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Royalties from Publisher payments

Hello everyone,

Here is the question:

It states in the EULA that:

"You agree to pay Epic a royalty equal to 5% of all worldwide gross revenue actually attributable to each Product, regardless of whether that revenue is received by you or any other person or legal entity, as follows: ... Revenue from advance payments for a Product (from a publisher or otherwise); and..."

But the FAQ says:

"What if my product is released through a publisher or distributor? - You’re free to release Unreal Engine products through a publisher or distributor, and the EULA gives you the right to sublicense the necessary parts of the Unreal Engine to them so they can release your game..."

So the question is, which is correct. If a studio is receiving Development costs from a publisher (as is often the case), do they have to pay royalties from the money they receive from the publisher for the development of the UE4 game prior to release.

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asked Apr 08 '15 at 02:44 PM in Legal & Licensing

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Growl
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1 answer: sort voted first

Both are correct. The EULA grants you the rights necessary to sublicense the engine as embedded in your game which will permit a publisher/distributor to distribute the engine in your game. But, revenue associated with that distribution is still subject to royalty, which is the licensee's responsibility. In other words, you can sublicense the distribution right, but you don't get rid of the royalty obligation.

Steam is an example of a distributor. You need the right to sublicense distribution of the engine as embedded in the game to Steam in order for them to distribute it, and the EULA gives you that right. That distribution will generate revenue, and that's still your responsibility.

If you have a publisher, and that publisher is also a licensee, they can take over the royalty obligation if you and the publisher agree.

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answered Apr 08 '15 at 02:52 PM

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atypic STAFF
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avatar image Growl Apr 08 '15 at 03:11 PM

Hello Canon Pence,

Thanks for the answer, but that still does not answer the question.

I will try to word it differently:

Its common for development costs for games to be paid by the Publisher. Do these costs (transaction from Publisher to Developer) have the same royalty fee?

  • J

avatar image atypic STAFF Apr 08 '15 at 03:21 PM

Per Section 4(e) of the EULA, "Revenue from advance payments for a Product (from publisher or otherwise" are royalty bearing. Advance payments meaning payments that are recoupable by the publisher from future revenue.

avatar image Growl Apr 08 '15 at 03:30 PM

Ok,

Thanks again for the answer,

Just to clarify:

So if the development cost is 500k, and the recoupable amount is the exact same..

During the development there is no royalty fees,

When the developer releases the game, its sublisenced to the publisher. And during the recoupable period (500k), the license holder is required to pay the 5% royalty even though they are not receiving any gross revenue. (which would in any real case be paid by the publisher sublicensing the game)

Is this what it means in practice?

  • J

EDIT: I realized it might also mean the same but with the royalty being paid upfront during the development (when the advance payments are being made) and credited during release, from the recoupable revenue.

avatar image atypic STAFF Apr 08 '15 at 04:35 PM

When I say recoupable, I mean that if the publisher advance is $1M, and the publisher share is 50%, while they normally have to give you 50% of their revenue, the publisher keeps 100% of the first revenue for the game until they have recouped their $1M advance.

From the developer/licensee standpoint, publisher advances are royalty bearing and royalties are owed in the quarter in which the advances were received. So the developer/licensee pays 5% of the advance when received, but those payments can be credited against royalties on gross revenue once the game is sold.

avatar image Growl Apr 08 '15 at 04:53 PM

Thank you very much Canon Pence.

This clarifies the issue and makes it easier to understand the relationship this creates.

  • J

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