Soulbound Studios Talks Crowdfunding, Funding Fatigue, and Transparency
In the early days of the industry video games were two-dimensional, had two colors, and were controlled by a single input device. While retro games are making a comeback, the fact remains that over the years the complexity of games has increased exponentially from 2D, to 3D, and now to VR. Where before it was fine for games to make beeps and blips, today’s immersive games are expected to have award winning scores.
Where before games could be made with just a handful of programmers, today it requires programmers, concept artists, character and environment artists, animators and riggers, visual effects people, sound engineers, composers, and more. Today, making a game like Chronicles of Elyria is expensive.
This is ultimately what led to publishers coming onto the scene. The publishing model is fairly straight forward. A developer submits a proposal to a publisher. If the publisher likes the idea they pay for the development of the game as an advance against royalties. That is, if the game succeeds, the publisher recoups their loss first and the developer only sees a profit once the revenue goes beyond what it cost them to make the game.
Unfortunately, many games aren’t successful. For every game you see on store shelves there’s a handful that didn’t make it to that point in production, or simply didn’t sell as well as the publisher would have liked. When that happens, the publisher suffers a loss. This is the main reason many publishers stick to a formula they know is likely to succeed.
The crowdfunding model is different. With crowdfunding, the approval phase and the funding phase are combined. Instead of submitting a proposal to a review board or committee we submit it directly to the players via a platform such as Kickstarter. Here, the players decide if they want to green-light the project by ensuring the project reaches the minimum amount of funding needed to complete it.
So really, the primary differences between the publishing model and the crowdfunding model are who absorbs the risk and who gets to decide whether innovation occurs. The answer is the same for both. It’s the backers.
Funding Fatigue & Other Challenges
When publishers see only a small handful of games succeeding, they double down on the ones that do, and write off those that don't as a cost of doing business. That, and they begin to shy away from taking risks in favor of doing things they know will generate a steady stream of revenue.
When crowdfunding fails, the backers have no way to recoup their losses, no way to amortize it over several projects, and are left feeling robbed and cheated. We’re seeing more and more of this as backers are starting to experience the same win-loss ratio as publishers do. This is what some people are referring to as funding fatigue.
The truth is, there's nothing wrong with that. It's expected. But it also means that players begin to naturally adjust their behavior just as publishers did. Instead of embracing each exciting idea that comes along, players start saying things like “This idea is too bold. It’ll never succeed,” or “this company doesn’t have any celebrities leading the project, so they must not be good enough to pull it off.” The sentiments are logical knee-jerk reactions to seeing a project fail and not wanting to get burned again.
The problem with these statements is that while they’re the same things that publishers say, they’re often unsubstantiated. Publishers have an army of engineers and other resources at their disposal to help them make a calculated decision about the risk vs. reward of backing a project. Backers generally have no such advocates. There’s no investors or brokers sitting with them telling them whether a game project is likely to succeed or not. This all serves to create a fairly complex problem. Players want (and deserve) the ability to identify the projects they want made, but often lack the information necessary to determine which projects are worth backing, and which have a high chance of success.
How do we solve this problem? Transparency. Just as we provide design treatments, pitches, proposals, and planning documents to the publishers, it’s the developer’s job to be transparent with the backers.
Transparency builds confidence and makes supporting the project safer for backers.
That's the main reason we've continued to put out screenshots, videos, and most recently a playable demo of our combat system. That's also the reason why at only a pre-production stage we showed up at PAX East 2016 and introduced ourselves to everyone. And people loved what we showed.
There’s nothing wrong with backers asking for more information. If you’re going to be putting money into something risky, it’s fair to ask to see something that indicates the developers have thought through things carefully. The only thing to be cautious of is that generally there’s an NDA between developers and their publisher or investors that protects their research and development. With crowdfunding no such document exists. So backers shouldn’t expect to see technical design documents that could potentially contain patentable information, or inside information about ongoing business deals. But aside from that, we believe it’s fair to ask the hard questions.
As for us, as we continue with our Kickstarter we’ll provide the external documentation to show we’ve got a plan. We want backers to know that we’re treating them with the same respect and transparency as we would anyone providing us seed capital. That, and a whole bunch of images, videos, and design journals to keep the excitement steady for the community of gamers who want to see innovation happen.