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Zmorfius

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.

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

 

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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:

 

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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