Playing for Keeps
Challenges to sustaining a
world-class UK games sector
COUNTRY PROFILES
Playing for Keeps – challenges to
sustaining a world-class UK games sector
Monograph: Country profiles
Prepared for:
Prepared by:
Release date:
October 2007
Country profiles
Introduction to Playing for Keeps
The UK computer games industry makes a valuable contribution to the UK
economy: in 2006, games generated £2 billion in retail in the UK, £370 million
was invested in games creation and approximately 21,000 people worked in the
sector, 8,000 of these in games development. Games are increasingly
becoming part of the lives of millions of UK citizens: 59 per cent of the UK
population are gamers and this is growing fast as the demographic widens and
games evolve beyond the original genres into casual, lifestyle and learning
applications. Games technology and content are at the cutting edge in terms of
innovation and creativity. Games sector jobs are typically high-quality and high
value. These points are not lost on the three Government departments that
support the games industry in the UK – UK Trade and Investment (UKTI), the
Department for Business, Enterprise and Regulatory Reform (BERR) and
Department for Culture, Media and Sport (DCMS).
Playing for Keeps is published in three separate monographs:
Country Profiles – Games Investor Consulting profiles the UK along with a
number of leading games development territories around the globe using a
series of key performance indicators;
Intellectual Property – Games Investor Consulting examines ten of the most
successful, influential and representative pieces of intellectual property generated
in the UK since the birth of the UK games industry back in the early 1980s;
Commercial and Distribution Models – Games Investor Consulting analyses
the prevalent commercial models and distribution channels in the games
industry today to better understand the key drivers and the future development
of the sector.
Both Government and industry have been concerned about the lack of
authoritative and up-to-date data on the UK games sector. In late 2006 UK
Trade and Investment, in partnership with BERR and trade association TIGA,
commissioned independent research on the UK computer games industry in a
bid to help fill this gap and to provide much-needed evidence to contribute
towards the development of relevant Government policy. The resulting work by
Games Investor Consulting Ltd – Playing for Keeps – Challenges to Sustaining
a world-class UK games sector – is a detailed examination of the UK games
sector and how it compares globally, with a particular focus on the creation of
new games intellectual property, the ability of new companies to start up and
grow in the UK and the barriers to inward investment by global companies into
the UK.
Each of the monographs includes the results of an Industry Survey which
Games Investor Consulting undertook with fifteen senior representatives from
UK-based development and publisher companies to inform their research.
Games Investor Consulting’s research tells us that there are many positives for
the UK: we have a world-class hub for games development with an excellent
track record in producing hit games which have global appeal. The UK is
known for its ability to combine strong characterisation with humour and
creative flair; the UK has good levels of development staff and graduates
compared to most of our competitor territories; we remain the preferred
location for the European headquarters of global games companies.
iii
Country profiles
Introduction to Playing for Keeps
However, Games Investor Consulting's findings also warn us that we have no
room to be complacent: for example, in 2006 for the first time the UK moved
from being the world's third to its fourth largest producer of games based on
revenue and some territories are showing growth rates that out-pace our own.
Playing for Keeps is an evidence-rich piece of research which will help inform
the policies of Government departments and agencies but will also be of great
value to the industry itself. UKTI, BERR and DCMS are now evaluating this
research and discussing it with the industry: we need to determine together
what it tells us about the UK’s future competitiveness in the global games
sector, about our ability to remain competitive and to fully exploit the massive
growth of the global market and what actions Government and industry might
take to help ensure that we have the best possible business environment for
games companies in the UK.
UK Trade and Investment
Department for Business, Enterprise and Regulatory Reform
October 2007
All three of the monographs can be downloaded from UKTI’s website
www.uktradeinvest.gov.uk
iv
Country profiles
Contents
Executive summary
The UK and its principal competitor development territories
Industry survey
1
2
Introduction to the monograph
About Games Investor Consulting Limited
Methodology
Definitions
3
3
4
Competitive profiles of major development territories
Introduction
Australia
Introduction
Development and publishing
IP creation
Funding environment
Labour market
Analysis
Ratings
5
6
7
7
8
10
11
14
v
Canada
Introduction
Development and publishing
IP creation
Funding environment
Labour market
Analysis
Ratings
14
15
16
17
20
21
23
France
Introduction
Development and publishing
IP creation
Funding environment
Labour market
Analysis
Ratings
24
24
25
26
27
28
30
Singapore
Introduction
Development and publishing
IP creation
Funding environment
Labour market
Analysis
Ratings
31
31
32
32
33
34
36
Country profiles
Contents
South Korea
Introduction
Development and publishing
IP creation
Funding environment
Labour market
Analysis
Ratings
United Kingdom
Introduction
Development and publishing
IP creation
Funding environment
Labour market
Analysis
Ratings
Independent UK developers
USA
Introduction
Development and publishing
IP creation
Funding environment
Labour market
Analysis
Ratings
Competitive benchmarking of major development territories
36
37
38
38
41
41
44
45
45
48
48
58
62
68
69
vi
71
71
72
73
75
76
77
79
The industry survey
Introduction to the industry survey
Headline results
Strategies for intellectual property
Publishers’ work with independents
Business models
Innovation
Skills and recruitment
IP creation in the UK
Government assistance
Government support in other territories
Impact of globalisation
Closing questions
82
84
85
93
95
102
105
108
112
114
119
120
Partner Organisations
123
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Country profiles
Executive summary
• The location decisions for games companies are heavily influenced by the
following:1
The UK and its principal competitor development territories
Detailed descriptions, based on substantial, new, rigorous research, of
competitor territories Australia, Canada, France, Singapore, South Korea and
the USA are provided, including profiles of their games development sectors,
levels of government support, staffing and graduate levels among many other
indicators. The report’s findings are:
Table 1: Government assistance for the games industry overseas
Government assistance for the games industry in major competitor territories
Australia
Canada
France
UK
USA
• The UK is a world-class hub of games development, is the fourth largest
development territory in the world in terms of revenue generation, has
good levels of development staff and games graduates compared to most
competitor territories, its leading studios are often targets for acquisition
by global publishers and it is the preferred location for European
headquarters for most global games companies.
National tax break for
games production
Yes
No
Yes*
No
No
Regional tax breaks
for games production
Yes
Yes
No
No
Yes
National games IP
fund
Yes
Yes
Yes
No
No
• However, the UK is growing more slowly than most of its competitors in
terms of revenue generation. It has the highest average salaries (a
problem exacerbated by the weak dollar), provides relatively poor access
to finance and features the most limited government support of all
territories surveyed. It is further hampered by having a minimal
indigenous publishing sector and by being under-represented in the
booming online games market.
Local games IP fund
availability
Good
Good
Good
Low
Low
R&D tax credits
application to games
Medium
High
Medium
Low
Low
Non-governmental
financing availability
Lowmedium
1
1
Medium- Medium- Medium
good
good
Good
France's games production tax credit is under investigation by the EC but has been
ratified by the French Parliament
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Country profiles
Executive summary
• Government support is the single biggest contributor to Canada
overtaking the UK in 2006 to become the third largest games development
territory in the world, despite lower staff and company numbers. The
generous support provided to the Canadian games sector in the form of
tax breaks, subsidies and grants has enabled Canada to achieve a
position in ten years that the UK took 25 years to reach.
• There was strong agreement that independents struggle to get new
original IP distributed. Many think new platforms open opportunities for
new original IP, but a sizeable number of respondents think that the UK’s
ability to generate new IP is diminishing. Most think this situation will
persist for the foreseeable future.
• Most companies face recruitment difficulties trying to find suitably skilled
and experienced new staff, and 40 per cent of respondents’ companies
are expanding in competitor territories.
• Canada’s growth has to date been primarily at the expense of France
whose indigenous games development sector has collapsed since 2000.
Canada has recently tempted SCi, the UK’s biggest indigenous publisher,
to locate a major new 350 employee studio in Montreal rather than in the
UK. SCi cited the Quebecois provincial government’s sector support
programme as the decisive factor in its choice of location.
• Most respondents described heavy competitive pressure from playing
fields made uneven by government subsidies and investment incentives
overseas, and almost all wanted such incentives matched by tax breaks
and prototype funds in the UK.
Industry survey
A detailed survey of 15 of the UK’s most successful independent studios,
publisher studios, and publisher head offices was conducted for this report
and concludes that:
• Most respondents acknowledge that games IP is a critical revenue
stream and nearly 90 per cent of independents surveyed will self-fund
part of a new game’s development. For independents, owning technology
IP is also an important factor in increasing production efficiency and
winning work for hire.
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Country profiles
Introduction to the monograph
Definitions
The following definitions are used throughout the report:
About Games Investor Consulting Limited
Games Investor Consulting is a specialist games industry consultancy founded in
2003 to provide independent games research and corporate finance consulting
to the games industry and financial community. Games Investor Consulting is
one of the industry's most trusted sources for market intelligence, has generated
a number of industry-standard reports, has surveyed over 200 games companies
internationally and has consulted on games strategy and research for numerous
games and media companies as well as trade and governmental bodies.
AAA: For the purpose of this report, an AAA IP means a game that has
achieved over one million unit sales worldwide.
Angel funding: Funding for unlisted companies from high net worth individuals.
BERR: Department for Business, Enterprise & Regulatory Reform. BERR was
one of the new Departments created following the major Machinery of
Government changes announced in June 2007 which also saw the
discontinuation of the DTI.
Methodology
Games Investor Consulting gathered primary data through interviews with
senior industry figures, but the majority of the research derived from
secondary research comprising desk-based research and Games Investor
Consulting’s existing knowledge of the European and global games industry
and capital markets. Qualitative and, where possible, quantitative data
processing was conducted. The project was broken down into five discrete
work packages which were phased consecutively or in parallel between
October 2006 and April 2007.
Currency: For the purposes of facilitating benchmarking between territories, all
sums are in US dollars, with exchange rates from late November 2006
(£1:US$1.9). Due to the extent of recent sterling exchange rate fluctuations,
these figures may date rapidly.
Current generation: Still anachronistically referred to as ‘next generation’, this
refers to the PlayStation 3 and Xbox 360 games console generation.
Data gathered for this report was accurate at the time of each monograph’s
completion, but, for reasons of budget and timing, new data could not be
updated once a monograph was completed. The report focuses on a fast and
ever-changing industry and therefore it represents a snapshot of the industry
at the time of writing.
DCMS: The Department for Culture, Media and Sport.
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Country profiles
Introduction to the monograph
RSA: Regional Screen Agency.
DTI: Department of Trade and Industry. This Department no longer exists
following the Machinery of Government changes made in June 2007. Some of
DTI's business support activities described in this report are now part of the
newly-created BERR whilst others are part of the similarly newly-created
Department for Innovation, Universities and Skills (DIUS).
SKU: a version of a game tailored for a specific platform.
TIGA: The trade association representing the interests of publisher’s and
independently owned development studios in the UK.
ELSPA: The Entertainment and Leisure Software Publishers Association.
Trade capital: Commercial funding arrangements with games companies such
as publishers.
IP: Intellectual Property. Unless otherwise stated, the use of the word IP refers to
games IP, as opposed to technology IP. IPR refers to Intellectual Property Rights.
UKTI: UK Trade & Investment.
MMOG: Massively multiplayer online games.
Work for hire: Games development undertaken by independent games
developers working on IP owned by third parties, usually publishers, from
which most see limited or no post-advance revenues.
Overages: Royalties earned after advance payments from a publisher have
been recouped by an independent developer against a pre-negotiated
percentage of net receipts.
Private capital: Funding for unlisted companies from specialist private equity
firms (a sector in which venture capital forms the most relevant part for games
businesses).
Public funding: Funding for companies from national, federal, regional,
provincial or state governmental funds.
R&D: Research and Development.
RDA: Regional Development Agency.
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Country profiles
Competitive profiles of major
development territories
Introduction
This report gives a snap shot of each territory’s labour market and is designed
to provide a rough indication of what a games development and/or publishing
company faces when locating in a given territory, rather than a formal or
exhaustive picture of labour legislation.
This section profiles a number of the leading games development territories in
the world, with a focus on games intellectual property (IP) and the availability
of governmental assistance for the games industry. The territories profiled
herein are Australia, Canada, France, Singapore, South Korea and the USA.
The countries were chosen by the project’s co-ordinators (at
UKTI/BERR/TIGA/GIC) to reflect the main games markets competing against
the UK for business, IP, funding, governmental assistance or talent. The report
aims to provide a snap shot of each country’s relative ability to create games
IP by focusing in on some key data points.
Sources are listed in footnotes at the base of each page, but Games Investor
Consulting has, in many cases, relied on its own databases, research and
industry knowledge to provide original data that has not been surveyed
previously by other organisations. Again, due to the short length of the project,
some data are estimates which could be usefully and more accurately
established in more exhaustive studies in future.
Staff numbers provided relate to development staff in publisher and
independent developer studios only. Therefore distribution, sales and
marketing, retail and games services companies are not included. As such,
these numbers will differ from overall industry staff numbers given by trade
bodies in several countries which include those excluded from our count.
Critical areas for each country profile are:
• development and publishing markets
• IP creation
• funding environment, including public and non-government funding for the
games industry
At the end of each profile is a set of ratings, which use the all quatitative and
qualitative data in this report to balance each profile against those of the other
competitor countries. The purpose of the ratings is to enable competitive
benchmarking between the major competitive games development territories.
For criteria for each rating, please see footnotes.
• labour market and
• analysis of each country’s games development and publishing market,
prospects and competitive positioning.
A range of data is given, most of which (due to the short length of the project –
15 working days) has been gathered from secondary sources. Where possible,
data has been gathered from games trade bodies and governmental
departments, although the report’s authors have retained a critical and objective
perspective on data which has clearly been inflated or become out of date.
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Country profiles
Competitive profiles of
major development territories
Australia
Retail market size7
Introduction
Table 2: Australian retail statistics
Australia’s games industry is small, experienced and highly concentrated in a
few large developers, many of them foreign owned, who have often absorbed
a number of smaller studios and staff from companies on the verge of
liquidation. Australia perceives itself in difficulty2 due to the challenges of
international competition, failing companies3, some strategic false starts, and
an endemic problem of IP/profit flight overseas4. Many of Australia’s most
successful development companies have been divisions of large European and
USA-headquartered developers, set up for lifestyle reasons and to provide
more cost-efficient development resources5. Australia has not produced even
one medium scale publisher, so almost all of its output is published by foreign
companies, leaving Australia in the unstable position of many developing
games markets, with profits from games created in Australia leaving the
country. Australia has struggled to produce world-class IP, with only a few
AAA titles originating from the territory. The size of its domestic market slowed
markedly between 2002 and 2005 but is expected to resume growth for the next
three years. It has a small but experienced workforce, and has recently
experienced a growth in games service companies6 who promote the country’s
lower cost base to games clients.
2000
2001
2002
2003
2004
2005
2006
Software
$302m
$402m
$566m
$578m
$606m
$662m
$763m
Units sold
N/A
N/A
N/A
N/A
10.6m
N/A
12.5m
Note: all sums are in US dollars
2 In a submission to a government committee (Hansard, April 2004), a number of industry trade
associations claimed that Australia’s games industry was unbalanced, under threat, and badly
needed government support in the face of loss of IP to foreign-owned companies. The Games
Developers Association of Australia describes the industry’s current situation as a crisis.
