The Ins and Outs of Passive Income Deals

When I ran my computer games business during the 90s, I knew how to create a game, but I didn’t know how to get them published. My first method was to go to Comp USA, look at a bunch of game boxes, and get the addresses of as many publishers as I could. Then I snail-mailed a letter of introduction to dozens of them. Maybe 3 or 4 wrote or called back. None of those inquires resulted in deals, however. This was a rather naive shotgun approach but not very well targeted. I even got at least one in-person meeting this way, but it was clear the publisher wasn’t a good match for the kinds of games I wanted to write.

Eventually I got introduced to a game agency by some other contact. Game agents act as brokers between game developers and game publishers, helping to create deals. I met with them and liked the idea of working with them. They helped me figure out what kinds of games to develop based on market trends, they set up meetings with publishers and helped me try to secure and negotiate deals. If they could get me a deal, they would get a percentage of whatever revenue I received, so it was no money out of pocket for me.

Usually I met publishers at conferences like E3 or the Game Developers Conference, but sometimes I flew to their offices. My agent set up these meetings. Fortunately E3 was in L.A. where I lived, except for a few stupid years when they moved it to Atlanta, so that was convenient. I remember some sleepless nights preparing last minute demo updates for these conferences.

For me this approach was hit and miss. I landed some deals this way, but they weren’t good deals. Some money came in ($120K in advances), but no games ever got published and released. I can’t fully blame the agent for this. Suffice it to say there are a some truly bad apples in game publishing. The recent conflict between Activision and the Call of Duty developers reminds me of the kind of crap I had to deal with back then.

Be Cautious

That said, I later did some nicely lucrative game licensing deals, but I learned to be very selective about which publishers I worked with. When it comes to licensing, it can be more important to avoid bad deals than it is to land good ones. If you’re going to get into this form of income generation, it can really pay off, but you may be risking a bloody nose now and then.

My best advice for evaluating a potential licensing partner is to do your homework. Get in touch with people who’ve worked with that potential partner, and ask if they’re willing to share their experiences. Listen to what they say, and take it to heart.

I once did this when a game publisher approached me for a licensing deal. Their website had a list of developers they’d worked with in the past. I emailed all those developers (about 6 of them), and they all wrote back. Without exception what they told me was very specific and very negative. None of those developers had seen a dime in royalties. This publisher was ripping them off, selling their games in other countries and paying them nothing. Needless to say, I never worked with them, and I shared what I learned with other developers I knew to make sure they avoided this trap.

Dealmaking

Once you get good at licensing, you can generate new revenue streams by acting as a dealmaker. This may seem daunting if you’ve never done it before, but with practice it can be a lot of fun. You can get paid to act as a matchmaker.

Many years ago I licensed a computer game from a small game developer, including the right to re-license it. I published and sold the game through my own company, but I also turned around and re-licensed it to another publisher. This generated an extra stream of royalties, which I split with the developer as we had previously agreed. Could the developer have done this deal on his own? Maybe… but it would have taken him a lot longer. It was easy for me to close this deal quickly because I already had the connection with the right publisher.

Notice in this case that I didn’t create or own the game, and I didn’t own the other publisher’s business or sales outlets. I just put the deal together, which generated income for the publisher and the developer — and for me as well. So please note that you can create streams of passive income from intellectual property even if you don’t own the property or the sales platform. You can get a cut of the action for being the dealmaker, and deservedly so.

For several years I’ve worked with a guy who helps me find good joint venture deals. He’s well connected in the personal development field and seems to spend most of his working time on the phone. He knows people who have great products and services. And he knows people who have sizable audiences like me. He connects one with the other, helps massage the deals into place, and enjoys a share of the revenue created by these deals. These income streams have paid off his mortgage. He didn’t receive any special training for this, but through life experience he discovered that he was good at introducing people to each other, and he found a great way to turn that into multiple streams of income. On top of that, he recorded and produced his own music album, and he’ll begin selling that soon as well. The deals I’ve done with him thus far have generated revenue for me well into the six figure range. Note that he gets paid not for the introductions (i.e. not a finder’s fee); he gets paid a small percentage of revenue from each deal he helps to close.

If someone brought you an easy-to-close deal that earned you an extra $1000 per month, would you be willing to pay them $100 per month from that revenue stream for doing the legwork?

Some people are so good at dealmaking that they can generate millions in passive income with just a few phone calls. There’s real value in connecting two or more people or businesses that can synergize their resources, if only they knew of each others’ existence.

While you ponder that, be sure to check this out.

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