2004 Web and Downloadable Games White Paper 

IGDA Online Games SIG 

Usage licensing 

Direct Distribution 

IP Licensing/Sale 

Direct Distribution. 

Service Solutions 

Download Games 

Distribution Licensing 

Publishing 

IP Licensing/Sale 

Technical Licensing 

Game Hosting 

In Game Ads 

Cash Competition 

B. 

Breaking Down the Choices 

1. 

Primary Models 

a) 

Work for hire development 

This is also sometimes called "time and materials", though this actually refers to a sub type of Work 

for Hire.  In this model, the developer charges the publisher for costs based on staffing and overhead, 

and receives regular payments at the agreed upon rate as work is performed. This is where all of the 

content is generated and developed in house. The publisher can be the developer or it can be 

someone else.  

There are two classifications of "works for hire" as delineated by the 1976 Copyright Act. The first are 

those made by employees in the normal course of work such as agreeing to do a project, and being 

paid a salary or by the milestone for performing the work. The second involves work by contractors. 

For independent contractors to create works for hire two criteria must both be met; the first criterion is 

that the work has to fit within one of the nine specific categories outlined in section 101 of Title 17. 

Prior to the passage of the Satellite Home Viewer Improvement Act, the categories were: a work 

specially commissioned for use (1) as a contribution to a collective work; (2) as a part of a motion 

picture or other audiovisual work; (3) as a translation; (4) as a supplementary work; (5) as a 

compilation; (6) as an instructional text; (7) as a test; (8) as answer material for a test; or (9) as an 

atlas. The other proviso states that there must be a written agreement signed by employer and 

employee stating that the work in question is a "work for hire." Basically if somebody tells you what to 

do and when to do it by, and you receive money, then your work product is a work for hire. 

The benefits to this model can be good for a smaller studio or business. Risk is very low as payments 

are made regardless of the outcome of the project. Developers get paid for work performed and do 

not have to worry about potential losses or lack of payment if the game is not a success. Even if the 

project does not finish, developers will likely be paid for the milestones achieved. In some cases, 

developers can also receive royalties after prepays are recouped and the title is a success. On rare 

occasions a developer could be paid per milestone and then also receive royalty payments with 

limited risk to the developer!  

However, in this scenario the developer often does not own the rights to the IP. Usually the publisher 

who funded the project owns the game and any related IP. Any glory, royalties, and sequel decisions 

are up to the publisher and the contract that was negotiated. In some cases the publisher would also 

get to own all the code and tools developed on the project for that game. Further, the publisher can 

cancel a project at any time, thus it is possible to be paid for the first milestone and then have the 

project cancelled, leaving the developer scrambling for a new project. 

b) 

Selling or Exclusively Licensing IP 

These are related ways for which a developer or publisher can trade capital for strong rights to a 

product and IP. Complete or nearly complete IP can have significant value if sold outright, or 

exclusively licensed for a determinate amount of time by a third party. Unlike  back end  revenue, this 

is generally paid up front, all or in part. When this immediate capital is re invested in new 

development, it becomes a foundation on which to build self sufficiency. Since the IP is created and 

built on spec, creative control rests with the developer, and some of the risks related to work for hire 

(such as sudden project cancellation) are mitigated in exchange for the increased risk of self funding 

the IP development. Generally speaking, selling or licensing IP rights, as opposed to simply licensing 

usage or distribution, grants the licensor titles, assets and resources to the original in representation 

of a new product with all associations still attached to it, including sequels. Strong IP, when sold or 

exclusively licensed, can generate a great deal of revenue in this way, but developers can give away 

a lot for that big check. 

Page 26 of 93