3 A number of its leading, first generation games companies have failed or been sold. Studios in
liquidation: Perception Studios (2006), RatBag Games (2005), Creature Labs/CyberLife (2003), Dark
Matter Games, Real Time Studios, U235.
4 In a submission to a government committee (Hansard, April 2004), the Director of the Australian
Interactive Media Industry Association described three promising online gaming start-ups going
under or offshore to countries where the domestic markets are large enough to sustain such
companies (China and Korea).
5 Examples include Pandemic Studios (USA-based and recently merged with Bioware of Canada)
Irrational (USA-based and recently bought by Take 2) and The Creative Assembly (UK-based and
recently bought by Sega).
6 GIC estimates that 30 companies and 300 staff are based in the service sector, providing
outsourced content creation (art, animation, programming) and other services.
7 All sums in USD. Data from Interactive Entertainment Association of Australia and GFK research.
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Country profiles
Competitive profiles of
major development territories
Development and publishing
• IR Gurus (local content specialist with 55 staff)
• Torus Games (handheld specialist with 50 staff).
Number of independent developers: 458
IP creation
Mortality rate9: estimated 25 per cent since 2000. Australia has suffered from
lack of access to global markets and non-government funding, a small retail
market for games domestically, and, until recently, a low level of experience of
working on world-class games. Generally experiencing a skills shortage,
successful developers are growing more slowly than they would like.
New IP generation and ownership: low-medium. Australia has, in general,
struggled to create world-class IP, and its history is dominated by games
selling, at best, 500-600,000 units globally. Although studios do create new IP,
the majority of revenues come from work for hire for publishers. Krome Studios
has developed a handful of new IP hits and has grown more recently by
acquiring studios such as Melbourne House from (the distressed) Atari.
However, most of the generators of quality new IP – Irrational, Pandemic,
Creative Assembly – are now foreign owned. Those few large developers that
are capable of driving new IP, such as Bioshock and Destroy all Humans, are in
a minority, with the majority of developers less experienced or less able at
creating high-quality IP.
Development clusters: Brisbane, Melbourne, smaller clusters in Sydney
and Canberra
Export value of domestically produced games: US$77 million10
Number of publishers: 15
Major publishers located in territory: Activision, Atari, Eidos Interactive,
Electronic Arts, Sega Sammy (the Creative Assembly – development only),
Sony, Take 2 Interactive (Irrational Games – development only), THQ
(two studios), Ubisoft Entertainment and Vivendi Games.
8 There are some 80 games companies with 1,200 staff in the territory, which includes 45
Largest indigenous games companies in territory
The following privately-held companies have not released financial results:
independent developers, 15 publishers (including their studios) and 20 service companies; GIC
research based on data from Invest Australia’s Games Industry Market Intelligence Report,
March 2006, and supplemental information from the Games Developers’ Association of Australia
and the Australian Games Developers Convention.
9 Mortality rates reflect GIC research into independent developers going out of business between
2000 and 2006
10 GDAA, March 2006
• Krome Studios (largest studio numbering 300 staff following 11/06
acquisition of Melbourne House and subsuming most of RatBag Games)
• Auran Games (developers and middleware providers, US$11.5 million
co-invested with Hanbitsoft in one MMOG project)
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Competitive profiles of
major development territories
Availability of federal government assistance: low-medium. Federal assistance for
the games industry specifically is non-existent, however federal govenment runs a
number of substantial programmes designed to help kick-start new businesses:
Major IPs created in territory: Bioshock (unreleased but AAA potential), Dark
Reign 1 and 2 (PC), Destroy All Humans (PC, PS2, XB), Freedom Force (PC), Star
Wars: The Clone Wars (GC, XB), SWAT, Top Gear Rally, TY the Tasmanian Tiger
(GC, PS2, XB, GBA), and Unreal II (XB)
• Backing Australia’s Ability II programme includes
First games company founded: Beam Software (later Melbourne House) 1980
• Commercialising Emerging Technologies (COMET) programme: US$78
million innovation fund across all industries, with up to US$77,000 per
grant available
• Building on IT Strengths (BITS) Incubator programme: US$28 million
fund for further commercialisation of innovation
• New Industries Development Programme (NIDP) Mark III: US$10.8
million fund to kick start new industries in Australia
• Commercial Ready programme: US$154 million per annum to take
R&D activities to market
• Co-operative Research Centres (CRC): ACID, the Australian CRC for
Interactive Design, specialises in creative industries, gives small grants
to enable new communication technologies but has few games
projects
• NICTA: IT centre with a US$74 million annual programme of mainly
internal research programmes across all IT.
Date of first break-out global hit game: The Hobbit, Beam Software, 1982
Funding environment
Acquisitions and the availability of non-government funding: low-medium.
Although a US$19 million venture fund was launched in 200511 targeting
handheld games (into which public and non-government funds were poured),
access to funding from non-government sources is low. Australian companies
complain of a lack of non-government funding and investment into the games
industry. Companies have grown organically from medium-level sales of mostly
B-C titles off the back of low staffing costs. Acquisitions of (and subsequent
investment in) developers have occurred, notably Take 2’s purchase of
USA/Australian developer Irrational Games, for £4.6 million, and UK/Australian
developer The Creative Assembly by Sega for £15.5 million. Larger “superdevelopers” like Krome have grown by absorbing financially-unstable or
possibly failing Australian studios for what is assumed (due to cash shortfalls)
to be nominal sums. Angel investment appears relatively infrequent12. In
general, the independent Australian development industry’s access to capital
is best classed as low, with most sources of funding found in trade capital from
overseas companies.
11 The Electronic Games Investment Fund, started with a grant of US$36,000 from the Queensland
Department of State Development and Innovation. The goal is to raise at least US$3.8 million a
year over the next five years to attain US$19 million in share capital with a minimum initial
investment of US$77,000 per project. November 2005.
12 Examples of angel investment are relatively rare. John de Margheriti, a successful Australian
entrepreneur, invested in Big World PTY, raising public funding from the R&D Start programme
to create online gaming technology, but the company has so far failed to find a market.
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Competitive profiles of
major development territories
• R&D Start Program: US$780 million programme for technology R&D
(now closed) but used by at least one games company, reportedly13
giving Big World US$6.3 million to create their massively multiplayer
online games middleware platform
• Innovation Investment Fund: provides US$3 million or up to ten per cent
of the IIF’s fund as seed funds for high technology start-ups.
• Export Development Marketing Grants Program: grants available for
companies selling abroad that reimburse up to 50 per cent of promotional
expenses
Local-level incentive schemes: good. Individual states also have some
generous initiatives, of which these are a sample of the most game-related:
• Victoria – The Digital Media Fund and Multimedia Victoria provide the
following programmes:
• New project assistance: US$287,000 disbursed over two years to
several companies with games prototypes
• Innovation grants: up to US$23,000 for innovative projects
• Cash flow facility: case-by-case grants to assist companies grow fast,
such as a US$1.15 million grant to IR Guru to start two projects and
hire 25 new staff
• SDK programme: subsidies covering the cost of SDKs for games
companies via an agreement with Sony
• Trade event assistance: various trade show attendance grants.
• Queensland – the state government has supported the games industry for
several years14 including:
• R&D tax concession: 125 per cent of qualifying expenditure (potentially
rising to 175 per cent over three years) is deductible
• Supported skills programme: the programme helps companies secure
visas for overseas employees to bring in scarce skills
• Division 10b of the Tax Act: 100 per cent tax deduction to initial investors
in film, TV and multimedia spread over two years of project entirely or
substantially developed in Australia.
• Interactive Games Industry Package: a fund worth US$613,000 over
four years to support Queensland’s computer games industry
• Queensland Government Investment Incentive Scheme: offers
12.5 per cent off salary costs, provides cash incentives for hiring senior
local staff
Government awareness of games industry: low-medium. The Australian
government does not provide much direct subsidy to the games industry, but
its Invest Australia department is mostly focused on matchmaking overseas
companies with the individual states where assistance (some very generous)
is available. The Game Developers’ Association of Australia has raised
US$1.2 million in government support for its programmes. Although the
government appears to have a free hand to assist any industry, its lack of
programmes at a national level appear to reflect the government’s political
stance rather than any strong disincentive from any regional body to support a
specific industry.
13 A former employee of BigWorld PTY reported this during an interview with new employer
Irrational Games
14 The state government’s provided US$1.5 million to increase the skills base of the games industry
from 2000 to 2004, Queensland ICT June 2006
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Competitive profiles of
major development territories
• Creative Industry Precinct: supports games companies among others
with US$46 million to develop and promote creative industry
• Electronic Games Queensland: a non-profit organisation which
supports games developers, subsidises SDKs, and has a US$15 million
fund to invest in new projects
• Velocity Brisbane offers start-up assistance.
• New South Wales – runs a number of low-level SME assistance schemes,
and assists mainly film companies
University-to-industry linkages: medium to good. Universities and games
companies have collaborated to obtain substantial grants from local
governments (for instance Auran and University of Queensland for online
functionality for Auran’s Trainz game). There appear to be few structural
problems in harvesting value from university-developed games or
technologies, and a number of universities and research centres have gamesrelated programmes designed to drive commercial ideas into the market.
Flexibility of employment laws: good. Australian employment laws are
relatively flexible, and while theoretical limits are imposed on the number of
foreign workers that can enter the country to get their work visas, in practice
for the IT sector it is relatively easy to get staff in from abroad.
• Australian Capital Territory – its ScreenACT/BusinessACT programme
gives often generous grants on a case-by-case basis
• Western Australia – has a few programmes:
• Digital Explorer Fund: US$1.5 million fund to assist games companies
• Trade show assistance: logistical and trade show grants.
Labour market
Number of institutions offering games-related courses: 15 (and 23 more
indirectly related to games)15.
15 38 universities provide 320 digital content courses: Invest Australia, Games industry Market
Intelligence Report, March 2006
Number of graduates per annum16: 600 games-specific graduates per year,
growing fast17; 25,000 IT graduates per year
16GIC research based on direct contact with several universities benchmarked against estimates
from Invest Australia’s Games Industry Market Intelligence Report, March 2006
17 A number of courses GIC contacted have expanded their intake to raise graduate numbers by
20-30 per cent
Number of development jobs (publisher and development studios only): 1,25018,
but growing at 60 per cent between 2004-0619. Many of the most experienced
staff, including the founders of the most successful studios, left Australia for
the USA or Europe to gain experience and track record before returning to
Australia to start new companies. This trend is thought to continue.
18 GIC research. This figure excludes freelancers, employees of games services companies, sales
and marketing staff at games publishers and games retail / distribution staff
19 GDAA reported in March 2006 job growth rising from 335 new hires in 2004-05 by 50 per cent to
483 new hires in 2005-06. It later reported in November 06 that there were 1,600 staff, 1350 of
whom were permanent
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Competitive profiles of
major development territories
Analysis
Salary levels20:
Average salary level for junior artist (<three years experience): US$27,000
Average salary level for lead artist (>three years experience): US$42,500
Average salary level for junior programmer (<three years experience): US$35,000
Average salary level for lead programmer (>three years experience): US$54,000
Dominant skill sets: specialty in online games development, casual games
and handheld.
20 Sourced by GIC from Australian recruitment company
11
Strengths
Weaknesses
Relatively experienced if small kernel
of development talent
A couple of super-developers outscale most other companies
Low costs vs. global competition plus
native English speakers
Online gaming specialty, with links
being forged with Korea and China
Good levels of state government
assistance have protected the industry
from industry down-cycle, nurturing
several independents
Games clusters are co-located with
other media, facilitating crossover hits
Staff levels growing healthily
Small-scale market that has grown
slowly
Work for hire with low/no revenue
sharing predominates
Low levels of access to nongovernment funding
Geographically remote from US and
Europe but no major links with
neighbour Japan
Time frame differences can be difficult
Low levels of world-class IP generated
to date
Low level of domestic retail market
leaves studios reliant on overseas
companies
A number of publishers in Australia
operate only sales and marketing
outfits, not studios
Lack of experienced staff forces
developers to recruit overseas,
a difficult, lengthy and expensive
process
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Opportunities
Threats
Growing experience, low cost base
and cultural proximity to major
western games markets sees sector
continue to grow healthily
Rise in numbers of games-specific
graduates maintains healthy flow of
talent into industry
Proximity to Korea and China sees
Australian companies develop
product for these growing markets
A few super-developers create
pockets of excellence, thus slowly
spreading innovation, new IP
creation and best practice
Stasis – the Australian industry
simply tracks the growth of the
industry as it enters the up-cycle of
the next generation of consoles, but
no faster
Independent studios struggle to find
financing and most growth is found in
publisher-owned studios, leading to a
further contraction of the
independent sector and a reduction
in Australia’s ability to create and
retain new IP
Loss of senior non-Australian staff
returning home21
The former problem – lack of scale – is a vicious circle because the sector has
found it difficult to get critical mass. Its retail market is low scale, and is
dominated by global titles, of which none is Australian owned. Hence 90 per
cent of Australian games companies’ revenues are derived from exports 22.
Its workforce after 25 years numbers roughly 1,000 employees, although recent
growth suggests it may grow faster in the next few years. Due to a lack of highquality experienced indigenous development staff, many larger developers have
to recruit from overseas, making it an expensive (eg interviews and relocation
costs) and difficult process. As we have seen, many staff learn their trade
overseas. The sector’s ability to raise funds is limited, again because the
country’s capital markets are small, focused on major sectors and without
specialisation in games. The size of the sector means that the kernel of
experienced developers disseminates its knowledge slowly through the
industry, the few games-focused business angels reinvest in start-ups very
rarely, and the track record of major titles that the 60 studios output grows only
slowly. Stimulating the sector via grants and other forms of government funding,
encouraging linkages between universities and studios, and endeavouring to
attract skills to Australia’s shores are viable strategies for tackling this problem,
which are arguably bearing some fruit, but the challenge for a tiny sector in a
country of 20 million people is inherently long term in nature.
Context
In the global context Australia is a relatively small territory, with a small
development sector predominantly working on licences for foreign companies,
a small retail sector, and a small population which outputs a small number of
graduates. In the last few years the Australian games industry has begun to
grow faster – driven by the success of a handful of world-class studios, but it
still suffers from two major problems – lack of scale and an as yet unproven
ability to create world-class IP.
21 A disproportionately high number of the Australian development industry’s more experienced
staff and senior management are non-Australian nationals, particularly UK and USA nationals.
The potential impact of the loss of these staff is elevated as a result. Staff replacement times
are high due to relative geographic isolation.
22 GDAA 11 06
12
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The IP problem is also related to scale. Of the handful of developers (five or
six at most) with world-class skills, half are foreign owned. Eighty per cent of
the industry’s revenues are generated by only eight firms23. Few of the
remaining independents develop a large amount of original IP, preferring to
work on licences owned overseas. Ty the Tasmanian Tiger is one new IP that
has powered its owner Krome into pole position in the sector, but Krome still
relies on licence work for its bread and butter and there are too few
companies of similar scale, and none independently owned. In part, this is
because the territory has struggled to present itself as a world-class location
for games development, or the place to find ground-breaking or AAA-potential
new IP. Only 20 per cent of companies working on new IP projects actually get
their new IP products to market24.
