Kickstarter: Corruption of Ideals?

[terin]

For those who have talked to me about it, around the time Double Fine's success was rolling forward with lightening speed, I made a prediction about Kickstarter and its future. It really didn't take long for my prediction to come true.

I've said over and over again, kickstarter is NOT a funding platform. It's a pre-order platform. That's really it. This pie in the sky dream that you can get a good project funded and then make it is bogus. Now it's super-reduced the risk for projects to get made, and that is a good thing. However, it's quickly turning corrupt and I am going to use a specific example of how users are going to be willingly duped.

There's a game on there now making some solid claims and references to the 'good old days' with plenty of name dropping. Hey they're going to remake a classic, give us 500,000 dollars! Except the reality is this remake they are GOING to do has been in production for half a year already. It's going to get made whether the fans reach that contribution goal or not. This super marketing spin that somehow you're supporting the creation of something that would otherwise not get made is bogus to an extreme.

Now I don't blame them for jumping on the opportunity to eliminate some or all of the financial risk, but the item I can't seem to stomach is the politician level spin the media seems to be putting on it - as if helping a developer like this akin to donating to charity or belief.

I'm pondering some formal article proclaiming to the gamers of the world: Kickstarter is good, it gives devs the safety they need to make awesome games, but do NOT think for a second it's anything other than a long term and highly RISKY pre-order. It's not the slightest bit different from ordering an unreleased game on Steam, with the added caveat that you won't get a refund if the game never makes it into the public's hands.

That said I highly encourage everyone with a game, regardless of if you need the money, to have a kickstarter campaign and do it well. It's basically free money and publicity. This is the corruption of ideals I speak of, doesn't make it bad, just makes it not the original intent of the platform.

-Joe

[Nutter2000]

That said I highly encourage everyone with a game, regardless of if you need the money, to have a kickstarter campaign and do it well. It's basically free money and publicity.

Unless you're not a US citizen http://kck.st/HcxeoE :-(

Nice post though, I was reading an article by another dev (which I can't remember the url to now) that in summary said unless you're a brand (i.e. in this case well known team or led by a famous developer) then you have very little chance of massive success on Kickstarter like Double Fine did.

[James Coote]

Maybe this has already been happening, but I could imagine some companies having kick-finisher campaigns. I was half way through developing my game before I heard about kickstarter and thought "Hey, that's a great way to get the money I need to pay for all the modelling and artwork I need" (I'm a programmer, so I can do everything else myself).

Equally, people could start a project with a much larger scope than they'd otherwise be able to afford, pump all their resources into making the cool shiny stuff needed to impress people in a kickstarter campaign, and then use the kickstarter funds to actually make the game

Unless you're not a US citizen http://kck.st/HcxeoE :-(

There are other similar sites that are international, such as indiegogo. The only difference with kickstarter is that if it fails to reach its goal, the money has return to the backers. Apparently, only amazon payments lets you do this. You can sign up for Amazon payments outside of the US, though I haven't tried it with kickstarter yet

[terin]

If you don't see making all the cool LOOKING things first to hope your game gets funded via kickstarter a corruption of the original intent of the system... well... uh...

[lennard]

It's a tricky proposition. You need to create enough of the cool stuff to have a KS marketing campaign that compels users to donate. I'll be posting my KS post-mortem later today.

[Nutter2000]

There are other similar sites that are international, such as indiegogo. The only difference with kickstarter is that if it fails to reach its goal, the money has return to the backers. Apparently, only amazon payments lets you do this. You can sign up for Amazon payments outside of the US, though I haven't tried it with kickstarter yet

Yes to be fair, there are others although I think Kickstarter maybe the most popular.
I /think/ you can sign up otuside of the US but you need to be a US citizen. Could be wrong or out of date though.

[James Coote]

If you don't see making all the cool LOOKING things first to hope your game gets funded via kickstarter a corruption of the original intent of the system... well... uh...

