We're currently involved in music production for two seperate video games.
Both are small scale, independent (i.e. hobby) developers and there aren't any distribution or publishing deals in place at present.
*** Nice place to start.
We're an unsigned partnership making music in our spare time.
*** Get some basic terms of agreement circulated, in writing, even if just emails to which both parties agree to some basic material terms.
Would it be best to draw up some kind of written contract in case the game is ever released?
*** Probably not a bad idea.
What would be the first steps to make this happen? Free websites / lawyers?
*** You may not need either on this scale - simple emails can work fine. Write out what you expect in clear easy language. Generally, you already have some form of verbal agreement - just commit that to writing, send it to the other people, and get them to respond that they agree to those terms as well - should be that simple.
Is it normal to work for no upfront fee (i.e. just possible royalties)?
*** Everything is "normal" depending on the situation. Generally speaking no upfront fee would require that the creator of the music, is the owner of the music. Generally in video games, films, tv, the producers own the masters and 100% of the publishers share of the publishing - but in cases like this, the creator of the music, not the producer of the game should own those rights.
What percentage of royalties for a soundtrack might be acceptable?
*** Royalties from a Soundtrack Album or Game sales? Music isn't paid royalties on Game sales - it's always a flat fee. Soundtrack Album royalties range from 12-20% but in this case, you'd own the masters so you'd get 100%.
Any advice would be much appreciated!!