Modding has been a part of the game industry for the past three decades. It is the principle of modifying the original content of a game and making into something new while using the original assets and engine of the game. Some game developers see the as a misappropriation of the content they own and seek to gain control of who uses their assets.
When working in a game company, like many other industries, what you make or create during the time you work there, is now the property of the company and not of the individual who created it. Since they are the owners of the assets, they have the rights of who uses them and how as well as to have the rights to monetise it.
Modding is easier with digital content. It is quite rare to see mods of physical objects or printed media. With digital content, anyone who has access to the assets and who has knowledge of how to use them can create something with them.
In the case of machinima films, or the productions by “The Spartan Life” the creators are using a video game as the animation platform and using the in game characters to be controlled live by the animators. It is the same process as film animation, but instead of creating all the assets in a 3D animation software such as Autodesk Maya, they use the content in videogames in order to facilitate the process. Where the licenses for creation software allow for profit and user created content to turn a profit, the end user licence of games generally do not.
Some game developers allows users to use their assets for creative use. “Halo” is one of the games that can easily be used to make films as there is a built in cinema feature and users can record footage from a user controlled camera when the scene is being recorded. It is limited to the animation that are programmed to each character, but the animators make do and use various controls to give life to the game characters which are animated to the voice over of the film.
When the machinima channel is a host to many various artists and creators that use games as the host for their art. There is also a big portion of the success that relies on the story and user content of the animation. Since that is the most important part of the machinima world, it can be argued that the rights should go along with the creators of that content, over the owners of the assets that are used.
It comes down to a debate of who really owns the rights to the final product as each party has created something new. But the original creators of the assets might want to take in the profit. It is to the discretion of the content creator to use copyrighted material or to use material labeled under the creative commons.