New research conducted by games development industry body TIGA shows that the UK games development sector is a highly skilled and successful industry that exports games all over the world. However, the UK games industry is being held back by the Government’s tax regime, skill shortages, and a lack of finance.
The research, based on a survey of games businesses, looks in detail at the state of the UK video games development sector at a time when the UK is falling down the world rankings. Until 2006, the industry was the third largest in the world based on revenue. However, the UK slipped to fourth position in 2007 and is expected to fall to fifth place in 2009. This is primarily because of the substantial support given by overseas governments to their video games industries in comparison to that given by the UK Government.
The UK development sector is highly experienced, well qualified and export driven. 48% of developers have been in business for six years or more. 60% are qualified to degree level and in some firms the figure rises to 80% and above. On average 46% of a developers’ turnover is generated through the export of games.
Commentating on the state of the industry, Dr Richard Wilson, CEO, Tiga said, “The UK games development sector is an industry of the future. It is a highly skilled, knowledge based industry that has huge potential. However, the significant support overseas governments give to their games industries puts the UK games industry at a severe competitive disadvantage. This factor, coupled with difficulties in sourcing finance and skill shortages, are currently barriers to growth and must be addressed.”
Government support
The research looked at the main barriers to growth over the last 12 months. 41% cited foreign government subsidised competition and 31% said the domestic tax burden on business was a problem.
Dr. Richard Wilson commented, “The UK games development industry is competing with one hand tied behind its back. Competitor countries from Canada and the USA to France and South Korea are benefiting from government support, most notably tax breaks. This puts the UK at an immediate disadvantage.”
When asked what Government policies could help their business, 85% backed tax breaks for production, 77% recommended more liberal R&D tax credits, 51% called for lower corporation tax and 50% advocated lower rates of national insurance contributions.
Dr. Richard Wilson said, “If we want the UK games industry to remain in the premiership the Government must act. An announcement in the 2009 Budget to introduce a 20% tax break for games production would be a welcome start. This is similar to the EU approved French regime that applies to games that pass a cultural test. With a tax break of this kind in place, an additional £220 million could be invested, creating a further 1,600 high quality jobs over five years. This tax measure would also help to level the international playing field. If the Government sits on its hands and does nothing, investment in the industry could fall by up to £180 million and nearly 1,700 jobs could be lost over the same five year period.”
Finding finance
The research found that 86% of developers rely on their own resources, cash flow and retained profits to fund their operation. Games developers are aware that this limited source of finance is impeding growth with 60% wanting a greater availability of finance. At present alternative financial options are limited.
Paul Gardner, head of computer games at law firm Osborne Clarke and report sponsor commented, “Even before the current economic malaise, it was difficult for developers to raise independent finance. Where finance has been raised, the majority of arrangements involve a publisher guaranteeing repayment of the development costs.
“For most, a deal with a publisher is the only option. Developers therefore fund increasing amounts of work themselves to secure publishing deals. Understandably, few publishers finance projects outside of established genres and, equally understandably, those that do expect to own the intellectual property rights.”
The Government must enable the UK’s creative and cultural industries to achieve their potential to help counterbalance the downturn in manufacturing and financial services. The brilliant achievement of Slumdog Millionaire in winning 7 awards at the BAFTAs and 8 awards at the Oscars demonstrates the inherent potential of the UK’s creative sectors.
The finance for Slumdog Millionaire was raised from Film 4, Celador and a UK Government tax credit. The director of the film, Danny Boyle, has acknowledged that the ability to fund the production of this film independent of a major company provided the creative and budgetary freedom that has made the film such a success. Indeed, the UK film industry would be 75% smaller without Film Tax Relief.
Just as Film Tax Relief plays a critical role in strengthening the UK film industry, so a tax break for games production would encourage the growth of the UK video games industry. Significantly, whereas UK Film Tax Relief costs HM Treasury £600 million over five years, a French style tax break for games production would cost only £150 million over five years.
Paul Gardner added, “The future for the video games industry remains good. Not only is the UK home to a significant pool of creative and technical talent, new opportunities for developers, such as the growth in online gaming and digital distribution, are emerging.
“However, many developers will only be able to thrive and take advantage of these new opportunities if new finance models become available. At present, it is hard to see how this can happen without a tax break for game production.”
Finding the right people
Of those surveyed, 63% had faced skill shortages in the last 12 months. Of those developers who have experienced skill shortages, finding programmers was the most challenging position to fill with 74% finding it hard to fill programmer vacancies.
When asked about the cause of the skill shortage, 88% believed the problem was a lack of skills, experience or qualifications. 70% said that greater availability of skilled labour would help their business.
Richard Wilson, CEO of Tiga, said, “Ultimately, the skill shortages that are holding back the games industry will only be surmounted by improving standards in mathematics and sciences in schools, thereby increasing the potential supply of skilled people available for work in the games industry. Stronger financial incentives to attract the best graduates to teach in schools are part of the solution. The national curriculum should also be made more flexible to give schools the freedom to teach subjects such as computer science. A career in the video games industry should be promoted in school, not least to encourage more young people to stick with science, technology, engineering and mathematics subjects.
“In higher education, tuition fees for mathematics and computer science students should be reduced in order to increase the supply of graduates in these areas. Additionally, our universities must be adequately funded. Cuts in computer science courses should be reversed.
“The Government should also consider establishing a Tiga managed Games Education Fund which could promote industrial secondments, research fellowships, and education outreach and knowledge transfer programmes. This would not only strengthen links between developers and academia. It would also help to enhance the competitiveness of the UK games development sector.”
For more information, please contact:
, CEO, Tiga, M: +44 (0) 7875 939643
, head of computer games, Osborne Clarke, T +44 (0)207 105 7066
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