game sold (their site or Real/Shockwave/Yahoo/MSN...). It's a lower fixed amount than what we get through other publishers, but they will make it up in volume if the game gets in the big channels.

Ah, so they're acting like a licensing partner.
You sell them the right to re-sell the game to various 3rd party channel or portals.

Well, it could work :)

Originally posted by Jack_Norton
Ah, so they're acting like a licensing partner.
They are also acting as a licensing partner. They do have direct sales, and they are the exclusive providers of games for some channels; and they negotiate with the Big Distributors. That's the main value, I'd say.

Does the company have a name :-)?

Terin (Or did I just miss that in a previous post)

Thanks Jack. Correct, I've found 50% is pretty normal and fair if no 3rd party involved. Worst (and almost funniest) I ever saw was a site within a large network of sites offering just 20% from his site, no 3rd party. Trick was all sales had to process through their sales handling side of network of sites which took 50% then he wanted 30%.