The industry has been growing more rapidly of late, driven by a boost in state
government aid, and the up-turn in the industry cycle. But it remains to be seen
whether Australia can transform itself from being a cheap location for a few
experienced studios working for hire on licences for global companies into a
location where IP is created and harvested for the benefit of Australian
companies. Globalisation, a lack of competitiveness and poor access to
funding are perceived to be massive threats to the sector by the leading
Australian games trade body which, in a bid to get government investment into
the sector, stated in late 2006 that it believed it had until March 2007 to
reposition itself with better access to funding or face extinction25. While this is
clearly a negotiating posture and thus slightly inflated, the industry faces a
long fight to attain global status, and may well not succeed.
23 GDAA, 11 06. The eight largest games companies, report annual revenues of more than US$3
million, with the top four companies reaching yearly revenues of over US$7.8 million.
24 85 per cent of Australian games companies develop their own IP, with 80 per cent self-funding,
30 per cent relying on external funding and 20 per cent collaborating on projects… only 20 per
cent of projects that began by developing original IP made it to market. GDAA 11 06. These
figures are largely skewed by mobile, handheld and online casual games development.
25 GDAA, August 2006: “If we are unable to establish an investment structure that supports growth,
the industry may not survive. Moreover, we are losing projects to other territories that offer
significant incentives that we can’t compete with… For the Australian games industry right now,
it’s fly or die!”
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Canada
Ratings
Justification
Introduction
4
Despite its age, the sector is small and
slow growing, creates few AAA IPs, and
is largely license-based
Innovation rating27
3
Low ability to create new IP, relatively
small numbers of AA IP created, and
little IP origination or ownership
The fastest growing games development market in the western world, and one
whose pace of growth outstrips all but Korea and China, Canada has for well
over the last decade successfully incubated a world-class games development
industry, whose domestic output has come to dominate a number of the
world’s largest games publishers’ releases including EA and Ubisoft.
Funding access rating28
5
Reasonable access to state-level
assistance, but non-government funding is
poor, and government assistance very low
Growth potential rating29
5
Reasonable graduate levels, low salary
levels but poor funding access and high
developer mortality
Overall competitiveness
rating30
4.25
Rating
Maturity
Score
rating26
26 Maturity rating: score based on retail market size, the number of developers and publishers, the
A niche player likely to remain so
age of industry, number and range of AAA games, range of skills available in the territory, the
number of games staff and relevant criteria from the SWOT analysis
27 Overall competitiveness rating: score based on the ability to create IP, number and range of
AAA games released, and relevant criteria from the SWOT analysis
28 Funding access rating: score based on the retail market size, availability of public and nongovernment funding, government awareness of the games industry, and relevant criteria from
the SWOT analysis
29 Growth potential rating: score based on the mortality rate for developers, growth potential of the
retail market, ability to create new IP, overall availability of funding for games companies, the
number of games-related courses, and students graduating per annum, salary levels and
relevant criteria from the SWOT analysis
30 Overall competitiveness rating: the average of the previous four ratings
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Development and publishing
Its production output is now the third largest in the world31 after the USA and
Japan, representing one fifth of EA’s production32, and one third of Ubisoft’s.
Unlike Japan and the USA, Canada is not structurally sound, due to its
complete lack of world-class indigenous publishers. Its developers include
several of the world’s leading studios, most of which have been targeted for
take-over by USA publishers. Some, like Bioware/Pandemic, remain
independent and able to retain their IP due to strong backing from USA-based
Elevation Partners, but many are now publisher-owned. Canada is a worldclass originator of new IP, and its growth has been spurred by tax leniency in
provincial legislatures such as British Columbia and, in Québec, broad and
aggressive programmes of sector-specific subsidies. Through collapse or
acquisition, Canada has no remaining publishers of any reasonable scale in
Canadian hands33, and is thus a strong originator but not retainer of IP rights.
Number of independent developers: 11035
Mortality rate36: 40 per cent. A large number of start-ups have died in the last
few years, due to the industry down-cycle and the endemic problem of start-up
games developers – lack of business skills, low access to finance, and low
access to publishers among other causes.
Development clusters: Main clusters in Vancouver and Montreal; growing
cluster in Toronto; smaller clusters in Edmonton, Nova Scotia, Manitoba,
Saskatchewan, and Alberta.
Export value of domestically produced games: US$1.75bn (2004)37
Retail market size34
Table 3: Canadian retail statistics
2000
2001
2002
2003
2004
2005
2006
Software
NA
NA
NA
$524.6m
$590m
$765m
$763m
Units sold
NA
NA
NA
NA
NA
NA
12.5m
31 See Analysis section page 21
32 Business in Vancouver, Jan 05 and Vancouver.com
33 Canada’s only major publishing group, Hip Interactive, collapsed in July 2005. A smaller player,
DreamCatcher, was bought by JoWood in November 2006. 85 per cent of AirBorne, a mobile
games publisher, was bought by Cybird for US$90 million in 2005. French publisher MC2’s
Montreal publishing division, Microids, was purchased by Ubisoft in 2005.
34 Entertainment Software Association of Canada / NPD Canada. All figures are in USD
35 GIC research, sourced from IGDA, Gamasutra, and ‘The political Economy of Canada’s video and
computer game industry’, University of Western Ontario, 2004
36 Mortality rates reflect GIC research into independent developers going out of business between
2000 and 2006
37 Estimate by ‘The political Economy of Canada’s video and computer game industry’,
University of Western Ontario, 2004
Note: all sums are in US dollars
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IP creation
Number of publishers: 21
New IP generation and ownership: good. IP generation in Canada is
exceptional, with a slew of world-class games created in some of the largest
development studios in the world. Many of EA and Ubisoft’s biggest selling
titles originate in Canada.
Largest indigenous games companies in territory
Table 4: Leading Canadian companies
Company
05-06 turnover
Market
capitalisation
(10/06)
Bioware/
Pandemic38
NA
$300m (11/05)
500 (incl.
Australia)
AirBorne
$50m (04-05)
Privately held
(CyBird)
100
$17.5m (02-03)
Privately held
(Silverstar)
Unknown
Strategy First
Staff numbers
Major IPs created in territory: Prince of Persia, Assassin’s Creed (potential
AAA seller), Splinter Cell, Tom Clancy’s Rainbow Six, NHL, FIFA, Need for
Speed, Star Wars, Simpsons Hit and Run / Road Rage, CSI, Cricket/Rugby
series, Scooby Doo, Warhammer, Star Wars KOTOR, Neverwinter Nights,
Baldur’s Gate, NBA Live, SSX, Unreal, Cell Damage, Blood Omen, Hulk,
Homeworld, Impossible Creatures, Company of Heroes.
First games company founded: Distinctive Software, 1985
Date of first break-out global hit game: Hardball, Distinctive Software, 1985
Major publishers located in territory: Development – Activision, Airborne,
EA, Eidos, Gameloft, Koei, Buena Vista Games, Take 2, THQ, Ubisoft, Vivendi.
Publishing sales and marketing – above + Sega, Atari/Infogrames, Nintendo,
Sony Computer Entertainment, Capcom. Publisher studios have grown rapidly
with recent expansions announced by Ubisoft, Activision and Eidos. In
addition, a great deal of acquisition activity has taken place in Canada, with
major publishers buying studios to enable lower cost but high-quality
development to take place close to USA headquarters. A number (but not all)
of the other major publishers retain sales and marketing outfits in Canada,
mostly in Toronto.
38 USA Elevation Partners is a major stakeholder and Pandemic Studios is based in Australia.
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Funding environment
A next stage will see four companies funded to prototype stage with an
additional US$220,000 (each will need to raise an additional US$44,000).
Finally, US$1.75 million will be awarded to the winner to create a new IP
in a competition judged by senior Canadian games staff
Acquisitions and the availability of non-government funding: medium-good.
Although low on indigenous trade capital, Canada is a fairly good place to find
non-government financing, in part due to its proximity to the USA. A wide array
of funding is available for new games start-ups in Montreal, where a number
of funds have been investing in games technology and development studios,
and the USA market is strong in trade and venture capital. Canada is the
fourth39 most popular location for non-government financing into games
projects, and received the third largest amounts in non-government financing.
Because of its relatively young age, lower numbers of experienced studios and
almost complete lack of publishers, Canada has not seen, in total, a great deal
of merger or acquisition activity, although almost all of the top five most
experienced Canadian developers have been acquired, and in most cases
aggressively grown by, non-Canadian publishers40. Canada is the fourth most
popular target location for acquisitions in the world since 2000, but is a distant
fifth in terms of numbers of acquisitions by Canadian companies or sums paid
to acquire Canadian companies.
• Canada New Media Fund – Product assistance: Telefilm will contribute
repayable advances of US$88,000 in market research, US$220,000 in
product development and US$175,000 in marketing (all to a maximum of
50 per cent of project costs) for new media products. Ten per cent of the
advance is given for for bilingual projects. Fourteen games had been
supported to 2005
• Canada New Media Fund – Online Distribution: Telefilm will contribute up
to 50 per cent of funds for distributing new product online of IP owned by
Canadian firms
• IRAP Program: National Research Council Canada will contribute up to 50
per cent of salary and contractor fees for a new product R&D to a
maximum of US$306,000
• New Media Research and Development Fund: fund for applied research
placing grants of US$350,000-490,000 (up to 75 per cent of total project
costs) in Canadian companies doing R&D into new media technologies,
processes and projects
Availability of federal government assistance: medium. The federal
government recently launched its first initiative to fund the domestic Canadian
games industry. Note that in general both federal and provincial definitions of
R&D are very broad and include salaries of staff and contractors, equipment
and other running costs for new product development. It also operates
additional schemes which can assist companies in general:
39 GIC research. NB Canada’s ranking is somewhat skewed by the Bioware/Pandemic deal whose
value is high but undisclosed.
• Telefilm runs a number of programmes:
40 Relic was acquired by THQ in 2004, Radical by Vivendi Games Games in 2005, BackBone
• Great Canadian Video Game Competition: Telefilm will finance ten
companies who compete to win US$44,000 in seed funding.
consolidated into the new Foundation 9 in 2005, Propaganda by Buena Vista Games in 2005, and
Bioware/Pandemic were consolidated together by the USA Elevation Partners in 2006
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• Canada Council for Arts: offers grants to media companies working on
artistic projects
• Scientific Research and Experimental Deductions (SRED): 35 per cent tax
credit encompasses a very broad definition of R&D for all Canadian
companies but cannot work in combination with Québécois schemes
• Canadian High Commission: supports export efforts of companies to reach
other markets.
Local-level incentive schemes: a very wide range of schemes is available at
the provincial level:
• Montreal offers the following schemes:
• InvestQuébéc – Refundable tax credit for multimedia production: up to
30 per cent (+7.5 per cent for francophones) of all salaries. Larger
companies have negotiated higher subsidies such as EA who recently
reported a 40 per cent salary rebate41
• InvestQuébéc – Refundable tax credit for major employment-generating
projects: 25 per cent of salaries up to a maximum of US$13,000 per
employee for projects requiring over 150 new hires over 24 months
• InvestQuébéc – R&D tax credits: 40 per cent of research and
development expenditure is covered by this credit scheme, which
includes a wide range of expenditure including salaries, contractor
fees, equipment and general expenses for pure or applied research
• EmploiQuébéc – Training services: up to 25 per cent of
training expenditures
• InvestQuébéc – Strategic Support for Investment Program (PASI): 70
per cent loan guarantee fund for projects over US$4.3 million or payroll
increases of US$4.3 million over three years (covers salaries, capital
expenditures and working capital)
• InvestQuébéc – SMB Financial: loan or loan guarantee scheme for 80
per cent of multimedia projects including capital expenditure, patent
purchasing and tax credit financing, minimum level of US$44,000. Only
available to Québécois companies
Government awareness of games industry: medium-good. The Canadian
government until recently did not subsidise the games industry directly,
preferring to leave such direct support to individual provinces, Québec in
particular. However, a number of schemes have benefited the games
industry within the wider catchment area of new media, and the tax regime
for start-up companies or those engaged in R&D is generous. The most
high-profile of these has been the recent launch of the Telefilm Great
Canadian Video Game Project, which represents a stamp of approval on an
increasingly important industry for Canada, and one with significant global
reach. Government departments (federal and provincial) appear to have free
range to assist any industry. A quirk of Canadian tax law means that Alberta,
Ontario and Québec collect (and thus control the level of) corporate income
taxes. Thus individual provinces can offer very different tax schemes to
each other, which has resulted in a high level of intra-Canadian competition
and has undoubtedly contributed to the extent of schemes offered in some
of the territories.
41 EA’s Montreal vice president and general manager Alain Tascan, speaking at the Nordic Game
convention in Malmö, Sweden in September 2006
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• InvestQuébéc – Business Assistance – Immigrant Investor Program:
US$35,000 – US$438,000 non-repayable contribution to growth projects
over three years. Only available to Québécois companies
• Banque de développement du Canada (BDC): has an Innovation Fund
which offers loans for up to US$220,000 for innovative companies;
a capital expenditure fund, offering loans of US$22,000 or more; an
entrepreneurial fund offering loans of up to US$88,000 for start-ups;
and venture capital fund offering US$440,000 for high-growth potential
IT companies in first round, with up to US$8.8 million in later rounds
• Foreign experts fund: ministry for economic development will grant tax
relief on salary costs for foreign experts engaged in R&D – 100 per
cent in year one, dropping by 25 per cent each year. There are also
reports that foreign experts are exempt from income tax for five years
• Cultural and communications investment fund: local government-backed
venture fund for cultural or IT projects placing US$220,000 – US$1.75
million in investment, loans or convertibles in return for equity stake
• FIDEC: Québécois fund set up by the ministry of culture to support
entertainment projects, runs a number of programs including gap
financing (up to US$4.4 million or 40 per cent of project or 30 per cent of
company capital); project financing (up to US$1.75 million or ten per
cent of company capital) in return for revenue share; rights acquisition
(up to US$1.75 million or ten per cent of company capital); equity
financing (up to US$1.75 million or ten per cent of company capital) in
investment, loans or convertibles
• NumériQC alliance: runs a multimedia experimentation fund offering a
US$44,000 grant + US$22,000 advance for pre-production or prototypes
• Association of the local centres of development of Québec (ACLDQ):
offers loans to start-ups in their first year covering up to 50 per cent of
project expenditure
• Ministry of economic development, innovation and export: runs a raft
of programmes assisting businessess to develop new markets, export
goods overseas
• Canada Industry: supports SMEs under US$4.3 million turnover with grants.
• British Columbia offers the following schemes:
• R&D tax credits: like Quebec, BC is generous in its description of what
constitutes R&D and gives a ten per cent tax credit on wide range of
R&D activities including salaries, equipment and overheads
• Sales tax (7 per cent) exemptions: on equipment including computers
• New media tax credit: 30 per cent non-refundable income tax credit for
VC funds investing in new media companies.
• Ontario offers the following schemes:
• Ontario Interactive Digital Media Tax Credit: 30 per cent of Ontario salary
costs for games production companies with turnover under US$17.5
million or assets under US$8.8 million
• OMDC Interactive Digital Media (IDM) Fund: project fund for US$88,000
(to a maximum of 50 per cent of a project’s budget) for taking prototypes
to full production
• Entertainment and Creative Cluster Partnerships Fund: US$40.6 million
fund for established Ontario-based companies to build capacity,
prototypes, conduct marketing and develop skills with grants between
US$21,000 and US$131,000 to a maximum of 50 per cent of the budget
• Domestic markets and events: a fund to assist in the creation of
trade events
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• OMDC export fund: fund for assisting companies to attend trade
shows, up to US$8,800 per person to 50 per cent of the budget.
