Behind the Line: Publishers and Kickstarter, sins and virtues

It seems that the role of the Publisher is one of the more important, yet routinely misunderstood parts of the industry. With so many creators taking their series to Kickstarter to fund spiritual successors, it’s reasonable to conclude that the inclusion of a publisher is unnecessary, or even destructive. Creators stifled by publishers, having been told that their games are not right for the modern market, are going to crowd funding and being able to make the games they want, free of additional business restrictions.

Titles like Mighty No. 9, Yooka-Laylee, or Bloodstained: Ritual of the Night, the spiritual successors of MegaMan, Banjo-Kazooie, and Castlevania respectively, are proceeding in development with this crowd funded, publisher free model, and if those were the only examples to look at, this would look like a wonderful direction for everyone to go. This would be abandoning the restrictions of Publishers who act as middle men who contribute nothing, and only serve to impede the creativity of developers.

However, the fact of the matter is that they are not the only examples. They are 3 of many, and quite possibly the three where the publisher behavior that necessitated this split is the most baffling.

 

Kickstarter as a model

Kickstarter is in concept, if not also in execution, a great idea. Crowd sourcing has been a modern revolution that has also given us Wikipedia. Applying the concept to funding, which simultaneously gives the consumer more agency in the market and the creator more freedom, has already given many gifts to the games industry.

FTL was an early success that proved the viability of using Kickstarter as a channel for funding, and simultaneously re-igniting the rogue-like genre, making Kickstarter also a path for projects that couldn't find Publisher support.

FTL was an early success that proved the viability of using Kickstarter as a channel for funding, and simultaneously re-igniting the rogue-like genre, making Kickstarter also a path for projects that couldn’t find Publisher support.

Kickstarter has a big caveat, though, that donators seem to be slow to pick up on. That is the fact that donating to a campaign on Kickstarter is not the same as purchasing a product, but rather investing in the product for some products in exchange if goals are met and the development and production succeeds. It’s a lot more like taking the Venture Capitalists that would normally invest in exchange for a percentage of ownership, and instead going to everyone else for investments in exchange for what you want to sell them anyway. If you look at it like that, it’s actually a bit of a raw deal for the people making pledges on Kickstarter, but that’s a different topic.

The point of all of this, though, is that this is investing, not purchasing. A purchase is a transaction, but an investment carries risk. Kickstarter campaigns can be successful in that they meet their goals and are fully funded, but they can then fail by not being able to complete their development or production. In fact, according to one bit of research, only about 1/3 of game kickstarters have been able to release a product.

http://evilasahobby.com/2014/01/18/kickstander-only-around-a-third-of-kickstarted-video-game-projects-fully-deliver-to-their-backers/

The success rate of Kickstarter campaigns actually producing products is not good, leaving backers eating the cost. This is what Publishers try to avoid, and in a sense shield consumers from. Image from: http://evilasahobby.com/2014/01/18/kickstander-only-around-a-third-of-kickstarted-video-game-projects-fully-deliver-to-their-backers/

Keep that in mind, it’ll come up again later.

 

Kickstarter’s other issues

There are other problems with Kickstarter on a fundamental level. One of the most insidious is how it affects the perception in the general public about what is needed to develop a game.

Let’s say a game requires one million dollars to develop, and the developer has $750k available. They invest $500k to the initial development, and get a good body of work together to demonstrate the concept. They then use this progress and material to create a Kickstarter campaign for the remaining $250k they need. How many people who donate to this will fully understand that this game requires one million, rather than the $250 requested? Or that it took a year to develop, and not the 3 months that the Kickstarter campaign lists in its schedule. Anyone paying close enough attention will probably realize these distinctions, but not everyone will be paying that close attention and think that this neat game on Kickstarter was developed for $250k in 3 months.

There’s also the fact that any renowned creator will get more attention than someone with no history but a new idea. Peter Molynoux’s Godus is one example, and that project didn’t meet expectations. Tim Schaefer’s Broken Age is another where funding vastly exceeded expectations, and the weight of that extra money hurt the project. Both made plenty of money on Kickstarter, and have limped to the finish line to release a product. There can be many problems that could cause these problems like a notoriously unreliable vision from Molynoux, unrestrained feature creep to justify the money received in Schaefer’s case, or even just the uncertainties that come with game development inherently. However, the fact remains that the people who donated to those projects were probably not too pleased with their results, and only did so because of their belief in the people making the games. Cult following or not, the fact is that this direct tie between the developer and customer can hurt the relationship as well as help it.

Then there’s dealing with failures. Most people realize that Kickstarter projects aren’t direct purchases, and that there is some risk. However, the level of risk is hidden. The risk indicators are hidden. The project could fail on multiple levels, either not meeting its minimum goals, failures in development before release, critical bugs being discovered after release, and so on. There is a myriad of potential failure points, large and small, that Kickstarter provides no filter or buffer for.

