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Revenue sharing, how to do it? how not to do it?

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Hello, i am new to these forums and my name is Igor.

 

I am currently in the planning stages of a ambitious but realistic start-up company, it strays of the path of traditional game development in what we are trying to do, but nevertheless i want to capture the cooperative spirit of indie game development. 

We also financially rely on "talent investment" making this part of the plan extra important in order the draw in the needed talent investors.

 

The goal is to have a solid, fair and transparant revenue share plan in place.

 

 Obviously i did not make this post without doing my own research into "what others are doing" but the current models i can find leave much to be desired.

 

- Splitting all the revenue among team members,as seems common in indie development leaving nothing for the "company" to further develop or invest.

 

 

- The industrie giants on the others hands either pay straight up and do not share the profits, a business model i have neither money nor appetite for. OR

- A royalty share; common for book authors or musicians. This sort of structure works well from a business perspective, but is often seen as unfair,and well from everything i can tell it IS often practiced in a unfair manner as part of a larger toolbox of corporate greed.

 

-------

Trying to come up with a solutions to satisfy both long term sustainability and fair sharing practices i have conjured up a rough outline of a hybrid model.

 

50% of project revenue is directly shared between team members with royalty based contracts.

the remaining 50% revenue is for the company.

the company is split into 100 shares, up to 20 of those are available as "founding sharing" to be paid as a revenue share on total company income before subtracting company expenses.

 

 

So at this point i am happy with my draft proposal and i am confident i can defend it towards those who understand how to run a business, however the people i will ultimately have to "pitch" my revenue share plan towards are often creatives or technical skilled, many of whom seem to lack a basic grasp of economics or a interest in such matters....

 

So i guess my questions for everyone are;   What do you think of my proposed Share model? beter suggestions?

 

-

And if you feel my share model works or whenever i conjure up one that does; How do you package this message in a easy to digest manner, that inspires confidence in a honest start up company?

 

 

Thanks for reading and i appreciate your inputs.

 

Igor

Edited by Zmorfius

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- Splitting all the revenue among team members,as seems common in indie development leaving nothing for the "company" to further develop or invest.

 

If you're doing this, put it in writing.

 

Spend a little cash getting it all drawn up watertight by a lawyer, and agree on who gets what. This is then set in stone. The last thing you want is one of your team members at a later date complaining that they agreed they'd get more, withholding work, and not having anything in writing.

 

The important thing that this document should also state is ownership. The developer, artist etc should not own their work, you should register some form of organisation and ownership of intellectual property should be assigned to the organisation not the individual. This could be a company, or similar.

 

I can't really advise you on the split you've come up with, just that all parties would have to be in agreement and as you haven't even mentioned ownership of intellectual property you must address this before moving forward or you will likely regret it later!

 

Also, my own advice - don't give away shares in a company or shares in your IP as payment, not even as a last resort. This is something you can't easily take back (obviously) and if you do make a small fortune, and back at day one decided to give 50% to "the ideas man" who never did any coding, art or music, you'll be kicking yourself forever.

 

Good luck!

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I don't mean to be rude, and you can feel free to ignore my post below as it is only my humble opinion:

 

Making revenue sharing schemas work in a professional setting, and getting a result for it is quite difficult. It works among "Equals", co-founders that start up a company and have the same investment and thus the same share in the company. It certainly works for some start-up companys, though AFAIK most of the successfull ones quickly try to get additional funding to at least pay their early contributors low wages, with the promise of a large bonus should the company take off.

 

It is a very bad idea for hobbyst projects or other projects that have no access to additional funding or are not run by individuals that already know each other.

 

Thus, the first question is: do you already have a team? A team of people that are professional enough, and ready to work without pay for some time? Does everyone involved know the risks (every new business venture has a high risk of failure)?

 

If yes, then I will stop here, because you will most probably be able to pull this off given you find the right sharing plan for your team.

