A VISION FOR THE INDUSTRY IN 2020 - tiga.org
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A VISION
FOR THE INDUSTRY
IN 2020
tiga.org
03
20/20 VISION
TIGA’S MANIFESTO FOR THE UK VIDEO
GAMES DEVELOPMENT INDUSTRY
‘Total War: SHOGUN 2’,
developed by Realtime UK
P.4
Forewords
P.10
Introduction
P.12
TIGA and the games industry
P.16
Summary of proposals
P.20
Power up small firms
P.23
Build world winning games businesses
P.32
Promote games clusters to boost
regional growth
P.36
Enhance skills and education, promote
measured migration
P.42
Footnotes
‘Split Second’, developed by Realtime UK
05
20/20 VISION
TIGA’S MANIFESTO FOR THE UK VIDEO
GAMES DEVELOPMENT INDUSTRY
FOREWORDs
THE UK VIDEO
GAME INDUSTRY DAMIAN COLLINS MP “In my role as an MP I come across many “Representing numerous small businesses
IS IMPORTANT
trade associations. TIGA is distinctive in its and comprising an industry of the future,
focus, professionalism, and tenacity. TIGA TIGA’s is a voice which deserves to be
has campaigned relentlessly for Games heard. I welcome the publication of this
ECONOMICALLY,
Tax Relief over many years and played manifesto as one which I believe will shape
a critical role in convincing first the UK the debate about how to sustain growth in
CULTURALLY AND
Government to adopt this measure and the video games and creative industries in
then enabling the Government to make the years to come.”
a successful case for Games Tax Relief
INCREASINGLY
to the EU Commission. TIGA’s successful
campaign for Games Tax Relief will benefit
both the games industry and the wider
EDUCATIONALLY.
economy and I am glad to have been able
to advance this important measure.
JUSTIN TOMLINSON MP This manifesto contains many sound
ideas that I have discussed while working
The ideas in this manifesto should be taken
seriously as an important contribution to
“Representing numerous small
closely with TIGA in my capacity as Chair of
the Video Games All Party Parliamentary
Group. In that time, TIGA has done
public policy debate. The United Kingdom
is a world centre of excellence in video
game innovation and we need to make sure
businesses and comprising an
a consistently good job of spreading
awareness of this vital industry at
that we continue to attract investment to
these shores so that Britain remains in
industry of the future, TIGA’s is a
Westminster and elevating the industry’s
standing in Whitehall.
the lead. I congratulate TIGA on devising
a comprehensive, credible and coherent
voice which deserves to be heard.
policy agenda for the UK games industry.
I welcome the publication of this
RT HON STEPHEN TIMMS MP I know from my time as a Minister in The video games industry is at the
manifesto as one which I believe
the Treasury what a good track record
TIGA has in making well considered
forefront of the digital economy. Its
success, reflecting the creativity of the
will shape the debate about how
submissions to Government and just how
persuasive TIGA’s arguments can be. That
country, is making a very important
contribution to our economic recovery. to sustain growth in the video
is why the proposals in this manifesto The proposals in this manifesto will need
deserve serious consideration by all those
formulating policy proposals in advance of
to be weighed carefully by the Government
which takes over in 2015.
games and creative industries in the
the 2015 General Election.
years to come.”
07
20/20 VISION
TIGA’S MANIFESTO FOR THE UK VIDEO
GAMES DEVELOPMENT INDUSTRY
JASON KINGSLEY OBE TIGA represents developers, digital inspiring film, television and music. No
“Games Tax Relief would not have CEO and Creative Director
at Rebellion and TIGA Chairman
publishers and the service companies
in our industry. Our core purpose is to
strengthen the game development and
wonder that 86 per cent of British
people believe that video games can
be cultural products.4
happened without TIGA’s effective, digital publishing sector. We achieve
this by fighting for the industry in the Video games are educational. All video
passionate and vigorous 7 year corridors of power, championing the
industry in the media and helping our
games have a rule set that has to be
learned before they can be played and
campaign.” members commercially.
The UK video game industry is
when a player starts a new game they
have to be taught how to play it. Many UK
games businesses have made educational
important economically, culturally and or serious games.5 A number of studies
increasingly educationally. suggest that video games may help to
promote skills such as visual and motor
The UK video game sector makes a valuable skills, strategic thinking, relationship
“I have worked with TIGA for many TIGA’s manifesto contains a series of well contribution to the UK economy. In 2014 building, computer literacy, collaboration,
JIM MCGOVERN MP
years to help introduce Games Tax thought out proposals which will receive the video games sector contributed £1.02 competition, multi-tasking and experiential
Relief in 2014. This measure will help serious consideration by many politicians billion to the UK’s GDP and generated £419 learning.6 Video games have the potential
to create jobs, boost investment and and policy makers and it will help to million for HM Treasury in tax revenues.1 to play a valuable role in mainstream
grow businesses. Yet we need to do influence the policy debate concerning 28,000 people work in the games industry, education,7 in training and in workforce
more to ensure that the video games the creative industries. I look forward to including 9,896 in games development. development.8
industry continues to grow. So I am working with TIGA in the future to help Game development sustains knowledge
delighted that TIGA has prepared this advance this important industry.” based, graduate employment. A typical The games development and digital
well considered manifesto. game development studio will have 80 per publishing sector is a success story. The
cent of staff qualified to degree level or introduction of Games Tax Relief in 2014
above. The industry is export focused: 95 – a measure which TIGA successfully
per cent of UK games development studios campaigned for over the last seven years
export at least some of their games.2 – will have a significant positive impact.
