A pretty vacuous statement. Where they given 5 million or 50 million in advance? Maybe 5 million copies wasn't enough to pay off their advance. I am ready and willing to believe EA is trying to fuck over everyone humanly possible, but what is the whole story? For instance: If they were given 50 million up front and had a royalty rate of 10% and an average sales price of $30 then that would be 15 million dollars no where near the dollar amount to expect a royalty check.
Read the article. He mentions that "someone suggested to them to audit and they found 'Millions and millions of dollars of error not in our favor.'" Shady accounting practices were used to intentionally mask earnings that would've contributed to a real royalty payout.
This is a common practice in Hollywood as well. It's the reason why royalties as a percentage of net profits are called 'monkey points'. It's because you'd have to be a monkey to believe that the studio's accountants would ever allow that film to turn a profit in its official books.
Indeed the publisher model for games was copied straight from Hollywood's playbook, so this link is right on the money.
In general, the accounting system works great if the distributor is also the developer (because tax) but really badly if the developer is external (because "net" is a fiction).
This is also why powerful people negotiate for a percentage of gross vs. net.
It's also how record labels do their accounting (and why most musicians make more money from touring than LP/CD/... sales).
Based on my experience (I was involved in several contract negotiations with major game publishers), of the $40 that the publisher is paid by the retailer for a $60 AAA title before it starts getting discounted, at most $14* goes to the developer (and that assumes you deliver boxed media with instructions, etc.) -- if not the publisher will be happy to deduct those costs from your $14. This is assuming the developer created the entire product on their own dime. If the publisher does QA and packaging, that's coming out of your $14.
* Probably more if you're a Brand Name. I imagine that if you've got brand recognition then, like Alec Guinness in Star Wars, you can negotiate a percentage of gross, and it's a whole different ballgame.
David Prowse has apparently been told that Return of The Jedi has still not made a profit, so he has yet to see any residual payments from it.
“I get these occasional letters from Lucasfilm saying that we regret to inform you that as Return of the Jedi has never gone into profit, we’ve got nothing to send you. Now here we’re talking about one of the biggest releases of all time,” said Prowse. “I don’t want to look like I’m bitching about it,” he said, “but on the other hand, if there’s a pot of gold somewhere that I ought to be having a share of, I would like to see it.”
This is pretty horrific given that we're talking about a guaranteed money-making threequel.
I imagine that, as someone whose face is never visible, Prowse was in an unusually poor negotiating positionand that the more recognizable leads got better deals. Alec Guinness (who got 2% of the gross of the first movie, claimed to have argued in favor of killing off his character to avoid speaking any more terrible lines, and only agreed to do the sequels if he didn't have to promote them) reportedly bought his own island with part of the proceeds (probably in an effort to avoid Star Wars fans).
I did read the article. It didn't mention if they were owed 20 bucks or 2 million. It said EA gave them their company back but there hasn't been a major use of their IP since they went under so obviously EA doesn't think it is worth much. Giving back the company but no cash could be EA saying "yawn we didn't really want it anyway thanks for taking out the trash" or "OMG! we just avoided a serious day in court". I am curious which it is.
"Now fortunately someone told us to do that, and did the same thing, and that's ultimately how we got the company back," he explained. "Because when we were able to prove that things were not what they should be then it was ‘pay us or give us the company back', very simple. And so that's how we got the company back, 100 per cent."
makes it sound like this was not the case and that they were, in fact, cheated out of royalties. The article is not completely clear, though, and awkwardly-worded at some points.
Sure, I was more questioning the amount. Getting the company and all the IP back seems like it would be worth a few million. It just makes me wonder what the real difference in value was.
My understanding (as someone who worked in the Games Industry but not on the financial side) is that the developer normally gets an advance against royalties to finance production, so you're right that they need to earn out the advance before they see further royalties.
The size of that advance will depend on the size of the studio, production costs etc. - it's probably aimed purely to cover costs and the developer won't really make a profit on that - and then any future royalties would go to the developer's coffers.
However, at that point Hollywood Accounting enters the room, and the publisher will do a lot to ensure that most of the 'profit' of the game is actually written off as 'costs' to the publisher, so that they can avoid paying royalties where possible.
