Kickstarter: Should Publishers Be Nervous?

With the rise of Kickstarter and other crowd-funding sources the self-publishing route has become more and more prominent in the gaming industry. While many view Kickstarter as a bona fide method to receive the funding they need to make a great game or even a stellar tech demo, others feel that it's nothing more than the latest "hot-ticket" item that is currently the darling of the industry, given strong attention due to the self-starter feel of it all.

The truth, as usual, lies somewhere in the middle. The surge of recent Kickstarter success stories provides a glimpse into a funding scheme that could become much more than a fling, and investor and all-around gaming enthusiast Steve Dengler of Dracogen Strategic Investments believes that this model is just the beginning of something more.

Founding Xe.com in 1993, Steve Dengler has pushed his personal hobbies and wealth as an independent investor in media and gaming. With a strong relationship with popular gaming studios such as Double Fine Entertainment, Dengler has made an impact on providing funding solutions to those looking to create something meaningful.

Working through Dracogen Strategic Investments, Dengler has spent much of his time investing and working with inXile Entertainment, Double Fine Adventures and a myriad of projects focused on gaming and web-series creation. He extols the idea of working with tech companies through less red tape, less oversight and less micromanagement.

Through his experiences both as a gamer and as an early-seed investor, Dengler approaches the new, "lower-end" market changes as a way to not only enhance the casual gaming pool, but to create a viable method for smaller, creative teams to flourish.

Breaking the Kickstarter limit

Years from now we may look back at the early Kickstarter days and reminisce about a platform that brought us the next great game designer or AAA title, but we're not even close to that point. "It just feels like the people who are going to be the big-big names 10 or 15 years from now are just getting involved, just getting started," says Dengler. "In terms of games, the old publishing model is very complacent and set in its ways. I really get the sense that they are starting to feel that there is something really going on here, and they don't really know how to engage."

"Are you going to be able to get $15 million out of Kickstarter? Maybe someday, probably not now"

Dengler believes publishers have simply become too large to entertain the idea of publishing smaller, creative IP. They're unable to see a reason for investing in a title that won't bring in the revenue streams enjoyed by games such as Battlefield and Call of Duty.

"Can game labels go and find small things? They could, but the reality is they don't typically because it is not worth their time," he offers. "So you look at the projects that Kickstarter is servicing, Tim [Schafer] set a benchmark at $3.3 million. That's great, okay, but from a publisher's perspective that's a small game. That's not a big game at all."

"When that big kerfuffle over Psychonauts 2 happened, and Rock, Paper, Shotgun gave the impression that it might be around $4 million or something and then Notch got involved, and then Tim, myself and Markus Persson were talking (mainly Notch and Tim) ... Still for that game to be done properly, no, $4 million is not the number. Maybe $15 million is the number. Are you going to be able to get $15 million out of Kickstarter? Maybe someday, probably not now. Could you get $15 million out of a private investor? Probably not."

"There is still this top-end of the self-financing model which right now is around $3 million by precedent. So what can you do for $3 million? You can do a great game, for sure you can. Can you do a Medal of Honor or Call of Duty for $3 million? Probably not. And what Kickstarter is doing, what crowd sourcing is doing... it's kind of a pain in the butt for some people because you incur a debt to a lot of people. Now the debt isn't money, but the debt is time."

Riding the Kickstarter wave

Kickstarter offers studios a chance to pay for their game in full up-front; it then offers them a chance to gain more and more in funding for each new title, riding on successful projects.

"Really, my involvement with Double Fine is very similar to the Kickstarter model; it's just to a larger degree. I'm a fan. Why does someone kick in $500 to the Double Fine Adventure game? They're a fan..." Drawing from his experience as a private investor, Dengler promotes the idea that this new system allows a studio to basically forgo the traditional route of early seed-funding for smaller titles.

"I love it, I think it's one of the greatest things about the whole model is that this is a tangible expression of support from fans of the game. As this thing becomes larger, as Kickstarter becomes more mainstream, you're just going to have more fans to draw on. Things that appeal to those people are going to be financed bigger and better all the time."