Yet if the games industry is to achieve
Video games are increasingly embedded its full potential and make a significant
LUCIANA BERGER Games Tax Relief would not have I am confident that this important measure
in UK culture and society. 73 per cent of contribution to UK employment and growth,
Labour and Co-operative MP happened without TIGA’s effective, will have a major positive impact on jobs,
the population regularly play video games, then we need to do more. In particular,
for Liverpool Wavertree passionate and vigorous 7 year investment and projects in the UK games
including two-fifths of people aged over we need policy makers to build an
campaign. During this campaign TIGA industry including in Liverpool and across
50.3 Video games are cultural, audiovisual environment that is favourable to start-ups
has successfully convinced four political the North West. I am pleased that TIGA
products on a par with film, television and and the growth of sustainable studios, the
parties, three governments and played has now developed this comprehensive set
animation. They draw on artistic disciplines promotion of regional development clusters
a critical role in persuading the EU of policy proposals to help the UK games
such as music and art, and sometimes and further improvements in education and
Commission to authorise the introduction industry to build on the success of Games
involve narrative. Video games also interact skills. This manifesto shows how we can
of Games Tax Relief. I am delighted to have Tax Relief. This is an important contribution
with other forms of media, for example, achieve these goals.
been able to work with Richard Wilson, as all political parties consider their
TIGA CEO, in successfully lobbying for manifestos for the general election to be
Games Tax Relief. weighed carefully by the Government which
takes over in 2015.
09
20/20 VISION
TIGA’S MANIFESTO FOR THE UK VIDEO
GAMES DEVELOPMENT INDUSTRY
tiga.org ‘Total War: SHOGUN 2’, developed by Realtime UK
11
20/20 VISION
TIGA’S MANIFESTO FOR THE UK VIDEO
GAMES DEVELOPMENT INDUSTRY
THE UK NEEDS A STRATEGY
FOR SUSTAINABLE ECONOMIC
INTRODUCTION
GROWTH. HIGHER GROWTH AND
HIGHER PRODUCTIVITY IMPROVES
LIVING STANDARDS AND WILL
IMPROVE THE GOVERNMENT’S
FISCAL SITUATION.
The central economic theme of the current Broadly speaking the UK needs to promote
Parliament (2010 – 2015) has been to reduce a more balanced economic recovery which
the Government’s fiscal deficit which arose is less dependent on financial services,
because of the financial crisis, damaging consumer expenditure and an expansion of
recession and sluggish recovery. The private borrowing to buy houses, and more
economic crisis caused significant economic, reliant on investment and exports. This
social and political damage and undermined will be a significant challenge. UK gross
the UK’s standing in the world. Although the investment as a percentage of GDP was
economy has returned to growth there is 14.2 per cent in 2012.11 Capital expenditure
still a long way to go.9 remains 20 per cent below its 2008 peak.12
The UK’s trade performance continues to
The Parliament and Government which is
disappoint. Despite a 25 per cent depreciation
elected in 2015 need a different emphasis.
of sterling between 2007 and 2009, there
The UK needs a strategy for sustainable
was minimal impact on the UK’s trade in
economic growth. Higher growth and higher
goods and services.13 The total trade gap in
productivity improves living standards
2013 remained virtually unchanged on 2012
and will improve the Government’s fiscal
at £108 billion and exports grew just 1.4 per
situation. Economic growth relies on: the
cent in the same year.14 The UK’s productivity
supply of the factors of production - land,
performance is also a matter of concern. The
labour and capital; and productivity growth,
Bank of England has estimated that output
which is dependent upon innovation and
per hour in 2013 was 16 per cent below the
invention. Government policy affects these
level that could have been expected had the
variables. On land, planning controls are
pre-recession trends continued.15
generally regarded as restrictive. The UK’s
infrastructure is not as good as it should be: The next Parliament and Government
the World Economic Forum judges Britain’s need to strengthen (and certainly avoid
infrastructure to be just 28th in the world.10 harming) those sectors where the UK has
On labour, improvements are needed in a comparative competitive advantage: for
education and training and the UK should example, aerospace, business services,
remain open to highly skilled workers. On defence, high-value manufacturing and
capital, the Government needs to encourage engineering, high technology industries,
investment and enhance access to finance. higher education, low carbon technology and
On innovation, the Government can play the creative industries, including the video
a role through its investment in higher games sector.
education, the research and science base
and maintaining a society that it open to new
ideas and to new highly talented people. ‘Split Second’, developed by Realtime UK
tiga.org
13
20/20 VISION
TIGA’S MANIFESTO FOR THE UK VIDEO
GAMES DEVELOPMENT INDUSTRY
NOW AT NUMBER OF UK GAMES
INDUSTRY STUDIOS
TIGA OUR 2010 2013
MISSION
IS TO 278
620
STRENGTHEN
THE GAMES
DEVELOPMENT PROPORTION OF UK GAMES INDUSTRY
STUDIOS WITH MORE THAN FIVE PERSONNEL
AND DIGITAL 2010 2013
PUBLISHING
SECTOR. 58% 41%
TIGA is intent on building an enduring is changing. In Alice in Wonderland understand the needs of indie-developers should diminish as a problem. TIGA wants activity and with the right support the
organisation which continually improves; fashion, the UK games development and and digital publishers: TIGA is itself a small to see the UK become a globally recognised industry could contribute to the growth
a business that will make a significant digital publishing sector has achieved the business and is run by UK developers and centre for games education and a of a more diverse and sustainable UK
impact on the games industry and so apparently impossible feat of expanding digital publishers for UK developers and continuous professional development in the economy. The UK is a world leader in video
benefit our membership and the wider and shrinking at the same time. On the digital publishers. sector’s workforce. TIGA’s ambition is for games development and with the right
economy. Since 2010, TIGA has won 20 one hand, the number of studios expanded an increase in the production of culturally policy environment it has an opportunity to
business awards, an achievement which from 278 in 2010 to 620 in 2013/Q1 2014. TIGA has a vision for the future of how the British video games. This manifesto will win a significant share of global market for
reflects TIGA’s drive for improvement and On the other hand, the proportion of industry should progress by 2020. Over the realise this vision. video games.18 The global market for video
TIGA and the to meet best practice. studios with five or more personnel shrunk next five years we want to see a flourishing games could be worth $82 billion by 2017,
from 58 per cent in 2010 to 41 per cent in developer and digital publisher sector, TIGA’s manifesto sets out a range of up from $67 billion in 2012 (www.forbes.
