The Kickstarter Fallacy

April 29, 2013

There have been a lot of think-pieces written on the “game-changing” nature of Kickstarter, especially after such multi-million dollar successes like Pebble, Ouya, Oculus Rift, and the “Veronica Mars” movie.

Many people are saying it’s the future of content production or a total disruption of hardware manufacturing. The latest “breakout” success for the Kickstarter model: Zach Braff put up his new project “Wish I Was Here” on Kickstarter and in just a few days, it met its funding goal of $2 million dollars.

Yet, in all the uproar, about the future of crowdfunding, these success obscure some fundamental flaws with the Kickstarter model, as it applies to being “the future” of funding content and “revolutionizing” manufactured goods.

#1: Kickstarter is NOT a Store

Pebble ePaper Watch
They even said so themselves back in September. It is not a place to go shopping or buy some cool piece of technology. At least as it is set up now, Kickstarter is supposed to be a platform in which people can give money to creative ideas that they’d like to see happen….or something.

It is not the charitable model of NPR or a non-profit. Not even close. With those sources of contribution, they ask for your support, but you do not have to pay to have access to them. Whether you contribute or not, you can flip your radio to NPR and listen to “All Things Considered” or “Car Talk”, if that’s your thing. Many charitable organizations will also do good work that may indirectly or directly benefit you regardless of whether or not you give. Now certainly, if everyone took the “consume but don’t contribute” approach, NPR and other non-profits would cease to exist but for the most part, there is no price of admittance to consume.

For something like Pebble or Ouya, and like many a Kickstarter, they position themselves by saying that you will receive “thank yous” based upon your contribution level. But these are not tote bag thank yous from NPR, they are, in fact, the item you are Kickstarting. And like any other consumer good, you do not get to use it if you do not pay for it. You want an iPad? OK, go buy one. You want a Pebble eWatch, OK, $99 gets you one. Don’t want to contribute that amount? OK, you don’t get one.

What you are doing, no matter what they call it, is pre-ordering. The problem comes in the fact that you are pre-ordering something that has never existed and no one knows how it will turn out. The early bad reviews of Ouya point to the gap between expectation of consumers who look at Kickstarter as a store, pre-buying cool things, and the reality of what they get. They complain, looking for the the blue-shirts at Best buy to return their purchase to, or scramble to Amazon to write a negative review, but they have no such outlet.

With some of the most successful Kickstarter campaigns of all time being in the “Kickstarter as a store” model, this doesn’t seem like something that’s going to let up. And then what results is a faulty marketplace of goods, that may or may not deliver on their promises. Imagine shopping at any store online, paying $100 dollars for something, waiting six to nine months for it to arrive, and then it falling short of expectations, promises, or quality. How long do you think that retailer would be around?

#2: The Rich Get Richer

Wish I Was Here Zach BraffIn terms of content, Kickstarter was always a great place for short films. In fact, in the truest spirit of Kickstarter as being a place to help fund artistic works, short films were perfect. There’s no real way to monetize them and Kickstarter simply replaced the “pass the hat” model among friends and family by being able to blast it out to anyone willing to toss in a few bucks.

Those who donate, do so based upon the person’s passion or artistic viewpoint but NOT because it’s some commercial thing they are consuming. Because for short films, it starts and ends there. But what about feature length films? You know, the ones that last year generated over $10 Billion at the domestic box office alone, not to mention worldwide and ancillary revenue streams. Well, if the “Veronica Mars” film and Zach Braff’s “I Wish I Was Here” are any indication, Kickstarter is a great place for them, right?

Answer: Not in the long run. Feature films are a business. Big business. And even in low budget films, there is a potential, though extremely low, for huge amounts of money to be made. Take Braff’s only other feature, 2004’s “Garden State”. It made over $35 million at the worldwide box office, not including the revenues from a soundtrack that won a Grammy and found itself on the Billboard charts. All of that off a $2.5 million budget.

Now 2004 was a different time, DVD revenues still contributed a ton of money to any film’s bottom line, but however you slice it, a lot of money was made on that film. Now imagine if that movie got made for free. Zero. Nothing. And yet, all the revenues still went straight into the profit participants pockets. That’s what Kickstarter for feature films is.

Donating to the “Veronica Mars” film, means giving Rob Thomas, who has millions of the success of his TV shows, and Warner Brothers, the tiny little company that made $28.7 billion in revenue for the 2012 fiscal year, no-strings-attached money to make even more money off the back of. That’s because, unlike traditional film financing, those who give money on Kickstarter do so knowing they will never see any sort of monetary return.

For “I Wish You Were Here” not only is there Braff, but the film will be produced by, and profit shared with, producers Michael Shamberg and Stacey Sher, producers of a few films you may have heard of including “Django Unchained,” “Contagion,” “Out of Sight,” “Pulp Fiction,” and “Erin Brockovich,” to name a few. How are those who get a copy of the script, digital download of the film, or, in pricier contribution scenarios, a speaking role in the film going to feel if “I Wish You Were Here” is a success? Again, imagine paying $50 for a film that will take 1.5 years to come out and may very well, like most films, have an extremely high probability of being awful. But what if it’s an awful movie that’s a success and you helped fund? You’re probably going to feel even worse that the $50 you paid for a crappy film just helped buy someone a new ocean front house in Malibu.

That’s being a bit cynical, but only slightly. Because here, the rich will get richer. Feature films like these will continue to get funded  leveraging a loyal fanbase or existing IP and collecting free money of their backs. Eventually, fans and contributors will get wise. Also, they will get crowded out. How many $50 or $100 movies can someone afford to pay to not see in a single month? But the answer isn’t profit sharing either, like wefunder is doing for tech startups. Because the “no strings attached” is the very reason these films go to Kickstarter. There is ALWAYS money to be found in Hollywood. Braff himself even admits that he had financing but they didn’t like the terms. In plain English that means “the financiers were looking to make too much money.” So why wouldn’t they go to Kickstarter? The terms are great. It’s easy to make boatloads of cash when you have access to free capital.

If Kickstarter is to be the platform of the future, these issues fundamentally need to be addressed. It make take a few years, as these products logjam the system, but they will be the cracks that turn into fissures, leaving fans with bad products and empty pocketbooks from a $150 movie that’s no good. The fallacy isn’t that Kickstarter can’t be good, it’s that it can revolutionize much more than charitable giving.