A game-publishing agreement is four linked negotiations, not one royalty percentage: who finances development and launch, who owns or licenses the intellectual property, who controls publishing work, and how sales income is calculated and divided. A developer can keep its IP while a publisher finances the project, or surrender broad rights for funding and services. The practical result depends on milestone conditions, recoupable costs, revenue definitions, audit rights, and termination terms as much as on the headline split.
What a publishing deal actually allocates
Every offer should be read as a package of separate allocations. Treating it as a single percentage hides the decisions that determine cash flow and long-term control.
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| Allocation | Questions the contract must answer |
|---|---|
| Funding | Who pays development, salaries, quality assurance, localization, ports, marketing, user acquisition, ratings, launch and post-launch support? Are payments advances, fees, or reimbursable expenses? |
| Rights | Who owns the copyright and franchise? What license covers platforms, territories, languages, sequels, downloadable content, adaptations and merchandise, and for how long? |
| Responsibilities | Who controls production approvals, pricing, discounts, storefront accounts, marketing, localization, quality assurance, release timing and customer support? |
| Waterfall | Which receipts and deductions are counted, when the publisher recovers money, and when the developer receives a share? |
These allocations interact. A publisher accepting all development risk may request broader rights or a longer exclusive term. A developer that contributes cash, a finished build or an established franchise can often seek more control or an earlier royalty share. There is no reliable universal percentage that can be separated from those facts.
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Advances and milestone payments
Most funded projects pay the developer in installments tied to an approved budget and delivery milestones. A payment may cover staff costs, an external studio, a specific build, certification or launch preparation. The agreement should state the acceptance criteria, review period, rejection reasons and cure period for every milestone. Without those details, a publisher can have practical discretion to delay a payment even while the team continues spending.
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Ask whether the commitment is a firm budget or merely a ceiling. Some contracts let the publisher stop funding after a failed milestone, change the scope, or require the developer to finish with existing money. Specify what happens to employees, contractors, source materials and unfinished work if a payment is withheld.
What “funded” includes
Funding language should identify each cost category rather than promise to fund “development” generally. Confirm treatment of:
- development salaries, contractor fees, equipment and software;
- quality assurance, compliance testing and platform certification;
- localization, voice recording, accessibility and ratings;
- ports, patches, downloadable content and post-launch support;
- marketing, public relations, community management and user acquisition;
- manufacturing, physical distribution, payment processing and customer-service costs.
Epic Games Publishing announced in 2020 that it would cover up to 100% of development costs, including developer salaries, quality assurance, localization, marketing and other publishing costs. That is a description of that publisher’s announced model, not a market-wide promise. The contract still determines which expenses are approved and how they are recovered.
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Advance, fee or recoupable cost?
Labels are less important than the accounting treatment. An advance is normally paid against future royalties. A production fee may be the developer’s compensation for making the game. A recoupable expense is entered into the publisher’s recovery account. One payment can be treated as more than one of these, so the definitions and the waterfall must be read together.
Who owns the game and franchise?
Developer-owned IP with a publishing license
The developer keeps copyright and the franchise, then grants an exclusive license for a defined scope. The license should identify each platform, territory, language, edition and storefront, plus its start date, end date and renewal conditions. It should also say whether the publisher may sublicense or assign the license and what happens if the publisher stops selling the game.
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Publisher-owned IP
An assignment transfers ownership of the game or franchise to the publisher. It may be paired with financing, a production arrangement or work-for-hire language. Ownership can cover more than the shipped title: characters, names, source code, tools created specifically for the project, sequel concepts and derivative works. If the developer is giving up those rights, the consideration and approval rights should be explicit.
Third-party franchise
When a developer works with an existing franchise, the original owner usually retains the underlying IP. The publisher and developer receive narrower rights to make and distribute the particular game. The developer should verify that its agreement permits every asset, character, music track and technology it plans to deliver, and should understand which approvals belong to the licensor rather than the publisher.
