Disagree. When you're designing the world/setting, you don't (or shouldn't) *have* PCs yet. This is all done before the first PC gets rolled up. Thus, by default, it's the same thing.
I see the world as specifically something in the DM's purview, whether as a pre-gen setting or a homebrew invention. Which means, I'm not about to expect to be able to mess with it very much, if at all...if only because I'll be generating even more work for the DM if I do.
This is exactly what I am talking about. You don't see the difference because you are a world builder, you don't create settings. Setting creation is PC directed. If you aren't directing your campaign creation at the actual PCs, you are world building, not creating setting. That is the difference. You can disagree, but that is really the difference. Until you can see that difference in play style, you will never understand what the OP is talking about.
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Definitions
Setting Creation- Creation of a campaign that is directed at the PCs. The purpose of all elements in setting creation is to address the predetermined goals of play, reinforce appropriate themes, allow for deep characterization, and forward the plot(s), all relative to the main characters of the game (usually the PCs).
Good setting creation allows the characters to shine during the creation of stories that revolve around them, and is often appropriate for players who enjoy approaching games as an author would.
Worldbuilding- Creation of fictitious worlds, with the goal being the creation of a world that is believable enough that it takes on a life beyond the PCs. The purpose of all elements of worldbuilding is to add as much detail as possible to create the illusion that the world has a life of it's own, and usually presuposes that the PCs are not the center of the creation.
Good worldbuilding allows DMs to feel comfortable knowing that they can handle any action that the PCs want to pursue, and is often appropriate for players who desire immersive play.
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Any playstyle can be achieved with either method, but setting creation is better for creating stories and worldbuilding is better for the experience of exploring fantasyscapes. To tell me that the process of setting creation is the same as worldbuilding, just that worldbuilders are doing it right and are better prepared is to show me that you completely misunderstand what setting creation is. It is not half-@$$ed world building. The two methods have entirely different goals, strengths, and usually very different outcomes and play experiences.
Many people actually create characters first, then the world is created around them. It only creates more work if the DM insists on worldbuilding first, then players are allowed to create characters that inject setting elements into his world. If you quit worldbuilding, then there is no wasted work. That is basically what the OP is trying to get at (If I read him right.) If you use a PC directed method to create the setting, then you don't create any extra work, and the players get to actually play what they want. The DM can even create setting without help from the players. He just by definition has to have input from the players about their goals for play, and the characters that they want to play, because setting creation is
ALWAYS directed at the PCs and their story. That is how it is defined.
There are particular strengths of setting building that haven't even been addressed in this thread so far. Have you ever seen how many comments there are on messageboards about things that DMs won't allow because it doesn't fit his campaign? I have seen a ton. It is actually kind of sad. Players want to play things, but are not able to. This is very much a product of strict worldbuilding. It is not at all a problem of setting creation. Setting creation asks "Who are the PCs and what story do they have to tell?" Then a setting is created to facilitate this. Very different than pure world building.
Let's say I'm an Elf. I decide (as player) I was born near the small village of Teria, near the border between the Elven and Dwarven lands to the north of where the campaign begins. Right there I've forced the DM to somehow fit in that there's an Elven land somewhere north of the campaign start point, sharing a border with a Dwarven land, and there's a specific village that might become important someday if my PC ever wants to go home. This might not mesh at all with what the DM had in mind (his view has Elves only living across the sea). Who wins?
There is no "win". You should be mature enough that you communicate and come to an agreement. Otherwise it is just one person railroading another. That is how worldbuilders railroad. "Not in my campaign." "Those only exist over here, and they are not like you said. Here let me tell you how it is in my world..." It becomes the DMs game. I like it to be everyone's game.
That's in part what a DM is for. Not necessarily a Bad Thing, provided the DM has a clue...hence explaining why the guide to worldbuilding is presented prominently in all versions of the DMG.
That can be what a DM is for. DMs can also be in the role of adjudicator, facilitator, and as the guy that focuses on the elements of play that are not the PCs, but still address the goals and themes of the campaign. They are directed at the PCs, but are not traditionally the purview of players. The DM also helps to facilitate the plot. Yes, this is in part what a DM CAN be for, but the DM can be for other things, and this certainly is not all that they are for. They can also do very little of of what you say a DM is for, and still be a fantastic DM.
Provided you know exactly what the PCs are going to do, and want a game where the PCs are such special flowers that the world revolves around them, then fine. Me, I want some non-PC-related theme and history built in to my world before the puck drops, so I'm not winging it all 4 sessions in when the PCs suddenly decide to interact with it.
I hate to tell you, but the PCs are always special flowers. No other characters have non-DM players running them. That is what makes them special. There is no reason to make the stories of any NPC fun and exciting. When you make games where the stories of the PCs are not fun and exciting, the game sucks. There is an inherent difference between a PC and an NPC. To pretend otherwise is to fool yourself.
Deep characterization will come from the players if they want it to, regardless. And the plot is probably going to be driven by either the world's history or its current events, both of which the DM needs to know going in.
Lanefan
The DM doesn't actually have to know much of anything going in. Fantastic stories can be told without any world history, and plot can have nothing to do with this history. The only history, current events, or for that matter any other world element, that is needed are the ones that relate to the stories of the PCs. Unless it has a meaningful impact on the stories of the PCs, who gives a crap? It is all just made up. I can make that stuff up on the fly.
See, this is the issue. The world doesn't exist. We just pretend that it does. You can make yourself feel better about pretending it does by defining large amounts of it before play, but it still doesn't exist, and definition stifles possibilities later. What if you regret your choice later? If it is an element that the PCs have not interacted with you can always change it, but are you ahead of the guy who didn't define it until the moment it was needed? No, you are not. That is how setting creation saves time over worldbuilding. Work that doesn't get used is much rarer with setting creation than worldbuilding.