Nice idea, but in practice this could never work at scale.
A hundred, a thousand, a million stakeholders in a project?
They'd have near-zero say in the direction of the project and essentially no recourse if the developer went off the rails.
It works for companies, doesn't it? I think you're putting too much stock (no pun intended) in the "democratic" aspect of the idea. I could see it working much better as a way of expressing support and vaguely influencing direction. The stakeholders don't need to make every decision for the design team. That's why there is a design team.
I'll probably be blasted for this, but I don't believe using democratic principles in a company is a good idea. You need someone with a view of what needs to be done and then you distribute out the work.
If it did work for companies then Newell's complaint would have no merit.
Simply: publicly-traded publishers would already be funding the games that gamers want. If you want a free preview of how fan-funded game development would go, buy a few hundred shares of Acti-lizzard.
The fact that this model has broken down so thoroughly in the entertainment markets -- where products not developed via market survey are the rare exception -- is precisely why Newell is complaining.
What he's -actually- saying is: "wouldn't it be great if I could have free reign; like with self-funding but without assuming 100% of the risk."
It probably works better for niche projects where the participants are well-informed and can agree on most of the decisions, rather than watered-down mass market projects that try to please everyone.
Same reason democracy works better in small countries with highly educated population.
A hundred, a thousand, a million stakeholders in a project? They'd have near-zero say in the direction of the project and essentially no recourse if the developer went off the rails.