Rights that are easy to overlook
“We keep the IP” is incomplete unless the agreement also covers:
- sequels, remakes, expansions, downloadable content and spin-offs;
- film, television, animation, books, comics, merchandise, soundtrack and other ancillary rights;
- territory, language, platform, cloud, subscription and bundle rights;
- assignment, sublicensing, change of control and financing liens;
- term, renewal, termination and automatic rights reversion;
- source code, build files, development accounts, storefront accounts, customer data and community channels after termination.
A game combines code, art, animation, video, music, writing and third-party assets that may have different owners. Written assignments or licenses from employees, contractors and vendors are needed before the developer can grant a publisher a clean package of rights.
How the royalty waterfall determines the payout
The usual sequence is:
- sales generate gross receipts;
- platform fees, taxes, refunds, chargebacks and other agreed sales deductions are removed;
- the contract’s definition of net revenue is applied;
- eligible advances and recoupable costs are recovered;
- the remaining amount is divided according to the royalty formula.
Every term in that sequence is negotiable. “Net revenue” can deduct platform commissions, taxes, refunds, chargebacks, manufacturing, localization, ports, marketing, user acquisition, payment processing, currency conversion, interest, internal services and advances. A contract may limit some categories, exclude others or allow cross-collateralization between products. Never assume that a cost is included or excluded because another publisher uses a similar phrase.
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Recoupment examples
The Canadian Intellectual Property Office describes an illustrative structure in which the publisher takes 80% or 90% of revenue until its initial investment is recovered, then the parties split the balance under an agreed formula. Those percentages illustrate one recoupment design; they are not a universal standard.
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A simple hypothetical waterfall
Consider a contract that defines $1,000,000 in gross sales, $300,000 in platform fees and taxes, and $400,000 in approved recoupable costs. Net receipts are $700,000. The publisher first recovers the $400,000, leaving $300,000 for the negotiated royalty split. At a 50/50 post-recoupment split, each party receives $150,000 from that remainder; the developer has not received half of gross sales. Change the deductions, add uncapped marketing or allow interest, and the result changes before the percentage is applied.
Remedy Entertainment states on its official business-model information page: “Publisher has the right for game sale revenue, whereas Remedy has a royalty opportunity.” That wording illustrates why the trigger and accounting definitions matter more than a percentage shown without its conditions.
Common deal models
| Model | Who finances and operates | Typical rights and economics | Main trade-off |
|---|---|---|---|
| Self-publishing | The developer funds development and handles marketing, platform relationships, localization, quality assurance and release. | The developer retains control and receives sales after sales-related taxes and discounts, with platform fees, quality assurance and localization treated as expenses. | Highest potential upside and control, but the developer carries the financial and operational risk. |
| Co-publishing | Developer and publisher share financing, publishing, distribution and marketing duties. | Royalty potential commonly reflects the parties’ financing contributions, subject to the agreed waterfall. | Can preserve more upside, but only if responsibility boundaries, spending authority and reporting are precise. |
| Publisher-funded own-franchise project | Publisher funds some or all development; developer makes a game based on its own IP. | Developer retains the IP, receives milestone development fees and has a royalty opportunity after agreed costs are recouped. Publisher handles publishing, distribution and marketing. | Funding without an IP assignment, balanced against recoupment and publisher control over launch decisions. |
| Partner-franchise development | Developer builds a game using a publisher’s or licensor’s existing franchise. | Partner generally retains the IP and controls publishing, distribution and marketing. Developer receives development fees and may receive a success-based royalty after recoupment. | Less franchise ownership and long-term upside, but access to an established property and funded production. |
Why there is no standard royalty split
A fair outcome depends on the risk and value each side contributes. Compare offers on the following axes rather than ranking percentages alone:
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- Funding risk: Is the publisher paying for the remaining production budget, only launch marketing or the entire project?
- Project stage: Is this an early concept, a nearly finished title or a proven franchise?
- Services: Who supplies quality assurance, localization, ports, platform negotiations, user acquisition, community support and post-launch operations?
- IP control: Is the developer retaining ownership, granting a time-limited license or assigning the franchise?
- Recoupment: Does recovery come from total net revenue, only the publisher’s share, or a capped expense pool?
