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Development Fees > Tier Two: Royalties - Pg. 180

The Publishing Contract 180 Territory Territory determines the area for which a publisher is purchasing rights. In a work for hire, the pub- lisher will most likely take a worldwide exclusive license, in other words, the right to manufacture and distribute the game worldwide. However, if you are extremely enterprising and want to pursue distribution in areas the publisher does not, you will want to negotiate either to keep rights to terri- tories for which the publisher has no release plans, or for a territory-by-territory reversion (rights that are granted return to the grantor) if the publisher is not distributing product in the given territory. Development Fees A standard compensation arrangement will be broken out into two or more tiers, depending on whether it is your IP being licensed or you are doing a work-for-hire. The first tier is the development fee/advance against royalties, paid out over the duration of development; the second tier is royalties after earn-out (defined in Royalties, this section); and the third is ancillary products revenue , money earned from the sale of merchandise related to the game like strategy guides. Tier One: Development Fee/Advance Against Royalties The first tier is the development fee/advance against royalties. This is what you will receive over the period of development to cover costs. You will want to be sure that the development advance is non-refundable. The typical structure is 20 percent at signature, 10 percent at gold master, and the remaining 70 percent spread out over ten or so milestones. No milestone = no milestone payment, so schedule yourself realistically or you'll end up late and lacking the money necessary to complete the milestone. Don't assume that the publisher will jump in with more money to protect its investment: Sometimes a publisher will see this as throwing good money after bad and will terminate the project; other times, it may require additional compensation in exchange for additional funding.