This is where, ideally, a Publisher would come in.

 

The actual role of Publishers in gaming

Let me define the role of a Publisher in the games context. A developer has a game concept, and some talent to lay the groundwork for a project. They put together a presentation to show off the concept and start shopping around for someone to invest in the project, giving them the money they need to continue their operations for the projected duration of development. That would be the Publisher of the game. Publishers are akin to Production companies in films, they are the investors. Extending the film analogy, Publishers are also akin to Distribution companies. Publishers duties can include things like advertising, licensing, legal, customer support, community management, testing, server maintenance for online games, and technical support for the developer that can range from providing art assistance to fixing bugs in the game code.

Publishers, the evil businesses that try to make enough money to keep the medium profitable enough to actually sustain itself and keep making games for us to play.

Publishers, the evil businesses that try to make enough money to keep the medium profitable enough to actually sustain itself and keep making games for us to play.

That isn’t to say that all publishers do all of those things for all games. Every contract can be radically different from the next, and the distribution of duties can always be different. It’s entirely possible for a developer to handle all of this themselves and self publish, or to only need some investment. These details would also include things like who owns the intellectual property rights to the game. That last part is why the 3 Kickstarter examples above are spiritual successors. Their creators do not own the characters, the publishers do.

The publisher, having invested heavily in this game, wants to see it succeed. One of the most important things for them to do is to try to maximize its profitability and/or to get it purchased by as many people as possible. This is where advertising comes in, and is the part that everyone seems to ignore. Advertising isn’t cheap, or easy. If you want a game to be huge, then everyone has to know about it, and everyone has to want it. Unless the game has a lot of other things going for it, this can be very expensive. It’s entirely possible for the advertising budget for a game to exceed the development budget.

Advertising alone can’t make a game profitable. If the game itself isn’t good enough, then there’s almost no way to get back ahead on the curve of public perception. The Publisher will often be in a position where they will feel it necessary to ask (or demand) some changes be made to help the viability of the game as a product. This could be tweaking the mechanics of the game, changing the art style, changing the box art, rebalancing the game, or any number of other potential sticking points. This can sound like meddling in the creative process, but believe me it can be entirely valid. Believe me in this, I have seen advice like this get ignored to the detriment of the product.

There are also cases where the publisher has to put pressure on the developer to actually bring them under control. Without that kind of legal leverage to force the issue, 3D Realms would have gone out of business and never have finished Duke Nukem Forever. Nobody was really happy with the game, but at least it was released, people got to see it, and some money was made for 10 years of work.

Finally, it’s very important to understand that Publishers are keenly aware of the risks in game development. All of the issues in Kickstarter campaigns are present with this model as well. That 1/3 success rate of Kickstarter projects mentioned above may not be the same when a Published is involved, but there are too many well publicized game cancellations that illustrate that investments by Publishers is still absolutely a risk. The game could fail before release, or not sell enough to meet projections.

Publishers are the ones who provide the money, so they have to have the money in the first place, and keep making money to put money back into more projects. Can publishers take risks? Absolutely they can, but every projected risk has to have something to offset it. The publisher needs to have is a projected success to compensate for the potential loss. Keep in mind that this includes ALL costs associated with the game. This is why some games can seem to have healthy sales numbers and be labeled “disappointing” by the Publisher. They were expecting this to be bigger, and the fact that it wasn’t profitable enough means that their revenue is suffering.

 

Case study: Alien Isolation

Alien Isolation sold over 2 million copies and is considered a disappointment. How can that be?

Yeah, wallpapering a city in billboards costs, what, $5 right?  No problem.

Yeah, wallpapering a city in billboards costs, what, $5 right? No problem.

(insert billboard image: “Oh, I have no idea where all that money went. Wallpapering cities in billboards costs, what, $5?  No problem.”)

Maybe it was a miscalculation in trying to push the wrong game. Alien Isolation is a great game, entirely in the spirit of the original movie, and a truer sequel than any of the sequel movies, and I am including Aliens in that statement, but as a game it is not for the general audience. I feel it is a disservice to call it niche, but it is certainly not for everyone. Going so hard on the advertising means that Sega was probably hoping for a lot more than a respectable 2 million sales.

Let’s consider some numbers. 2 million in sales, and let’s be generous and say it is a full $60 purchase for each of those. We will assume that DLC and collectors editions will offset any sales. That means $120 million in gross revenue. Likely the retailers, portals, and other platforms will take at least a 1/3 cut of that, so we will estimate that after sales expenses it has generated $80 million in net revenue when only sales is taken into account. This is a game that probably had a production budget of at least $20 million. This is a guess, but considering it is a well polished game, it was released on 5 platforms (PS3, Xbox 360, PS4, Xbox One, and PC), and the considerable amount of testing and development that is required to pull that off, I think this is a decent educated guess. This leaves $60 million in “profit”, right?