 

 

If no, next question is do you have some additional funding? If yes, are you willing to spend some of it on minimum (or below minimum) wages to actually attract SOME people to your project? Or keep the people you currently have, but are not willing to work for free for years happy for some time?

 

 

If no again, you should first think about how to attract people to work for your startup venture before you go into details of the revenue sharing. At the moment you ask people to work for free on a project with high risk of failure, putting in time they most probably never will be payed for. Why would anyone do that if a) he could get a job at another company that pays him at least minimum wage or b) could work on his own stuff in his free time if he needs to have job to pay the bills anyway.

 

The promise of future revenue is not what will make people want to contribute for free to your project. Paying people that helped spark your business in the future is a nice gesture, but sane, professional people will not take that as enough compensation for the time they put in now.

 

There are many other possible motivating factors... a cool project people not yet in the industry, modders or hobbyists could sink their teeth in to get some expierience. An awesome opportunity to work on some new technology that might make some people believe into the projects success. And probably a dozen others....

 

You might have pondered that already in length and have come up with a good plan on how to attract talent, IDK... but if you didn't, spend some time on that first.

 

 

Anyway, good luck with your business venture.

Edited by Gian-Reto

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Great, thanks for the reply's so far!

 


Spend a little cash getting it all drawn up watertight by a lawyer, and agree on who gets what. This is then set in stone. The last thing you want is one of your team members at a later date complaining that they agreed they'd get more, withholding work, and not having anything in writing.

 

Yes! that's is what i am trying to sort out, a good draft that can then be put in legal form, i do not want to even discus these things during actual development cycles.

 

I understand the common practice is to take ownership of the IP of everything created within the company but it seems such corporate ways of dealing with things are not popular among creators, could you not instead retain IP ownership with individual team members and safe-guard the company's interest thru a 'do not compete" type of contract? 

 

Example would be writer making a story for our game - the game becomes successful and book publishers are showing interest in publishing the story as a novel. In such a example i would i would find it most fair if rights to publish the the book belong to the writer in question and not the company, i would also hope such a company policy would attract talent otherwise out of our reach by appealing to their moral belief about intellectual ownership.

----------------

 

-


I don't mean to be rude, and you can feel free to ignore my post below as it is only my humble opinion:

 

Honest opinions are my favorite kind and i would never consider them rude especially considering the limited information i provided.

 


Making revenue sharing schemas work in a professional setting, and getting a result for it is quite difficult.

 

Yes, indeed, i am hoping the difficulty level in establishing will ultimately translate in something more rewarding for everyone involved.

 


most of the successfull ones quickly try to get additional funding to at least pay their early contributors low wages, with the promise of a large bonus should the company take off.

 

Yes that is certainly in the pipeline, hence the need to retain a large amount of company shares in order to be able to sell some should the need for investors arise.

The company will also work on alternative sources of income, not related to game development.

 


Thus, the first question is: do you already have a team?

 

Not really, i have several skilled individuals willing to commit time and talents, however they are creatives and not interested in the sort of conversation we are having right now.

I do not wish to proceed without having these sort of legal details worked out and put into proper contracts.

 

I am not going to quote the rest of your response, but let me touch on a few point; i am not trying to use my revenue sharing concept to recruit talented team members, i do not plan on having people work years for free, in fact i want to release a product before the end of the year and alternative sources of income even sooner.

 

Your right talent is not recruited thru the promise of a revenue share, but likewise would it not look very unprofessional to recruit without having contracts and such prepared?

 

Igor

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Well that is a very depressing read mr frob, doom and gloom without much reasoning behind it or offering no real advice for me to proceed other then a general "it cant be done many have failed and so will you" type of crap.

 

K never mind, i just checked out your personal website,you worked on 3 titles for electronic arts, enough to make anyone a negative cynic no doubt.

 

Shame they ruined you at EA, to bad they did not give you a % huh, maybe you would have opportunity now to invest your time and talent as you wish instead of chasing the monthly paycheck.

