2004 Web and Downloadable Games White Paper 

IGDA Online Games SIG 

companies, especially those technologies related to reducing the time, cost, security problems or 

complexities of delivering product via the Internet. 

C. 

Financial Models 

Below are listed the most common business models in the marketplace today. These models are not 

mutually exclusive, and it is not unusual for there to be a combination of several models at once. 

1. 

Pure Revenue Share 

As the name implies, both companies share the revenues generated from the product(s). How much each 

party receives is dependent on the specifics of the arrangement, but generally this model provides the 

most flexibility and leverage for the content owner as the owner has already borne the risk of creating the 

product. Furthermore, this method has the least amount of risk from a publishing standpoint, as little to no 

upfront costs are incurred. Revenue share can include the sharing of sales to consumers, shares of ad 

revenue generated by customers playing a game, shares of wagers made in cash competitions, etc. 

Revenue shares are sometimes referred to as royalties, or back end. 

2. 

Royalty Advance + Revenue Share 

In this case the licensor advances the developer cash up front and then withholds that amount from the 

royalties until the advance has been repaid. This is sometimes referred to as a recoupable prepay. In this 

case the licensor is reducing the developer's risk by giving the developer some amount of money up front 

with the intention of recouping their investment as the product sells. Generally the revenue share a 

developer receives in this case is lower than what they would get without the prepay as the developer's 

risk is lower, and the licensor's risk is correspondingly higher. As a result, for a successful title, this 

method will generally result in fewer profits to the developer in the long run. This can still be beneficial, as 

the developer may need the money to develop the title in the first place. It is not without risk however, as 

a title which performs poorly will result in the licensor losing money, and that may affect all future deals 

with the developer.  

3. 

License Fee 

This is a model in which the licensor fronts the developer a non recoupable fee in exchange for certain 

rights over a certain period of time. This is far more common for web games than it is for downloadable 

games. The time frame might be very long or very short, and the rights offered might be very broad or 

very narrow, and the size of the fee is reflective in all of these things. Typically deals like this do not 

contain any kind of revenue share, or the revenue share is very low. This is because the licensor is taking 

on almost all the risk of the project by paying a fixed sum to the developer. 

4. 

IP Sale 

IP sale indicates that the developer builds their own product or Intellectual Property and sells it to a 

distributor or publisher, thereby relinquishing 

all rights 

to that IP. Note that this is the IP that is being 

sold, not just the game. It is the game, the source code, the sequels, derivative works, everything. While a 

developer might be asked to consult for a period of time to make sure that the buyer can effectively utilize 

this IP, that will typically be a short term arrangement. When a developer sells their Intellectual Property 

they should typically assume that anything even resembling that IP is off limits for future products unless 

they have specific written exceptions in the sale agreement. Developers who wholly sell their intellectual 

property eliminate both their risk, and their opportunity for long term profits. Once the sale is complete, 

the developer has no stake in the success or failure of products based on that property. 

5. 

Other considerations 

With so much attention usually expended on negotiating key deal points like revenue share or advances, 

often dealmakers fail to recognize critical value that exists within all the other portions of the agreement. A 

skilled negotiator can leverage their knowledge of both parties businesses into short term and long term value 

for both parties. Partners who have a deep understanding of each other's needs and offerings have the best 

chance of structuring a deal that maximizes their return on investment, while utilizing the strengths of each 

partner.  

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