Not saying I'd ever consider doing that

Of course, even if you don't do a kickstarter campaign, having some cool graphics and shiny stuff to show to people right from the start (on forums like this one) helps create a 'buzz' and hype around a game long before completion. If, like me, you have a really solid game with graphics that suck because you're no artist, but still decided to make them yourself... well I guess you go hire a professional artist :P but that's not the point

[Morgan Ramsay]

Except the reality is this remake they are GOING to do has been in production for half a year already. It's going to get made whether the fans reach that contribution goal or not. This super marketing spin that somehow you're supporting the creation of something that would otherwise not get made is bogus to an extreme.

Money is finite. Just because you spend some amount to reach a halfway point does not mean that you have the money to reach the finish line. Many, many projects, including those outside of games, are cancelled due to insufficient funding. Kickstarter has always been a place where project owners can partially fund their projects, not just fund their projects in full. I'd even bet that most projects that are successfully funded end up with expenses beyond what they raised. No budget estimate is ever 100% accurate.

Now I don't blame them for jumping on the opportunity to eliminate some or all of the financial risk, but the item I can't seem to stomach is the politician level spin the media seems to be putting on it - as if helping a developer like this akin to donating to charity or belief.

Is donating to a charity akin to "donating to a charity"? There's a romance to "giving" that usually has no basis in reality. Charitable organizations are nonprofit corporations. They differ slightly from for-profit corporations; however, the differences are merely legal in nature. I won't put you through Nonprofit Management 100, so let's just leave it at this: giving makes you feel good. Video games are entertainment. There's nothing wrong with helping people to feel good about themselves.

I'm pondering some formal article proclaiming to the gamers of the world: Kickstarter is good, it gives devs the safety they need to make awesome games, but do NOT think for a second it's anything other than a long term and highly RISKY pre-order. It's not the slightest bit different from ordering an unreleased game on Steam, with the added caveat that you won't get a refund if the game never makes it into the public's hands.

Why? How would your article help you achieve your goals as a marketing consultant? You might endear some conspiracy theorists to you, but are they going to pay your bills? As a former consultant, I understand that you have a burning desire to tell people they're wrong, to tell people the "truth," but you need to direct that energy toward more positive ends. For example, answer this question: how would you advise a client to improve their Kickstarter campaign? Write an article about that.

[terin]

Bogus Morgan, pure bogus.

Coming from me, the one who's most likely to tell people that games exist for profit and not for art, even I draw the line at stringing consumers along with a false ideal. Remember: that is the point of this thread, it's a corruption of IDEALS, not of generating profit or value. Don't mistake for a second that I have not recommended cashing in on this opportunity to every one of my clients. Just because I support my clients profiting from it doesn't make it a good thing as a whole and doesn't make it a good thing for consumers.

There's good feeling in giving? Give me a break. If you donate to the Salvation Army and you learn they are using it to smuggle drugs and buy weapons that doesn't create a good feeling. Sure it's an exaggeration (and I sure hope they don't use the money for that), but it's the END result your donation is generating a feeling about. I'm saying the end result of for-profit high risk and high profile projects via kickstarter is going to end in a backlash from consumers when results vary from promises.

Further I maintain that the majority of games who end half-way done because the creators lacked the experience to budget properly SHOULDN'T BE MADE. It's not that there aren't several KS campaigns who I really believe in and want to see created, and those that do probably qualify as benefiting from KS within the original ideals of the setup. It's that I am seeing more movement from people who are literally out to screw the donators and have potentially no intention of ever making the product within the scope of the promises given. You want to support that? Consent by silence is not my style.

So why would it help me as a marketing consultant? It probably wouldn't. Doesn't have to either. I could write it anonymously, I could write it just because I think its important to say. I could write it with the intent of continuing my reputation as an honest marketing person- which by the way creates more business for me than any other trait.

This forum is about sharing ideas and threats within the professional gaming industry as well as sharing resources of value. Just because I say I may write an article certainly doesn't mean I am going to or I think its a good idea. It may inspire someone else to write it though who may have access to information I don't.