- Scope: Which platforms, territories, languages, editions, downloadable content, sequels and ancillary rights are included?
- Downside protection: What happens if the publisher misses launch commitments, stops funding, fails to release or becomes insolvent?
Authoritative public sources do not establish one current industry-wide benchmark for advances or royalty percentages. A quoted split should therefore be tied to a named deal or clearly labeled illustration, not presented as “the standard.”
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Budget, milestones and acceptance
Attach an approved budget and payment schedule. Define deliverables, objective acceptance tests, review deadlines, cure periods and the effect of a rejected milestone. State whether a publisher can reduce scope, suspend payments or terminate after a missed milestone, and give the developer a remedy if the publisher fails to pay.
Recoupable-cost controls
Prefer a closed list of recoverable costs. Address marketing caps, internal overhead, interest, third-party fees, ports, downloadable content, bundles, refunds and chargebacks. Prohibit cross-collateralization against unrelated games unless it is an intentional, negotiated trade. Require prior approval for material spending outside the budget.
Revenue definitions and royalty triggers
Define gross receipts, net receipts, platform fees, taxes, refunds, currencies, territories, platforms and subscription revenue. Specify whether the developer shares before recoupment, only after complete recoupment, or from the publisher’s share while the publisher recovers its investment. State payment dates and the currency and exchange rate used.
Accounting and audit
Require periodic statements broken out by platform and territory, supporting records and prompt payment. Set a reasonable audit window, permit an independent accountant to inspect records, and provide interest, reimbursement and correction rights for underpayments. An attractive royalty is unusable if the developer cannot verify the account.
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Control and approvals
List who approves creative changes, price, discounts, release date, storefront copy, localization, ports, marketing campaigns and age ratings. Identify the owner of storefront and advertising accounts, and require access or transfer on termination. A publisher’s operational role should not silently become unlimited creative control.
Termination and reversion
Cover failure to fund, failure to release by a long-stop date, insolvency, material breach and repeated milestone failure. Specify sell-off periods, delivery of source code and builds, transfer of storefront pages and customer communications, repayment treatment, and automatic return of IP and licenses. Broad sequel or derivative options should expire or be exercised within stated deadlines.
A practical way to compare an offer
- Map the cash. Write every payment, date, condition and approved cost in one schedule. Mark which amounts are recoupable and whether the publisher can add costs unilaterally.
- Map the rights. Highlight ownership, exclusivity, term, territory, platforms, sublicensing, sequels, downloadable content and ancillary rights. Separate rights needed to launch this game from optional rights for future projects.
- Rebuild the waterfall. Use the contract’s definitions to model weak, expected and strong sales. Include platform deductions, taxes, refunds, marketing, ports, interest and currency conversion exactly as written.
- Map control. List every approval, account and operational duty. Assign a decision owner and a deadline for responses so silence cannot block production.
- Test failure scenarios. Ask what happens if a milestone is rejected, the budget runs out, the publisher never launches, a platform declines certification or the publisher becomes insolvent.
- Price the rights being surrendered. Compare a license limited by term and scope with an assignment covering sequels, adaptations and merchandise. A higher advance may not compensate for permanent loss of a successful franchise.
Protect the developer before negotiations close
Prepare a chain-of-title file containing employee agreements, contractor assignments, music and asset licenses, open-source notices, trademark searches and permissions for any third-party technology. A publisher can delay or refuse a deal when ownership is uncertain.
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Keep the commercial proposal and the long-form agreement aligned. A pitch deck promising a sequel option, marketing commitment or royalty floor has little value if the signed definitions omit it. Obtain specialist legal review before signing, particularly when the agreement assigns IP, grants broad sublicensing rights, permits uncapped recoupment or gives indefinite sequel and derivative rights.
For deeper treatment of contracts, intellectual property and royalties, developers can consult the World Intellectual Property Organization publication Mastering the Game: Business and Legal Issues for Video Game Developers.
The decision in one sentence
Choose the deal whose funding commitment, rights scope, control provisions and auditable waterfall match the risk you are willing to carry; judge the royalty percentage only after calculating what reaches it and what remains yours when the relationship ends.
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