Copyright, Contracts, and Practical Issues of Revenue Share Projects

There is a very common type of project you’ll regularly see if you browse certain game developer forums and subreddits. You’ll see a lot of posts recruiting for revenue share projects, or rev-share. These are games (or other artistic endeavors) that propose to recruit a team without paying them upfront, but instead, pay them by sharing the revenue earned later.

These could be an attempt to correct the perceived injustice of developers not benefiting from a game’s success, such as the case of Fallout: New Vegas developer Obsidian, who missed out on a large bonus because the game’s metacritic rating was lower than a target number. There are also some indie studios that seem to be pushing back against these ideas like Dead Cells developer Motion Twin, which is entirely owned and managed by its workers.

Obsidian Entertainment needed Fallout: New Vegas to get an 85 on Metacritic to get a bonus from its publisher Bethesda Softworks. Oof.

However, it’s more often the case that the person recruiting for the project (who is all too often themselves an inexperienced developer who is missing a particular skillset necessary to game development) simply does not have the funds to pay potential collaborators. They believe that their game will make tons of money, they just don’t have that money yet.

If you know anything about the law, contracts, intellectual property, or game development business, such an arrangement should be setting off some red flags in your head. Let’s talk about some of the practical issues of revenue share projects.

The Appeal of Revenue Sharing

Revenue sharing sounds tempting. Video games are expensive to make. You usually don’t make any money until the project is done and sales begin. Why not just push the costs to that future where you’re raking in sales? Instead of budgeting or raising money through a platform like Kickstarter, you could just dole out a cut of your hypothetical 100% revenue to each collaborator. Not only that, but this would seem to incentivize collaborators to contribute to the success of the game, and they stand to make significantly more money than if they were paid a flat fee for their services. 

However, there are lots of legal and business issues that such a model presents. There are contract issues that most people won’t consider when starting a project of this nature which can often lead to copyright issues in the finished work.

In addition, there are practical issues such as how money will be paid out and how the finished product will be marketed. Steam and other platforms have no mechanisms in place to split revenue among multiple people, nor would they want to get involved in the disputes between parties.

The Contract Issues of Revenue Share Projects

Rule number one of collaborating with other people, especially on a commercial product, is to get everything in writing! Most revenue share idealists don’t think to get a well-written contract with everyone in the group, or want to avoid paying a lawyer to write one. Remember, a lot of revenue share projects start because there’s no money to pay collaborators, much less a lawyer for a good contract. This can create serious issues down the line when a commercial game is created and money is coming in, or even when a game is just released for free and there is some sort of dispute.

The most obvious issue that can come up is disputes about what is owed and how it’s calculated. While people may think they have an understanding of what’s required and what the deal is, this can quickly fall apart.

While such an agreement seems straightforward, ask yourself some questions. How is the revenue that is supposed to be split calculated, is it gross revenue or net revenue? If it is net revenue, what is deducted from that number? When is it to be paid? Who gets the money before it is eventually split? How do you even know if they’re being honest about the revenue? What about sales of DLC, sequels, or merchandise? How is any of that going to be taxed?

This all assumes that the project went through without any problems. How is the money to be earned, especially in cases where somebody starts work on a project on the promise of a share of the revenue, but leaves the project before it is finished? What do they get paid? Even if you have an answer to all of those questions, how will you legally enforce any of it?

These are all questions that a well-drafted contract can address. While it may seem like legal junk to keep lawyers employed and busy, the reality is that excitement to start working on something without first having a contract can often create problems when both parties don’t have the same understanding of the terms of the deal. It also ensures that there is a legal mechanism of enforcement.

A lot of these considerations – even ones as basic as what percentage of the game’s revenue to allocate or the structure through which that revenue is paid to collaborators- have no industry standard. This means there is little frame of reference for what should be offered or how, so the odds are that one party or the other (usually the contributors to a project working for a share of the revenue rather than the lead) end up getting the short end of the stick.

A good contract should also address when the revenue share agreement should terminate, as it is not possible or practical to keep paying revenue shares forever.

Working together on a game? Get it in writing!

Of course, if everyone is totally honest with everything they’re doing, then problems should be minimal. However, revenue share asks collaborators to work for a project lead for a long period of time in exchange for a promise of future revenue. It’s a lot to ask on the promise of “trust me”. If you don’t have a contract, it will be very difficult to enforce that promise against someone. 