At any rate, I get what you're saying that by focusing my time on something that isn't profiting me directly is not really the best use of it. I have little intention of writing this article until such time as I can actually prove what I am saying anyway. Baseless accusations aren't going to get me anywhere. Lets just hope its not Shadowrun that bites the bullet and becomes the example that proves the case. (I love Shadowrun too, afterall - and it wasn't the 500,000 dollar game I was referencing for the record)

Last - Why do people keep replying to my posts lately with the tone of "Hey new guy, here's some advice..." It isn't that I mind advice, it's just been a very strange experience that didn't used to happen. 9 years people, 9 years of listening to my rants about business Who here remembers the good old days? :P I don't know what brought that up, but I am pretty sure I have been seeing it for the last couple months.

-Joe

[Scharlo]

There's a game on there now making some solid claims and references to the 'good old days' with plenty of name dropping. Hey they're going to remake a classic, give us 500,000 dollars! Except the reality is this remake they are GOING to do has been in production for half a year already. It's going to get made whether the fans reach that contribution goal or not. This super marketing spin that somehow you're supporting the creation of something that would otherwise not get made is bogus to an extreme.

-Joe

So, it is morally right for someone who is lazy or unable to find other source of funding
to get his game funded by Kickstarter because otherwise the game wouldn't be made in the first place. But if someone got the ball rolling and actually did some work in order to get the funds (or part of it) - it would be wrong to ask for support.
Brilliant.

[Morgan Ramsay]

I'm saying the end result of for-profit high risk and high profile projects via kickstarter is going to end in a backlash from consumers when results vary from promises.

The solution then is to educate Kickstarter project owners on how to communicate with backers and establish reasonable expectations of return. Entertainment quality is always subjective.

Further I maintain that the majority of games who end half-way done because the creators lacked the experience to budget properly SHOULDN'T BE MADE.

Have you read my book? There's a chapter about Troika Games. Paperback and digital editions are available through Amazon, BN.com, Walmart.com, and booksellers worldwide. You can't miss it.

[lennard]

This is good advice: For example, answer this question: how would you advise a client to improve their Kickstarter campaign?

I don't know why people donate more money to getting a game made than they would to go and buy games that are already finished. My internal Sheldon wants to sort them all out. But that's not the business I am in. I'm in the entertainment business and:

a) it takes money to be in the entertainment business
b) for whatever reason, folks are more entertained by funding KS projects than buying Pokemon cards right now. I don't understand it - if I did maybe my first Kickstarter campaign would have been successfully funded - but it's not my job to worry about that. Maybe the experience of being in on the ground floor, somehow, is more valuable than the actual game experience. A year or so ago when this started happening it was certainly a new thing and, for less than the price of a compiler, you can go and fund a dozen games. Each to their own, it's a mistake to try and tell the consumer what they can and cannot enjoy.

[Applewood]

It's not even about genetating pre-orders. It's about getting Beta testers to pay for the privilege.

Fair play, I have to give my games away to get them tested!

[terin]

Scharlo, I am not sure where that message got garbled, but I am saying just the opposite. It's a violation of the ideals that kickstarter was founded on for a project with full funding to seek additional money and WAY worse for those people out there that are going to put together a bunch of vaporware in return for funding. Now I obviously don't support the vaporware idea. I do support the idea of using kickstarter as a source of beta testers and pre-orders for a game that is fully funded. However, I still say that is a violation of the IDEALS put forth. However, I am also saying if you are making a game and your plan is to make it half way and hope kickstarter will cover the rest... that isn't a professional plan. If you're 10% in that is another story. A quick prototype and utilizing kickstarter as a measure of how good the idea is... that is a possible business plan. But there's no one answer to these things, we're painting in broad brush strokes and there's going to be plenty of exceptions.

I don't see it Morgan - I see this problem getting worse before it gets better. I see a 500,000 dollar project in the near future that will never be released and it will be a year or more before the donators realize they've been duped. How many other vaporware projects will people spend money on in that time before they wise up? The people who would take the advice of properly managing expectations aren't really my concern in the long run: It's the sharks out there that are going to steal money from developers who would otherwise need it.

If I had the time I would put together a vapor product just to see how much cash I could get, then refund everyone the money, write a great expose on it, and laugh my ass off. Sadly I don't have the time or energy for it, but I hope someone does.