• Prince Edward Island offers the following schemes:
• Innovation and Research tax credit: a rebate covering 35 per cent of
salary costs
• Enriched Investment Tax credit: a rebate covering 10-25 per cent of
export costs
• Share purchase tax credit: 35 per cent tax credit to a maximum of
US$30,000 for sums invested in local IT companies
• Specialised Labour tax credit: 17 per cent income tax rebate for
workers with new IT skills
• Technology PEI: runs a range of programmes such as R&D Initiative (a
grant programme), IT Ideas Assessment, Web Presence, Marketing
Assistance, Capital Assistance (up to US$35,000 for equipment and
facilities), Rental Incentive, Equity Investors (20-25 per cent tax rebate),
and Professional Services programmes.
• Wireless development fund: a US$876,000 fund for innovative
wireless projects
• Game Developers Bootcamp: a training scheme for developers
Flexibility of employment laws: good. Although not quite as loose as the USA,
Canada is a flexible environment for employers, with relatively loose
employment protection. Low minimum wages, no restriction on ‘just cause’
firing, and caps on redundancy payments set at eight weeks (for eight years’
service), two weeks annual holiday plus nine days of national holidays, and
ability to temporarily lay off staff on no wages.
University-to-industry linkages: good. Universities are seen by policy makers
as seed banks for industrial innovation, jobs and start-ups companies, and
companies originating in universities in Canada are well funded by local and
federal government. The federal government funds a US$70 million programme
of research and development via the Network of Centres of Excellence, which
encompasses hundreds of companies, provincial and federal government
departments and agencies, hospitals and 150 universities, which has resulted
in ten per cent of the 800+ company spin-offs in the past few decades46, and
stimulated investments of US$62 million, including more than US$24 million by
participating private-sector companies. Games spin-offs include Darwin
Dimensions, a facial animation company in Québec, and Quazal, a leading multi
player games middleware provider, one of whose founders came out of the
Royal Canadian Military College. Ubisoft funds a campus in Montreal in
conjunction with Sherbrooke University, which outputs 100 students (and trains
200 employees) per annum, from which it harvests almost all for its rapidly
expanding Montreal studio. EA funds a similar academy in Vancouver.
Labour market
Number of universities offering games-related courses: 48 universities offer
game-specific courses42
42 GIC research
Number of graduates per annum: 800 games-specific graduates43, 43,700 IT
enrolments in 200544
43 GIC research
44 Statistics Canada, October 2005
45 GIC research
Number of development jobs (publishers and development studios only): 6,10045
46 Networks of Centres of Excellence, 2006
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Salary levels47:
Strengths
Weaknesses
Average salary level for junior artist (<3 years experience): US$42,000
Average salary level for lead artist (>3 years experience): US$59,000
Average salary level for junior programmer (<3 years experience): US$54,000
Average salary level for lead programmer (>3 years experience): US$68,000
Location (and language) gives nearshore benefits for US firms such as
cultural proximity
Québec Province’s aggressive
subsidies for games have triggered
defensive responses from other
territories, especially the most
threatened – France
Dominant skill sets: strong across the board, with broad online and mobile
experience as well as many next generation titles and most genres
Opportunities
Threats
Canada’s position as location to some
of the finest studios will grow as
publishers invest heavily in their
wholly-owned studios
Asian publishers start or acquire
studios in Canada48
With better funding some IP rights
may be retained, but the US$ is strong
Canada’s games service and
technology industry will continue to
prosper
Massive publisher-owned studios train
staff who then leave to start up
independent studios
Continued loss of IP and profits to
foreign-owned publishers
Québec’s French games immigrants
will eventually return to France, but
probably not before their benefit has
been felt
As the best staff and graduates land
neatly in publishers’ hands, Canada’s
independent sector may suffer
Publisher-owned studios retain staff
who might have left to start up
independent studios
Publishers may be impacted by loss of
staff to start-ups incentivised by
healthy public funding and assistance
Analysis
Strengths
Weaknesses
Fastest growing games development
territory in the world, with the most
valuable individual studio – EA
Burnaby in British Columbia
World-class generator of new IP (esp.
console IP), leading to several
prominent acquisitions
Lower salary and overhead costs
attract US publishers
Generous provincial support available
in Montreal, which has siphoned
experienced staff from France
Lack of domestic publishers means IP
(and thus profit) flight is endemic
Most of the best studios are now
permanently in US/French hands
Most of the best graduates are
subsumed into major publisher
studios, potentially damaging
independent sector
The independent sector has suffered
high mortality levels since 2000 and
concerns persist about a two-tier
industry
47 Sourced from Datascope, specialist games recruitment agency and winner, best recruitment
agency, Develop Magazine 2005’s awards.
48 Japan’s Koei launched in Toronto in late 2005 hoping to build a studio with 150-200 staff within
two years, but others will follow
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Context
Canada’s successful rise from a location for outsourcing film and TV
production into one of the powerhouses of global games development is a
remarkable story. It is not one – as it is often portrayed – solely consisting of
far-reaching government assistance. Canada’s rise is based on its first cluster
Vancouver’s location to the north of the three largest USA games clusters of
Seattle, San Francisco and Los Angeles; on its lower cost of living and salaries
than most states of the USA; a well-educated and very computer literate workforce with strong cultural proximity to the USA; and finally, that intangible
ability to create strong media IP in film, television and new media. The first
Canadian games cluster in Vancouver did not burst into existence following an
injection of public funds. Neither did Toronto’s, although both have been helped
along by federal and provincial generosity. Québec’s rise has been largely due
to aggressive pump-priming by the provincial government, no doubt spurred on
by the success of British Columbia’s games sector, and by their successful
targeting of major French publishers with massive salary subsidies and grants.
But Québec’s policies have been an undoubted success – Ubisoft alone has
pledged it will invest US$613 million to double its Québécois workforce to 2,000
by 201049, matched by an additional US$21 million in direct investment from the
Québec government. While the former large sum is likely to include product
development as well as staff and site development expenditure, it is an
indication of the degree of investment that Québec has attracted – primarily to
the detriment of the French games industry50.
publisher-owned developers acquired in the recent global frenzy of acquisitions
of independent developers. The handful of super-developers like
Bioware/Pandemic or Foundation 9, that deliver products generating revenues
measured in the hundreds of millions of dollars, remain independent and
fiercely protective of their own IP but function largely as rear-guard actions
against the march of IP-hungry publishers. Most but not all top-level
independents have, like some of their colleagues in the UK, surrendered to the
sheer buying power of USA or French publishers. A few of the superdevelopers still independent have secured funding that will guarantee that they
retain more of their own IP but also act as jumping off points for other
developer acquisition forays. However, the balance is still heavily tipped in
publishers’ favour.
Canada’s development community is relatively small compared to other more
mature territories. Although only eight out of Develop Magazine’s top 100
studios of 2006 were based in Canada, they have a disproportionately large
presence in terms of (UK) revenue51.
49 “The major motivator for choosing Montreal over cities such as Vancouver, Shanghai or
Orlando, Florida, was undoubtedly the exceptional level of government support. Other important
factors influenced us, such as the remarkably creative talent here and a strong network of
technology-based companies like Discreet and Softimage. But the Québec government’s funding
really helped us finalise our choice” Martin Tremblay, President and COO, Ubisoft
Divertissements. Invest Québec Newsletter March 2005.
50 See France profile for the impact of Québécois policy on the French games industry
51 Develop’s figures are for the UK retail value of games made by different studios globally. are
slightly skewed by the lack of Japan’s output and its mostly inward-looking retail market which
sells relatively little in the west, but dominates in Japan. Japan is still the world’s second largest
games retail territory.
Canada’s structural imbalance of strong development but zero indigenous
publishing means that some of the world’s best selling and most important
games are created but not harvested here, whether in EA’s huge Burnaby
studio, in Ubisoft’s equally large Montreal studio, or in the studios of USA
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Ratings
Those eight studios are responsible for US$343 million in UK games sales52, coming
in second place to USA studios in revenue terms, with EA Vancouver leading the
world in most valuable studios. When a more global picture of the entire
development output of the top five territories is taken in consideration, Canada
probably slips into third place53, in front of UK and France, but after USA and Japan.
Rating
Strategically, Canada faces the same problems that the UK faces – how to
create and retain world-class IP. The Canadian federal government has
evidently reached the conclusion that they need to stimulate the creation of
new IP and start-ups directly, targeting prototypes as the primary vehicle for
helping new games studios onto their feet. Telefilm, a government-funded
audiovisual agency, recently launched its Great Canadian Games Competition,
injecting US$3 million into new Canadian IP, assisting ten independent
Canadian studios with concepts and four of those with prototyping, with their
output reviewed by a board made up of senior staff at French-and USA-owned
publishers. While the sums involved are less useful for more expensive
platforms, the competition mechanism does help by funding concept and
prototype development and provides a prominent platform for new studios to
pitch to influential decision makers and A&R people from overseas-owned
publishers. The availability of funding for concept and prototype development
does not necessarily guarantee that games will be made or be successful, and
such funds have not historically been successful in the past54. However, in
some cases they may assist several studios to take stronger negotiating
positions for sharing revenues from games that are eventually released.
Score
Maturity rating55
7
Innovation rating56
8
Funding access rating57
8
Growth potential rating58
8
Overall competitiveness
rating59
7.75
Justification
Strong on IP, range of skills and quality of
games, medium on retail market size,
poor on publishers
Strong across the board, particularly in
next generation console games
Good government assistance but lacks
the range, depth and trade capital of the
US capital markets
Strong on retail growth potential, IP
creation skills, access to markets,
weaker on developer mortality
World-beating studios and large
subsidies make this a very popular
location for new publishers’ studios
55 Maturity rating: score based on retail market size, the number of developers and publishers, the
age of industry, number and range of AAA games, range of skills available in the territory, the
number of games staff and relevant criteria from the SWOT analysis.
56 Overall competitiveness rating: score based on the ability to create IP, number and range of
AAA games released, and relevant criteria from the SWOT analysis.
57 Funding access rating: score based on the retail market size, availability of public and nongovernment funding, government awareness of the games industry, and relevant criteria from
the SWOT analysis.
58 Growth potential rating: score based on the mortality rate for developers, growth potential of the
retail market, ability to create new IP, overall availability of funding for games companies, the
number of games-related courses, and students graduating per annum, salary levels and
relevant criteria from the SWOT analysis.
59 Overall competitiveness rating: the average of the previous four ratings.
52 The world’s most successful games studios Develop/ELSPA/Chart Track 2006
53 GIC research
54 Telewest began the Start! Fund in 2001 with International Creative Management Ltd and Extreme
Finance, placing over £5 million into a number of games ventures, none of which resulted in
successful or even completed games.
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France
Development and publishing
Introduction
Number of independent developers: 8563
The French game market is structurally a mirror image of Canada’s, with three of
the world’s top ten games publishers based there, but few of the world’s leading
independent development studios. The market is characterised by observers as
fragile and slow to start work on next generation console games60, despite the
French government’s prominent focus on supporting the industry through tax
breaks and subsidies. France is coming under huge pressure from globalisation,
particularly from Canada, but also from the many other territories which have
lower cost of living, easier employment regulations, and better development
talent. France has given birth to a number of large games organisations which
started up in France, but expanded rapidly outside France often in Canada. With
a large domestic retail market, and 16 million video game players61, France is the
third largest games market in Europe but in publishing terms punches well above
its weight. In development terms France is at risk of collapse.
Mortality rate: 45 per cent64 (nearly 20 per cent between 2002-0365). A large
number of French developers have gone out of business since 2000, most
notably Cryo and Kalisto, two large and experienced independent developers.
Others have merged defensively, such as RVP and Kylotonn, and a number
have scaled down to do mobile or online casual gaming.
Development clusters: Paris (2,500 staff, 90 companies66),
Lyon (1,500 staff, 35 companies)
Retail market size62
60 Eric Viennot, Co-founder and Director of leading French developer Lexis numerique, Liberation,
Table 5: French retail statistics
2000
2001
Software
$736m
$805m
Units sold
NA
NA
2002
2003
2004
2005
Oct 2006 decries the low number of next generation titles in development in France and
recommends that studios focus on lower budget titles to survive
61 NPD, 2006
62 Chart-Track/GfK and Screen Digest
63 GIC research
64 Mortality rates reflect GIC research into independent developers going out of business between
2000 and 2006
65 Idate, 2004
66 These figures include software, service and distribution companies, and are sourced from Video
Games in Paris, Mairie de Paris, 2006 and Lyon-Game, and as such are treated with caution
2006
$951m $1,184m $1,249m $1,134m $1,435m
NA
NA
NA
33m
NA
Note: all sums are in US dollars
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Export value of domestically produced games: Unknown
The independent development community has been under fire, with many
companies failing. However, studios have created some unique and individual
IP which has gone on to sell well, including the Rayman series, Mission
Impossible, and the Alone in the Dark series. The mortality of studios has been
balanced by the introduction of generous prototype financing into the industry,
but it remains to be seen whether this will generate AAA sellers.
Number of publishers: 20
Table 6: Key French companies
Company
05-06 turnover
Market
Staff numbers
capitalisation (10/06)
Vivendi Games
$820m
Part of larger group
NA (2,657
globally)
Ubisoft
$700m
$1.368bn
600 (3,500
globally)
Infogrames/Atari
$501m
$160m (NASDAQ
suspended)
12067 (982
globally)
Major IPs created in territory: Top Spin, Heart of Darkness, V Rally, Rayman,
Alone in the Dark, Omikron the Nomad Soul, Winnie L’ourson, Obscure, Act of
War, Cold Fear, Fahrenheit, King Kong, Nightmare Creatures, Trackmania
Sunrise, Moto Racer, Mission: Impossible, Splinter Cell: Pandora
First games company founded: Infogrames, 1983
Date of first break-out global hit game: Asphalt, 1987, Ubisoft
Major publishers located in territory: Activision, Atari, Boonty, Buena Vista Games,
Codemasters, Eidos, Electronic Arts, Gameloft, Konami, Microsoft, Midway,
Mindscape, Nintendo, Sega, Sony, Take 2, THQ, Ubisoft, Vivendi Games
IP creation
New IP generation and ownership: low-medium. France is in the anomalous
position of hosting three of the largest games publishers in the world who
conduct very little of their development in France and the vast majority of
whose AAA titles are produced overseas.
67 Agence Jeux Video France, 2006
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Funding environment
• R&D support: Réseau de Récherche et Innovation Audiovisuel et Multimédia
(RIAM) offers up to 30 per cent of production costs for innovative projects,
and has been prioritising games since 2005.
• OSEO / ANVAR: the French Innovation Agency provides grants for up to 50
per cent of R&D expenses, and covers 50 per cent of salary and hiring fees73,
which has disbursed US$7.7 million to 60 projects since 1997.
• Production grant: the ministry of culture will pay up to 40 per cent of the
production cost of a new title from smaller French developers
• R&D tax credits: five per cent of R&D expenditure, plus 45 per cent of
non-annual R&D expenditure over previous two years to a limit of US$10.2
million per annum.
• Training: financial aid for employee training
• AREX Consulting: 50 per cent of consulting expenses, up to US$19,000 over
two years
• AREX Business forums: up to US$5,000 or 50 per cent of pre-tax expenses
for attending training
• SIDEX: up to 50 per cent of salary and hiring fees (via Ubisoft France)
• France-Game: prints a showcase of games from different
French departments.
