Specifically

"The support Epic had misrepresented it would provide Silicon Knights... became increasingly inconsistent as both Silicon Knights and Epic progressed toward the target launch date for their respective games. Epic has attempted to avoid its obligations under the Agreement by representing to Silicon Knights that the support,
modifications, or enhancements to the Engine – all of which are essential to the Engine’s proper function – were “game specific” and not “engine level” adaptations, and that Epic therefore need not provide them to any of its licensees, including Silicon Knights."

It's claimed: "That representation is false, as evidenced in part by the fact that Epic later provided nearly all the Gears of War code to all of its licensees, at no extra charge, in a belated effort at damage control."

http://www.gamasutra.com/php-bin/news_index.php?story=14759

You'd think that would be more "fair" (from the dev perspective), but that's not how it works.

Sadly (for devs), the development budget is considered their part of the investment, and the money to pay off this "advance" all comes from their eventual portion of the proceeds -- the publisher doesn't pay themselves back with their own portion.

Many reknowned dev houses get decent cuts (like 60/40, etc.), but they are still required to pay back the dev costs before they see a dime of royalties (its just a load easier to do).  The lower-cost houses, which thrive mostly on license titles, minor games (casual and downloadables... not something you would often see on the shelf at a retailer), and ports, get really screwed with this system... typically their cut is about 25%, although 20% is not uncommon, and I've seen some contracts which exclude the developer from royalties altogether (usually on ports), or are really low (like 10%).

Recently, some publishers of digital software have been pretty generous to devs, in this regard.  50/50 is not uncommon, and proceeds from small self-published downloadable titles are sometimes even higher.  Sony recently announced that, if you use their own game engine tech (PhyreEngine?) to build you game, and have it be exclusive to PSN, they do something like foregoing half of their own portion of the proceeds, until the extra income recieved, from that, has paid for the developer's costs, which is downright fantastic.

If that is the case then the how does an independ development house stay afloat? I don't see many of them many making even a small profit if this is a common practice, they'll essentially be living on their ability to produce a future game that meet a quota set by the publisher, one mistake and bam goes the company. No wonder so many small time developers are going wonder this gen... When a publisher close its door, they're dead in the water!

The publisher pays the entire development budget in advance, in partial payments.  A dev can stay afloat eternally in such a manner, without any royalties whatsoever.  Many do just that.

Back to the OP: The developer claiming "we broke even" and the publisher claiming "we broke even" are two different statements.  The publisher is stating the traditional definition.  Developers are often talking about the break even point in their publishing contract, where they actual begin receiving royalties.  They already got paid the development costs, and there's no "breaking even" from an investment standpoint as a developer, in that regard.  They are talking about their royalty break even point, with their publisher, or they are guessing (publishers don't often share the details of their financials with hired gun developers... why would they?) as to whether or not their publisher broke even.  Most likely he's not talking out-his-behind about his publisher, and is, in fact, talking about his contract and royalty break-even point.

I hope that's more clear.

And yes, developers live and die by their contracts with their publishers.  Many dev houses that go under do so because their publisher holds off on making payments, folds, cans the project early, etc.  Any development studio small enough, or foolish enough, to put all their "eggs in one basket" is risking going out of business, dependant on their publisher relationship.

One of the worst facets of that part of the games industry, is that publishers absolutely hate it when you are working, as a 3rd party dev, with any other publisher(s).  Since studios assign staff internally, publishers are always upset that their project may not be staffed properly, and that their money is being utilized for projects that aren't theirs.  Most 3rd party devs just deal with the eggs-in-one-basket situation to avoid uncomfortable relationships with multiple publishers, or they open (or purchase) a completely different studio, specifically to do business with a second (third, etc) publisher.

Opening a traditional dev studio is an extremely risky venture, and always has been.  At the developer level, the games industry is frighteningly cutthroat, until the house proves itself, and can manage several projects at once.

@Procrastinato Thanks for the insight, I was not aware how bad the situation is for developer when it comes to royalty from a game. I guess there is legitimate claim on his part, but they way he is stating it feels a bit misleading, its as if I'm looking at a game that sold 1.5 million which generated no profit in its total revenue which is obviously bull.

I guess they're a bit bitter but yea thanks again for the insight.

Crackdown's 1.5M just breaking even put's Activision's threat to leave the PS3 in perspective.

gr8 idea ignore 22m ps3 owner when your alrdy losing money and just release it on one console and get lesser sales.

This is funny because it was posted right below an explanation of the reason for the comments.

Developer =/= Publisher.

I don't think the game would have had the HUGE first party marketing push (Halo 3 Beta Keys) if it was cross platform, and even then it broke even.