 

Nevertheless i guess thanks for the input, i will no doubt have to deal with a lot of this sort of response in the coming months so its good practice.

 

Igor

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zmorfius, what frob said is NOT "crap," and he was not "ruined" by his time at EA, and the assumptions you ascribe to his response are incorrect.
Your response to his advice was out of line. You called it "practice" -- well, this was the wrong way to reply to the sort of response you ARE going to get a lot. Keep on practicing; hopefully you will get better at replying to realistic feedback.

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Ok so where is Frobs respons was there "any positive advice" i could practically use to further my goals ?  

 

 

I did in no way speak negatively about Mr Frob!

.

I did however speak negatively about the company EA - if that is not allowed on a gaming related forum........

 

You tell me i am wrong but you fail to provide logic to back it up, story of my life people abusing their position to be "right" about something.

 

Not backing down from bully's Tom, Don't be a bully. 

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Frob is right that profit share doesn't work.

It doesn't work because the probability of finishing and releasing any game unless you have lots of prior experience are very low.

You're asking your team to risk investing their time and creative talent making content and code that has an extremely high chance of never being seen in a finished and successful game.

Artists especially will steer clear, as they can invest their time elsewhere more productive e.g. by contract work.

If you can show contributors that the game is ready for release and really just needs their sounds, artwork, music or voice acting etc to be fully complete then you have a much more probable contribution and maybe, just maybe they'll agree to profit share. Chances are they'll want paying up front, though, even if just a percentage of their fee and they might even want a share in your business - be careful with this!

In my current game I've paid for art assets and I've been approached by musicians who wanted to be paid and ones who wanted profit share (their suggestion not mine). Generally those who want profit share are the less experienced who just want a foot in the door and their work noticed. Usually their work isn't as good when you listen to their demo reel. You get what you pay for.

Anyway best of luck, please listen to what others have said without bitterness as they know their stuff!

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Ok so where is Frobs respons was there "any positive advice" i could practically use to further my goals ?  

 

Well, I guess Frobs put in more direct words what I wanted to hint at.

 

Which is basically "revenue sharing schemas are hard to get to work"... or, put in a less nice and more pessimistic, but PROBABLY more realistic way "revenue sharing models don't work". Depends on your level of optimism, and how much risk you are willing to take really (no to mention how much risk everyone else involved in the project is willing to take).

 

 

I would say what you SHOULD take away is a general sceptical stance of members on this forum that this is the right decision to Kickstart a game project, or game studio, or whatever similar project you are planning. That could mean that you should really look into alternatives, or make damn sure that your plan is watertight (so that you can meet your milestones by the end of the year), or that you make sure all the "creative guys" you have on board really understand what they signed up to.

 

 

I'd say, if you have a team that is ready to do this, and a clear, SHORTTERM goal that is achievable, go with it. What is the best revenue share plan only you and your team can work out. I certainly would set this up officially, maybe even with the help of a lawyer, so nobody comes back in a year when you missed your goals and can claim the whole thing doesn't stand up in court.

 

Also, make sure you think about all the things that can and will go wrong. Milestones WILL be missed... what do you do then? Features will creep, or get dropped, what do you do then? People WILL drop out of the project, potentially taking all their work done so far with them... what do you do then? People MIGHT get pissed about something, there MIGHT be fights among the team about ownership.... as nobody gets paid anything, make sure you clear up ownership and stakes in the project in advance.

And make sure you keep your team happy... seems you found a bunch of rare individuals ready to delve into such a risky undertaking. Try not to loose them, they will be hard to replace.

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Thanks, "Servant" that was a very educational reading, i was not looking for conclusions i was looking for analyses such as the first part of your reply - it helps me understand WHY something does work or not work rather then just being told it does not work, to me learning is about understanding not just the conclusion, no one would ever make any progress if they just accepted conclusions without explanations. 

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Also if you go with revenue sharing make sure you get in legal writing that anything worked on belongs to the company. Otherwise 6 months down the road a programmer or artist decides to jump ship and then tells you you are not allowed to use their code or art, they're completely in their right to do so.