At TIGA we know what we stand for – 2013. This is a direct consequence of the with strong numbers of start-ups, growing policies for the UK’s political parties to com/sites/johngaudiosi/2012/07/18/new-
developers, digital publishers and service UK games industry’s increasing focus on sustainable studios, a decline in the current consider in the run up to the General reports-forecasts-global-video-game-
GAMES providers . We know what we want to mobile as the primary games platform.16 30 per cent business mortality rate and an Election. Some of the proposals described industry-will-reach-82-billion-by-2017).
INDUSTRY achieve – to make the UK the best place in increase in the overall studio population in this paper identify how to build on the
the world to do games business; and we There has been a big rise in start-ups from the current 620 businesses that success and inherent potential of the UK Dr Richard Wilson
know how to accomplish this – by enabling – and closures: 64 per cent of the UK’s existed in 2013/Q1 2014. TIGA’s vision is for video game industry, thereby benefiting the TIGA CEO.
developers, digital publishers and service games companies started up between consistent increases in employment and wider UK economy and society. However,
providers to set up and grow strong, 2008 and 2013, but 30 per cent of games investment - driven by Games Tax Relief some of the proposals in our manifesto are
sustainable, independent businesses. businesses closed down over the same - with over 2,000 new studio jobs, a £220 unashamedly cross-sectoral in nature. TIGA
period.17 With the rise in both studio million increase in investment from games makes no apology for this: we want to see
The UK games industry is changing. Many start-ups and failures over recent years, development companies and regional the advancement of policies that benefit
publisher-owned studios have closed the key strategic question facing the UK clusters contributing to the industry’s the UK economy and society generally. We
down, down-sized or invested overseas games industry in 2015 is clear: how do growth. TIGA’s vision is for an increase in hope that political parties will support the
in recent years. Traditional work for hire we support the growth and viability of the number of studios with 15 or more staff agenda outlined in this manifesto and that
practice is giving way to new business more independent content creators and so that there are more businesses in the the next Government will implement it.
models. Digital distribution is in the digital publishers? UK capable of handling larger projects and
ascent. Retail is in decline. Developers investments from global publishers. Access TIGA recognises the macro-economic
have access to more options in terms Now at TIGA our mission is to strengthen to finance should be less of a challenge and constraints facing the UK at this time. Yet
of platforms, genres and distribution the games development and digital the brain drain of talented staff overseas the UK video games industry represents a
tiga.org than ever before. The studio population publishing sector. We instinctively significant driver in innovative economic
15
20/20 VISION
TIGA’S MANIFESTO FOR THE UK VIDEO
GAMES DEVELOPMENT INDUSTRY
tiga.org ‘Operation Flashpoint: Red River’, developed by Realtime UK
17
20/20 VISION
TIGA’S MANIFESTO FOR THE UK VIDEO
GAMES DEVELOPMENT INDUSTRY
Summary of
Proposals
TIGA MANIFESTO FOR (£220,100) of total UKTI Trade Assistance 12. ENHANCE SKILLS AND EDUCATION,
1.
Programme funding was allocated to the PROMOTE MEASURED MIGRATION
THE GAMES INDUSTRY video games sector. Additionally, just 0.18
The EU funding regime for video games
POWER UP SMALL FIRMS
should be reformed. Games should not be
per cent (£25,000) of total UKTI Events and
POWER UP SMALL FIRMS Missions spending was assigned to the required to have a narrative component 17.
video games sector. or game genre in order to be eligible A pilot SME Training Tax Relief (TTR)
1. for EU funding via the Creative Europe should be introduced. TTR would operate 2.
Prototype funding should be made available 6. programme. ‘Serious’ games should not in a similar way to the existing R&D tax BUILD WORLD WINNING
to enable start-up studios to access finance The UK should be aggressively marketed as
receive preferential treatment under the
EU’s Horizon 2020 programme.
credits and would enable SMEs to offset
expenditure on training, Continuous
GAMES BUSINESSES
and develop new IP. an attractive location for inward investment
Professional Development (CPD) for staff
for the games industry.
2. 13. and education outreach activities against
3.
corporation tax.
A Creative Content Fund (CCF) should be 7. Policy makers should pursue a common
PROMOTE GAMES
established in order to encourage new Video Games Tax Relief should be retained. global regulatory approach towards ‘free
studio formation, stimulate creativity and During the course of the next Parliament to play’ (F2P) games and in-app purchases 18. CLUSTERS TO BOOST
co-fund new content development and IP the Government should carry out a cost
benefit analysis of the merits of increasing
(IAPs) based on the Office of Fair Trading’s Specialist roles should be added to the
REGIONAL GROWTH
generation. Principles for Online and App-based Shortage Occupation List (including,
the level of the Relief from 25 per cent to 30 Games. This will enable UK games but not limited to, Game Analyst, Senior
3.
per cent to stimulate further investment. businesses to compete on a level playing Game Artist, Brand Manager, Senior 4.
field and ensure the effective protection of Game Designer, Localisation Manager,
National Lottery funding could be made
8. UK consumers. Community Manager, Senior Producer, ENHANCE SKILLS AND
available to provide funds for games
development, including prototype funding
The amount of money that a company and Engine Programmer). This will EDUCATION, PROMOTE
and the CCF.
can raise via SEIS investment should be
increased from £150,000 to £200,000 per
enable games businesses to address skill
MEASURED MIGRATION
shortages in highly specialised roles.
PROMOTE GAMES CLUSTERS TO
annum to reflect the rise in development
BOOST REGIONAL GROWTH
budgets required to make internationally 19.
BUILD WORLD WINNING GAMES competitive games
BUSINESSES 14. The Post-Study Work Visa should be
reinstated, initially for STEM and other
9. Regional/National Games Development
priority area students, to enable UK
4. The UK should encourage the development
Incubators should be established at a
university or a consortia of universities in
businesses to hire the best available talent
An ‘Export Tax Relief’ should be introduced and provision of superfast broadband trained at UK higher education institutions.
to incentivise more firms to export, thereby each of the English regions and in each of
speeds that rival the best in the world. The Post-Study Work Visa should
promoting export-led economic growth. the nations within the UK to enable more
allow non-EU students studying at UK
successful start-ups (the incubators would
An Export Tax Relief is currently prohibited 10. support both student and non-student
universities to work at a UK business after
under EU law. However, the primacy of Greater competition should be promoted graduation for a maximum of two years,
enterprises).