Lennard, from the little work I have done with Kickstarter so far i say presentation is everything. Graphics, as was stated above, are essential. Some famous names doesn't hurt either. Then couple that with contacting game sites and press outlets and the community will do most of the heavy lifting. Also most successful kickstarter projects I know went to friends and family and had them start the project off on the right foot, with one client of mine raising about 8,000 odd dollars from this method. This helps separate you from the herd. So far the 'non famous' games that have done well are few and far between. I think a reasonable kickstarter goal for someone who doesn't have this advantage of name recognition is 10,000 at this time, with the hope of ending somewhere between 20 and 30k. I expect success rates like FTL are going to be pretty rare for the indies out there.

[Morgan Ramsay]

It's the sharks out there that are going to steal money from developers who would otherwise need it.

Capital raised through Kickstarter is effectively angel money without convertible debt or equity. With any investment, there's always the risk of a failed enterprise as well as the risk of losing your money. Even preorders aren't guarantees that a product will materialize. There are no sure things, especially in this business.

[terin]

Capital raised through Kickstarter is effectively angel money without convertible debt or equity.

Which in fact makes it NOT angel money, in fact, at the moment the US has a law against raising capital with equity in crowdsource format (however, there is likely to be a new law passed that allows it in some form). There's nothing angelic about angel based capital, it's just capital for equity in first stage capital raising.

As for pre-orders not guaranteeing product materialization: This depends. If Steam has a pre-order I've never heard of it not materializing. If it didn't, Steam would refund the money. On the otherhand an independent studio may simply not have the funds available (having used them on production we hope) to refund the cash.

By the way, if you think you can raise angel capital and simply decide to do no work and pay yourself the money given as salary you'd have another thing coming. Those investors are well protected by law from such things. Kickstarter has no such protections.

-Joe

[Davaris]

I don't see it Morgan - I see this problem getting worse before it gets better. I see a 500,000 dollar project in the near future that will never be released and it will be a year or more before the donators realize they've been duped.

I read an interview with Brian Fargo and he said something about Kickstarter, holding a portion of the money in escrow, until they can demonstrate sufficient progress to the Kickstarter people.

[rioka]

Really now? So, what happens to the money if the person isn't showing sufficient progress? Does Kickstarter keep the money or will the supporters get a partial money refund?

[terin]

Davaris/rioka - I really didn't know that either (assuming it is true) - but that is a whole different can of worms. What DOES happen if you're showing progress but not SUFFICIENT progress? What does that even mean? That basically puts Kickstarter in the role of a publisher, doesn't it? Hey, hit milestone #2 by February or we're pulling the funding behind your project. At what income level does this start? 10,000? 30,000? 100,000? 1,000,000?

This brings up another question that I don't know the answer to: What are the tax laws behind kickstarter 'donations' : If I am not mistaken, for instance, if someone invests money in your company (say 1,000,000 dollars) you get the full million. It isn't taxed until there's some kind of liquidity event, at which point it either becomes a gain or a loss (So if the company sells for 10 million and you get 3 million of that, you're taxed at a capital gain of 2 million, similarly you can declare a capital loss if the sale results in less than 1 million). I'm pretty sure that is how it works... BUT

Kickstarter is not an investment. It also isn't a CHARITABLE donation (In these cases these are not non-profit organizations). So as far as I know I see two ways it could pan out and i would LOVE someone who knows the answer to reply: 1) You're taxed on the income immediately, just as you would if someone pre-orders your game. 2) You're taxed at the launch of the game, and all those sales immediately are counted. I think it would make more sense with numbers:

Doublefine gets 3 million USD and are a C corp (I have no clue if they are, but lets just say)
They spend 1 million developing the game and it takes exactly 1 fiscal year to make.
Is that 3 million in income taxed immediately upon receipt (resulting in something like a net gain of only 2 million or so) and then the costs of production are weighed against the income the game generates not inclusive of kickstarter (So year 1 is a 1 million dollar loss that will be amortized over the next several years of income in the form of tax savings).

OR do they get the 3 million in cash and as soon as the game launches the goods are considered to be 'delivered' resulting in sale on paper and so they have 3 million in income, 1 million in expenses and owe taxes on 2 million in profits?

