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Wednesday, February 28, 2007

Dan Marchant's mythical developer royalty

Dan Marchant (Obscure) presents his formulae for getting a developer royalty (read - never !)

The myth of the developer royalty

Pop quiz - Your game costs $1 million to develop (funded by the publisher in the form of an advance against royalties).

Your publisher gets $10 (net sales) for every copy of your game they sell.
You (the developer) get 15% of net sales.
If your game sells 500,000 units how much money do you get in royalties?

The math is simple. 15% of $10, multiplied by 500,000 equals zero.
It goes on here.

Dan explains the reason most developers miss the boat when it comes to royalties and repayments in a clear and quite detailed manner.

So what’s the solution Dan?
There are various options but the simplest is to build 20% profit into your development costs and manage your project properly.

But this is why most publishers try and knock 20% off the price, as they want you to only break even.

and the most sensible advice of all...
Ensure that if the publisher requires changes that they pay for them and that you don’t spend your profit making the game better in the hope of making more in royalties.

Yes, it is possible for a game to sell millions of units and for the developer to make millions, even under a recoupment deal - but how many games are released each year (in excess of 3,000) and how many make the huge numbers (one, maybe two)? You need to run your company on the assumption that it will conform to the rule and not in the hope that it will be the exception.

You need to make your game based on a plan that will generate real profit, not mythical royalties.

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