A couple of weeks ago, we looked at the demise of 38 Studios. The video game developer failed after receiving $75 million in bond loans backed by the state of Rhode Island. Last week, we touched on the benefits of less taxation (or no taxation), but highlighted the potential threats of inequality that present themselves in selective tax relief.

This week I’d like to close out the series on Games and Liberty by highlighting one final liberty-minded alternative to government interference. If the state of Rhode Island backing loans to a game developer (and ultimately leaving the responsibility for that defaulted on loan to the taxpayers) is an extreme of government involving itself in an industry that has done quite well without it, than the opposite of that is the phenomenon of Kickstarter.

The simplest thought I had when I first heard about the debacle in Rhode Island was — “if the people of Rhode Island thought 38 Studios was a good investment, they would have made it themselves.” To the contrary, private investors practically fled from 38 Studios.

Kickstarter doesn’t represent the traditional model of investment (selling equity of a company in exchange for capital), but promotes the “crowd-funding” model that is quickly growing in popularity. Indiegogo and others have proliferated the model, in some cases before Kickstarter, but Kickstarter has been unique in the amounts of money generated by high profile projects.

The premise is that anyone can become a “backer” of a project, pledging a certain amount of money and receiving rewards based on the tier of giving they’ve selected. The project creators set a goal for funding, and a deadline — if both are met, then they receive their funds and commence their project. If the funding goal is not met, they receive nothing.

Criticism of Kickstarter is relatively uncomplicated: there is no guarantee that, even with funding, teams or individuals will complete their project. Backers are not consumers, in the traditional sense. There is a certain altruism, and responsibility, that should be assumed in participating in a Kickstarter drive. But there is also an element of investment. You are exchanging current value (money) for potential future value (whatever reward is agreed upon).

Some feel Kickstarter is not screening projects thoroughly enough to ensure project creators can, once funded, actually deliver what they promise. Another criticism is how quickly the site takes down project at the mere accusation of copyright or patent infringement. Some people actually think Kickstarter is a bad idea because of some notion that normal people “just can’t control themselves” and will pay for bad projects.

A lot of criticism is valid, and important. I think it’s important that people criticize Kickstarter so it will improve. This is the benefit of free market: consumers leveraging their power to choose in order to have access to the kinds of service and product they want. It’s much easier than trying to get the government to change.

And if all fails, the market can elect to use a different service. It’s easier to stop using Kickstarter than to stop paying taxes.

Kickstarter was in part created because of a perception that Indiegogo (which predated Kickstarter) didn’t appeal to every kind of project. Kickstarter filled a need that Indiegogo did not. This is what happens in a free market.

The relationship created through Kickstarter, between content creator and content consumer (or interested party simply wanting to support) is vastly superior to government taking money through taxes and picking which businesses it thinks will succeed. It can be argued that the crowd funding model may even surpass the traditional venture capitalist funding model that has propped up so many startup companies.

Seven of the 10 highest earning Kickstarter projects are video game related. For video games, more than any other industry, this represents a chance to get ever closer to the ideal situation of content creator selling directly to content consumer, addressing the issue of how to fund things like games which take considerable capital upfront to get started. Kickstarter is not a final destination and far from a perfect solution, but it’s a massive step in the right direction, and in contrast to the experimental attempts of Rhode Island to get into the industry, vastly more favorable.

Double Fine Productions and Tim Schaffer made history becoming one of the quickest earning projects on Kickstarter, and at the time the highest earning of any video games. This is on the promise of delivering Double Fine Adventure — and adventure game, as the name suggests. The adventure game genre would be considered on a sharp decline for mainstream appeal by many publishers, and yet Double Fine raised over $3 million, and over one million dollars in 24 hours.

They’ve only been topped in overall money raised by one game — Project Eternity by Obsidian. Project Eternity (a working title) will have 2D, hand-drawn backgrounds, and a fixed isometric view. It will be based in the tone of classic fantasy role playing games. And people seems genuinely enthused about it — lots of people. If you tried to pitch a 2D, isometric classic fantasy RPG to a publisher, it’s fair to say many of them would tell you, “no one wants that.”

Brian Fargo, founded of inXile Entertainment (The Bard’s Tale, Wasteland) recently got Wasteland 2 funded through Kickstarter. In his pitch video, he satirizes the pitch process and development process for less mainstream games in the current climate of shooters and linear action titles. It gets silly at points, but it touches on the genuine challenges faced by developer’s trying to make games people want, but publishers are iffy about.

If Kickstarter fails it will do so because it didn’t respond quickly or well enough to what people are asking for. If it does adapt well to demands, then it will further flourish. The government response to poor results is execute the bad idea better. In a healthy, competing market the paradigm is to discard poor ideas, iterate on good ideas, and innovate.

Kickstarter, Indiegogo and others represent innovation, and now we need to see some continued iteration. This is entirely preferable to more state involvement in the gaming industry.

Just imagine the kind of meetings Brian Fargo would have to endure if the people handing out the money for games were all federal agencies.

Posted on October 31, 2012

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brian fargo, double fine adventure, double fine productions, free market, games and liberty, inXile Entertainment, kickstarter, liberty, obsidian, project eternity, tim schaffer, Video Games, Wasteland 2