No.

Don’t forget the developer. They are likely due a percentage of that money as well. Let’s be simple and say it’s 20%. This is a blind guess, but these deals can have tiers and other complications, so lets just go full thought experiment and throw that number out there as a hypothetical. This reduces the Publisher’s share to $48 million.

Advertising is EXPENSIVE. An ad campaign that you may not even be aware of can still cost tens or hundreds of thousands of dollars each day. Clearly if Sega was putting up billboards for Alien Isolation, they were pushing hard and spending a lot on it. Let’s guess a flat $200k per day. That means that in 30 days, they would have spent $6 million. That doesn’t include the creation of the ads themselves, which could be $1 million each on their own. Let’s say that’s a total of at least $15 million in advertising with 2 months of campaigns and $3 million for the creation of the ads themselves. This leaves $33 million.

After that we need to add customer service and other support services that likely cost several more million in labor costs and licenses. This is a continuing costs for as long as the game is supported, so let’s guess $3 million to give us a rounded out $30 million of profit.

There is a lot of guesswork in those numbers, but if the production budget was $20 million, and the profit was $30 million, this game didn’t do much better than to cover its own expenses. In this thought experiment, this game isn’t a failure, but its performance didn’t justify the advertising put into it, so calling it “disappointing” would be fair. If we go back to that 1/3 success ratio of Kickstarter and apply that to this, and let’s say that it’s a 2/3 success rate instead, then Sega would have spent $60 million to develop three games, and earned $60 million on the one game that got released. Barely breaking even isn’t a reliable business strategy.

These numbers are all over the place, but they serve to show why publishers seem risk averse. In the publisher’s position, another title is a big investment. As I’ve said in the past, our industry is built on failures. We want something to be a big success to fund the risks. It isn’t enough for a game to pay for only itself, it probably has to pay for itself, its sequel hopefully, and the project next to it that’s going to fail before it’s released. If the Publisher tries to go with a lot of smaller, “safer” bets, then they’ll need more staff to handle a larger library, which increases their overhead. Also, if they’re all expected to just break even, if only one fails then that could put the publisher out of business.

This stuff isn’t simple.

 

Sins of the Publisher

I’m not trying to give you pity for the developers. They aren’t free from sin. Even in this Alien Isolation example, Sega seems to have worked too hard on a wide net in advertising for a game with a more limited audience. Spending a lot to tell people who aren’t interested in your product is not how you make money. It’s possible that a more focused advertising campaign could have served just as well and been far less expensive.

There are also publishers who are predatory, enforcing practices that are counter to the productivity of a developer, or bullying desperate developers with bad deals. There are publishers who bet far too heavily on bad ideas, or ignore good ideas.

Behold, the decision to triple down on this garbage is the anvil that broke the back of THQ.  Rarely is such a bad decision so obvious for all to see.

Behold, the decision to triple down on this garbage is the anvil that broke the back of THQ. Rarely is such a bad decision so obvious for all to see.

 

There are publishers who take the wrong lessons from their experiences and say that this title isn’t successful enough to justify making more of them, or who are deaf to the opportunities in the market, instead opting to chase trends. All they can see is that there’s money here, so everyone goes to the money, and ignore that there’s still money in other places. Publishers will use this to kill projects, good projects, quality projects that have established fan bases, because they don’t see that the shift in the market hasn’t actually eliminated that audience.

But, that’s where Kickstarter comes back into it. There, there’s little need for advertising, because the developers already have the money and the audience has to know about it to give the money. There’s little need to be beholden to a Publisher and its fears that it won’t be able to recoup its investment. It simplifies and streamlines the pipeline from developer to customer. It is not the best pipeline for a wide release product, but it is a great place for niche titles, genre’s that have been abandoned by larger publishers, or quirky experiments.

Let’s just all try to be open, honest, and aware about everything we’re looking at when it comes to the business of things. There are good Publishers and bad Publishers, good Developers and bad Developers, good Kickstarter projects and bad. We need to praise the good, and criticize the bad, rather than praise the Developer and criticize the Publisher. It’s harder to do, and sometimes one element can be both good and bad in different ways, but if we as consumers can put pressure where it needs to be, it will benefit us faster.

 

 


 

Kynetyk is a veteran of the games industry.  Behind the Line is written to help improve understanding of what goes on in the game development process and the business behind it.  From “What’s taking this games so long to release”, to “why are there bugs”, to “Why is this free to play” or anything else,  if there is a topic that you would like to see covered, please write in to kynetyk@enthusiacs.com

One Response to Behind the Line: Publishers and Kickstarter, sins and virtues

  1. Fiannawolf says:

    Woah…quite enlightening. Didn’t realize that many funded KS basically went down the tubes.

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