• IFCIC: Loan guarantee (to 50 per cent) for any loans offered to cultural
businesses.
• Plan Fontaine: a video games tax credit currently in negotiation with
Brussels, likely to be 20 per cent of production costs to a maximum of
US$640,000
Acquisitions and the availability of non-government funding68: medium-good.
France’s bourses proved particularly welcoming for games companies in the
late 90s and early 2000s. Over US$1billionn was raised for listed French games
companies in between 1997 and 2003, the majority by Infogrames and Ubisoft.
Funding since then has contracted sharply although Infogrames and Ubisoft,
along with Vivendi Games, have been very active in the M&A markets, buying
(and in Infogrames’ case, more recently, selling) studios across the world.
France comes fifth in the list69 (after USA, Japan, UK and Korea) of countries in
which acquiring companies are based, with over 20 acquisitions of games
studios in the last five years. It ranks fourth in global expenditure by games
companies on trade sales, but does not make the top five in terms of sums
received by acquired companies. It has lower levels of venture capital for
gaming, with French companies raising under a quarter of that raised by UK
companies, and under half of that raised by Canadian companies.
Availability of national government assistance: good. France in recent years
has adopted an escalating programme of grants and aid, culminating with a
programme of tax breaks announced by the Prime Minister Dominic de Villepin
in December 2005:
• Prototype fund (FAEM): the Fonds d’Aide à l’Edition Multimédia disburses
US$5.1 million per year, plus grants for model production (up to US$19,000),
production and editing (up to 30 per cent of expenses) and translation (up
to 100 per cent of localisation cost into French). In total, 20 game
companies have received US$128,000-257,000 in refundable loans to mainly
small studios.
68 GIC research based on tracking mergers and acquisitions, non-government financing, and
public listing transactions over 5+ years
69 Video Games in Paris, Mairie de Paris, 2006
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Government awareness of games industry: good. The French government has
recently focused heavily on the games industry, with two French Prime
Ministers discussing its importance, the Culture Minister (describing himself as
the “Minister of Video Games”) giving cultural awards to games creators, and
a prominent plan currently under review in Brussels for significant state aid for
the production of games in France. The latter plan may avoid the EC state
subsidy ban by claiming to protect French cultural goods, a stance which has
produced some controversy within the sector, largely from non-French
publishers and trade bodies who fear government interference. This “Plan
Fontaine” would only fund projects with artistic merit, which has stimulated
fears that the subsidies will mirror the US$665 million state support (2004) for
the French film industry which is often argued to have little commercial merit.
Labour market
Local-level incentive schemes: good. The two major games clusters, Paris and
Lyon, support their sectors actively:
Number of universities offering games-related courses: seven offer directly
related courses, with another 50 offering complimentary multimedia courses.
• Lyon Game / Lyon Info Cité: organises Game Connection, provides
subsidies for attending trade shows internationally, has a business
support unit, shares middleware tools locally, produces market
intelligence and networking events, and provides grants for training
staff for up to 70 per cent of costs.
• Gamagora: games company training programme involving 30 per cent
non-government and 70 per cent public financing, which trains staff
and links into international centres of games excellence.
• Image Innove: subsidy for innovation of up to US$330,000, which has
benefited ten studios.
• Paris offers subsidies and venture funds for games companies located in
its environs:
• Capital Games: offers a middleware subsidy for 60 per cent of a
middleware project’s development expenses, as well as loan
guarantees, 50 per cent subsidy of trade show attendance and
exhibition, and links to universities and venture funds.
• Capdecisif:two regional venture capital funds, the first offering
US$385,000-777,000 (or 8 – 40 per cent of the recipient company’s
capital), the second (Ile de France Development fund) offering up to
US$777,000. By Q1 2004, these funds had invested US$164 million in
34 games projects.
• Lyon disburses less in grants but has roughly the same number of games
support programmes as Paris:
Number of graduates per annum: estimated to be 25070.
Number of development jobs (publishers and development studios only):
1,75071. Regional development agencies list staff numbers in Paris (2,500) and
Lyon (1,500), but this data includes multimedia companies, service companies
and distribution. The data also preceded the institution of huge subsidies in
Canada for games companies (plus additional subsidies for Francophone staff).
It is estimated that over 1,500 development staff have left France for Canada
since 2000 – largely via Ubisoft and Gameloft72.
70 GIC research
71 GIC research
72 GIC research
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Analysis
Flexibility of employment laws: low. French employment policies have for
decades favoured strong controls on the hiring and firing of staff, high levels of
taxation on labour and more recently enforcing maximum working weeks.
While it is possible to scale companies up and down depending on the
prevailing business climate, regulations make it costly to hire and fire staff.
Companies pay significant levels of taxes on labour, with overhead costs
equating to an additional charge of 45 per cent on top of salary costs (versus
20 per cent in the UK)73. Economists (and many politicians) outside of France
are generally in accord that French labour regulations need to be loosened to
encourage entrepreneurship, attract inward investment and reduce high levels
of unemployment. France adopted a 35-hour working week in 1997, and the
current government, despite wanting to abolish the legislation and describing
it as “a disaster”74, has not been able to change the law because of strong
union opposition and rioting by students and union members in Spring 2006. An
average of eight weeks’ holiday for French employees is another
discouragement for overseas companies thinking about investing in France.
University-to-industry linkages: low-medium. French universities have begun to
incubate ideas generated by students and technologists, and are encouraged to
do so by numerous innovation grants (see above) but the level of bureaucracy is
high, and the number of institutions offering games courses is low.
Salary levels75:
Average salary level for junior artist (<3 years experience): US$56,500
Average salary level for lead artist (>3 years experience): US$67,000
Average salary level for junior programmer (<3 years experience): US$47,500
Average salary level for lead programmer (>3 years experience): US$93,000
Strengths
Weaknesses
Strong publisher base with great
portfolios, powerful lobbying ability,
and strong acquisition activity (mostly
outside France)
Medium-sized development
community with good IP creation
skills
Wide access to multifaceted national
and local government aid which has
helped over 100 projects since 2000,
ensuring survival of many
independent developers
Loud support from the highest levels
of the French government for this
sector
Rigidity of French employment laws
Labour costs are high
Drastic loss of development staff to
Canada (nearly half of total French
development staff)
Aid packages are generally
encouraging for French companies
only, rather than global companies
Levels of bureaucracy are high and
bureaucrats may interfere with
decisions on game types
Recent decimation of the
independent development sector
France underperforms in terms of
numbers and values of studios sold
French development has a reputation
for creating unique but commercially
weak product
Non-Anglophone country
73 Mercer Human Resource Consulting, June 2005
74 Nicolas Sarkozy, Finance Minister, April 2005
75 Video Games in Paris promotional brochure, Mairie de Paris, 2006
Dominant skill sets: broad range of skills with a focus on tools and middleware
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Opportunities
Threats
French companies will probably
benefit from substantial cultural
subsidies
New IP will continue to flourish
thanks to start-up and prototype
funds which will continue to allow
independent sector to bounce back
Growing importance of Europe in
global market
Government may tempt major
publishers back into France with
subsidies
Continued loss of development jobs
to Canada and other lower cost, less
restrictive markets76 seems inevitable
Studios will continue to find it hard to
raise non-government finance,
especially following the high-profile
failure of so many French games
companies
Studios may also find their hands tied
by conditional government
assistance
State aid only delays gradual decline
of sector
France’s publishers generate a disproportionate level of revenue for France
compared to the development base, effectively making games revenues from
French-owned companies third in the world (behind the USA and Japan).78
As the last down-cycle of the games sector has bitten into the French market,
the larger companies have lobbied the French government, using a carrot and
stick approach to show how profitable French publishing can be, while
showing how incentives offered by other territories – particularly Quebec in
Canada, which offers additional subsidies for French-speaking companies –
have heavily influenced decisions about where to locate their best production
studios. For nearly a decade, France (at both a national and a local level) has
offered a raft of different incentive schemes including grants, tax breaks and
venture funds focused on games, which have to some degree insulated
smaller firms from the tough market conditions and provided a spring board for
employees at failing companies to return quickly to the market with new ideas.
The high numbers of prototypes funded (but not necessarily picked up by
publishers) indicate that there is a healthy environment for smaller
independent studios.
Context
Although the French games market has consolidated like every other games
market over the past five years, it is still structurally different to every other
games market in the world. It has a handful of world-class publishers and
developers whose output (Ubisoft, Vivendi, Quantic Dream, Darkworks) is the
highest quality. Their publishers have been aggressively buying up talented
studios, original IP and investing heavily in development resource, but the
large majority of their growth and profits has derived from outside France.
Trade capital levels are high among French publishers, but they spend very
little on French developers, whose valuations in trade sales77 have been low
compared to acquisitions in other territories.
76 600 of Ubisoft’s 3,500 staff are based in France, whereas Montreal has gone from nothing to 1500
staff in six years, driven largely by an aggressive state government incentive scheme. The
French games sector is perceived by several industry leaders to be under threat.
77 GIC research
78 Total games revenue reported by French-owned games companies in 2005-06 is estimated to be
around US$2.5billion. In contrast, total revenues from UK-owned companies are estimated to be
closer to US$350 million.
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Ratings
The new tax scheme being floated by the French government under the guise of
cultural protection is a two-edged sword which may not produce the results
that are hoped for. Its cultural specificity, and moral strings attached, mean that
it is less likely to generate world-class IP. It will to some degree benefit French
publishers, who may slightly increase their development resource in France.
The scheme is inward-looking and targeted mostly at independent French
games companies. It will probably not tempt more overseas players to set up in
France, because the schemes only balance out an uneven playing field with
high labour costs and systemic rigidity, while adding new layers of bureaucracy
and unaccountable approval by cultural quangos.
Rating
The structure of the French games industry creates as many problems as it
solves. The scale of France’s publishers does not benefit the French games
industry significantly. Its development community is relatively fragile79,
punches below its weight, and is thought by many to be near collapse.
Surviving through French quasi-economic subsidies rather than on its own
commercial merits does not solve France’s problems, particularly if overseas
companies are discouraged from locating in France.
Justification
Maturity rating80
6
Good age, retail market size and range of
skills, medium number of staff, lower on
studio numbers
Innovation rating81
6
Good ability to create IP, medium on AAA
titles, but strong IP is relatively thin on
the ground
Funding access rating82
6
Good access to public funds, medium
access to non-government funds, but
French studios are rarely sold at high
values
Growth potential
rating83
4
High studio mortality, low student
numbers, high overheads, good retail
potential & start-up assistance
Overall competitiveness
rating84
79 Corroborated by Idate, June 2006
Score
5.5
Great publishers, weaker developers,
state aid in abundance but too inwardfocused in a global market
80 Maturity rating: score based on retail market size, the number of developers and publishers, the
age of industry, number and range of AAA games, range of skills available in the territory, the
number of games staff and relevant criteria from the SWOT analysis.
81 Overall competitiveness rating: score based on the ability to create IP, number and range of
AAA games released, and relevant criteria from the SWOT analysis
82 Funding access rating: score based on the retail market size, availability of public and nongovernment funding, government awareness of the games industry, and relevant criteria from
the SWOT analysis
83 Growth potential rating: score based on the mortality rate for developers, growth potential of the
retail market, ability to create new IP, overall availability of funding for games companies, the
number of games-related courses, and students graduating per annum, salary levels and
relevant criteria from the SWOT analysis.
84 Overall competitiveness rating: the average of the previous four ratings
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Singapore
Development clusters: Singapore City
Introduction
Export value of domestically produced games: Unknown but negligible
Singapore has a tiny games market and, for just under five years, has been
trying to pump prime it into life, with largely unsuccessful results. Its
development market is restricted to a handful of developers that make casual
web and mobile games but no console development has taken place in the
territory and no significant games of any description have originated here. The
government for well over a decade has been investing heavily in network
infrastructure to position itself as a network hub for South-East Asia. The
government’s strategy has been to try to persuade online games publishers,
from Korea in particular, to locate testing and hosting servers there. It remains
to be seen whether Singapore can generate more than just hosting facilities,
but it is early days for such a young market.
Number of publishers: 1587
Scale of largest companies: little information available on most companies,
however:
Koei Singapore has 100 developers and invested US$1.8 in its production
facility there88
LucasFilm has 75 developers, and hopes to grow fast
Major publishers located in territory: 10tacle, Asiasoft, Atari, EA (production),
Koei, LucasFilm, THQ and Vivendi Games
Retail market size
No data available
Development and publishing
Number of independent developers: 2585
85 GIC research. Bizarrely, ten out of the 21 developers listed on the Infocomm Development
Mortality rate86: 40 per cent. The market spawned micro-companies that
appear to have failed rapidly and sprung up again almost overnight in new
guises. We assume that these companies collapse because of experience and
poor access to the global industry.
Authority (run by the Singapore government) games website were dead companies, and another
five were web development or games technology firms, leaving only six real developers.
86 Mortality rates reflect GIC research into independent developers going out of business between
2000 and 2006
87 GIC research
88 ZDNet Asia, Feb 2005
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IP creation
Availability of national government assistance: good. The Singapore
government has a wide array of public assistance available for the games
industry and for digital media in general:
New IP generation and ownership: low. IP generated in Singapore is almost
exclusively for mobile games, mobile applications (like customised avatars)
and casual online games. Its main developers – Ozura, Mikoishi and NextGen –
are focused on mobile games development. A few developers, such as
InerWorx (now defunct), have developed MMO games, but they were based on
Chinese or Korean IP.
• The Economic Development Board plans to invest US$642 million in the
digital media industry to 2011 and hopes to generate 30,000 jobs by 2018.
Its programmes are as follows:
• R&D tax credits – 100 per cent of a game’s development costs are
deductible89
• Japan staff exchange programme – the government subsidised the
cost of bringing Genki and Koei to Singapore, sending staff to be
trained in Japan
• National Research Foundation – will invest US$642 million each year
until 2011 to promote innovation across three sectors, one of which is
digital media.
Major IPs created in territory: None
First games company founded: PacNet Asia Game Network, 1999
Date of first break-out global hit game: NA
Funding environment
Acquisitions and the availability of non-government funding: good (but
proportionate to very low scale of opportunity and number of studios). Hong
Kong’s Sinotime Asset Management announced in August 2006 that it was
working with German publisher 10tacle’s Singapore-based Asia headquarters to
create a US$20 million Asia Game Development Fund. The fund is targeting one
console title, three casual games and one mid-range PC title, and will be
managed out of Singapore. Another fund is the Fortune Venture Investment
group. Singapore reports that US$1.14billion was invested in IT, communications
and media in 2005. Digital media and broadcasting is high on the country’s
agenda following the successful export of TV production and animation services.
While little if anything was invested in games, it is likely that games will benefit
from the next public funding push from government, which operates relatively
closely and in parallel with the non-government investment community.
• Media Development Authority programmes:
• Games Creation Community – run by Nanyang Polytechnic and funded
by the Singapore Economic Development Board, the initiative runs
conferences, training, offers access to technology (such as
middleware, console SDKs, and motion capture) and prototyping
facilities, supports start-ups logistically and financially via project /
equity funding, provides testing services, helps with pitching and
staffing costs. Three games have been created thus far.
• Capability development scheme – 50 per cent of training costs for short
courses expenses (including overseas) will be funded.
89 TIGA, following meeting with IDA
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• Media education scheme – up to US$25,000 per annum (US$64,000 in
total) of education costs overseas and US$6,500 per annum (up to
US$113,000 in total) of domestic education costs for any Singaporean
attending a media course (including games development) who must
then work in Singapore for two years.
