I am an avid and frequent reader of GamesIndustry.biz, and I recently read this great article, How Vampire Survivors became Vampire Crawlers: Six lessons from building a game based on another developer's IP, written by Nosebleed Interactive's CEO and Creative Director, Andreas Firnigl.

As a lawyer who frequently works with game developers, it is an insightful read, and it inspired me to write down some thoughts from the legal side of licensed games (i.e., games that are based on an existing property). In my work, one of my favorite activities is negotiating these complex rights deals, and I feel like I learn new lessons with each negotiation.

Know What’s Licensed

This seems obvious, but large franchises can have a mix of rightsholders, particularly where the works originated in one medium (such as books) and have since been exploited in other media (like film, tv shows, etc.). It is important for developers to understand what they have the rights to. Intellectual property often does not come as one expansive package deal. 

For example, a developer licensing the underlying intellectual property of a large film franchise would almost certainly not get the rights to depict the actors who appeared in those roles. This is also often true for any music in the films. Intellectual property will often be diced up and defined separately, meaning that developers may need to go get licenses to other aspects of what might seem initially like one cohesive property. 

Align Expectations Early

Licensing an existing IP into a game usually means you have different players at the table. Said plainly, not everyone will have the same level of familiarity with video games. A rightsholder may have never negotiated a game adaptation deal and may not understand what seems like common knowledge to a game developer. 

It can already be difficult to negotiate rights deals. Without a genuine effort to educate and explain key concepts, it is that much harder to close gaps in understanding. For example,  don’t assume everyone knows how games make money or what a game engine is. These little gaps in understanding can add up to big miscommunications and sticking points in negotiations. I have found it helpful to approach deals with a desire to educate and make sure we are all on the same page.

Build in Approvals

One of the defining features of license agreements is that the rightsholder will almost certainly want some level of creative approval. From the developer side, approvals can feel like a constraint. From the rightsholder's perspective, they are a safeguard for the value of their brand.

The key is to think about approvals early and build them into the development schedule. Approval rights are most manageable when everyone understands what is being approved, when it will be submitted, and how long the review process will take. This needs to be laid out in the license agreement. 

Clear approval procedures can help avoid disputes later. Consider whether approvals apply to concept art, scripts, marketing materials, live ops content, merchandising, or just major game updates. Just as importantly, think about what happens when feedback is not delivered on time. These process details may seem minor during negotiations, but they can have a significant impact once development is underway.

Follow the Money

Licensed games often involve more complicated revenue flows than titles based on original IP. In addition to the usual platform and game engine fees, there will almost certainly be royalty obligations, minimum guarantees, recoupment structures, accounting obligations, and audit rights with any rightsholder. This so-called “waterfall” of payments will dictate who gets paid what and when. 

Developers should take the time to understand exactly how money moves through the deal. For example, is the royalty calculated on gross revenue or net revenue? What deductions are permitted? Are platform fees or game engine costs deducted before royalties are calculated? These questions can materially affect the economics of a game.

These are highly negotiated business points and absolutely must be accurately reflected in the license agreement.

Clarify Ownership

When a developer creates a game based on an existing franchise, there is often a natural focus on the underlying intellectual property being licensed. Equally important, however, is determining who owns everything created during development – especially any unique or new elements added to the existing franchise world.

A licensed game may generate new characters, storylines, locations, artwork, game mechanics, or other creative elements. The parties should address upfront whether these additions belong to the developer, the rightsholder, or some combination of the two. If ownership is not clearly allocated, disputes can arise later when one party wants to reuse those elements in future projects.

This issue becomes even more important for successful franchises. The exciting new feature or character that helps make a game a hit may later become a valuable asset in its own right. Having a clear understanding of ownership at the outset helps ensure there are no surprises down the road.

Plan the Off-Ramp

It is easy to focus on getting a deal signed and a game launched. It is much harder, but equally important, to think about what happens when the license ends. 

Most licenses are not perpetual, meaning that most licensed games operate on a finite timeline. Developers should understand what obligations apply once the license either expires or is terminated. Game sunsetting can be a difficult issue and carries particular legal risk for game developers, especially within the consumer protection space. In these negotiations, it is paramount to understand what happens as you near the end of the license term. 

The Takeaway

Licensed games can be some of the most rewarding projects in the industry. They tap into beloved franchises and can provide incredible depth to an existing world. They also require developers to navigate a web of legal and business considerations that do not always exist with properties based on original IP.

The good news is that many of the biggest challenges associated with licensed games can be addressed long before development begins, in the license agreement. Taking the time to get the terms right can give developers more time later to focus on making great games.