Borrowing gaming IP

Expanding video game IP

In future articles, we’ll take a closer look at strategies for gaming companies looking to buy and build IP. To help take a company from casual to competitive, the first approach we’re exploring is to borrow IP. Companies can borrow IP or infrastructure through a few different options: licensing agreements, partnerships, or joint ventures. The borrow approach is typically quicker to achieve, but often more limited in scope, and is ideal for two companies that have complementary assets.

One such example of this complement could be that one company has strong IP and the other has tenured game development or industry expertise. The company that utilizes the strong IP can tap into an established fandom helping them to engage through cross-genres of media, which can open exciting opportunities for partnership. This approach can result in block-breaking commercial success through such examples as The Super Mario Brothers Movie, which added $1.3 billion to Nintendo’s revenues in the summer of 2023.¹

Maximizing licensing agreements

To help maximize the potential of licensing, consider the media type (e.g., game, show, or movie) and IP type (e.g., strong characters or a compelling story), as certain media types can be more conducive to different types of IP. For example, masked heroes are often well-suited to gaming media due to the increased immersion players experience when they place themselves in the heroes’ shoes.

There are two common ways to maximize licensing:

1. A gaming company can borrow IP for in-game content or potentially for development of a full game. For instance, a production company could license the use of its recognizable character to a gaming company to create a unique outfit for players of a first-person perspective.
2. A production company can borrow IP to feature a gaming company’s content in other forms of media. This has become common in recent years in which a production company adapts a compelling gaming storyline or universe into a TV series. The publisher of the borrowed IP receives a licensing fee and potential to reach new audiences with a market-proven narrative.

Fostering strategic partnerships

Strategic partnerships are often a more flexible way for two companies to collaborate. They can allow companies to borrow without assuming as much risk and can still result in increased reach in the market and the potential to grow their player base across new and existing titles. For example, a gaming company and a large sports league could have a strategic partnership, with the sports league investing capital to develop a new game or an entire series based on the league’s teams and athletes.

This approach seems to be becoming more popular as gaming companies find themselves with less capital due to a now observed lull in the industry post-COVID-19 (an 11% year-over-year decline on spending across game hardware, content, and accessories as of June 2022, according to a survey from NPD²). Such a decline in the market can require some companies to reevaluate strategic priorities and, in some cases, restructure.

Expanding expertise through joint ventures

Through a joint venture (JV), companies can combine their expertise: picture a gaming company teaming up with a film or TV studio to create a new game development studio. The JV could combine technical experience in developing games, storytelling prowess, and geographic distribution, to develop and distribute titles at a global scale. This can enable the combined organization to leverage strong stories, potentially realize international growth, and offer fans more ways to consume the IP they love.

A JV is likely more complex to set up, equally shares risks and rewards between parties, and requires formal agreements (with parameters including scope, governance, marketing, funding, and profit sharing). An important difference between a JV and other partnership options is that both companies have a stake in the new entity. This differs from a strategic partnership in which both companies remain independent and also differs from a licensing agreement in which the licensor remains in control of its IP.

Evaluating the options

So how can you evaluate which borrow option to pursue? The answer depends on various factors and the goals of the potential partnership. Considering the time, risk, and complexity involved, as outlined below, is a start to informing what might be the best fit for your strategic priorities.

Time involved: Strategic partnerships can usually be formed quite quickly and offer flexibility in terms of their duration. Licensing agreements typically have a defined term, while joint ventures tend to involve lengthy negotiations in which parties may enter into long-term commitments. 

Risk potential: Strategic partnerships can involve lower risk since companies operate independently. Licensing agreements often carry moderate risk because the licensee will pay a fee regardless of success. Joint ventures are the riskiest as companies equally share profits and losses. 

Complexity: Strategic partnerships are often the simplest, with agreements being less formal. Licensing agreements can require defining terms and scope but could also result in disputes due to scope creep or even unforeseen circumstances. Joint ventures often are the most complex due to the need for joint governance structures and extensive negotiations.

Endnotes

¹ Chris Arkenberg et al., “Cinematic and interactive universes: Games and studios come together to bring the biggest stories to life,” Deloitte Insights, November 29, 2023; Marie Deallessandri, “Tears of the Kingdom drives Nintendo sales up 50% year-on-year,” GamesIndustry.biz, August 3, 2023.

² Circana, “The NPD Group: Second quarter 2022 US consumer spending on video game products decreased 13% to $12.35 billion,” press release, August 2, 2022.