What Happens to Game Revenue When a Company Fails?
When a video game company faces bankruptcy or is no longer functioning, the fate of revenue from game sales becomes a significant concern for stakeholders and investors. This article explores the complex dynamics surrounding the revenue allocation in such situations, covering the sale of assets, the handling of intellectual property (IP), and the peculiarities of outdated game sales.
Sale of Assets and IP Management
In the event of a video game company going bankrupt, a process of asset liquidation occurs to settle debts incurred. Investors and creditors bid to acquire these assets, with the highest bidders purchasing rights to a given IP. These assets often include the company's IP, including game franchises, copyrights, and trademarks. Thus, whoever buys these rights is entitled to any future profits from sales related to the IP. However, as mentioned, studios usually reach bankruptcy due to a lack of profitability, making the sale of these rights a crucial step in covering financial obligations.
Handling Financial Obligations and Debts
If a studio is shut down and the assets are sold to the highest bidder, the creditor is then responsible for covering any remaining financial obligations. This includes the repayment of debts. In some cases, the IP might be sold multiple times through different acquirers, ensuring that creditors and potential new investors can recover their investments through the sales of these valuable assets. While the primary intention is to payoff creditors, a portion of the revenue may also be distributed to retained stakeholders, ensuring a fair and transparent process.
Exceptions: Integrated Publisher and Studio Relations
In instances where a studio owned by a major publisher is shut down, a different scenario unfolds. The parent publisher typically retains full rights to the IP, ensuring that all future profits are captured, and the developers are no longer employed by the company. This arrangement is often subject to contract terms and can vary depending on the specific circumstances of the shutdown. Retained developers can sometimes receive severance packages or other benefits, but in most cases, under such conditions, the financial burden of the shutdown primarily falls on the parent company.
Outdated Games and Legacy Sales
The handling of game revenues from outdated games, particularly those no longer on sale in the new or digital markets, is a unique aspect of revenue allocation in this scenario. As games age out of print and are removed from digital storefronts, the revenue from these games is limited to the used market. This is a rare occurrence, as most modern games continue to generate revenue through digital resales and secondary markets. However, for older titles, once removed from active sales, any remaining revenue is often pocketed by physical retailers or obtained via the secondary market, often throughused and refurbished systems.
Conclusion: The Financial Implications of Corporate Failures in Gaming
The complex process of revenue allocation when a video game company fails highlights the intricate relationships between different stakeholders, including investors, creditors, developers, and consumers. Understanding how these dynamics play out is crucial for both companies navigating the challenges of bankruptcy and for investors and consumers looking to protect their long-term interests. The roadmap to financial recovery and the distribution of assets, especially when it comes to intellectual property, can significantly impact the future of once-popular game franchises.