Assuming the game engine is not in the public domain, machinimists should be aware that their work could cause them major headaches down the road if they aren't careful. Because machinima almost always relies on the intellectual property of another entity (most often a game development company), the films produced are derivative works. In some ways, machinima is similar to fan fiction. In both cases, the creator of the derivative work is normally safe if his creation doesn't attract a lot of attention.
What if your machinima becomes really popular or you want to burn your films to DVD and sell them? In that case, it's wise to approach the entity that holds the rights to the game engine you are using and ask permission. Right now, most game companies think of machinima as an outlet for marketing. Some companies actively encourage players to create films using their products. Good machinima films not only entertain, but also entice viewers to purchase their own copy of the game used in the film's creation.
Of course, if a company feels that its intellectual property is being abused or diluted, it might pursue legal action against the machinimist. A company takes a calculated risk when it does not pursue people who create derivative works without permission. By not protecting its intellectual property, a company can create a precedent that makes future actions more difficult. For example, assume that you publish a game that becomes a very popular medium for machinima and you decide not to hassle filmmakers in the belief that it's good publicity for your game. Someone eventually films some machinima that becomes very popular and begins to charge money for DVD copies of it. You decide to enforce your rights as the owner of the intellectual property and sue the filmmaker. The court may ask you why you didn't act earlier when people first began to create derivative works with your game engine, and your position is weakened.
It's always a good idea to ask permission before creating machinima, particularly if you believe it's going to take off and become popular. You may have to pay a license fee to use the game engine. If you plan on using someone else's music, you'll need to pay a license fee for that as well. Such fees aren't cheap and it's complicated to calculate them due to all the variables involved, including how many times people view the machinima in question.
To date, very few machinimists pay license fees. Some believe that their work won't attract enough attention to get them in trouble, some don't know how much trouble they could get into, some have received permission from the respective game company and some believe that their creative endeavor is protected under the concept of fair use. Only a few machinimists have sold films to the public, and in those cases the filmmakers secured permission from the respective game company before going forward. Most machinimists seem content to upload their work to sites like YouTube and seek no profit in their work beyond knowing they've entertained an audience.
In the next section, we'll look at how machinima has evolved.