UK domestic fiscal policy can be seen in in the business banking sector and new and then apply for a more permanent work
the UK’s ability to introduce the Patent permit.
Box, and retain the Patent Box even when
entrants encouraged to enter the market
as the UK banking sector remains heavily
15.
some other EU member states sought to High technology video games clusters
have it abolished because they deemed concentrated.
should be promoted around the UK through
20.
it to be unfair. Interestingly, Germany Policy makers should examine the case for
the provision of more business incubators
provides drawbacks on local VAT tax paid 11. at designated regional universities (see
increasing expenditure on higher education
on exported products. The UK Government PEGI, the European game content rating to ensure that UK tertiary education
could therefore explore the case for point 14), strengthening local industry and
system, should end its punitive pricing remains world leading.
negotiating and securing an Export Tax university links, building connections with
policy. PEGI’s current policy is to charge
Relief. finance providers and through the provision
a developer a fee for content rating every
of business mentoring. 21.
time it launches a game on a different Policy makers should examine the
5. case for reducing tuition fees in priority
Awareness of UKTI’s offering should be
console platform, even if the content is
exactly the same. Charging fees for the
16. undergraduate subject areas such as
increased to ensure that more SMEs access The Growth Accelerator service should be Mathematics.
same content should be stopped to save
its export services. tailored to the needs of games developers
developers’ money.
UKTI should enable more UK video games
and digital publishers to ensure that more 22.
studios benefit from the service over the life The Skills Investment Fund should be
businesses to maximise their export
potential: In 2013/14 just 1.4 per cent of the next Parliament. maintained to enable UK games businesses ‘Juiced 2’, developed by Realtime UK
tiga.org to enhance skills in the games industry.
19
20/20 VISION
TIGA’S MANIFESTO FOR THE UK VIDEO
GAMES DEVELOPMENT INDUSTRY
tiga.org ‘Lifelike Head Meshes’, developed by Realtime UK21
20/20 VISION
TIGA’S MANIFESTO FOR THE UK VIDEO
GAMES DEVELOPMENT INDUSTRY
1. 2. the CCF could distribute funding in the form business advisory service should be
PROTOTYPE FUNDING TIGA proposes that DEVELOP A CREATIVE
of a convertible loan on commercial terms provided for companies benefiting from
(thus acting within EU rules about State CCF disbursements. This is necessary to
resources should be CONTENT FUND Aid).28 Recipient companies would be able safeguard investments and provide guidance
PROPOSAL
made available to finance PROPOSAL
to repay the loan or convert its value into to new companies.31
equity after a set period. The CCF would aim
early stage development to recoup the money from recipients out of As noted, the CCF could disburse 20
The UK Government should facilitate the
Power up The Government should make prototype
work in order to create development of a Creative Content Fund
successful sales once they had generated convertible loans of £150,000 per annum (£3
funding available for independent games million in total). The Fund’s running costs
small firms developers. This could be financed via the playable prototypes, (CCF) in order to encourage new studio
a certain amount of revenue (in proportion
to the convertible loan) and over an agreed are dependent on the level of administration
National Lottery (or via Innovate UK). early stage development formation, stimulate creativity and co-
time period (likely to be 3 years). The and due diligence but the suggested
fund new content development and IP
work or even to support generation.23
advantage of the convertible loan approach structure may cost up to £450,000 per
annum.32 Assuming the CCF is established to
for the game development studio is that if
full game development its game did not sell as well as expected it run over a 5 year term, the CCF is expected
REASON
projects. could transform the CCF’s loan into equity or to cost £17,250,000 (excluding any return on
Games companies face a significant REASON a share in the business, and so remove the investment). TIGA notes that these estimates
funding gap that is restricting growth. Low debt from its balance sheet. will need detailed feasibility analysis to cost
availability of private and public finance The UK has made some funding available UK games development has traditionally more accurately. The CCF could be financed
restricts the growth potential of games to support prototype development in recent been heavily reliant upon global games Eligible companies and projects would need via the National Lottery or via Innovate UK
companies, particularly the many new years. Abertay University delivered a companies for finance. 76 per cent of to demonstrate the following criteria: (see Section 4 below).
prototype fund which enabled developers to investment in UK games development
games companies starting up in recent
apply for grants of up to £25,000 to create is derived from global companies.24 The • The company is based in the UK. Schemes analogous to the Creative
years. Video games can be a very successful
prototype games. The Abertay Prototype remaining 24 per cent is self-funded by Content Fund have previously been created.
business. However, the revenue generation Fund helped over 70 companies, supporting • T
he company expends a minimum of 80
British games companies, who largely rely For example, the 2013 Budget saw the
is spread very unequally in the value chain. nearly 500 new or continuing jobs and per cent of the development costs of this
upon existing cash resources, including announcement of a new £15m competition
While sales and marketing of video games enabled start-ups to overcome some critical project in the UK.
retained profits, and, to a much smaller managed by the Technology Strategy Board
is a highly scalable international business, business constraints 19. However, the Abertay
degree, private investment to fund for digital content production.33 However,
the actual making of games is not easy Prototype Fund has now been fully invested. • T
he company proposes to develop original
development.25 As noted earlier, access to this does not focus on content creation per
to finance. Game development is a risky Creative England introduced a Development new games IP which is innovative in
Fund in 2013, whereby small and medium- debt and equity finance is comparatively se but has a more technical thrust.34
venture involving high technological, artistic terms of content, gameplay and, where
and business risks. It is consequently sized enterprises (SMEs) have been able difficult. Additionally, those creative appropriate, business models.
to apply for grants of between £10,000 A recent example of the efficacy of direct
relatively difficult to raise external finance. businesses (including video games
and £50,000 to develop a new game IP for government funding of games production
This can be a serious problem as the development studios) that are fortunate • T
he company retains majority ownership
commercial release, but this has now closed. can be found in Finland. Finland’s Tekes
development of technology and content can enough to secure finance typically have to of the IP during the term of the loan.
