[Gamesbriefers] How should you negotiate a kill clause?

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Question:

I recently got an anonymous question about “kill clauses”: in particular, publishers and/or IP holders retaining the right not to release a game. Kill clauses introduce a significant risk to the developer, who could lose their opportunity to make money from sales after the game has launched. They might not even be able to talk about the unpublished project, leaving a gaping hole in their portfolio.

Is there some way of mitigating that risk? Can developers ask for something in return for a kill clause? What would you consider to be appropriate?

Answers:

Anthony Pecorella Director of production for virtual goods games at Kongregate

Sure, there’s a great way to mitigate that risk: don’t sign any deals that have a kill clause. 🙂 I know, I know, it’s not always that simple, but not all publishers use such aggressive clause, so you may want to shop around a bit more first if that’s all you’re seeing. I can say this firmly for Kongregate’s mobile publishing, but by no means are we the only ones who don’t use such a clause in our contracts. That said, if a kill clause is going to be in place I would expect the publisher to be providing a pretty substantial royalty advance, licensing fee, or compensated development time (the latter in particular being closer to a work for hire arrangement, where indeed a kill clause would be more reasonable to have).

I don’t want to confuse a pre-release kill with eventually sunsetting or discontinuing a game though. If the game has been shown to not monetize well enough to justify expensive user acquisition costs then certainly it doesn’t make sense for the publisher to continue to throw money at it. But a good publisher should also go through a fair amount of iteration and new tests on live players before coming to that decision. As a developer, if I were worried about early termination post-launch, I would want some minimum guarantee of marketing dollars spent. It’ll likely be recoupable, but the important part is that it aligns interests and assures you that the publisher will take enough interest in the project to give themselves a good chance at recouping that spend successfully.

Eric Seufert Mentor at Gamefounders

If you don’t use kill clauses, what do you do when one of your published games doesn’t perform well in soft launch? Move forward with global launch with no marketing budget?

Emily Greer SVP Product, Marketing and Finance at Kongregate

I’ll jump in and answer this one for Anthony. In general we’re treating large paid UA budgets as something that is unlocked by good metrics and not expecting that all games will launch with extensive paid UA budgets. That’s not the only role of the publisher nor the only way to make a game successful. When we sign games we generally have them in two categories: games where we think we can make paid UA work, and games that we think we can make successful with a combo of app store features and promotion from Kongregate & Gamestop web & mobile. Now success is not necessarily going to be measured in the same way between the two categories — the games in the second category are generally smaller scale from smaller teams who don’t need or expect to see 8 figures of revenue on a game.

The other thing we are doing is being patient with the soft launch process. On the web we’ve seen games radically improve their metrics over time; if the core fun is there a good, dedicated team can bring the monetization, at least in genres that generally have strong monetization potential. Wherever possible we’re doing web soft launches on Kongregate, giving the team a chance to iterate rapidly and improve the game before we undertake an expensive mobile launch with slow approvals.

Our third game, a CCG called Blood Realm, ended up spending four months optimizing in first a closed then an open Beta on Kongregate before the mobile soft launch, and improved both the retention and monetization metrics substantially. We recently launched it globally on iOS and are successfully running paid UA campaigns, something that we might not have been able to do otherwise. Broader promotion is waiting on the Android version.

In general I think kill clauses are a sign that the publisher has a mentality that games and game developers are somewhat disposable. We see our relationships with developers and our reputation as crucial to our long-term success as a publisher. Now we’re not going to do anything that is not financially sound but in general we are trying to make every game a success on its own terms, and working to make sure that expectations, effort, and advances are in proportion to the scale of potential success.

Now some caveats: we’re early in our career as a publisher and we’ve yet to hit a game with unfixable metrics, which almost inevitably will happen at some point. We’re mitigating that particular risk by signing games only at beta stage or later. Games that are done as WFH or funded from concept are going to have a lower hit rate, and the calculations there are somewhat different as discussed. We’ve been harsher with our internal games, and shelved one that had a poor web launch rather than bringing it to mobile as planned. But that’s easier as the health of the studio was not affected. When we do face a situation where a launch might not be worth the effort we will work with the developer to figure out the best course of action for both parties rather than unilaterally killing the game.

Teut Weidemann Online Specialist at Ubisoft

I had kill clauses in my first world wide title back in 1996 with Psygnosis. Still some paragraphs gave the solution what happens if that clause was activated: We had the chance to sell the title to someone else but had to give a certain percentage back to the original publisher.
In case the game was finished and the publisher didn’t put it on the market for x months we could do the same.

Nothing special at that time, at least from good contracts. Things get more complicated if the publishers IP or tech is attached in the game.

Charles Chapman Director and Owner at First Touch Games Ltd.

