My understanding (as someone who worked in the Games Industry but not on the financial side) is that the developer normally gets an advance against royalties to

My understanding (as someone who worked in the Games Industry but not on the financial side) is that the developer normally gets an advance against royalties to finance production, so you're right that they need to earn out the advance before they see further royalties. The size of that advance will depend on the size of the studio, production costs etc. - it's probably aimed purely to cover costs and the developer won't really make a profit on that - and then any future royalties would go to the developer's coffers. However, at that point Hollywood Accounting enters the room, and the publisher will do a lot to ensure that most of the 'profit' of the game is actually written off as 'costs' to the publisher, so that they can avoid paying royalties where possible.