Creative England introduced a Prototype government-backed funding agency has
be expensive. trade away their IP for project capital.26
Fund for start-ups to apply for £10,000 to • T
he company should have to demonstrate provided nearly $70m in funding to Finnish
develop a prototype game. These are positive games developers since the late 1990s
New IP is the engine of the games a robust business plan about how it
TIGA proposes that resources should schemes but they are small scale in nature providing financial assistance to many of
industry that opens new markets, triggers intends to use the match funding to
be made available to finance early and are restricted to assist companies in the country’s studios at the crucial high risk
certain parts of England.20 employment, raises tax revenues and enhance its prospects for commercial
stage development work in order to delivers new growth to studios that own success. early stages of their existence. This includes
create playable prototypes, early stage The Prototype Fund should also include the IP. Retaining ownership of successful providing early stage finance to Supercell
development work or even to support full business, creative and technical guidance IP enables game developers to generate • T
he CCF should invest in projects that and Rovio, two companies that have gone
game development projects. Resources for funded projects to maximise their cash flow and support more sustainable have the potential for commercial on to become global gaming giants. The
could also be deployed for marketing and prospects for commercial success. Prototype businesses.27 While new IP financing and success, not prop up businesses that success of this programme and the knock-
distribution of games; for training; and to funding should not be a stand-alone policy. distribution declined in the years preceding are in difficulties.29 This should be on effect of an increase in inward investment
support businesses to attend international Developers need to be given the tools and demonstrated by credit checks and and value realisation from subsequent fund
the launch of the new consoles in 2013, new
events. Prototype funding could be financed knowledge for commercial success. In professional assessment of the company’s raising and M&A activity has prompted the
routes to market (such as mobile, online
particular, developers need business and Finnish government to dramatically increase
by re-deploying National Lottery money (see and social gaming) have opened up, thereby financial statements.
commercial advice about how to get their
Section 4 below). reducing or even obviating the need for its direct games funding via the launch of
prototype fully funded and released into
The Creative Content Fund (CCF) could be Skene, a €70m dedicated games fund.35
the market. In the absence of this advice, publisher assistance on those platforms.
designated as an National Lottery allocation
The main recipients of prototype funding the prototype funding could be wasted.21 There is a strong opportunity for a new
The AppCampus Award Scheme provides body, together with arts councils and other
should be the UK’s independent developers generation of British games companies,
an interesting model of prototype funding. distribution bodies, and given the right to
because they typically find it difficult to which are starting up in record numbers but EFFECT
In addition to strict milestone funding, decide which games projects and initiatives
raise finance in comparison to publisher usually at small scale, to become developer/
recipients benefit from teaching, formal should be awarded with development
owned studios. The funding should also be publishers, to create and distribute new IP. A CCF carefully structured by industry
classes and introductions to key industry funding. The CCF then, along with its other
concentrated on areas where commercial and the UK Government would improve
figures including investors.22 The establishment of a Creative Content functions, would establish an application
funding either does not exist or only exists developers’ access to finance, stimulate
Fund could help overcome these challenges procedure for games developers to apply
in return for un-commercial terms, such original IP generation and promote studio
and exploit new commercial opportunities. for this funding, evaluate applications
as the transfer of all the IP to the funder. growth. It would enhance the independence
The CCF could provide funding of between received, and award funding to projects
Funding of innovative prototypes (like the EFFECT and commercial viability of game developers
£50,000 and £150,000 to game developers. that fulfil a predetermined set of criteria.
game Limbo) would be particularly useful and strengthen the prospects for the
Making prototype funding available will help Funding could be made available in two The CCF should be entirely impartial and
because these kinds of innovative games expansion of the UK video games industry.
start-ups and small development studios forms. Firstly, loans could be made on a independent of trade associations and
rarely see the light of day as few publishers The matched funding criteria would help to
surmount barriers to accessing finance pound for pound matched funding basis, businesses. However, the CCF could have
are prepared to take the risk of funding drive investment and job growth.
and enable more promising studios to fund whereby eligible companies would need an advisory board which potentially might
them.
prototype development and IP generation. to demonstrate that they can match the include representatives from private sector
tiga.org funding from other sources. Alternatively investors. 30 A commercial mentoring23
20/20 VISION
TIGA’S MANIFESTO FOR THE UK VIDEO
GAMES DEVELOPMENT INDUSTRY
3. Charitable causes, 20 per cent to Sports, 20 funding for the CCF would enable more
4. by Euler Hermes went to the Mittelstand, or
per cent to Arts and 20 per cent to Heritage.
NATIONAL LOTTERY The distribution formula is set yearly by the
developers to raise finance, develop talent,
TAX RELIEF FOR
medium-sized businesses, according to the
stimulate original Intellectual Property (IP) British Exporters Association.46 Moreover,
Department for Culture, Media and Sport. generation and promote studio growth. EXPORTERS while exporting has great potential for UK
The time has come to review the case for National Lottery funding for prototypes businesses, access to finance is relatively
PROPOSAL investing some National Lottery money in difficult especially for creative businesses. Also,
and the CCF would also indirectly promote
the video games sector.39
skills development in firms. Finally, it would
Build world PROPOSAL the cost of exporting in terms of increasing
National Lottery money could be made
available to finance innovative video game The Creative Content Fund (CCF) could be result in a wider breadth of innovative video winning games An ‘Export Tax Relief’ should be introduced
production, paying for insurance against late
payment, and researching new markets can be
prototypes and the Creative Content Fund designated as an allocation body, together games in the marketplace, which could in businesses to incentivise more firms to export, thereby a barrier to exporting.47
(see the sections above). with arts councils and other distribution turn increase the reach of video games into promoting export-led economic growth.