There are a lot of contract issues that can come up with a revenue share model that are significantly more complex than other models of payment. Especially if you’re a collaborator working for the promise of future revenue, make sure you have a contract!

Copyright Issues of Revenue Share Projects

Revenue share projects can also create copyright issues if not properly addressed. Who owns the copyright in a revenue share project? Intellectual property issues like who owns the rights to the game and its components and how those rights will be shared among collaborators are somewhat more complex in a collaborative work.

The copyright to a creative work like a video game is owned by its creator. If multiple people collaborate on the work, it is called a “joint work”. This means that each collaborator owns the copyright individually, and can exercise any right to exploit the work. For example, it is possible that any contributor to your game could sell the game independently from your sales. In general, this is not a good place for a game to be in, especially if using a revenue share model where revenue to be split comes from sales.

On the other hand, a contract can specify that the work to be done on the game is a work made for hire, allowing the copyright in the finished game to be held by a single person. This is far preferable for a game that is planning on being sold by a single entity.

It is important that the copyright in the finished work- as well as each individual part of the finished game – is held by the correct party, usually the person or company who will be selling the game like the project lead or publisher. A contract that clearly states that the work done for the project is a work made for hire can help to ensure that copyright issues are taken care of, but it requires that such a contract exists.

In the absence of a contract, the entire game’s copyright is likely considered a joint work, and every person who collaborated on it is individually at least partially an owner. It is important that any aspiring developers work with legal counsel to make sure that all intellectual property rights in each component of the game are assigned to the right parties and are properly protected.

Why Revenue Share Projects Tend to Fail- Some Practical Issues

While these issues illustrated here are only a few of the issues that are unique to a revenue share project, they help illustrate why revenue share projects tend to not get anywhere. There are many contract and copyright issues that need to be overcome, assuming there are even proper contracts to begin with. Such projects have to be structured properly in terms of business legality.

The promise of shared revenue is too often used as a crutch for inexperienced project leads who don’t have the funds necessary to pay their collaborators. As such, the scope of a project that needs a revenue share model to get started is often far bigger than can reasonably be accomplished in the time that collaborators can work on it without getting paid. 

Revenue share also puts the burden of risk unduly on collaborators. If the project fails or fails to sell as well as expected, then collaborators are left having done a lot of work without getting paid. Usually, people collaborating on a project have skills that otherwise could have been spent on projects where they would have been paid for their services.

On a practical level, even if your game can get every piece together to be made, the creation of the game is only half of the story. You still need to market the game. Marketing is a task that is often overlooked for these sorts of projects. You have got artists, musicians, programmers, designers, and everything you could need to make the game, but who will market the finished game?

Marketing is a skill that people develop and learn just like programming, art, and sound. However, it is a skill that most people won’t do for fun or as a hobby, even in exchange for a share of revenue on the side like art or code. There aren’t exactly game jams people do for fun in marketing.

Most revenue share projects only consider the creation of the game, not the entire campaign of sales after that. The promise of a share of the money made from sales can be pretty meaningless if there’s no marketing plan for sales.

Revenue Share is Probably Not Right for Your Game

Revenue share sounds very appealing on the surface. Being able to make a game by paying money as it comes in after sales seems to solve a lot of the financial burden of making a game. However, there are many legal and business issues to consider, and if not properly addressed can create bigger problems in the future. 

The issues addressed here are only a few of the potential issues, there are far more potential issues that can arise unique to a revenue share based project. Revenue share isn’t for every project, and if you can avoid relying on it your game will be better set up for success from the start in almost every scenario. Artists deserve to be paid for their talent and work, so you should be wary about placing the entire financial risk on them in the form of a promise of future money. 

There are cases where revenue share projects can work, like a very small group of collaborators or friends making something for the sake of making something and haven’t thought about selling it until the end, rather than with the intent of making a business out of it. There are also cases where an independent contractor could be paid with a share of the game’s revenue in addition to being paid for their services, or even where an artist might get a cut of sales from a specific portion of the game’s revenues, such as sales of a game’s soundtrack or art collections. In general though, revenue share is best avoided.

However, even in these situations, proper legal and business structures should be put in place, no matter how much you trust your friends at the start of the project. Work with a lawyer to avoid problems before they start.