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The Changing Face of Video Game Crowdfunding

Much has changed since 2012, when Double Fine cracked open video game crowdfunding with more than $3.3 million raised.

The video game Kickstarter movement began as part of the indie revolution against the very concept of publishers. Kickstarter was an integral part of indie validation at a time when small studios couldn’t self-publish on consoles. Publishers weren’t interested in anything but the biggest blockbusters, leaving no room for experimental titles or love-letters to franchises long left fallow. And for a time, players and developers were certain it would forever break gaming away from caricature executive “villains” that wanted to focus test games to maximize profits, even if quality suffered.

Fast forward to 2019 and Microsoft, Sony, and Nintendo have all embraced self-publishing, and mega-publishers are investing in smaller productions. Many of the original Kickstarter darlings have found success teaming up with those whom they had so vehemently decried.

Double Fine’s next game, “Psychonauts 2” is (at least for the time being) published by Starbreeze. “Wasteland 2” developer InXile is now wholly owned by Microsoft years after founder Brian Fargo labeled conditions for developers working under publishers as “abysmal.” Even Harebrained Schemes, which had mastered the art of video game Kickstarters with the revived Shadowrun franchise, found a new home under strategy publisher Paradox.

A cursory look at Kickstarter’s 2018 report on the game category might lead you to believe that video games are finding mounting success in crowdfunding. However, it’s another medium that has propelled the category to new heights, with more than $200 million in funding last year. Tabletop continues to grow on the platform, with major publishers like IDW Games, Renegade Games, AEG, and CMON using crowdfunding to generate excitement and capture guaranteed sales for intricate (and expensive to manufacture) miniature-heavy products.

A look at the list of most-funded Kickstarter games tells the tale. The top spot with more than $12 million raised belongs to “Kingdom Death: Monster 1.5”, a new edition of a tabletop game that brought in more than $2 million in its initial Kickstarter. Of the top ten most funded game projects, only three are video game-related: the ill-fated Ouya game console (#3), “Shenmue III” (#5), and “Bloodstained: Ritual of the Night” (#7).

Transparency is an enormous reason that board games are finding Kickstarter a fertile ground, even as the number of engaging and competitive campaigns increases. The opposite is true of video game crowdfunding projects, creating an enormous barrier to success.

“Usually the audience is seeing pre-alpha footage that is not representative of final gameplay,” explains Fig.co founder and CEO Justin Bailey. “Many times, the crowdfunding goals themselves have been manufactured to appeal to the press and generate a secondary beat of overfunding (and therefore generate more buzz) and have little correlation to the actual budget. Then, depending on how much is raised from crowdfunding, there’s a pronounced effect on the final quality of the game and release timing, neither of which is set in stone – how could they be when there are so many unknown variables that exist so early in development? Many times, a campaign barely succeeding can be one of the worst outcomes for a developer since that means they don’t have enough money to finish the game and thus must spend time finding alternate financing – time they would otherwise be spent making the game. That starts an ugly downward spiral of lower quality, increasing delays, and thus a reduced chance of finding outside funds.”

At the same time, backers have become savvier. They aren’t willing to risk their money unless the developer has made a strong case for the game and built confidence that it will actually be delivered.

“The backers of video games and on Kickstarter, in general, are an ever-evolving team of people, but video games specifically, backers expect a lot more from a video game than they did in 2012 and 2013,” says Kickstarter games outreach lead Anya Combs. “We think that’s very good. What that means to us is that the platform is maturing.”

To succeed on Kickstarter with a video game project requires an ever greater amount of planning, social cache, and celebrity appeal. In 2012, pitch videos were a compilation of pretty words, concept art, and physical backer rewards that ended up costing too much to deliver. There were no feature sets or work-in-progress screenshots and videos. It quickly became clear to Kickstarter that backers needed to see something more tangible to build confidence.

We stress the importance of showing your gameplay,” Combs explains. “Just having an idea and using text to show that idea is not going to cut it any longer. You need to show gameplay not only in your video but all throughout your page in four or five gifs. We also stress the importance of building a community before you launch.”

Surprise Kickstarter launches were the norm in the first few years of video game funding on the platform. Today, you’ll see developers prime the pump by announcing a campaign a month before the launch date. Hype and community building are now a crucial part of the months-long campaign development cycle.

In “The GameDev Business Handbook,” Harebrained Schemes co-founder Jordan Weisman says that the 2012 “Shadowrun Returns” campaign was put together in about two weeks. For 2016’s “BattleTech,” preparation took six months.

Even with extensive planning, funding amounts for video games are decreasing and success is far from guaranteed. “The Waylanders,” a project featuring contributions from former Telltale narrative designer Emily Grace Buck and former “Dragon Age” creative director Mike Laidlaw, was in danger of missing its $150,000 goal through most of its campaign before a late-stage rally that put it over the top.

The knee-jerk reaction here is to believe that crowdfunding is about to become extinct. The 2012 – 2013 gold rush created a false sense of success that was unsustainable and fad-driven leading up to a peak in 2015.

Crowdfunding is alive and well for those projects that are a good fit. The average number of video games funding yearly since 2012 is 360 and 2018 was only slightly below that at 352.

Funding isn’t a one-size-fits-all proposition, and too many developers saw Kickstarter as a panacea it was never meant to be. That resulted in massive project delays due to feature bloat. According to a GameDaily report, more than 55 percent of games have been delayed more than a year from original ship estimates. Other developers, like “Star Command” creators Warballoon, ended up committing to physical rewards that took a huge bite from development funds, setting the entire project back months.

