How did this happen? Shouldn't that money have been allocated earlier? Did they spend every dollar thinking that this is the dollar that turns everything around.
Maybe I just don't get the mentality of those looking to fund projects on Kickstarter.
But there's a lot of 'artbook' and 'wallpaper' and 'soundtrack' stuff. i.e. 100% of things that they already have. This project on its kickstarter already displayed lots of art and wallpaper material, and they launched the game obviously with a soundtrack.
In short, shipping that is going to a local printer and asking to make a booklet or a wallpaper, in color. They give you a price and you inflate it by 10x. Wallpaper and booklet costs $3 to print, add a soundtrack and $3 in shipping (average, some will be 50c, some $5), and turn it into a +$25 reward. Get 1000 backers like that and you're netting close to $20k for relatively little effort. Even some ridiculous overhead and you still net $10k for stuff you can pay a highschooler a few hundred bucks to create. That $20k can pay a 3man passionate noodle eating team that's working on this parttime for months, and that's with a thousand backers, this team had a few thousand, actually I took a look and it seems that rewards are about half their campaign. It's really scrappy but it happens and it sometimes really works out.
Definitely not something that works for every project, in fact I see it fail more often than not. But it's not a priori a bad idea, I just don't think everyone thinks it through. Some devs create games and then have a mini comic booklet as a reward that increases the price by $5, or hell just include it for free because hey, kickstarter. That requires writing, printing and shipping, the costs don't make sense at all.
The OP generalised by saying they wished game devs would simply never do merchandise all together, even though it looks like this project raised half its budget from rewards, and I think we both can guess they spent more than half of their time developing the game, and even though one can find examples where merchandise was successful.
I also think you missed the point which is that they actually shipped the game, and made the merchandise. They just didn't end up selling enough and went bankrupt, preventing them from shipping the merchandise. If they'd earmarked the funds or actually sold as expected, none of this would be a problem. i.e. merchandise wasn't the source of their problems.
I mean let's be clear here, they had a bunch of artwork laying around already (we know this), artwork that ended up in a wallpaper, and they had rewards of $30 - $50 for the game + some digital stuff (e.g. an mp3 of the soundtrack) + getting this artwork mailed to them. Oh and the game was just $10.
So in effect they have a PDF on their computer, and they're charging $20 print and send it to you. (this isn't even the booklet, just the wallpaper, the booklet+wallpaper costs $40 extra ontop of the game).
Now you find me a scrappy indie game dev that doesn't want that, or can't handle it, or can't make that profitable. Don't act like that is rocket science. You telling me if you're running a small shop of 5 people and you're so scrappy you'll risk bankruptcy 6 months later, that printing and shipping a PDF for $20 to 1000 people isn't workable? That generating this $20k revenue (1/3rd of what they pulled in) from a wallpaper, can't be done for less than $10k everything included (printing, labor, shipping).
I mean hell I can print 1.000 A3s for less than $1k without much effort, already found a quote for that, and it'd be printed within a day. Again, they said they had everything printed and ready, that's not the issue here. Then I reward myself $3k for an entire month of effort of shipping pieces of paper (big deal, could do it in a week), and I spend $3 to mail 1 piece of paper each. I still make $13k, enough to pay a developer in Belgium for 3 months. And considering I spent $3k on the labor, I might as well outsource it to some highschool intern who gets a ridiculously royal salary of $3k for barely a week's worth of work. And I'm being pretty generous with the margins here, even if you nitpick here and there, and add some other factors, it's still a good deal. In fact I doubt they regretted their decision, merchandise was half their campaign revenue.
Now I KNOW there are companies that offer ridiculous stuff. 1) offer things they haven't made yet (like a mini comic to go along with the game, which requires a lot of time spent) and 2) things that make no economic sense (a $20 reward for a 3d printed game thingy, which costs $15 to make and $10 to ship, and time spent). And that this makes no economic sense and often fails.
My point is that while merchandise isn't always a good idea, it definitely can be, and that it probably was for this company.
As for a 'book order', it's just a booklet made out of a bit of paper, at a quantity of 1000 of them they cost about $1 each or so. Remember they're part of a $40 reward which has a booklet, wallpaper (combined <$2) and digital rewards like a soundtrack. Hardly unfeasible, this is on top of the $10 of the game's price.
1000 boxes / envelopes stuffed, addressed shipped, through customs and to clients - OMG so much pain, so much time.
Lots of it was "ready for printing", but not actually printed yet.
The purpose of the campaign was to develop and ship a game.
They have succeeded, and in the process went bankrupt. Which means they won't be able to even pay creditors, lest investors.
And as the previous poster mentioned, how do you not put this money aside to reward people who gave you money?
It sounds like they are living through a train-wreck moving in slow motion that will last a few months - and perhaps much longer.