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I am sorry and i was clearly very wrong on a lot of things.

 

Also interesting to read from a insider that EA does not deserve the bad rep it has among gamers, or atleast not from a developers perspective.

 

I certainly do not find myself in this tho;

 


It is a pipe dream to start a business where everyone else invests, everyone else gives you money and time and resources, and you collect all the rewards.  Great for the person running it, but terrible for everyone else.

 

But i am glad that you told me that is how you see it, and also further explained your reasoning behind your first post.

 

Now you have proven me wrong on-topic *bows down to Frob*

 

but the fact you came back to further explain would indicate you at least partially agree or understand how your first answer came across to me as negative without explanation.

 

If i am also mistaken on that last part you would be wise to keep in mind that my respons actually got me what i desired; a very full explanation from a industry expert, and it also encouraged other people to further elaborate.

 

Thanks Frob, ill remember to buy you a beer if we ever meet ;)

Edited by Zmorfius

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Also interesting to read from a insider that EA does not deserve the bad rep it has among gamers, or atleast not from a developers perspective.

 

There were a limited number of teams with serious problems who made the news. Ten years ago the "EA Spouse" blog and lawsuit were a real concern against a few specific people. With a company as large as EA there are always a few groups with problems, same with the other major publishers. Somewhere in the company there are managers doing stupid things, but overall they are not bad as far as employment goes.

 

 

As for gamers hating EA, I can understand some of the reasons.  

 

EA adopted a policy to push things online, in large part because of piracy. Every metric I've seen at every company has shown a >90% piracy rate of offline games, and the push to online is the only effective way to overcome that. For various reasons Steam overcame the stigma of the 'always online' service, but many gamers still reject similar systems run by EA and Ubisoft and Microsoft as being evil for requiring an online connection. 

 

Notch of Minecraft fame blasted into EA's a few years back. Some of his accusations are true enough, EA does buy small and rising talent both as upcoming studios and by headhunting individuals. But this is true across the board for corporations: Google, Apple, and others all frequently buy businesses and headhunt specific talent. Notch also complained about them being "cynical bastards" by investing in all areas of games, including the smaller spaces of "Indie". When EA helped a bunch of small titles get polished and published in the "EA Indie Bundle", where they were seriously trying to help bring some quality games out of obscurity, this had terrible backlash from many gamers who said that the moment a major publisher helped these tiny games they were no longer indie. The small groups who had pushed for EA to publish their games called it a great success. It is funny to me how when companies like EA and Ubisoft do this, they are evil, but when a company like Steam introduced Greenlight where they publish the game, all is well.

 

I've also read a lot over the years about the hate for DLC. Somehow a game that ships with DLC available is not a "full game". From a development perspective, if you want to have DLC in your game you need to build the technology and test it out, so any game with DLC possible is going to develop DLC packages and test them during development. In the several months of lead time between the final build and the street date there is plenty of time to polish off a few DLC packs. If you've got a complete game then you've got a complete game.  Maybe the game ships with four storylines, that is complete, and having a pay-to-unlock for two additional storylines does not diminish the four in the main game. To many players, they feel they should be entitled to those two extra story lines when the product launched because they paid $60, and not pay for the two additional story lines that are being sold separately.  Everything from inexpensive board games to expensive motor vehicles come with additional parts you can buy beyond the base model. When BoardGameGeek reviews a game that has five expansions at release they have no complaint, they review the base game and review how the expansions change it.  When you see something like a bunch of empty buttons on a vehicle there is no cry of foul, that's just the base model of a fully-functional vehicle. Somehow when EA has a bunch of expansions, they are milking the customer for money and selling incomplete products.

 

 

In my view, like the schoolyard bully or the ancient scapegoat sentenced to die, it is popular for the common man to have someone to blame. EA's been targeted for that for many years. In some groups it is popular to hate on EA, reminding me of the scene in "Life of Brian" where it was popular to stone people to death because it was a fun group activity, not because the person actually deserved it.

