I have heard that typical comment by publishers, "Hey make a demo if you want us to consider a new game idea."
Unfortunately, it serves the opposite effect. It hinders innovation. Not only that, it is needlessly harmful to young developers who need to be told that their game idea is not going to fly.
What would facilitate innovation is to begin talking at a much earlier stage - say with a written document - rather than waiting until an idea or design gets crystallized into something that just won't work or was never wanted to begin with.
You don't turn an architect away if they only have a blueprint, saying "How come you haven't actually built 20 per cent of your building for me to make a decision". No. You look at the actual blueprint, and any physical mock-ups, and then you say "yes" (to a next round of design) or (more likely) "no" - allowing the architect to go back to the blueprint, abandon the project, or (if yes) get onto the business of doing the remaining blueprints and hiring a construction company, interior designer, landscaper (etc) to get it made in a rational manner.
If you require people to make the infamous "vertical slice" of a game, what kind of an effect is that going to have on their design?
First, it is wasteful. It's one thing to get a "no" after a written document; but to, say, spend five years making (for example) a pirate game demo on your own then having a publisher say "Sorry, we already have a pirate game in the works" - thereby dismissing your product without even considering it - is just stupid. I mean, if you are going to apply for university, do you move to the university before sending in an application?
Second, it forces a demo team to use existing game technology. However, their concept may require new technology.
Third, if they are getting a team together to do a vertical slice the original concept now goes through a hazing process: it has to be sold to a crew of programmers, artists and so on, who want to work on it, who will want to change it, and certainly certainly are NOT going to spend a year or more making a demo for free on something really risky (translation: unless your concept already looks like an existing game out there [maybe with one extra doodad added to it], they probably won't get involved).
Fourth, making a demo is not a test of game design - it's a test of productions skills. Very often investors in games ask, "Can this company produce this game?" That should not be a question anywhere on the radar. Does a producer ask, "Can this screenwriter use a camera?" No. Does a corporate president or a mayor ask "Can this architect operate a crane?" No. The focus needs to be on design.
Fifth, by giving investors/publishers demos, they begin to think that game design somehow starts with the demo - that it magically appears out of nowhere. Translation: we make them stupid and lazy, because they don't have to hurt their brains trying to actually *imagine* something that is in a polymorphic state (such as a written design doc). We also make it seem that the innovation process is more akin to shopping than to what it really is. Innovation is not done with a shopping mentality - being presented with wares and then saying yes or no, picking and choosing among them. It necessarily requires imagination and visualization of its participants, and giving a demo skewers that. It makes the process and the publishers stupid. In the film industry, the producers (and stars and others who can greenlight a project) know that innovation doesn't start only after the cameras begin to roll - it starts at the very beginning: in the brain of the screenwriter. So they work directly with the screenwriter to get the script done right.
Sixth, no project should get ultimate funding to be made without a prototype first being made. That's what the demo is supposed to be - a prototype. However a far more effective way to do this is with what in other fields is a simple iterative R&D process. It simply makes more sense to expose concepts at an earlier stage, with a simpler prototype, like a tabletop or a design document. Eventually, you *will* make a vertical slice - but that should be done in tandem with a producer/publisher, not in some guessing-game process where the indie team has shot off on some direction and blindly hopes that what is made as an actual physical piece of code coincides with what a publisher wants.
In the end, the requirement for a working demo as a "price of entry" is just a cynical hazing ritual. It only occurs, sadly, because most game developers are quixotic and masochistic young men who almost fall over themselves to allow game publishers to utterly exploit them in a bug-eyed quest to become "paid to make games". (I have been paid to make games. Believe me, after you cross that line you usually start to notice that games are not really that much fun anymore - it is now a job.) Sadly, young men have a penchant for destroying themselves just to please their elders - they did it by the millions in World War One and they do it in their headlong quest to make publishers into passive wait-and-see types. The vertical slice does not make for a better game project - all it does is reinforce a culture of mindless action and sado-masochism over open communication (written or otherwise), a spirit of true innovation, and a sense of respect for others. Using a simpler means - like an early design doc or a very very early prototype (even tabletop) - to screen out projects that won't work, and accelerate ones that will, is a way to strengthen the innovation process, and reduce harm to the many whose game ideas will not fly.