• SCREEN – scheme for co-investment in exportable content which
provides 50 per cent project funds and has no cap. Companies must
have 50 per cent Singaporean shareholding and central management
and control (but not necessarily production) in Singapore.
• Digital Content Development Scheme – up to US$96,000 of project
funding is available to cover up to 50 per cent of qualifying costs
(which include manpower, IP rights, equipment and production costs)
of a game’s production, often focusing on games prototyping. Total fund
value: US$2.9 million.
• Synthesis – a fund providing up to US$6,500 for web-based content
development including games.
• Infocomm Development Authority programmes:
• Games Market Access programme – billed as a one-stop shop for
hosting, distribution, e-marketing and billing services for developers,
publishers and distributors, this programme provides subsidised gamestesting services for Singapore-based companies offering online games.
Government awareness of games industry: good. The Singaporean
government is focused on supporting networks and IT, and has specific
policies designed to stimulate inward investment into the Singaporean games
industry. The government appears to have free range to assist any industry
and thus runs a wide range of programmes.
Local-level incentive schemes: NA
Labour market
Number of universities offering games-related courses: five directly games
related and 15 more IT universities/polytechnics offering IT courses.
Number of graduates per annum: 100 games specific90, but 36,500 IT graduates
in 200591
• Games Bazaar – a technology platform developed by HP and SingTel
for developers and publishers to host, publish and market their online
games to Asian consumers. 80 per cent of the hosting fees are
subsidised in the first six months. It was launched with Korean
assistance, and has won business from 10tacle and iGame Asia.
• Games Exchange – a networking organisation that introduces overseas
companies to Singaporean games companies. Part of the Digital
Exchange, a wider initiative designed to attract and incubate IT and
entertainment firms to Singapore.
Number of development jobs (publishers and development studios only): 50092
but 24,000 in IT services industry, 15,000 in telecoms and 7,000 in film and TV
industries93
90 GIC research
91 Statistics Singapore newsletter 2006
92 GIC research
93 Singapore Department of Statistics, 2004
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Analysis
Flexibility of employment laws: good. Although Singapore has relatively good
protection of employee rights, ability of unions to form and strike, and three
months’ maternity leave, its high-growth in the last 20 years has meant labour
problems have been minimal. Its legal system is closely aligned to English law,
yet employers have no requirement to provide a pension, and redundancy
payments are minimal. This, and the government’s championing of education
for all, has allowed for a mobile workforce and the rapid rise (and fall) of high
technology companies.
University-to-industry linkages: good. With so few universities and graduates,
the impact and output is low; but there are a number of interesting
programmes. In October 2006 MIT announced a tie-up with the Singapore
Media Development Authority to create the Singapore – MIT international game
lab, which will do R&D, academic publishing and games production. In addition,
Nanyang Polytechnic created the Games Creation Community with the help of
the Singapore Economic Development Board (see above). The Singaporean
government or education authorities have a well-established programme of
incentives (whose details remain undisclosed) for leading western universities
to link into their own universities. It is assumed that these are a long-term
strategy to deepen local understanding of global industries. Digipen, a leading
USA games educational institute, announced its intention in 2006 to set up in
Singapore in 2007.
Strengths
Weaknesses
Good government aid packages
encourage start-ups in the games
sector
Good ties to local and international
universities may generate technology
IP in the medium term
Relatively low salaries versus global
norm (but high for Asia)
Strong network infrastructure, good
mobile penetration and IT skills
growing
Some success in attracting publishers
and a few Japanese developers to
locate there
Multilingual, multi cultural city state
Almost no experienced development
talent
No IP has originated from Singapore
High failure rate of developers
Retail market is small and development
community is not self-sustaining
Proximity to piracy-prone Malaysia
causes IPR protection issues, despite
government assurances
Singapore has highest developer
salaries in South East Asia96
Has been sidelined in Asian games
development growth
Tiny population
Salary levels: Games development job salary levels were not available, but the
average IT worker’s salary was US$43,000 in 200494. Singapore is thought to rank
among the most expensive places to conduct games development in Asia95.
94 Singapore Department of Statistics, 2004
Dominant skill sets: mobile (J2ME) and online casual games (Flash), but no
experience on consoles nor, surprisingly, much on PC.
95 Exploring Game Development in South Asia, Gamasutra April 2005
96 Exploring Game Development in South-East Asia, Gamasutra 2005
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Opportunities
Threats
Growth of online opportunities
Natural hub for high tech South-East
Asian businesses, possibly for
regional headquarters of global
games businesses
Has not and may (well) not gain
critical mass in creating IP and may
persist as simply a provider of
hosting and networking services
Singapore is bypassed in favour of
Asian hot-spots such as Shanghai,
Seoul or Hong Kong
But the slow growth of the development sector is an indication that, on
balance, beyond a few network-related hosting deals, Singapore does not
have much to show for its many programmes of incentive schemes for games
companies. As many companies have died as have been born since 2001, and
there is no evidence that government subsidy has yet helped create stable
games developers with strong IP.
Given that Singapore is a country with a resident population of 3.5m97, that
there was no domestic games industry or development talent before 2000, and
the lack of viable retail market to kick-start local IP production, this analysis
must take into account that it is too early to assess whether Singapore’s efforts
to conjure up a games industry will succeed. But the likelihood is that the
booming Chinese, Korean and Japanese markets will attract or already have
attracted most global games companies, and Singapore will remain
marginalised as a provider of hosting services with no more than a handful of
developers, and only those in mobile making new IP.
Context
Since 2001, Singapore has been busily attempting to hatch a games industry
from scratch using the raw materials of a reasonably IT-literate workforce,
strong network infrastructure and good universities, making up for any
inadequacies such as the complete lack of world-class games IP generation or
real games experience by pouring in quite considerable quantities of
government aid. Singapore has for years sold itself as a networking hub and a
rare standard-bearer for South East Asian protection of IP. Its first steps were
to build an array of policies which were designed to attract providers of online
games services to host and test their games in Singapore. They have also tried
hard to attract global publishers to establish regional headquarters there.
Has the strategy borne fruit? Some of the larger publishers have located their
sales and marketing headquarters for South-East Asia there. A few MMO
games and a handful of games industry conferences and multi-player games
tournaments have been hosted there.
97 EDB Singapore, 2006
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South Korea
Ratings
Rating
Score
Maturity rating98
2
Negligible retail market, almost no
developers and only a handful of
publishers, poor skills base and no IP
Innovation rating99
2
Almost no original IP has been created,
and a lack of skills outside mobile and
casual games
Funding access rating100
7
Good access to non-government and
public assistance, and frequent
promotion to overseas companies
Growth potential
rating101
2
High developer mortality rates, low retail
growth, low IP creation, small sector and
few games graduates
3.25
Likely to remain little more than a hosting
centre, bypassed en route to major Asian
markets
Overall competitiveness
rating102
Introduction
Justification
The games market in South Korea (hereafter Korea) has been the driving force in
online gaming in Asia for nearly a decade. Korean companies have set the pace
for online games, driving new commercial models, generating super-normal
profits from subscription-based and item-selling games, and producing four or
five which rank hugely profitable developer/publishers among the world’s largest
games companies. Factors behind the growth of this market and these
companies has been the primacy of online games (driven by rampant piracy of
physical media), rapid domestic market growth, high gaming penetration into the
population at large103, and the rise of China’s games market. After a lull following
economic downturn in 2002-03, the country’s games industry continues to power
forward, driven by new waves of mobile games and new models for online
games. In recent years, to counter the high saturation of the domestic market and
more difficult conditions in China, Korea’s largest, cash-rich publishers have been
busy opening studios and sales operations in the USA and Europe.
99 Overall competitiveness rating: score based on the ability to create IP, number and range of
AAA games released, and relevant criteria from the SWOT analysis
100 Funding access rating: score based on the retail market size, availability of public and non-
government funding, government awareness of the games industry, and relevant criteria from
the SWOT analysis
101 Growth potential rating: score based on the mortality rate for developers, growth potential of
the retail market, ability to create new IP, overall availability of funding for games companies,
the number of games-related courses, and students graduating per annum, salary levels and
relevant criteria from the SWOT analysis.
102 Overall competitiveness rating: the average of the previous four ratings
103 25 per cent of the population has played one game, Kart Rider, E3 2006
98 Maturity rating: score based on retail market size, the number of developers and publishers, the
age of industry, number and range of AAA games, range of skills available in the territory, the
number of games staff and relevant criteria from the SWOT analysis.
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Games market size104
Number of publishers: 20108. This figure is misleading as the majority of Korea’s
developers self-publish their games online, but for the sake of consistency are
not numbered here. There is virtually no domestic market for consoles – less
than five per cent109 of 2004 games revenues derived from consoles which
have very low penetration into the Korean population – although there is
evidence that this is changing quite rapidly.
Table 7: Korea retail statistics
2000
2001
2002
2003
2004
2005
2006
Software
NA
NA
NA
$1.72n
$2.4bn
$2.8bn
$3.2bn
Units sold
NA
NA
NA
NA
NA
NA
NA
Largest indigenous games companies in territory
Development and publishing
Number of independent developers:
self-publish games online.
Table 8: Key Korean companies
211105
developers, the majority of whom
05-06 turnover
Market capitalisation
(10/06)
Staff numbers
NHN
$384m
$5.2bn
590
NCsoft
$363m
$1.2bn
1,259 (globally)
Nexon
$220m (est.)
NA
1,400
Company
Mortality rate106: 35 per cent. A great many tiny games companies have started
and failed in Korea, partly due to the slow-down in the games market in 2002-03.
Reasons for the failure of these companies are those found in other countries –
lack of management experience, poor access to funding and publishers.
In addition, there was a great deal of hype surrounding mobile games, but the
market failed to grow as fast as pundits predicted, which resulted in a number
of mobile companies going under (and unhappy investors).
104 Korean Games Development and Promotion Institute (KGDI), The Rise of Korean Games 2005
and 2006, and Electronic Times Internet. Figures exclude game centers and video game rooms,
which are gambling establishments, but include internet cafés, which take almost all revenues
from online gaming.
105 KGDI, Buyers Guide 2005
106 Mortality rates reflect GIC research into independent developers going out of business
between 2000 and 2006, based on monitoring the market and an interview with the KGDI
Director in late 2005.
107 2004 KGDI, The Rise of Korean Games 2005
108 KGDI, Buyers Guide 2005
109 KGDI, The Rise of Korean Games 2006
Development clusters: Seoul, Busan
Export value of domestically produced games: US$565 million in 2005107
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Major publishers located in territory: Activision, EA, THQ, Vivendi, Sega, Atari,
Bandai (Namco), Microsoft, Sony Computer Entertainment, Sony Online
Entertainment, Nintendo, KOKOCapcom, LucasArts and Gameloft
First games company founded: Nexon, 1994
Date of first break-out global hit game: Lineage, 1998, NCsoft
Funding environment
IP creation
Acquisitions and the availability of non-government funding: medium-good.
The strength and profitability113 of Korea’s domestic market means that there is
high availability of trade capital in Korea, as developer/publishers amass
billion-dollar war chests for expanding into other markets. However, they have
spent relatively little of this vast cash pile to date – tending to invest in
expanding their operations into first China, and then USA and eventually
Europe. Non-trade capital exists but is hard to get, since investors got their
fingers burned by investing in the first wave of games companies, some of
which did not perform well. Therefore early-stage funding is hard to get for
games companies. Korea has seen almost no acquisitions and mergers in
recent years. One transaction, the largest (disclosed acquisition) in the
industry in recent years – US$380 million paid by Japan’s Softbank for a
controlling stake in Gravity Corp (an early success story in the sector) – puts
Korea fourth in the list of values received by territory, after USA, Japan and
UK. Games companies are strong players on the Korean stock exchange – at
US$5.5billion, NHN has the largest market capitalisation on the Korean version
of NASDAQ, KOSDAQ.
New IP generation and ownership: medium-good. Korea has been a
powerhouse of online games IP development, creating popular online games
that have dominated Asia, particularly Japan and China. However, Korea has
not innovated much in terms of games design, instead transposing successful
game designs from other markets (eg Mario inspired Kart Rider, Bust a Groove
inspired Audition Online amongst many others) into the Korean context. Instead,
Korea’s innovation has been more in commercial models (such as subscriptionbased and more recently item-trading MMO games) which have in turn spurred
new games genres. A lack of games design skills is perceived to exist amongst
even the best Korean developer/publishers110, leading to a deficit in globallysuccessful IP and a need to look overseas for partnerships111. Korea has also
originated strong mobile and casual game IP, but due to the convergence of
web and broadband mobile, the distinction is somewhat blurred. Almost no
console IP has been created in Korea, but new efforts from Microsoft (such as
Ninety Nine Nights by Phantagram) may yet bear fruit112.
Major IPs created in territory: Beyond Lineage and Ragnarok, few Korean
games have succeeded outside of Asia, but within Asia these have attained
AAA status: Kart Rider, Mu Online, Maple Story, Audition Online, Huxley
(potential AAA seller), Quiz Quiz, Crazy Arcade, BnB, Kingdom of the Wind,
Tales Runner, Golf King, GunBound, Legend of Mir, Soul of the Ultimate Nation
(SUN), Pangya, Tantra, Survival Project, Neosteam, Getamped, Granado
Espada, Skipping Stone
110 Min Kyu Kim, KGDI Director in GIC interview, November 2005
111 See Context section
112 Although Microsoft’s hopes that this title would encourage more sales in Japan of its Xbox 360,
whose launch has been spectacularly unsuccessful, appear misplaced
113 NCsoft’s net profit margin in 2005-06 was 22 per cent.
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Government awareness of games industry: medium. The games industry has
been identified as of strategic importance since the reform of the Sound,
Records, Video and Game Products Act in 1996, and a number of measures
have been adopted to promote it, most of them indirect and non-sectorspecific. While the Korean government does not target the games industry for
direct support via grants or sector-specific tax breaks, it does conduct a
number of programmes through various ministries to promote the games
sector. These programmes, which are often generous (particularly in terms of
long-term tax rebates), are primarily aimed, via trade bodies and other
programmes for start-ups and innovation, at helping young technology
companies get on their feet.
• Incubator: start-up companies are housed in the KGDI building in
Seoul. KGDI has provided low cost rent and internet access For 160
game companies which have been incubated 1999-2004, with 35 more
companies incubated in 2005.
• Game Academy: turns out 250 graduates per annum, including training
in business skills as well as games design, art and programming
• Game Research Centres: seven universities offering games courses
were given US$50,000 each to develop courses and research into the
games industry115.
• Prize programme: a series of best game prizes that promote new
games
• Trade show participation: nearly 300 companies have been supported
to travel to shows like E3 and GDC
• Korea Game Conference: runs an annual trade show event
• World Cyber Games: Runs a series of audience-attending “e-sports”
events, the finals of which have been held in Seoul, Singapore and
other territories
• Conference of Policy Consultation: body established to advise
government on policies to promote the games industry
• Foreign visitor grants: KGDI invites significant companies to visit Korea
and meet with Korean games companies on all-expenses paid trips.
• Korean Culture and Content Agency (KOCCA): runs promotional
programmes for Korean content, primarily games, and has offices in
USA, UK, Japan and China, assisting Korean games companies to
reach overseas market and, attend trade shows.
