Defense Grid 2 and the Publishing Gap

07/26/2012 by Lawrence Sonntag | Source: Inside Gaming Daily

We don’t cover a lot of Kickstarter projects here on the IG blog , mostly because all of the projects we see on Kickstarter fall into a profile. Typically they’re strange ideas from an unproven team, or some revival project from a developer with a rocky financial past that’s banking on nostalgia rather than sound financial forecasts to bring in the money.

And that’s exactly why Defense Grid 2 was such a mystery to me.

Defense Grid: The Awakening released for the PC in 2008, and has since made it to the Xbox Live Arcade, Mac OS, and been part of several bundles and promotions. The game’s developer, Hidden Path Entertainment, is also working on Counter-Strike: Global Offensive with the industry’s gold standard of reliability, Valve Corporation. Defense Grid 2 is a sequel to a recent game that appeared very successful, from a developer that is also apparently not on hard times.

So… why is this project appearing on Kickstarter? I had the chance to talk to Hidden Path CEO Jeff Pobst to figure that out myself.

Despite Selling Well, Defense Grid 1 Didn’t Make That Much Money

My first point of confusion came from Hidden Path’s need to secure financing for a sequel in the first place. I figured that they would have enough proceeds from sales of the first game to fund the second, but it didn’t work out that way.

“We didn’t realize people thought of us as rich because we know how poor we are,” Pobst said. “We recognize that we come across as rich, which I think is a good thing from an image point of view. It’s too bad it’s not accurate.”

Despite all the signs of healthy sales — bundles, different platforms, etc — Defense Grid 1 didn’t rack up tons of profits because the game sold at a much lower price than Hidden Path expected.

“Originally the game on Xbox was going to be at a higher price, and it came out at a time when Microsoft was under a lot of fire for having $15 or $20 products. Microsoft made the choice — which they have the right to do — that our product would be at a lower price,” Pobst said. “We decided to match that on Steam, so we went out at a lower price than we intended. Then, what we decided to do was to have as large of a reach as possible. Let’s get this game to as many people as we can. We were very active and aggressive on the sales, discounts, and bundles.”

Because of these factors, Hidden Path changed tactics. Rather than try to pull in profits on the first project, they instead aggressively targeted discounts and bundles to get the new property in front of as many players as possible.

“[Defense Grid 1] has paid for itself, but it only did so in the last year,” Pobst said.

Instead of having mountains of cash sitting around from Defense Grid 1 sales, Hidden Path has only just now paid back all the money they had to borrow to develop the first game. That doesn’t leave a lot of money sitting around for development of a sequel.

Publishers Don’t Like Defense Grid 2’s IP Space

Still, you’d think that if a game can recoup its cost, a sequel would be a sure thing in the eyes of publishers, right? Sadly, that isn’t how business works.

“We’ve been pitching Defense Grid 2 for about three years and it almost signed with every big-name publisher but one, and almost a dozen small publishers. They all ended up being really excited at the beginning, but when they explored it, lots of stuff got in the way,” Pobst said. “This probably could have been picked up by 25 different publishers.”

As it turns out, Defense Grid 2 falls into a weird intellectual property publishing gap.

“For a big publisher, downloadable is now starting to be less about new IP and more about expanding their traditional IP. This flies in the face of that,” Pobst said. “This would be an IP that came from a small developer.”

Inevitably, publishers would ask for ownership of the property in exchange for financing the sequel.

“Whoa, we just invested our money. We made a game. We created an audience. We’ve sold a lot of copies. Why would it make sense for us to give that game to you?” Pobst asked.

Since Hidden Path took a hit on profits just to get the game out to as many people as possible, giving away the property made even less sense than it usually would.

“You have to give up everything you’ve worked for to get the next one made,” Pobst said.

Even Though Defense Grid 2 Will Make Money, it Won’t Make Enough

At the end of the day, you’d think that a game that is likely to make money wil find a publisher somewhere. Oddly, this isn’t the case.

“The thing we heard most often was ‘It will make money but it won’t make enough for us to be interested. We need to put our money into games that will make more money,’” Pobst said. “After a while, you just think that their business models are pushing them into a corner where they have to take something that’s less of a risk or something less expensive to have the largest return possible.”

The source of confusion is a matter of perspective. For developers and gamers, just making and playing games is enough.

“I don’t think anyone goes into Kickstarter saying ‘This is where I’m going to make my profit.’ We’re happy only being able to make the products we want and make no profit on Kickstarter,” Pobst said.

However, for publishers that answer to stockholders or have hundreds of employees to pay, the goal is a little different. Rather than just investing in projects that will likely break even, they have to target the projects that will give the maximum return for minimum investment. These days, that means one of two games; two-man indie projects or fifty-man downloadable games based on established IP.

“We probably would’ve done [Kickstarter] two years ago if we had known about all the publisher conversations we would’ve had and how they would’ve gone,” Pobst said.

Kickstarter is Right for This Project, but Not for All

These factors might make it sound like every developer should just skip the headache and go right to Kickstarter, but Jeff Pobst warns that Kickstarter publishing is not viable for everyone.

“For us and who we have at Hidden Path, the Kickstarter model is a better one for us than with traditional publishers, but that’s because we have a lot of people here that know how to manage game development and ship product,” Pobst said. “We can do our own localization, we can do our own translations, we can get product made, we have the deals to get on certain channels.”

It’s important to remember that publishers do more than cut a check so the developers can make the game they want. It just turns out that Hidden Path can perform many of those functions internally already.

In fact, if Defense Grid 2 hits its funding goal, Pobst may put his company on a new path (pun intended) altogether.

“If we can do a Kickstarter successfully, we actually get on a different loop. We raise the money to make the game, we make a great game, we sell it, and then we then make the money to make the next game like people expect only that wasn’t what was happening before,” Pobst said.

Poetically, the business loop that I expected from the traditional publishing method is actually more viable in the Kickstarter space. Suddenly my perennial scepticism about Kickstarter starts to erode.

It doesn’t hurt that the original Defense Grid was an amazing game in the first place. If you haven’t played it, you can buy a copy of it by supporting the sequel. Best of luck to Jeff Pobst and everyone at Hidden Path with Defense Grid 2.