Lessons in Modern Intellectual Property Utilization for Mobile Free-to-Play Games Part III

This article concludes Gameometry’s series focused on IP use in mobile free-to-play games. We’ve previously explored IP use in social casino and mobile games.

We’re examining the financial and deployment considerations of licensing Intellectual Property for a mobile free-to-play game. The current mobile games business is ruled by budget, strategy, and financial expectations, making IP use economics stricter than ever. IP integration must outperform the same spending on development and user acquisition. IP can even effectively reduce UA costs if properly integrated, as it can increase organic virality, encourage retention, and improve ARDAU. For lean teams, or those with these strict budget constraints, avoiding licensing an IP may be more favorable than locking into a negative financial circumstance.

The Modern Dilemma

Except on rare occasions (think Fortnite), videogames’ reach and audiences are devalued by IP holders, so the negotiations over IP integration tend to be asymmetric favoring licensors. Some IP holders do actively shop their own IP, but it is more common for gamemakers to be the pursuers. In this case, being educated about the framework of a healthy arrangement can help to even the risk of developers’ financial commitments.

Expect your business arrangement to consist of an upfront fee Minimum Guarantee, royalty rate, marketing commitment, and a potential selection of additional factors.

Minimum Guarantees (MG) can range from tens of thousands of dollars to millions, and this figure is usually the first biggest hurdle for establishing a game’s healthy business model. The MG is typically repaid foremost through initial revenue generation before the rest of the deal terms commence, but if the MG payment is not achieved through game revenue, it will still be owed to the licensor. Beware that too large an MG will put too much pressure on the dynamics of the IP integration, forcing a ‘greedy’ utilization that may poison the audience, the game, the licensor and licensee.

The MG are table stakes for engaging an IP, but shrewd licensors and licensees focus on the royalty rate paired with the MG. The royalty rate percentage of revenue after MG recoup needs to sustain financial health for the video game while generating adequate revenue to incentivize the licensor’s continued participation. Make sure your royalties are calculated from net revenue post-platform fees, so any Apple or Google share is deducted before licensors are reimbursed. Royalty rates can vary from 7.5% to as much as 30%, but are typically 10 – 20% and are usually balanced against the size of the MG.

Marketing Commitment is usually a deal term, so negotiate marketing obligations for both parties. Licensee commits to marketing spending on traditional and performance channels. The IP owner can provide trade-in-kind for reach on their own channels to drive organic user acquisition. Again, the size of marketing commitment can reflect the MG size. Also, IP holders generally have robust channels to promote their brands, and any use of their IP receives amplification, including your video game. Make sure any commitment to marketing by your game is reciprocated by overt, qualifiable licensor support or use marketing spending to reduce the MG, if you can.

Making sure that your deployment of IP is holistically considered is your responsibility to optimize your results by establishing a framework covering some of the unique aspects of mobile free-to-play software as a service licensing.

Free-to-Play Deployment

Scope of Usage of the IP needs to be discussed as part of the overall agreements. Explicitly define where the character appears (e.g., in-game characters, app icon, store screenshots) and for how long. Your integration of the IP may need flexibility compared to traditional uses. Mobile games have massive content demands that may require licensors to be comfortable with temporary uses of their IP in non-familiar ways. Deciding exclusivity of use determines the range of flexibility, too. If your game is the only touch point for the IP in the mobile sector, this can influence all these discussed parameters; if it isn’t, then some of the payment and strictures of the IP may expect to be reduced.

For example, multiple versions of different rarity characters may be important to your game, while an IP holder may not ordinarily allow for duplicates of a single character. These uses cases should be established upfront. For derivative content, you’ll need to work through approval processes and agree to ownership or further licensing negotiations for original game content from the ingested IP.

Time constraints and limitations can be powerful. Establish the duration of the partnership and how it fits into your game’s Live Operations schedule. Limited time engagements and the promise or return engagements can create excitement and drive KPIs. They also allow both licensor and licensee chances to change and improve with iteration. With the establishment of time boxes, make sure that Termination terms are also clear. While an uncomfortable topic, if not everything goes properly, protecting your game and studio is the priority. Expect the best but plan for the worst.

IP is a powerful, and potentially expensive, tool for video games Live Operations. Treat the process with cautious enthusiasm, and we’re here to help. Gameometry guides teams and startups in evaluating IP fit, forecasting ROI impact, designing LiveOps frameworks that extend engagement well beyond launch and more.