I'm so confused! I actually think its version #2. You're paying them for the delivery of a future good and the money isn't 'on book' until they deliver it. In which case that could be seriously dangerous for a company! Imagine if you spent all 3 million in development and suddenly have this massive tax burden upon completing the project but no actual revenue (lets say the game gets a lot of kickstarter money but then bombs on actual sales). Or maybe KS withholds the expected tax amount?
-Joe

[Morgan Ramsay]

You need to read the guidelines and the FAQs for backers.

[Stropp]

Is that 3 million in income taxed immediately upon receipt (resulting in something like a net gain of only 2 million or so) and then the costs of production are weighed against the income the game generates not inclusive of kickstarter (So year 1 is a 1 million dollar loss that will be amortized over the next several years of income in the form of tax savings).

OR do they get the 3 million in cash and as soon as the game launches the goods are considered to be 'delivered' resulting in sale on paper and so they have 3 million in income, 1 million in expenses and owe taxes on 2 million in profits?

I'm so confused! I actually think its version #2. You're paying them for the delivery of a future good and the money isn't 'on book' until they deliver it. In which case that could be seriously dangerous for a company! Imagine if you spent all 3 million in development and suddenly have this massive tax burden upon completing the project but no actual revenue (lets say the game gets a lot of kickstarter money but then bombs on actual sales). Or maybe KS withholds the expected tax amount?
-Joe

Do you have cash and accrual accounting methods, or their equivalents, in the US?

In Australia it would likely depend on which accounting method you used. Cash accounting means that the income counts when it is received. If I issue an invoice at the end of the financial year and it is paid after the new FY begins, then any taxes won't be due in the year the invoice was issued, but the next. With the accrual method, the income counts when the invoice is issued, even if it hasn't been paid yet.

I suspect that for most projects, very few will be raising millions of dollars, there will be just enough income to fund the game and the donation rewards. A larger company like Double Fine will (should?) also have the level of accounting necessary to mitigate problems with overfunding. A small developer (should still have an accountant) should spend a bigger proportion on the game and have less of a tax bill.

In any case, the best thing to do is to set aside a portion of the funding, perhaps 20%, in to a separate account to cover the tax. It's good to do this with all your income anyway.

On the milestone issue. Rather than setting hard dates for a milestone to be delivered by, don't make it date based. Then if it takes longer than expected funding won't be pulled just delayed. Milestones should be negotiated between the developer and Kickstarter, or possibly provided by the developer to the 'investors' to approve once the project has been funded (although there are problems with doing it this way.)

[Morgan Ramsay]

As the guidelines and FAQ indicate, Kickstarter does not do any hand holding. If Kickstarter measured progress, they would be accountable; Kickstarter is not accountable. Once a project's Kickstarter campaign ends, Kickstarter and Amazon take their cuts, and the rest is transferred to the project owner.

Here's what Brian Fargo actually said, "There is a minimum pledge amount that the company establishes up front that has to be met or no money passes hands. In our case it was $900,000 dollars and that money is currently in an escrow of sorts where it will remain until our campaign ends. Once it is over then Kickstarter takes their piece as does Amazon for handling the monies and the rest comes to us."

However, note that pledges aren't real money until the Kickstarter campaign ends. Nothing is held in any "sort of escrow." Pledges are effectively IOUs. When the campaign ends, then the backers are charged for their pledges. This is why at the end of a campaign, there is some percentage of the total that must be discounted as a result of declined transactions.

[terin]

I had suspected as much. It would be weird for KS to act as a publishing agent like that.

So in the end the users are still looking to get burned with little room for reprisal. Shall we take bets on the first 6 figure+ vaporware from kickstarter? Or would that be mean

-Joe

[lennard]

I still think you are missing the point Joe. This isn't about buying the absolute perfect game - the world is filled with compelling games already. It's about funding something you believe in and feeling closer to the process. If that is the case then your $20 contribution not only gets you your backer rewards it lets you, vicariously (and seriously, none of these folks are betting their houses) feel a smidgeon of an iota of the gut churning financial risks that many game dev's take with each and every new venture. Cheap at the price.

I'm curious why you are so invested in beating up on something so potentially valuable to game dev's?

[Applewood]

Here's a different slant. Being probably more honest than I should be, I'd have to say that a runaway KS campaign is probably a self-damaging guarantee of mediocrity tbh.

