Just to mention, my friend has had a huge influence over the project in many ways and I have taken his direction many times on important issues, and so it is not like this is the first time something like this has come up or that I am always overruling him- I am just trying to get better at how I handle these scenarios and not try to "drive him off".
The alternative is that he and I part ways on the project, and I simply pay him for any contribution he makes. That is an option, but not one I would prefer.
For some clarification, we are sharing the revenue 50/50 and I am comfortable with that, but I have the final say on all the direction, and so the decision making is not 50/50. I am the overall head of the project, and in these matters he is simply trying to advise me, guide me and give me the benefit of his experience- however that is almost more emotionally impactful to him when I tell him that it is not what I want on a particular issue. Does that makes sense?
(I understand that it does not sound like he contributes much at this time, but as we approach a Kickstarter campaign he will be making videos, trailers, banners and a slew of other promotional material and running and maintaining the project website, all of which I value immensely).
For anyone interested, below is my rationale for wanting to exclude demons.
The concept for my game is a monster collection RPG closely resembling the original Pokémon games. The theme of the game is necromancy, and so all of the 'trainers' are necromancers and all of the 'monsters' are undead beings. It is important to me in a narrative sense that the protagonists and antagonists are humans, and that the monsters do not have consciousness or sentiency. Demons in my mind have sentiency (and even USE mages or trade power with mages) and so add another narrative element I do not wish to have in my game, and expand the theme wider than I would wish to.
There is some ground I can give for demons to be very rare antagonists, tempting the mages, having undead of their own, giving quests, being NPCs, but for this reason I would not wish to have demons be able to BE captured minions like the undead.
Well, on your rationale:
I don't think the term "Demon" was ever as well developed as the term "Vampire", mostly thanks to some high selling books from the 19th century. Demons started life as an amalgagion of similar beings from different religions and myths.
There is a TON of wiggle room left, if you are open to take ideas and directions that move away from the usual "High fantasy canon" that sadly seems so imprinted in everyones mind nowadays.
Who says that demons have to be sentient? They could just be as mindless as Zombies, being just the manifestation of humans basic instincts for example. While Undead are not as mindless in all the undead stories as in "The canon"... Warm Bodies comes to mind, that might be a parody, but there are also more serious movies and books where undead are not just mindless.
Then Necromancers and Demon Summoners are quite similar in many ways. Both summon "Souls" or "Otherworldly beings" from another dimension/world/plane, and bind them to their will. You could even make them share roots, by making human souls and demons one and the same thing... maybe demons are just lost souls? Maybe the souls of humans are demons possesing the body of a newborn, no longer aware of their true nature until they die?
There is a ton of ways to take your backstory that might integrate both concepts into one.... and, to be sure, if you take the time to work on the story to do so, the end product will be way better than what you have now (which, no offense, sounds a little bit generic... I don't know if I want to call it boring, something generic can be pretty interesting if well done. But I prefer "fresh, with a twist" to "plain generic").
As to you two working together... I would avoid parting ways over something, again no offense, insignificant like that.
Try to get some distance from this problem and your project as a whole, try to see things from a broader view. Try to be less attached to your project. See if the whole thing still seems so important, or if in the light of loosing somebody important to the project and yourself, the whole dispute seems to be rather silly.
If you want to challenge him, ask him to come up with such alterations to the project sooner. The sooner the better. Things like that should be discussed in the design phase. There should always be room for alterations later, and good ideas need to be considered when they come up...
Now, there is the possibility that your friends answer to that is that he only found out that "just undeads are boring" while creating the art... that might indicate that you didn't take enough time for "preproduction" and concepting the whole thing. Something to take away for future projects.
as to the whole 50/50 thing... maybe you shouldn't have mentioned it as it is quite insignificant for the discussion. I got that you had the idea (worth not much, no offense... your idea might be ingenious, but ideas are a dime in a dozen) and you do the coding (worth a lot... good coders are sought after in the professional world). He does the art (also worth a lot, especially for hobbyists... while professional artists seem to be less well paid tahn coders, it seems easier to find coders than artists for hobby/Indie projects).
I never got quite who does the game design, but I guess it is either you or both.
What I never heard from you is who gets the final decision on what. Going with the logic decision of putting the artist in charge of art direction, I guess he has at least half the "final decision" rights on including demons or not. He shouldn't change the story like that if you are in charge of the story... but if he insists that horns and demonic stuff would make the art better, he should have at least some influence on the visual aspect, IF he indeed is in charge of art direction.
Given that
a) this is a first project for the both of you
b) you are still learning the ropes on many things
c) you are far from guaranteed that the game actually pays out,
d) even worse that the game ever gets finished
I'd say you are getting fixated on a small detail issue on a project which should have a different goal than you seem to have (getting a finished project under your belt vs. creating the game you envision and making money with it)...
Now, this is just me making asumptions here, so ignore this comment if this isn't your first game, you don't think you are still learning game development, and you have a clear plan to success including guaranteed investment (which Kickstarter isn't).
Given that my asumptions are right and both of you are just starting out, the significance of your dispute over "undead vs undead&demons" seems rather unimportant to me. Just find a compromise, and finish your game.
This game most probably will not be a break out success, you will most probably not find investment, not on Kickstarter or somewhere else, and chances are good you will never actually finish it. The importance of the project is high though, you will learn what is needed to (hopefully) finish a game, AND WHAT IS NEEDED TO WORK AS A TEAM!
If you want to work as a Team in the future, not matter if with your current artist or someone else, take this as a lesson on how to cooperate as a team, how to compromise and how to take personal pride out of the equation for the better of the Team and the project.
Long story short: Don't get fixated on YOUR opinion. It's not the only one that counts in a team. You can rule a team like a dictator of course, as long as the others accept it or you pay them enough. But you loose one of the most important things that a team can provide you with. Which is the opinion of the other team members.
If you shot their opinions down repeatedly, they will stop to offer them at some point.