bodies, and given the right to decide which Introducing an ‘Export Box’ or Export Tax Relief
wider culture.
games projects and initiatives should be An Export Tax Relief is currently prohibited for UK exporting companies would help a range
under EU law. However, the primacy of UK of business across many sectors, including
awarded with development funding. The
REASON domestic fiscal policy can be seen in the many games development studios. 95 per cent
CCF then, along with its other functions,
UK’s ability to introduce the Patent Box, of UK games development studios export at
As noted previously, many game developers would establish an application procedure and retain the Patent Box even when some least some of their games. Many UK games
find it comparatively difficult to raise debt for games developers to apply for this other EU member states sought to have development studios are export focused. For
and equity finance. Additionally, many of funding, evaluate applications received, it abolished because they deemed it to be
example, the proportion of turnover from
those video games development studios and award funding to projects that fulfil unfair. Interestingly, Germany provides
exports is 100 per cent for Firebrand, 90 per
a predetermined set of criteria. The drawbacks on local VAT tax paid on exported
that manage to secure finance typically cent for Jagex, 80 per cent for Lockwood
products. The UK Government could
have to trade away their IP for project CCF should be entirely impartial and Publishing, 80 per cent for nDreams, 85
therefore explore the case for negotiating
capital. There is little available funding for independent of trade associations and and securing an Export Tax Relief. per cent for Neon Play, and 90 per cent for
the development of innovative or different businesses. However, the CCF could have Rebellion.
prototypes or small games, as many do not an advisory board which potentially might
include representatives from private sector The next Government should consider
have an immediately commercial value or
investors. Alternatively, the BFI could REASON introducing an ‘Export Box’ with a competitive
route to market. tax rate (e.g. 15 or 10 per cent) on the profits
be designated an allocation body with
The UK needs to rebalance its economy generated from their exports. This could be
Small, independent films, arts installations responsibility for video games. Another towards exports and investment. For the UK, achieved by applying an additional deduction
and projects, sports events, and other alternative would be to designate Creative trade continues to disappoint. The UK has a to taxable profits, in the same manner as
cultural activities are often financially England as a funding body, which could persistent current account deficit, exporting the existing Patent Box scheme to ensure
constrained and at least partly dependent distribute National Lottery Funds to the fewer goods and services than it imports. commonality within the tax system. This
on funding from the Government due to the video games sector. The crucial point is According to the House of Commons Public method of tax relief would benefit from
considerable financial risks that they take. that the designated funding body, whether Accounts Committee, from 2000 to 2012, the the fact that revenues from exports are
Independent games developers take similar it be the CCF, Creative England, or the BFI, annual value of UK exports nearly doubled, but easily identifiable, giving companies the
risks but the video gaming industry does not should be competent and independent of during the same period, the annual value of option of identifying relevant export profits
enjoy the same support enjoyed by the other trade associations and businesses.40 exports globally nearly trebled. Additionally, the via apportionment or ‘streaming’ methods
sectors. Small, experimental games that annual value of UK global exports has been flat (depending on whether the export costs are
often take the games industry forward are Some National Lottery funding could also NATIONAL LOTTERY for the last two years.41 Small and medium- easily separable), in a similar manner to that
not always considered ‘commercial’ enough be made available to support the large GOODS CAUSES 2013 sized enterprises (SMEs) play a crucial role in set out in the Patent Box legislation.
by large games publishers, inhibiting the number of important, but often overlooked, the UK economy, accounting for almost 60 per
cent of employment at the beginning of 2012. Once relevant export profits are identified,
development of the sector as an art form. outsourcing firms that specialise in areas
However, the UK has a slightly lower share of a calculation can be carried out in order to
It is time to recognise the games industry such as audio, animation, localisation, establish the deduction required to obtain an
as an equivalent arts form to TV and film. music, quality assurance, sound, etc. These 20% exporting SMEs than the EU average and the
share of UK SME’s revenues generated via equivalent tax rate of 15 per cent for these
Indeed, some studies suggest that the more profits. Any “export losses” created by this
businesses are critical to the health of the exports is also lower than the EU average.42
people play games, the more they consume
UK video games industry. They should be 40% One in five UK SMEs export compared to an process would need to be carried forward for
other culture, and vice versa.36 use against the next available export profits of
EU average of one in four.43 Lord Livingston,
20%
eligible for funding in respect of activities
the former BT chief executive who became UK the trade.48
Currently, National Lottery funding through such as training and attendance at
the National Lottery Good Causes is only trade minister in December 2013, has noted Key conditions should be that:
international events.
that for 60 per cent of companies, exports
available to industries and organisations
that fall under the remit of the 12 National
20% account for less than a tenth of their sales, • T
he company has undertaken qualifying
and a third do not have exports at all.44 If the exports (see also below) for goods and/or
Lottery distribution bodies that are tasked EFFECT services actually produced in the UK.
Chancellor’s target of the UK achieving £1
with allocating the funding.37 Approximately
SPORTS trillion annual exports by 2020 (i.e. doubling • R
elevant Export Income and profits from
28 per cent of National Lottery revenue was Making National Lottery finance available to the current figure), more needs to be done to exports will need to be prescribed in detail
returned to Good Causes in the year ending fund prototypes through the CCF could have encourage and assist exporters.
ARTS as with the patent box system.