"People will look back on Wasteland 2 and Double Fine Adventure as sort of the first major projects on Kickstarter, but I don't think they'll be one-offs"

"If you sort of build up a reputation on Kickstarter, I can see studios getting to the point where they are raising $5 to $10 million without doing any publisher type games, without any support from a publisher. If those hit, if those succeed, those people won't have to do Kickstarter. If you do a $5 million title and it makes a pile of money, you won't need to go back to Kickstarter.

"You then become a sort of combo developer/publisher at that point; you can do your own thing. That will be the ultimate success story."

"If Double Fine or inXile or a couple of other people can bootstrap themselves through Kickstarter to the point they don't need publishers or anyone, they can be their own stem-to-stern content creators and distribution people. You know Steam and other platforms are set up to distribute that content. You don't necessarily need to put a box on a shelf anymore; that's 20th century, that's old school."

Kickstarter's future appears bright

Kickstarter has fast become a solid funding alternative for gaming studios to pursue, and with some projects even offering shares or equity in a company, the future of the funding platform will be very interesting. "Kickstarter is just starting to be seen as a serious thing," offers Dengler. "Give it a year or two, get it mainstream. Not just for geeks, but for mainstream people who are fans of things. Let the self-serve entertainment model run for a couple years and then you'll see some serious engagement on Kickstarter."

He adds that "People will look back on Wasteland 2 and Double Fine Adventure as sort of the first major projects on Kickstarter, but I don't think they'll be one-offs. They'll be remembered as the ones who opened the door and showed it was a real legitimate move. The move to shares and equity is going to be interesting as well."

The new publishing model is now a viable option, not one to replace the big publishers and the normal funding route, but definitely a solid route to take.

"I definitely see it as a legitimate model going forward, and an ever-more legitimate model."

Perhaps the biggest reason that Kickstarter will continue to be a go-to model for developers is simple economics. "Take an indie guy who sells 100,000 units, but he gets to keep the net revenue minus the charge of digital distribution. The actual indie guy is making the vast majority of the money. He doesn't need to sell a million units. He can sell a lot less than a million units and maybe make more than the big guy who does sell a million units," Dengler observes.

"The ultimate example of this is Markus Persson, Mojang and Minecraft. It's sort of the indie game that stopped being an Indie game; it just got too big. So these kinds of things are possible, exciting and neat, but I don't think these guys are going to knock the publishers on their rear ends immediately."

So while the market is not going to completely turn topsy-turvy overnight, the new funding approach is going to cause even more drastic change in the coming years.

"Five years from now, if you see a few more studios that are their own publishers, you will see bigger publishers start to get nervous"

"I think that end of the [lower-budget] market is going to get filled up with Kickstarter and Kickstarter-like things are going to be the biggest piece of the puzzle. Out of that low-end part of the market, you are going to see some really creative and neat things come up that suddenly start to get interesting."

Kickstarter implications to be aware of

Kickstarter may be just the vehicle to get your great game idea the necessary funds, but smaller studios must also be very careful about what rewards are being promised. Managing the physical end for rewards can be daunting and impose a bigger than expected financial burden.

Many studios are looking to give away T-shirts, the game itself and even bigger prizes, and that entire physical supply has to be managed.

"Again, you have to sit down and think. What did Tim end up with, 90,000 fans in the end? Each of those gets a reward. You've got to fulfill all of that stuff you offer. You are swapping one sort of debt for another," Dengler warns.

"If the people on Kickstarter are to keep their rewards digital, like a digital download to the game or digital download to the soundtrack, then they won't be in that much trouble. A really large Kickstarter project with a lot of physical fulfillment adds a lot of overhead in its own right. [The upside] is that Kickstarter engages the fans kind of like a super-preorder."

"You are ordering the game even before it's developed. You're saying 'I have faith in you so much that I'm going to…' and actually people have sort of criticized this. They are saying you are giving a studio carte blanche to make whatever they want."

This all is worth it though, in the long run, argues Dengler. It's yet another step in the evolution and maturation of the games business.

"Five years from now, if you see a few more studios that are their own publishers, you will see bigger publishers start to get nervous and go 'geez.' The same thing happened in music, the same thing happens everywhere."

"The industry changes, and the people that can adapt survive, and the people that don't, don't. It's nothing new."