Availability of national government assistance: medium. For several decades
the Korean government has been investing heavily in technological industries
and has a wide range of programmes designed to encourage foreign and
domestically-held companies to invest in Korea. The games industry is not
directly targeted by tax breaks however reportedly114 50 per cent of games
firms have won significant tax concessions under one or more of the following
general schemes:
• Korean Games Development and Promotion Institute (KGDI): the KGDI
helps promote the Korean games industry and runs the following
programmes:
• Games engine: middleware and distribution platform for use by startups to create prototypes. However no major games have used the
engine and Korean developer/publishers are sceptical about its value
114 State Aid in the Global Computer Games Industry, TIGA 2005
115 January 2005
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• GITISS: government-run service offering data on the games industry
(Korean-language only)
• Korean IT Industry Promotion Agency (KIPA): conducts a range of
promotional, research and training activities around games and the IT
sector, and runs iParks in various countries to promote Korean companies.
• Ministry of Culture and Tourism: supports trade bodies such as KGDI,
conducts research, encourages investments (unspecified) and various
promotional activities
• Ministry of Finance and Economy has the following non-sector-specific
policies which benefit games companies among others:
• Restriction of Preferential Taxation Act (RPTA): broad programme of tax
breaks aimed at foreign and domestic high technology companies
covering VAT, corporation, income, acquisition, property, customs and
dividend taxes representing 100 per cent in years one-seven, and 50
per cent in years 8-10. This is not available to all, as companies must
apply.
• Foreign Investment Promotion Act (FIPA): this 1998 act liberalised
Korea’s somewhat protective legislation to encourage foreign
investment in the country, with grants and subsidies available on a
case-by-case basis, and opened up land rental for foreign companies.
The Act allows for the reduction or exemption of corporation or income
tax for companies introducing new technology.
• R&D tax systems: the first 5 per cent of a high technology firm’s income
is treated as a loss for tax purposes; 50 per cent rebate for first four
years covering R&D and employee development schemes; facility
investment receives a 7 per cent tax credit in the year of investment;
foreign companies locating facilities in Korea may be awarded a cash
grant (of unspecified size) for companies investing US$ ten million or
more in hi-tech or US$5 million in R&D, plus assistance with relocation,
recruitment, training and land rents.
• SME tax breaks: personal income tax, corporate tax (up to three years)
and property tax (up to five years) credit of 50 per cent in years one to
two for SMEs and “venture businesses”. Land tax and registration tax
for business assets acquired within two years of founding a firm are
exempted 100 per cent.
• Special excise tax credit for technology: for years one to four, ten per
cent of the special excise tax is applied to leading technology
products. In year five, 40 per cent is applied, and in year six ,
70 per cent.
• Technology transfer: reductions in taxes for rights purchases
(50 per cent)
• National R&D programme: a group of funds for new technology
allocating US$4.5 billion in 2006. A number of other regional funds exist
with multi faceted R&D grants and specialities. Although none are
specifically targeted at games, games companies are eligible.
State-level incentive schemes: low-medium. Some local level schemes exist:
• Free Economic Zones (FEZes): Broad programme of tax breaks aimed at all
companies locating offices in the zones of Seoul, Incheon, Busan and
Jinhae. These exempt corporation tax, acquisition tax, registration tax,
property tax and land tax by 100 per cent for years one to three and 50 per
cent in years four to five; three years’ tax exemption on imported capital
goods; reduction or exemption in rent payments for redeveloped land;
looser employment regulations.
• Techno Parks and Foreign Exclusive Industrial Complexes (FEIC): gain
similar tax breaks to those provided in FEZes.
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Labour market
Analysis
Number of universities offering games-related courses:
universities offering games degrees
Number of graduates per annum: Above
800117.
33116
colleges and
1.23 million staff in the IT
sector118
Number of development jobs (publishers and development studios only): 9,000119
Flexibility of employment laws: medium. Employment contracts can last no
more than one year, notice / termination periods are short, employees are
allowed no more than 20 days’ holiday per annum and 60 days’ maternity leave.
There is relatively strong trade union legislation. Some of these protections are
waived in FEZes.
University-to-industry linkages: medium-good. The Korean government
channels a large amount of R&D expenditure through various institutes
and universities, and while no specific games technology has spun off from
universities, it could do so relatively easily if it were developed.
Salary levels:
Average salary level for junior artist (<3 years experience): Not available
Average salary level for lead artist (>3 years experience): Not available
Average salary level for junior programmer (<3 years experience):
Not available
Average salary level for lead programmer (>3 years experience): Not available
Strengths
Weaknesses
Scale of developer/publishers with
broad revenue base
Korean games dominate online
games market across Asia,
particularly Japan and China120
Large, high-penetration online market
fuels highly profitable games
companies
Online delivery and service focus
goes beyond “fire-and-forget” games
development found in the west
Korea leads the world in innovation in
commercial models
Cash-rich companies are investing in
USA and UK studios to counter deficit
in global IP
Massive growth in domestic games
market driven by new online games
Saturated domestic market with
limited console sector
East-west cultural barrier across
which few Korean games have
successfully crossed
Seen by the global industry as a
black box, thus poorly understood
and underestimated
Acknowledged lack in games design
innovation and global IP
IPR loss of Korean games through
piracy in china; Chinese firms benefit
through copying
Poor IPR protection
Much larger staffing levels are found
in Korean firms than in other studios,
due to lower costs
116 UKTI, Seoul
117 GIC research.
118 Invest Korea, 2003
119 GIC research
Dominant skill sets: Online, casual and mobile games
120 Two out of the top three online games in Japan are Korean (Ragnarok, and Korean games
account for 45 per cent of China’s games
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Opportunities
Threats
Continued expansion into US and
Europe121 via partnerships, JVs and
acquisitions
Continued exploration of new
commercial models
Gradual drop in control of Chinese
market offset by massive growth in
Chinese gaming and other emerging
Asian markets
China will inevitably begin to produce
quality games of its own design,
reducing Korea’s control of Chinese
market
Domestic development market may
have peaked, along with games sales
Scale of companies can be reduced,
leading to contraction in market
As the sector grew at speed, it soon became clear that gaming enjoyed high
penetration into the population at large with none of the demographic silos seen
in main-stream gaming in the west. Indeed, a single game – Nexon’s Kart Rider –
claims to have been played by 25 per cent of the entire Korean population.
Korea’s games companies have specialised in online gaming infrastructure,
building game engines, account management server technology and
methodology to deliver games and harvest revenues from subscribers who
transact entirely online or using retail cards in games cafés. The lack of retail
distribution increased the profitability of games companies, who also had little
need for publishers to fund, distribute and sell product. In Korea, they have
largely been disintermediated. Problematically, the prevalence of digital
delivery of games has led to high levels of piracy with ‘bad’ subscribers
reportedly122 numbering at around 20 per cent of most firms’ subscribers.
Additional problems of online security are farming (paying companies to create
virtual wealth for players during working hours), bots (software agents doing
repetitive tasks to generate virtual wealth), mirror servers123 (offering access to
the game for free or for fees not shared with the IP owner) and hacking in
general. These unique conditions also resulted in a stillborn console market
consisting of a few hundred thousand PlayStations, and even fewer Xboxes.
However, handheld consoles have been performing better more recently in
Korea – well enough for Nintendo to establish its first local office in the territory
earlier this year – so the prospects for this handheld market are improved. The
end product of this growth is a market that has a structure, drivers and
dynamics unlike any other major games market globally – apart from China.
Context
Korea’s progress as a gaming nation has been massively boosted by the scale
of its domestic market and some unique conditions which have seen retail
almost forgotten in favour of online gaming. Korea leads the world in terms of
broadband penetration, and those without 20-30 MB/second internet in their
homes can use internet cafés which exist on almost every city block. Although
the industry began by releasing role-playing games cloned from Japanese and
USA games, the ubiquity of broadband and (following government investment
in education) a healthy level of network technology skills meant that these
games were all made massively multiplayer, and were heavily customised
towards local culture. Within months of these first games’ launch, they were
generating large concurrencies – the measure of a successful game in Asia
meaning the number of concurrent players online at any given time – of well
over 100,000. These large numbers equated to millions of players per game,
most of which initially charged monthly subscriptions.
121 In recent years, NCsoft, Nexon, NHN, Gamevil among others have launched either development
studios or sales and marketing in USA and/or Europe
122 Gravity interview by GIC, Nov 2005
123 NCsoft recently collaborated with the FBI to close down illegal Lineage II servers in the USA.
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Just as Korea was starting to plateau, the Chinese market began to take off.
Korean companies licensed their games, technology and IP to Chinese
companies, who managed the servers and accounts and shared revenues with
Korean owners. This gave a second wind to Korea’s industry, and along with
contributions from Japan and other territories, gave rise to over US$3.8 billion
in export revenues in 2005. Again, piracy and IPR loss became problematic,
with the culprits not only Chinese consumers but Chinese companies
desperate to share less of their revenues with their Korean partners124.
As Chinese companies become more skilled at technology and games
development, their reliance on Korean games has begun to fall, from 70 per
cent of the Chinese market in 2004125, to 52 per cent in 2005 and now 45 per
cent in 2006126. However, the falls in market control are more than offset by the
rapid growth of the Chinese market, estimated to be nearly 30 per cent in 200506127. Korean companies also stand to benefit from the growth in nascent
South-East Asian markets like Malaysia, Vietnam, Thailand and the Philippines.
Korea is less effective at creating games that cross the east / west divide,
because cultural differences make most games unattractive to one side of the
divide, and because Korea has been innovative in network technology and
commercial models – which have driven games into new genres, rather than
through innovation in games themselves. The KGDI acknowledges that Korea
has a deficit in game design and in IP that sells globally. For the past few
years, Korea’s leading games firms – NHN, NCsoft, Nexon, Gravity and Webzen
– have begun opening offices in the west, and either acquiring or recruiting
western developers. Interestingly, they have been offering better deals for
developers than their western colleagues, for new IP. The model operated in a
deal like that between Webzen and Scotland’s Real Time Worlds is that the
Koreans offer network skills and financing, while the Scots offer creativity in
game play and design. This would appear to be a strong model for Korean
companies progressing in the west.
It is difficult to get a perspective on the Korean market and the sheer scale of
its games. An example may help: Maple Story is a 2D online role-playing game
with 14 million subscribers that has generated over US$215 million since its
launch in 2003 from players primarily in China, Japan, Taiwan and the USA.
It currently generates over US$17 million per month and has over 200,000
players playing online at any given time. The scale of these Asian games –
which is starting to encroach on the western markets (five per cent of Maple
Story’s players are USA-based) – dwarfs the west’s most successful online
games – such as World of WarCraft with seven million subscribers. Audition
claims to have 50 million subscribers in China alone. Their success in Asia far
from guarantees their success in the west – Lineage II, a game developed with
both the Asian and western markets in mind, gathered a peak base of only
100,000 active players in the USA in its two and a half years.
124 Shanda and Tencent, leading Chinese online games operators, have been involved in law-suits
from their Korean partners claiming they have copied large swathes of the game without
sharing revenues
125 Polygon and Gamasutra, March 2004
126 KGDI and Asia Times, August 2006
127 China’s General Administration of Press and Publication (GAPP), Asia Times, August 2006
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Ratings
Rating
Score
Justification
Maturity rating128
6
Good on market size, number of
studios, weaker on skills and ability to
create global IP
Innovation rating129
6
Strong on network technology and
commercial model innovation, weaker
on new game IP
Funding access rating130
6
Strong levels of trade capital, medium
levels of public funds, low levels of nongovernment capital and M&A activity
Growth potential
rating131
5
Market saturation, low levels of students
and lower IP innovation balanced by
large cash stockpiles of firms
5.75
The market leader in Asia for online
games, but few global games companies
have / would be located there
Overall competitiveness
rating132
128 Maturity rating: score based on retail market size, the number of developers and publishers,
the age of industry, number and range of AAA games, range of skills available in the territory,
the number of games staff and relevant criteria from the SWOT analysis.
129 Overall competitiveness rating: score based on the ability to create IP, number and range of
AAA games released, and relevant criteria from the SWOT analysis
130 Funding access rating: score based on the retail market size, availability of public and nongovernment funding, government awareness of the games industry, and relevant criteria from
the SWOT analysis
131 Growth potential rating: score based on the mortality rate for developers, growth potential of
the retail market, ability to create new IP, overall availability of funding for games companies,
the number of games-related courses, and students graduating per annum, salary levels and
relevant criteria from the SWOT analysis.
132 Overall competitiveness rating: the average of the previous four ratings
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United Kingdom
Retail market size136
Introduction
Table 9: UK retail statistics
The UK has been a leading location for world-class games development for over
20 years, with a strong track record in creating new AAA IP within both
independent studios as and many publisher studios that are located in the UK. Its
historic position as the third largest producer of games after the USA and Japan
has been under threat from Canada in recent years, and in 2006 Canada finally
overtook the UK in terms of revenue generation from games made in their
studios133. World-class games development still takes place in the UK,
expenditure on games development is still higher in the UK than in Canada and
the UK still boasts some of the most experienced development talent in the world.
However, the UK receives less state support than the other major territories134,
and its strong performance in recent years is under threat from a very uneven
playing field of development that is subsidised in competitor territories. The UK is
also the most expensive games development market in the world. Despite two
high-profile publishers, the UK is structurally imbalanced due to the lack of an
indigenous publisher with a significant proportion of the global market135. The
UK’s independent sector has seen a mass extinction of independent developers
since 2000, with over 45 per cent going out of business and 8.5 per cent – some of
the UK’s finest developers – being acquired, largely by overseas companies.
However, publisher-owned studios and the remaining independents have got
larger and the overall number of development staff employed in both types of
studio has risen over the same period.
2000
2001
2002
2003
2004
2005
2006
Software
$1.43bn $1.78bn
$2.1bn
$2.24bn $2.43bn $2.38bn $2.65bn
Hardware
$406m
$1.05bn
$1.1bn
$907m
$594m
$1.1bn
NA
Software
units sold
33.9m
42.8m
46.14m
53.73m
57.55m
57.52m
65m
Development and publishing
Number of independent developers: 160137. The scale of the larger developers
has grown rapidly over the past few years so that there are now 11 developers in
the UK with over 100 staff. In addition, there are over 90 UK-based independent
outsourcing companies providing services specifically to the games industry.
133 See competitive benchmarking section
134 The USA, Canada, France (proposed and being investigated by the EC), Switzerland, Germany
and Australia all provide tax breaks to games companies for production or to individuals
investing in games production, from either national or regional (eg state or provincial)
government.
135 Turnover value of three largest USA games publishers (2005-06): US$5.37 billion. Turnover value
of three largest UK publishers: est. US$500 million.
136 Unless otherwise noted here, all retail market figures are sourced from ELSPA’s The UK
Interactive Entertainment Industry 2005 report and are calculated from pound sterling figures
and February 2007 dollar exchange rates (£1 : US$1.95)
137 A list of extant UK developers is appended on Table 14 page 69
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Some of these factors are still at play in today’s market, with the arrival of the
current generation of consoles and rising development costs. However,
oversupply is not an issue, and the rapid expansion in headcount of many
independent developers in recent years is in part a reaction of the market to
undersupply of experienced developers. In conclusion, the UK’s independent
development market is currently well balanced and relatively stable, and while
there will continue to be company liquidations, particularly in immature sectors
such as mobile games development, there is no imminent threat of collapse.