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There were a limited number of teams with serious problems who made the news. Ten years ago the "EA Spouse" blog and lawsuit were a real concern against a few specific people. With a company as large as EA there are always a few groups with problems, same with the other major publishers. Somewhere in the company there are managers doing stupid things, but overall they are not bad as far as employment goes.

 

 

As for gamers hating EA, I can understand some of the reasons.  

 

EA adopted a policy to push things online, in large part because of piracy. Every metric I've seen at every company has shown a >90% piracy rate of offline games, and the push to online is the only effective way to overcome that. For various reasons Steam overcame the stigma of the 'always online' service, but many gamers still reject similar systems run by EA and Ubisoft and Microsoft as being evil for requiring an online connection. 

 

Notch of Minecraft fame blasted into EA's a few years back. Some of his accusations are true enough, EA does buy small and rising talent both as upcoming studios and by headhunting individuals. But this is true across the board for corporations: Google, Apple, and others all frequently buy businesses and headhunt specific talent. Notch also complained about them being "cynical bastards" by investing in all areas of games, including the smaller spaces of "Indie". When EA helped a bunch of small titles get polished and published in the "EA Indie Bundle", where they were seriously trying to help bring some quality games out of obscurity, this had terrible backlash from many gamers who said that the moment a major publisher helped these tiny games they were no longer indie. The small groups who had pushed for EA to publish their games called it a great success. It is funny to me how when companies like EA and Ubisoft do this, they are evil, but when a company like Steam introduced Greenlight where they publish the game, all is well.

 

I've also read a lot over the years about the hate for DLC. Somehow a game that ships with DLC available is not a "full game". From a development perspective, if you want to have DLC in your game you need to build the technology and test it out, so any game with DLC possible is going to develop DLC packages and test them during development. In the several months of lead time between the final build and the street date there is plenty of time to polish off a few DLC packs. If you've got a complete game then you've got a complete game.  Maybe the game ships with four storylines, that is complete, and having a pay-to-unlock for two additional storylines does not diminish the four in the main game. To many players, they feel they should be entitled to those two extra story lines when the product launched because they paid $60, and not pay for the two additional story lines that are being sold separately.  Everything from inexpensive board games to expensive motor vehicles come with additional parts you can buy beyond the base model. When BoardGameGeek reviews a game that has five expansions at release they have no complaint, they review the base game and review how the expansions change it.  When you see something like a bunch of empty buttons on a vehicle there is no cry of foul, that's just the base model of a fully-functional vehicle. Somehow when EA has a bunch of expansions, they are milking the customer for money and selling incomplete products.

 

 

In my view, like the schoolyard bully or the ancient scapegoat sentenced to die, it is popular for the common man to have someone to blame. EA's been targeted for that for many years. In some groups it is popular to hate on EA, reminding me of the scene in "Life of Brian" where it was popular to stone people to death because it was a fun group activity, not because the person actually deserved it.

 

 

Interesting read, I also have developed a dislike for EA as a gamer over the years for other reasons, but it is good to hear that at least EA seems to be not the bad place to work at as some people make it sound.

 

My personal peeve with EA stems from the trainwreck that is Origin, especially the EA customer support that should support Origin.

 

What happened some years ago when I wanted to try out the Star Wars Online game everyone was hyped about at the time (but died quickly afterwards as most MMOs do):

I tried to order the game over Origin. There was not really another way as far as I could see, and I never had any trouble buying games over Steam, and this was a big publisher, so what could possibly go wrong, right?

Turns out a lot, and it would take me 4 months to get EA to return my money. There was an error during the ordering process, and not having completed the order, I though I just had to redo it (I never got a valid serial, so there was no other way to join my friends ingame as fast as possible).

I soon found out that EA did charge my credit card twice even though I only got one serial.

 

Okay, things go wrong all the time, Origin was still quite new, and I thought that EA support could help me quickly since they should see a) I was charged twice, and b) only on of the serial # was ever used to access the game.

