I haven't said too much regarding IP or video games of late, but these days it's increasingly important to own your own intellectual property (IP) in the games industry as a third-party developer.
The way games work is that if you have a development team developing your own title, you want to own your IP. The reason is because publishers are flaky and can cancel a project at any time. If that happens, you don't want to be without the IP that you spent years creating.
Let's just say for a moment that you are the owner of a games studio, and a big publisher approaches you for a buyout of everything the company owns, including all the IP rights for all the games this studio has ever created. If you sell, you get the big cash payout of whatever they pay for the company. But in buying your IP rights, they also have the ability to make whatever games and merchandising they want out of your IP without needing to pay you a single cent. Even if you created the IP initially, it is now owned completely by the publisher. Sometimes you can buy back your IP rights if you've negotiated them away, but it's increasingly important to retain them at any cost, because the IP gives you the flexibility to take what you've made and really write your own ticket.
Valve is the company behind the very successful Half-Life series of computer games. In 1997, Valve signed an agreement with Vivendi Universal for broad distribution and manufacturing rights of the games. In 2001, Valve and Vivendi ammended those rights by giving back the intellectual property rights and online distribution rights back to Valve. In 2002, Valve sued Vivendi Universal for licensing Half-Life titles to cybercafes for a licensing fee, claiming that it was in violation of Valve's online distribution rights. In November of last year, a judge barred Vivendi from distributing Valve titles, pending legal outcomes of the suit.
Vivendi Universal doesn't own many cash cows. For years at Blizzard, we joked that the only thing keeping Sierra alive and profittable was Valve and their Half-Life titles. The other revenue source for Vivendi is primarily Blizzard Entertainment, and all of that money is now coming from non-WoW games. Although I don't have any numbers pertaining to WoW, my own personal estimate of the development costs and resources involved to maintain WoW is that it will be some time before WoW can turn a profit.
A few days ago, Settlement of Valve vs. Vivendi lawsuit was announced, with the following statement in the press release:
"Bellevue, WA and Los Angeles, CA - April 29, 2005 -- Valve and Vivendi Universal Games (VU Games) today announced the settlement of a pending federal court lawsuit filed by Valve in August 2002. The parties have resolved their differences, and the settlement provides for the dismissal of all claims and counterclaims. Under the settlement agreement, VU Games will cease distribution of retail packaged versions of Valve's games, including Half-Life�, Half-Life 2, Counter-Strike�, Counter-Strike: Condition Zero and Counter-Strike: Source, effective August 31, 2005.
Additionally, VU Games has notified distributors and cyber caf�s that were licensed by VU Games that only Valve is authorized to distribute Valve games to cyber caf�s and grant cyber caf� licenses. Cyber caf� operators that were licensed by VU Games have also been notified that any license agreement from Sierra Entertainment, Vivendi Universal Games or any of their affiliates or distributors that may have granted rights to use Valve games in cyber caf�s, whether written or oral, is terminated."
In short, Valve got everything they wanted and Vivendi loses a very golden goose. Ceasing distribution of retail and boxed versions of the Half-Life franchise is huge -- that opens the possibility of Valve self-publishing (which they currently do to a small extent) or renegotiating their publishing agreement to better terms to a different publishing company. More importantly, by cutting out the publisher, they take the whole pot, rather than pennies from the pot.
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