31 March 2013, or approximately £35 million a significant impact. More studios would
each week.38 In total, the National Lottery UKTI helps exporting firms through a variety • T
he interaction with other reliefs will need
be able to develop prototypes and once of useful schemes (Passport to Export,
has funded projects through the National HERITAGE to be considered, including video Games Tax
a prototype is complete and operational, Trade Assistance Programme, OMIS, etc),
Lottery Distribution Fund by over £31 billion Relief, R&D tax credits, and the Patent Box
a route to market might become more but awareness of UKTI is relatively low.45 itself. In general, there should be no double-
since its inception. In 2013, 40 per cent HEALTH, EDUCATION, ENVIRONMENT,
apparent, allowing the game to be funded AND CHARITABLE CAUSES Additionally, the majority of Government dipping (i.e. claims for more than one relief
of the Good Causes funding was awarded
through to completion. National Lottery support for exporters is focused on large on the same income or costs).
to Health, Education, Environment, and
businesses. Just £70 million – 2 per
cent – of total government support for There are three distinctive groups in the
exporters provided by UKEF went to SMEs exporting process.
in 2012. In Germany, 46 per cent provided a) Direct: where an exporter operates
tiga.org25
20/20 VISION
TIGA’S MANIFESTO FOR THE UK VIDEO
GAMES DEVELOPMENT INDUSTRY
directly from the UK with its overseas customer. An Export Tax Relief is currently prohibited multiplying the applicable rate (25 per cent) by REASON of hard work to establish a new market or find investment to the UK but this alone is not
Export orders are taken in the UK; manufacture under EU law. However, the primacy of UK the lower of: the right partner that will allow a company to enough. Many countries now have tax relief
and supply of goods are organised from the UK; domestic fiscal policy can be seen in the UK Trade and Investment (UKTI)55 operate a move into a lucrative new area so UKTI can only programmes in place and the Government
• 100 per cent of UK core expenditure; number of useful schemes to help exporters be as effective as the company’s engagement should be promoting the UK games industry as
billing and revenues are managed direct from UK’s ability to introduce the Patent Box, and
the UK. Export profits are taxed in the UK. to retain the Patent Box even when some (although its funding has recently been with the process. Additionally, awareness of an attractive place to do business.
• 80 per cent of total core expenditure.
other EU Member States sought to have it diverted) 56: UKTI is limited.57 Overseas governments and agencies are
b) Branches: where an exporter retains a UK abolished because they deemed it to be unfair. Therefore if you only have UK expenditure,
base and establishes an overseas branch office, Passport to Export (P2E): Passport to Working with trade associations like TIGA is marketing their territories aggressively both to
Interestingly, Germany provides drawbacks the 80 per cent of total core expenditure will
funded directly by the UK. The overseas branch Export takes about 12 months to complete essential for UKTI to get the message out to the potential investors in the video games industry
on local VAT tax paid on exported products always be a limiting factor. Consequently, the
is a separate legal entity in the host country during which time a company attends a 1 games development community. Government and to potential workers. For example, over
(see Germany. Country Commerce 2014, The maximum relief = 80 per cent x 25 per cent =
and is directly linked to the UK. Billing is done day workshop to spend time assessing its and Parliament should also support the work recent years:
Economist Intelligence Unit, 2014, p. 44). The 20 per cent.
from the UK, all revenues go direct to the UK, UK Government could therefore explore the objectives and approach towards overseas of UTKI and work to raise awareness of the - South Korea, a rapidly growing video games
the branch office is essentially a cost centre, As you are testing total core expenditure trade. Participating companies work with an organisation.
case for negotiating and securing an Export market, has committed $144 million to the
and all costs/revenues are brought directly back any expenditure which is not “qualifying International Trade Adviser (ITA) to devise a
Tax Relief. As well raising awareness, UKTI should aim creation of an agency designed specifically to
into the UK. Export profits are taxed in the UK, core” expenditure will further reduce this series of action points that form part of plan
to enable more UK video games businesses to promote their video games and other creative
however relief is usually given for foreign taxes percentage, for example financing costs and to improving their overseas trade prospects by
maximise their export potential, particularly industries.59
suffered to prevent double taxation. advertising. Therefore in practice Games Tax using the support that UKTI can offer.
through the Trade Assistance Programme and
c) Subsidiary: where an exporter establishes a
5. Relief is likely to provide an effective rate of
only around 16 – 18 per cent. Gateway to Global Growth (G3): This is focused through Events and Missions. Yet in 2013-14,
- Japan has carried out a stimulus package
that focuses on the promotion of video games
permanent and separate legal entity overseas. RETAINING AND more towards established exporters with just 1.4 per cent (£220,100) of total UKT&I Trade exports.60
TIGA suggests that the next Government Assistance Programme funding was allocated
All billing and revenues are managed in the
overseas entity. Profits are taxed overseas,
ENHANCING GAMES should carry out a cost benefit analisis of
slightly more developed resources who need
a lighter touch and the programme has a less to the video games sector. Additionally, just Canada in particular has been active in
and brought back into the UK via dividend TAX RELIEF the case for increasing the existing level of formal approach. 0.18 per cent (£25,000) of total UKT&I Events marketing itself as a leader in the video games
distributions. These can be subject to relief from 25 per cent to 30 per cent. TIGA and Missions spending was assigned to the industry and high profile examples include:
recognises that specific tax rates and tax OMIS: UKTI, through its overseas Consulates
withholding tax at source, depending on the PROPOSAL video games sector. UKT&I should examine - British Columbia, a province with a thriving
reliefs are not the only factors influencing and Embassies (Posts) and in some cases
nature of any double tax treaties in place the case for increasing support for games video games sector, outlining specific policy
investment decisions. The overall business British Chambers of Commerce offers a
between the two countries. Video Games Tax Relief should be retained. development, digital publishing businesses objectives of “Investment attraction and trade
During the course of the next Parliament the environment, including the general network of sources of specific localised
and other games businesses. The sector has promotion support by trade missions to key
Firms that are direct exporters (a) and firms Government should carry out a cost benefit infrastructure, the skills base and property information and knowledge that are made
a very high tendency to export: 95 per cent of Asian markets, marketing materials and in-
with overseas branches (b) should be eligible analysis of the merits of increasing the level rights are also important. However, the UK’s available to exporters. Once a company has
games businesses export at least some of their market trade representatives.”61
for the Export Box/Export Tax Relief. In both of the relief from 25 per cent to 30 per cent key competitors in the games industry include decided it wishes to investigate a market with
products and services. Enabling more games
cases the export business is undertaken to stimulate further investment. states and provinces in countries such as the a view to trade, the local Post can be contacted - A recent trade mission to Japan by the
businesses to attend trade shows and to have
directly from the UK.49 Subsidiaries (c) should USA and Canada provide not only a broadly and asked to produce a specific and unique Canadian Minister for International Trade
their travel, accommodation and exhibition
not benefit from the Export Box/Export Tax favourable business environment but also report on any subject matter the company which resulted in a significant investment from
expenses should enhance their potential to
Relief. Similarly, indirect exporting firms (i.e., generous tax reliefs for games production. wishes (known as OMIS reports (Overseas Japanese video games manufacturer NAMCO
export. This benefits both the games industry
companies that contribute to the supply chain of REASON Therefore, it is vital that the rate or rates of Market Introduction Service). BANDAI in Vancouver. 62
and the UK economy.58
another company that directly exports) should relief to be adopted for the UK’s Games Tax
TIGA’s seven year campaign for Games Tax Outward Trade Missions: UKTI organises This has resulted in a recent study showing that
not be eligible from the Export Box/Export Tax Relief are highly competitive vis-à-vis these
Relief (GTR) came to a successful conclusion regular high profile visits to strategically Canadian video games manufacturers were
Relief. other countries.