Well, it took me 4 months, and countless calls up the ladder from the lowliest support grunt somewhere in India to the supervisors of I don't know what, and even then a lot of explaining and talking until finally, one day, I found a charge back on my bank account.

 

After that, I vowed to never ever play an EA game again, even if Origin would die an ugly death and I didn't had to go through it again.

 

 

Now, that might sound ridicolous. But from a customers point of view, a) EA released a buggy storefront that not only crashed during checkout, it did so while charging my credit card, b) customer support was either quite incompetent and clearly not prepared for such a case, with nobody along the ladder until high up having the spine or interest to actually stick to my case without me calling them back every week, or worse, customer support was actually told to delay the case in hope that the customer would give up and EA could run with the money... given that my many calls most probably cost them way more than the 54 bucks I payed twice for the game, I guess its the former.

 

 

So yeah, I think there is a reason why gamers don't like EA too much. I'm most probably not the only one that got shafted by early Origin problems or their lousy support. That might be true about many other publishers too... but if you add the fact that a lot of EAs lineup are sequel of sequels of sequels, and there is very little new coming out without being tagged with a well known name (I got burnt by buying two different Modern Warfare games, paying full price for what was basically a glorified DLC), from a gamers point of view they do seem to be just after your money.

Again, same could be said about Ubisoft (I know they try harder, but I lost track of what should be the differences between the yearly sequel of Assasins Creed, besides being bigger than the last installment and being moved to a new historical era... granted I was not exactly a fan of the first game too), or any other AAA publisher in existence....

 

 

It just seems EA has done more misssteps than others, with the caveat that given their size, they had more tries at doing misssteps than others.

 

 

 

I really am on the fence on buying Mirrors Edge, and maybe ME2.... on one hand it sounds like an interesting game, and something different for sure. On the other hand I would have to bury my hatched with EA.... not sure I am ready to do that smile.png

Edited by Gian-Reto

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This is the only thing EA have done in recent years that irked me.

Buy out the studio of a massively successful game, buy the IP, fire the designer and create a sequel... Yes, a sequel full of in app purchases. I bought pvz three times, once for mobile, on e for xbox 360 and once for PC. Needless to say, never even downloaded the sequel...

Edit: sorry Tom didn't see your reply till after I posted. We now resume normal programming... Any chance this ot bit can be split off to general discussion?

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OP, please check if any of the 3 Fs (friends, family or fools) would invest in you first.

 

Work-for-hire agreements go so much more smoothly from my experience. You just specify what you need, pay 50% upfront, the freelancer gives you screencaps/samples to ensure that you're happy and then pay the rest once you're happy and the freelancer gives you the goods.

 

Compare this to revenue share. You specify what you need and the person gets to work. They could bail on you, give you subpar work or give you good work in 2-3 months. You would most likely end up chasing that person for the goods. That's of course assuming it's a stranger and not a friend.

 

Revenue share is also something you can't get rid of when you have investors taking a slice of your revenue. So please check all of your options before committing to this agreement.

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Frob is right that profit share doesn't [generally] work.

You forgot the qualifying word, which Frob included.

 

Lots of small companies have a bunch of co-founders, who are all joint-shareholders in the company, but don't necessarily have a strict revenue-sharing agreement in place. That's extremely common.

At the other end of the spectrum, lots of large companies will give all employees shares in the company as a bonus -- those shares then pay out dividends based on the company's profits... That's kind of revenue sharing, but not at all in the same way as these common (naive) "let's split all the income" type plans.

 

The only game I know of that's succeeded with a typical "let's split all the income" type model is Armello (see page 2)... and even then, they did it properly by actually writing up real employment/contractor's contracts, plus they've got a bunch of co-founders who are all on the board of directors and who pay themselves huge salaries that are equal to the entire rest of the staff combined... i.e. they're actually running a real business, not an expensive hobby :lol:

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