Tadhg Kelly breaks down some of the complexities of investing in and funding games, making the argument that crowdsourcing could address some of the challenges independent game makers have faced seeking funding.
First, Kelly gives two reasons why games differ from movies and music (the two industries and products most often compared to), first, a game’s unique development process
Games are developed like software. Iteration and experimentation are vital, as are fairly flexible delivery times (Blizzard is famous for its “done when it’s done” approach to making games)….well-iterated games show much more staying power than the vast majority of films or music could ever hope to achieve.
and secondly, the power of gaming fans
Fans usually find a game type that they love, play the hell out of it, evangelise it and then buy the next one. Loyalty and continuity across multiple years (or even decades) is very important, and (if the game is great) that loyalty can potentially last forever.
These two differences, Kelly argues, make game development companies fundamentally incompatible with the traditional financing models accessible to both traditional technology startups (investors are more interested in platform & distribution models than the games themselves) and entertainment companies (mezzanine financing and convertible debt have seen little success in the gaming world.) As such, crowdsourcing becomes an appealing alternative for game developers, and it’s already seen early traction with a few high profile successes.
While he calls out the expected concerns with crowsourcing—whether it’s a bubble/how big the market is/the relatively low amounts of money being raised—however, I think Kelly fails to address the true reasons why crowsourcing will be a particular challenge as an avenue for funding games.
First, unlike even most software companies, the level of effort and development cost that goes into the first iteration of a game can be monumental—while the development process is iterative, I would argue that the “MVP” for most games are at a higher fidelity and level of completeness that far surpasses most web-based products. This means startup costs can be astronomical, and the initial investment from crowdfunding would need to be significant.
In addition, the period between a player making an investment and seeing a game could be lengthy. While a user may wait 2-3 years for their favorite franchise to push out a new game, they may have limited patience for a creative product they’ve never experienced.
Finally, his argument ignores distribution to a fault. While I understand that there are many PC/web games that can distribute direct to consumer, console games still rely heavily on retailers and first party, and it’s becoming increasingly difficult to get “noticed” in the crowded mobile/social market. The difficulty and cost of distribution make crowdfunding make it difficult for me to imagine it being a successful financing model for independent game companies who function in this model—if they want to keep their investors (who just happen to be their most valuable customers) happy.
Though, if as Kelly argues, crowdsourcing functions simply as an expensive, user-paid market study, it could be a legitimate way of offseting early costs while validating the market potential of a given creative concept. It just seems to me like a bad way to turn a profit.