in March 2014, when the EU Commission important markets to champion UK trade and EFFECT ‘satisfied’ by the Government’s marketing of the
It is difficult to estimate the profits and finally approved the measure. No significant promote British companies. Missions enable industry. 63
thereby the initially lost revenues generated by changes are likely to be made to GTR for participating companies to meet with foreign Increasing awareness of UKTI and its schemes
parties who can add value to their efforts in The UK should be marketed aggressively as an
exports (although over time the lower rate of four years. In 2017 the UK Government EFFECT amongst SMEs should lead to more businesses
those markets. attractive place for inward investment and to
corporation tax on exports should encourage should notify the EU Commission of its availing themselves of its support. This in
Increasing the level of GTR to 30 per cent will do games business. UKTI, Creative Scotland,
more exports and revenues to the Treasury). It plan to continue with the Relief and the EU turn should lead to more SMEs being able to
Inward Trade Missions: These bring groups Scottish Enterprise and Scottish Development
would therefore be prudent for HM Treasury to Commission will decide whether the Relief can increase the attractiveness of the UK as a develop sustainable and realistic plans for
of influential buyers to the UK to meet specific International can work with TIGA to develop
initially limit the Export Tax Relief to SMEs or be maintained for another four years in 2018. place to do business and will enable the UK international trade expansion. Additionally,
clients selected for their relevancy to the a convincing proposition to investors in order
even to just small businesses.50 During this period TIGA will be examining games industry to compete on a more level other things being equal, enabling more games
Mission’s character. Often these are high level to increase investment in the UK and Scottish
whether GTR can be improved in any way. One playing field. businesses to benefit from the Trade Assistance
meetings and events featuring key players in games industries.
area that UK policy makers should examine the overseas territory. Programme and from Events and Missions
in advance of notifying the EU Commission should enhance the sector’s export potential.
EFFECT The Trade Show Access Programme (TAP):
is in relation to the rate of Relief.51 The rate
TAP supports UK businesses looking to exhibit
The UK has a persistent current account of Relief could be increased to ensure that 6. at overseas trade shows by providing eligible
EFFECT
deficit, exporting fewer goods and services the UK’s games industry competes on a
than it imports. If the UK is to achieve export more level playing field.52 The levels of tax SUPPORTING firms with grants. Eligible companies can apply 7. As a result of strong marketing, Canada is now
led growth in the future then we need to relief available for video games around the EXPORTERS VIA UKTI for up to 3 grants in any one year to subsidise
the cost of participating in an exhibition. As
MARKETING THE UK “known internationally for its very strong base
assist and encourage more firms to export. world vary, with the most generous including of creative and technological talent” 64 and “has
Currently, just one in five UK SMEs export Singapore; Georgia, Florida, and Louisiana in part of an Accredited Trade Organisation led GAMES INDUSTRY been notably successful in attracting investment
PROPOSAL presence, companies can receive between
compared to an EU average of one in four. If the USA; and Manitoba, Ontario and, Prince and skilled personnel from jurisdictions like the
the UK introduced an Export Tax Relief for Edward Island in Canada.53 Significantly, £1400 and £1800 per exhibition. PROPOSAL United Kingdom.” 65
Awareness of UKTI’s offering should be
SMEs, whereby eligible UK companies would studios in receipt of public support in Canada increased to ensure that more SMEs access its Export Marketing Research Scheme( EMRS)
Market the UK games industry aggressively as In contrast, a lack of strong marketing of the
pay a competitive tax rate on the profits are receiving support equivalent to 23 per cent export services. and Published Research: UKTI can fund
an attractive place for inward investment and UK’s expertise in this sector has cost investment
generated from exports, then more businesses of their turnover, giving them a significant between 33% - 50% of desk research as well as in the past. For example, Dundee lost out to
would have an incentive to export. This in benefit.54 UKTI should enable more UK video games look at the different ways that the Government
50% of the costs of field research in the target Galway as the location for the European HQ or
turn could drive export led growth and help to businesses to maximise their export potential: can fully promote the UK’s video games sector.
The effective rate of relief for the UK’s new market. US games maker ‘Big Fish Games’.66
rebalance the UK economy. In 2013/14 just 1.4 per cent (£220,100) of total
Games Tax Relief will be less than 20 per cent. These schemes are helpful and UKTI does Effective marketing of the UK as a good place
UKTI Trade Assistance Programme funding
This is because Games Tax Relief is calculated useful work with the companies that it supports to do games businesses should serve to attract
was allocated to the video games sector.
by working out the level of additional deduction but is reliant on the company committing REASON a larger share of inward investment and to
Additionally, just 0.18 per cent (£25,000) of
that is permitted for qualifying costs. The time and financial resources to a sustained support the growth of more employment and
total UKTI Events and Missions spending was The introduction of tax relief for the UK games
enhanceable expenditure is calculated by campaign to develop overseas. It can take years businesses in the games industry.
tiga.org assigned to the video games sector. industry has been a positive step in attractingYou can also read