Whilst developing games is a fun way to earn a living, it's still a business and it has to be run as such - with an eye permanently on the bottom line. A large part of what keeps me putting in the long hours to craft my next masterpiece is the prospect that going that extra mile will convert to more dosh later.

Now if I already had three million bucks in the bank, especially whem my estimated dev costs were a quarter of that? Well, I can't say for sure that I wouldn't be spending a lot of my "development time" fishing off the Bahamas instead of sitting up until midnight putting in that extra power up. And if you're honest, you'd all think twice too.

[James Coote]

Kickstarter does seem to have grown in a somewhat different direction from the art students asking for enough money to hire camera equipment for a weekend to make an indie film in their spare time

It is no longer for artists, but for businesses? How do you make the distinction, or should you at all?

[lennard]

@Paul. Not sure that's valid. We have one example of a 3 million dollar product. Those guys were doing killer work at Lucas Arts where they were living fairly well. In their case I don't think it's about the $ and their fans have agreed.

Some folks make games for the dollar incentive, some for the art and loads of grey in between. My point is that those guys in particular aren't looking for a meal ticket - this is what they do and now they can do so without sweating the $. I doubt they turn in crap - hope I'm not wrong.

[terin]

The point was exactly as James Coote just put it Lennard - This is a deviation from the original direction Kickstarter began it's rise to fame with. I'm not saying it's bad for devs- hell, I am not even bashing it. I am pointing out a serious flaw and risk in its future that has been pointed out a number of times by many others as well as me in this thread.

I am saying "DO IT" - Steal as much money from people as you can, make a mediocre product (or no product at all) just as Paul suggests, and pocket the difference on top of the revenue for maximum gain with minimal risk.

My goal here is to promote thought about the big picture. KS can be a way to reduce risk and increase profit as well as increase marketing and site traffic if you do it right. Further, it is inevitable that a large scale fully funded game simply won't be made. What's wrong with pointing that out?

Anyway, you people do what you want. This horse is beaten unconscious. We'll see next year if kickstarter's risk reduction creates the safety devs need to follow their vision and create great games or... if they'll just end in mediocrity due to not having to care quite as much about performance and/or not having a publisher breathing down your neck for the same reason. (Not that I am pro publisher either, but its important to acknowledge what little good they do)

[Davaris]

Here's what Brian Fargo actually said, "There is a minimum pledge amount that the company establishes up front that has to be met or no money passes hands. In our case it was $900,000 dollars and that money is currently in an escrow of sorts where it will remain until our campaign ends. Once it is over then Kickstarter takes their piece as does Amazon for handling the monies and the rest comes to us."

Thanks for clearing that up.


Joe, it was an interesting thread. You are the only one that has raised this issue. I expect it will go the way you suggest, until they bring in heavy handed regulation.



What I'd like like to see is a Kickstarter, that allows ordinary people to become part owners in products. And yes I know, it is almost impossible for a startup to do.

[terin]

More importantly it's currently illegal under the securities act from the 1920s Davaris It was set up in order to stop fraudulently raising money for fake business ventures, duping the general public into investing into scams. In order to by an angel investor you need to be accredited, which if my memory serves me, requires something like a 300,000 dollar a year income or (or was it and?) 3 million dollars in trust fund assets.

On a side note: early stage VC investments (angel investing) produce on average the highest returns of any passive investment, averaging something around 27% per year for pretty much the entire time people have been measuring it (about 10 years now). One more reason why the income gap is ever increasing in the USA, when the wealthiest individuals have access to higher performing investments. Granted, they are extremely high risk and require far more research and even work (as a board member, potentially) to get those gains... but... I do find it mildly unfair that over 95% of the nation simply isn't allowed to partake.

The house passed a bill to legalize crowd sourcing venture capital, last I heard it was in the Senate, however, the senate and house bills are EXTREMELY mismatched in design, so it's likely to be a while before anyone reaches a consensus on how it should be done. It ranges from a MAXIMUM of 10,000 dollars invested per year in 100 dollar (max) increments (AKA: Useless) to 1 million maximum with a cap at 10,000 per investment.

-Joe