Crowdfunding expectations have come back down to earth and more options have become available, like IndieFund,which was created as an alternative to publisher funding. With a steering committee comprised of successful independent developers, IndieFund offers funding without milestones and a generous repayment and revenue share arrangement (25 percent after recoup).

Other developers have decided to stay in the crowdfunding lane, but move away from Kickstarter. Launched in August 2015, Fig was envisioned to create a path to crowd-based investment for independent developers.

Instead of backer rewards, investors have the opportunity to see a return in the form of dividends. Video games are still an exceptionally risky way to make money. In the case of Fig, it took two years to earn the SEC’s blessing before it could even sell to non accredited investors. The math Fig used when pitching crowd investment for “Psychonauts 2” was fuzzy (as detailed in a lengthy explainer via Game Informer).

As of November, 22 games had been funded via Fig crowd investment. Eight of those games are currently earning money for investors. A ninth game, “Outer Wilds,” was an investment success when Fig sold the rights to Annapurna. Three had broken even for investors with a fourth close to that point.

The odds aren’t great, and you won’t see your money quickly. Remember, crowdfunded games often take years between the moment that a funding campaign closes and when it goes on sale. According to a Fig blog post, “Outer Wilds” returned at more than 200 percent. “Kingdoms and Castles” closed its dividend period bringing in about 300 percent more than the share price.

It’s possible that you won’t break even at all or, if you do, it won’t be enough to account for the opportunity cost and time value of money related to investing the funds differently. All investments are a risk, of course, and Fig makes no secret of that when courting funders.

A prospectus is filed with the SEC detailing the share amounts, and how dividends will be calculated. These documents also reveal often undisclosed factors related to publishing contracts, including revenue share, anticipated pricing, and the number of units that likely need to be sold to reach break-even. For “Wasteland 3,” investors won’t realize benefit until 296,600 full-priced copies are sold (about $14 million in gross sales, though this number may be significantly lower if “Wasteland 3” is sold on Epic Games Store, dropping anticipated platform fees from 30 percent to 12 percent).

It’s too early to say whether Fig’s successes are the norm or the exception.

“We report returns per series of Fig Game Shares that we have sold to the public twice a year, at the time of our regular January and June SEC filings,” a company representative tells Variety. “We can’t give you a sensible average rate of return, because most of our projects are still in development.”

Fig feels confident about its curated approach, though. In 2018, 22 percent of Kickstarter’s 1,501 video game campaigns succeeded. That success rate has been consistent for video game projects since 2012. By comparison, Fig ran 12 campaigns during the year, but more than 40 percent succeeded. So far, Fig’s lifetime success rate is 62 percent across 37 campaigns.

Despite that success, Bailey sees a need for Fig to innovate and adapt to changing market conditions.

“The Kickstarter and Indiegogo campaign formats are built brilliantly to capitalize on press involvement, but fast forward to 2015 and beyond, and the video game press no longer view crowdfunding as a newsworthy event, potentially due to a combination of stagnant reader interest, an overabundance of campaigns, campaign failures, and limited staffing,” he explains. “On the flip side, developers now have access to very competitive sources of capital, sources that don’t expose them to potential public failure or require months of planning, and the result is a decline in the quality of developers who turn to crowdfunding. The problem is that those sources of capital are going to dry up.”

Bailey suggests that the reliance on data from 2012 to 2015 successes is distorting developer expectations. Without press interest, there is a discoverability problem, which in turn lowers sales potential. Combined with increasing consolidation in the video game space, developers will need to explore more creative means to develop their games.

To that end, Fig will be launching a new type of campaign called “Open Access” in the coming months, based on the success of games like “Minecraft” and “Prison Architect.” Bailey believes that if Kickstarter hadn’t disrupted game development in 2012, we might have moved down a different path entirely.

This is the path that Cloud Imperium Games has taken with ‘Star Citizen,’a game that raised more last year than all the video game campaigns on Kickstarter combined,” he says. “So, what did these developers do? For most of them, they made a playable build available immediately and never promised anything past that. They set up milestones that they’d achieve at different funding levels, at which point everyone would benefit. They never talked about timing, because they didn’t know when the funding would be achieved, or their development completed. The game development was a journey, and the developer didn’t know at the beginning where it would end up. They used feedback in addition to funds and having that took them to new and surprising places, and they were upfront about that from the start. With that type of setup, there’s funding transparency, correctly set expectations about quality and timing, and gamers who got to play something immediately. It created a healthy ecosystem that could be built upon and expanded, all the while building consumer loyalty and awareness.”

While this format is similar to how we understand “early access” today, Bailey suggests the goals are different. The “Open Access” approach is about feedback, experimentation, and raising funds to reach the next development milestone. The latter is a key difference, as Steam’s Early Access program, in particular, can’t be used as a fundraising vehicle.

Again, it’s far too early to make a judgment call on Fig’s “Open Access,” especially since we don’t know the details. One thing is for certain, the golden age of video game crowdfunding was brief and is now far behind us. The gap between announcement and release is shrinking industry-wide, and developers are going to need to rethink whether the model is sustainable in any format in a world that is moving toward subscriptions, cloud-based gaming, and a service focus that de-emphasizes up-front buy-in in favor of post-launch monetization.

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