I think it’s reasonable for contracts to have kill clauses if a publisher is effectively paying for WFH development on their IP, and every WFH project I’ve been involved with has had one. But it’s also perfectly reasonable for there the be consequences for early termination – for example a payment to the developer of the next milestone, or perhaps a pre-agreed number of months studio ‘burn rate’, purely to soften the blow. From my experience (albeit with only a couple of big publishers) it’s a fairly straight forward discussion on a contract being fair and reasonable.

Any compensation payment, however, can only ever really soften the blow though. 3 months burn rate might sound ok, but securing replacement projects can take much longer. Also if you’ve staffed up for a project and need to scale down again, then depending on team size and local employment law it could cost you much of that simply to let staff go fairly.

Regarding retaining the right not to release a game, again this is reasonable, but developers should see it as a possible outcome, and ensure that they’re making enough from advances to justify the project, or alternatively have some other mechanism in place to recover their investment.

Of course this is all very easy to say, but if a publisher is driving for the best commercial deal for them, and has multiple developer options, then in practice it can be difficult to negotiate. But still I’d say fight for it as you don’t really want to be working with a publisher who isn’t treating you fairly before you’ve even started.

Harry Holmwood CEO of Marvelous AQL Europe

I think in any case where a publisher is funding a developer to make a game, kill clauses are absolutely essential. The main reason for this is not to allow publishers to cancel projects on a whim or because they’ve changed their strategy (although that may be a side effect), it’s to allow them to deal with projects which are not progressing well, and show little chance of being improved.

These are often the kind of issues that can’t be dealt with solely via a set of milestones in a contract – it’s very easy for a game to meet a written specification and still lack the ‘magic’ that is the real difference between success and failure.

If the publisher’s role is limited to the marketing/user acquisition side, both sides should try to see the deal from the other’s perspective. Clearly, if a game has terrible retention or monetization, it would be nonsensical for a publisher to keep ploughing cash into marketing until those KPIs are improved. Conversely, I’ve heard horror stories from numerous developers where publishers just lose interest in their title as soon as the early KPIs disappoint – in some cases even ignoring the developer’s requests to publish a critical update for several months! The right outcome is for a contract to encourage both parties to work together to improve the metrics if they agree there is still scope for improvement, or to agree to stop supporting the project with both development and advertising spend if there’s no light at the end of the tunnel.

Oscar Clark Evangelist for Applifier.

This isn’t my area of expertise but it seems to me that there are better ways to handle the problem that Kill Clauses attempt to solve. The arguments made for them seem to revolve around the idea that the development process isn’t working out for some reason.

As Charles highlights where this is the IP of the Publisher then sure, the ability to close the game down is fairly obviously important. However, increasingly the IP involved is at least shared and increasingly retained by the developer and it seems to me at least that there is less upfront investment from the publisher (more marketing and support). So does it make sense to kill the game?

If the needs of the developer or the publisher have changed (or not been satisfied) isn’t it better to find a mutual way to let go rather than simply kill the game. A game I’ve recently been helping with has moved from Paid to F2P and that no longer suited the publisher. They graciously offered to hand back the rights allowing both parties to go their separate ways; no harm and no foul. This also means that should the developer have something more suitable for the Publisher; no bridges have been burnt on either side.

Jas Purewal Lawyer at Osborne Clarke

Back in the old days (<2008ish) of traditional console/PC games, kill clauses were pretty well understood: publishers would want them and developers would normally have to concede them, subject to the developer trying to claw back some concessions elsewhere based on their bargaining power. Example concessions a developer might seek include: the developer gets paid something (e.g. up to latest milestone or as a parting payment); the publisher ceases to be able to challenge any past payments; the developer and publisher negotiate to work on something else instead; the developer gets full IP ownership (rarely, but it happens). The list of negotiating points can get very long.

That still happens (especially in traditional console/PC) but I’d wager it happens a deal less than it used to, for a bunch of reasons. Traditional publishers are less likely to ask for traditional style kill clauses (possibly due to sustained and negative developer reactions). New publishers are even less likely. Developers are more savvy about negotiating them. Traditional clauses don’t work neatly for (f2p) console/PC games anyway (e.g. exactly how do you activate a kill clause when substantial value for the game and the developer’s support for it comes post-launch, a topic other Gamesbriefers talk about on this thread too).

Instead, we’re seeing a lot more fluidity in publishing/funding contracts (I say that deliberately: project funders as well as publishers are interested in this area). Some examples I’ve seen recently: (i) a tiered reduction in developer royalty share and/or in development funding if certain criteria aren’t met (but there is no actual kill clause); (ii) a series of consultations if either side feels the game isn’t developing according to plan, with an open-ended “good faith” obligation to try to negotiate a resolution; (iii) a publisher gets a kill clause but it simply means the developer potentially has to repay development funding made to date but otherwise retains all rights in the game.

TL;DR: kill clauses are still a part of games development/funding contracts, but they’re a lot more fluid than they used to be, to the advantage of publishers, funders and developers.

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