Sunday, July 15, 2012

Bust of the Kickstarter bubble and a better way to publish

I've been expecting an article like this for awhile. I am willing to lay money its only the first of many as people dig into the actual rate of return on Kickstarter projects...,2817,2407046,00.asp

The sad thing is, Kickstarter *does* point the way to a new and better way to do business in the entertainment industry in general, and video-games in particular.  Its just that Kickstarter isn't the right formula.

One of the big reasons videogames have gotten so expensive is that its a hits driven business.  Games that succeed do so handsomely, but many more fail swallowing up tens of millions of dollars in lost investment.  That money has to be made up somehow and you, the consumer,  pay for those losers every time you buy a game.  If we could lower risk, we could also lower price.

Now, game development is inherently a risky proposition in  of itself, but most game failures don't fail to ship, they just fail to be big enough hits to cover their expenses.  If the market could be pre-established, the game development could be tailored to fit the known return and risk could be drastically reduced.

Kickstarter is interesting because it shows that people are willing to commit upfront for a product they want.  Kickstarter's problem, as the link above discusses,  is that there is no guarantee in their model product pre-paid for is eventually delivered.  This is the achilles heal that is going to kill Kickstarter, or at least burst the momentary bubble its had.

i have worked for game  publishers and seen how the real game industry works from the inside,  So, here is my idea for a new publishing model that incorporates the best of what Kickstarter and traditional game publishing do.  Call it Electronic Arts II, but EA as it was intended to be-- a games version of United Artists, not the monolithic monster of traditional publishing the business-people turned it into.

(1) Publisher takes in proposals like any game publisher.  The publisher vettes them as they do today, looking with a well educated eye at the project's features, scope and the proposing team's track record.  Based on this the publisher assigns a risk %.  This percentage will be used further in the process.

(2) Assuming the proposal seems feasible, the publishers does not commit  millions as they do today.  Rather, then invest between $5,000 and $10,000 on a marketing campaign selling to pre-purchasers.  The money brought in this way is not spent, but placed in an escrow account as guaranteed sales when the project completes. If the project fails to complete, the pre-buyers all get their money back.  (This is the key difference from Kickstarter who washes their hands of the whole process as soon as the money comes in.)

(3) The publisher lends the developer a % of the money that has come in to develop with, based on the risk profile ascertained  in step 1.  The rest as held back as a form of self-insurance completion bond.  Should the developer fail to complete, the publisher has that money to complete the project on.  (This might be as much as 50% with a new unproven developer.) If the developer ships on budget, they get half the held back portion as a completion bonus.

(4) Publisher releases the game through electronic distribution and splits any further sales with the developer  at 50% of net.

I'd call this publisher "Player Made Games" and stress that part of the deal is that the developer involves the pre-buyers  in the development process with updates, feedback requests, and so forth.  All we would need to start this is some initial seed funding. If any Angels are our there who might want to try this, contact me as  I'd love to make it real.


Keshlam said...

Kickstarter still has a lot of valid uses. (I just used it to donate a nontrivial chunk of change toward supporting an artist's exhibit at one of my favorite museums.) What's dying off, if anything, are the attempts to push it beyond the purposes it was originally set up for.

CyberQat said...

The big problem is the number of projects that fail. I agree that as a pure donation mechanism its fine. if a project you donated to fails, it fails. But Kickstarter themselves encourage its use as a form of pre-sales. In that context there are serious issues with undelivered promises.

Gregor Schiele said...

Nice idea, Jeff. I would love seeing someone offering such a service. Personally, I love the pre-sales model and I would love to see it thrive.