Mortality rate: 45 per cent of independent development companies have gone
out of business since 2000138. The UK has experienced a fall in the total number
of independent developers from 295 to 160 today. However, of these, 26 studios
(9 per cent) have been acquired (although some of these have also been
closed down)139. A panoply of drivers for these company failures exists. Some
went under because of problems within the firm such as bad management
(growing too fast and then failing to maintain deal flow between projects), poor
access to or inexperience in raising capital, sudden project cancellation by
publishers, inability to access royalties and difficulties of growing beyond
breaking even. However, underlying these extinctions were market factors
which probably played the most important role. At the end of the 1990s when
the dotcom boom was in full swing and the PlayStation market was at its peak,
publishers were commissioning a substantial volume of titles with many
increasingly prioritising quantity over quality. This created an extremely
buoyant development market which ended abruptly with the PS2’s arrival and
the mass desertion of the original PlayStation market. Publishers, faced with a
leap in average development costs and complexity, a newfound risk
awareness, and a slower than expected start to the PS2-lead cycle,
concentrated their product development investment in a smaller number of
higher-budget titles, and also began to refocus towards internal production
(which was increasingly being fuelled by acquisitions of their preferred third
party development partners). The independent development market went from
a state of equilibrium to one of extreme over supply. These problems were
exacerbated by the decreasing value of the dollar (versus sterling) which has
made UK development increasingly expensive for an increasingly USAdominated publishing industry.
Table 10: UK developer mortality
Year
Number of independent studios
% change
2000
295140
2003
160141
-46%
2005
150142
-6%
2007
160143
+6%
138 The most prominent company collapses since 2000 have been Argonaut (2004), Elixir (2005),
Kaboom (2003), Runecraft (2002), Vis (2005), Visual Sciences (2006) and Warthog (2005).
139 These figures take into account (ie ignore) six acquisitions made by failed super-developers
Argonaut and Warthog.
140 GIC figures
141 The UK Interactive Entertainment Industry 2005 report
142 ELSPA, The UK Interactive Entertainment Industry 2005 report
143 GIC figures
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Development clusters: East Midlands, Liverpool/Manchester, London, Scotland
(Dundee/Edinburgh), South East (Guildford/Brighton), West Midlands, Yorkshire
Scale of largest indigenous companies:
Table 12: Key UK companies
Export and development value of domestically produced games:
05-06
turnover
Operating
profit
market cap
(10/06)
Staff numbers
Eidos
$350m
$15.2m (4.3%)
$695m
700
Codemasters
$102m
$2.1m (2%)
NA
350
$55m (est.)147
Unknown
NA (privately
held)
270
Company
Table 11: UK development and export values
2000
2001
2002
2003
$953m144
NA
NA
$834m NA
Development
$762m145
expenditure
NA
NA
NA
Export value
2004
2005
2006
$881m NA
$625m NA
Jagex
$730m146
Number of publishers: 70. The UK has two medium-scale indigenous
publishers – SCi Entertainment (which owns Eidos) and Codemasters, but none
of global scale (Scale of largest indigenous companies section follows).
Historically, the UK has been the location of choice for the global industry’s
European headquarters, although France’s Ubisoft and Vivendi are
headquartered in their home country. This location of choice has been eroded
of late after EA and Take 2 moved the core of their European corporate and
financial operations to Geneva, following overtures and incentives from Swiss
officials, in 2005-06. All major western (and many Asian) publishers have sales
and marketing operations in the UK. However, many publishers also retain
substantial development studios in the UK, the largest being Sony Computer
Entertainment Europe (SCEE), EA, Take 2, Microsoft (Rare/Lionhead),
Codemasters and Eidos. Eidos recently announced that it would launch a new
350-head studio in Montreal, which would account for 45 per cent of its total
staff in 2010. Eidos also opened new studios in Sweden and Hungary in 2006.
144 Interactive Leisure Software: Market Assessment and Forecasts to 2005, ELSPA
145 ELSPA State of the Industry Report 2005
146 GIC research
147 Jagex has roughly 900,000 subscribers paying US$5 per month to access premium game
servers, plus a host of other games.
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Largest UK independent developers: Jagex (296 staff), Eurocom (280 staff),
Rebellion (280 staff), Kuju (220 staff), Blitz (175 staff), Climax (150 staff), Real
Time Worlds (140 staff), Bizarre Creations (125 staff), Frontier Developments
(110 staff), Traveller’s Tales (105 staff), Evolution studios (100 staff), Free
Radical Design (100 staff).
AAA IPRs created in territory: Tomb Raider, Fable, Black and White, Grand
Theft Auto, Elite, Burnout, Worms, Lemmings, Rollercoaster Tycoon, Driver,
Timesplitters, Championship Manager, Football Manager, Perfect Dark, Black,
Goldeneye, Juiced, Total War, Lego Star Wars, Narnia, Harry Potter, WRC,
Wipeout, Crash Bandicoot, SingStar, Buzz.
Major publishers located in territory: Activision, Capcom, Codemasters, D3, EA,
Empire, Gameloft, Glu, Hands On, I-play, Koei, Konami, Mastertronic, Microsoft,
Midway, Mindscape, Namco, NCSoft, Nintendo, Nokia, SCEE, SCi/Eidos,
Square Enix, Strategy First, Take 2, THQ, TT Games, Ubisoft
First games company founded: Imagine Software, 1982
Date of first break-out global hit game: Apocalypse, 1983 (Games Workshop)
Funding environment
IP creation
Acquisitions and the availability of non-government funding: medium. The
majority of funding available in the UK at present is trade capital and largely
comprises (national but mostly international) publisher funding for third party
games development with traditional advance recoupment models as well as
the ongoing funding of publishers’ internal studios. It is also common for newly
acquired development studios to receive from their parent companies
substantial injections of capital allowing them to expand rapidly. This is often
part of the appeal of selling the company in the first place and some even
make such investment a condition of sale. Since 2000, the UK has been the
location for the second largest number of acquired games companies in the
world, after the USA, although Japan pushes the UK to third place in terms of
the sums received by those acquired companies.
New IP generation and ownership: The UK has originated some world-class IP
including some of the bestselling games to date, particularly the Grand Theft
Auto and Tomb Raider series. The UK has pioneered technically innovative,
edgy, humorous and sometimes violent games, and it is a world-class hub for
experienced development talent. In recent years, the number of IPs created in
the UK that have charted in the UK’s annual top ten bestseller list has
remained roughly stable, with a peak in 2001 when five titles made in the UK
were released in the same year. This peak is likely to re-occur in 2007148.
However, the number of original UK IPs on current generation platforms that
reach the market is falling as costs rise, which creates a longer-term problem
for the continuation of IP creation in the UK.
148 At the time of writing, Grand Theft Auto 4, Harry Potter .
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UK casual and mobile games companies have benefited somewhat from this
investment trend. However, the UK has produced an uncharacteristically small
number of MMOG developers relative to other countries, in particular the USA.
Of the 150 MMOGs currently available in the west, only six were created in the
UK and only one has grown to achieve any commercial scale (Jagex’s
RuneScape). This can be attributed to both the higher costs and risks of creating
MMOGs, and to the more limited access in the UK to alternative finance (most
MMOGs are not publisher-funded) at a scale needed for MMOG development.
Since 2000, the UK has been the third most frequent location for acquiring
companies; however this was driven by a frenzy of company acquisitions by
Argonaut and Warthog, both of which subsequently ceased operations. Most
trade acquisitions by UK companies have been small scale and many were
acquired in distress. Thus, the UK lies in a distant fourth place, after the USA,
Japan and France, in terms of the sums spent since 2000 by UK companies to
acquire companies in the UK or abroad. This again reflects market failure in
the UK and the lack of a publisher of global scale that grew by buying foreign
games companies (as France’s Ubisoft, Infogrames and Vivendi Games grew).
A small handful of private funds exist to help fund games production. A number
of these funding sources target project financing, and there is a growing trend
for this kind of fund raising which, while mostly inaccessible for smaller, less
well-established companies, can be useful for established medium-to-large
scale independent developers and small-to medium-scale publishers. Unlike
some markets (such as Germany) where there are tax incentives for such
investments, this kind of risk financing for games projects is still relatively
uncommon in the UK. A selection of these include:
The UK has seen many but modest rounds of private financing into the games
industry. Since 2000, in terms of the number of funding rounds, the UK has
been the second149 most frequent location for games companies receiving
private financing, with 2000-2003 representing a disproportionate percentage
of these investments. This reflected the dot .com boom in investment in digital
media rather than any great appetite for, or successes in, investing in games
projects. To the contrary, many investments in the UK games industry, both
private and public, have failed to deliver value to their investors. Between 1996
and 2006, companies listed on the London Stock Exchange or its junior market,
AIM. Of these, seven went bust or left the games market, three were sold in
distress, two were acquired for low valuations versus their sales potential, and
only two remain listed and performing well150.
Trends in games investment have not benefited the UK as much as other
territories in the last six years. MMOG, casual and mobile games companies
have been the recipients of a disproportionate amount of the VC finance that
has flowed into games developers in recent years (56 per cent of all
investment in privately held games companies in the west since 2000 versus
33 per cent for traditional games developers and publishers).
149 GIC research.
150 Argonaut, Rage, Pure Entertainment and Inner Workings went bust. Akaei, Digital Animations,
Bits and Zoo Digital left the games market after failing to create sustainable businesses. Eidos,
Warthog and Gremlin were sold following serious trading underperformance, profit warnings
and share price collapses. Empire and Kuju were sold to foreign companies for low valuations.
Games retailer Game Group and publisher SCi remain listed.
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• Fund4Games: launched in May 2002, Fund4Games provides project
financing for games development. Fund4Games is not actually a fund in
the traditional sense of the word but uses EIS-accredited single purpose
vehicles to attract investment from high net worth individuals whose
money is used as an alternative source of finance to traditional publisher
funding. Fund4Games undertakes to fund the title and deliver it on time
and budget to the publisher who, with the production risk transferred to
Fund4Games and the production cost deferred until the game’s
completion, agrees to pay the total cost of development as well as a
service fee to Fund4Games. The fund has a lower limit of US$1.5 million
per project and projects are expected to run for 6-24 months.
The company finances over US$1 billion annually across 200 projects. Of
these, only a few are games projects although the company expects more
publishers to use this kind of financing as production costs rise. Bonding is on
the rise in UK due to a lack of other similar financial vehicles but is reportedly
falling back in the USA. Whether the UK follows suit remains to be seen.
• Technology Venture Capital funds: as a leading global financial centre, the UK
is host to dozens of technology-focused VC funds. One is UK High Technology
Fund, a US$248 million fund managed by Westport Private Equity and partly
funded by the UK Government, which invests in high technology companies.
A number of VC companies have invested in games companies (mostly
studios) over the years, but many got their fingers burnt, and as such there is
generally a poor understanding of, and reluctance to invest in, the games
industry by VC companies.
• Ingenious Media: part of a larger media fund, Ingenious announced the
launch of a US$97 million games fund in January 2006 to fund games projects
for up to 30 per cent of their development budgets and help games companies
raise the additional 70 per cent via other sources before development begins.
The commercial rationale is to avoid publisher advances and release a higher
share of royalty payments from publishers earlier in return for a share of net
receipts. The fund invested US$48 million in 2006, and has a lower limit of
US$5.85 million per project. A second fund for the same sum has recently had
to be scrapped due to Treasury prohibiting of GAAP ‘sideways’ tax relief
vehicles in the last Budget on which Ingenious’ scheme was based.
Please note that what follows is a description of Government assistance as of
May 2007. Some of the providers of this assistance may now be different as a
result of the Machinery of Government changes announced in June 2007
which saw the closure of the DTI and the creation of several new Departments
including BERR and the Department for Innovation, Universities and Skills.
Availability of national government assistance: low. Unlike most mature
games development territories, the UK government provides no direct tax
support or investment incentives for the games industry. This is in keeping
with the UK Government policy of providing no sector-specific support for
any industry. Exempt from this are film and television. Films that pass the
cultural test receive a 16-20 per cent tax relief depending on the size of
production budget.
• Film Finances: a large international film bonding company founded in
London in the 1950s with a games arm. Film Finances, in conjunction with
lending bank partners, provides completion bond-based finance, which
covers development milestone payments until delivery of the game’s gold
master (ie completed version), at which point the publisher pays the entire
development fee plus interest and bond fees.
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UK TV production is subject to rules imposed by the 2002 Communications Bill,
under which there is a 25 per cent independent production quota imposed on
ITV, BBC and C4151, and commercial television broadcasters have received
large discounts (or holidays) from their broadcast licence fees.
operation and interpretation of the scheme and the Inland Revenue’s
ability to revisit the claims and reverse some benefits further reduced its
use by games companies.
• Enterprise Investment Scheme: this incentivises arm’s length equity
investments in qualifying firms, delivering immediate 20 per cent tax relief
for private investors on the sum invested (up to US$780,000 per year) and
any capital gains are tax exempt if the shares are held for over three years
after issue.
A few support schemes are run by BERR and UKTI that are directly targeted at
games companies (detailed below), but their impact is mostly limited due to the
low level of funding, because they fail to address the more fundamental
challenges faced by the industry, and because they have adopted a ‘one size
fits all’ strategy. UKTI has adopted a more sector-specific strategy152 to driving
inward investment, which has resulted in a more sales-driven approach
towards games companies. In place of the targeted government assistance for
the sector found in the UK’s competitor markets, games development
companies have access to a patchwork of schemes designed to support smalland medium-sized firms across all industries.
• Enterprise management incentives: these give tax benefits for options
schemes used to attract staff to smaller or higher risk businesses. They
have a maximum value per staff member of US$190,000, the shares must be
valued by HMRC, and the staff member must work 25 hours or 75 per cent
of their working time. Taper relief comes in at 50 per cent of capital gains
tax (CGT) after one year, and 25 per cent after two years after point of issue
of the options.
• R&D tax credits: Following a recent announcement153, SMEs of up to 500
employees will be able to claim up to 175 per cent of R&D expenditure
(including salaries, some consumables, and sub-contracted research but no
overheads) against corporation tax. The value of the payable credit available
is 24 per cent of qualifying expenditure. The definition of R&D for this
scheme154 is usually interpreted very literally, and starting a new game from
scratch is normally only partially covered. While the tax credits are widely
used and welcomed by the industry155, the extent and impact of relief under
this programme is limited compared to other territories. TIGA has estimated
that the maximum relief on a game is about four to five per cent of total
budget (under the previous 150 per cent rate). A poll of TIGA members in
2005 suggested that R&D tax credits had little impact (other than the first
wave of ‘back claims’ for previous years), and that uncertainties with the
151 The bill also resulted in liberalising global rights for independent producers, so that even despite TV
productions being 100 per cent funded by broadcasters, the all-important rights to the programme
revert to the independents after on average five years, and global rights are subject to separate
negotiations. No such quotas or enforced deal structures are workable in the UK with regards to
games development due to the global nature of the industry, and the lack of leverage, due to the
current lack of any public service games publishing, over largely foreign-owned games publishers.
152 Under the ‘Prosperity in a changing world’ strategy, games are one of 14 priority areas in ICT.
153 The 2007 budget announcements are applicable from 2008 and are still subject to state aid approval.
154 Based on the Frascati definition, namely “an advance in science & technology and activities
which directly contribute to achieving this advance in science or technology through the
resolution of scientific or technological uncertainty are R&D”.
155 Survey results show that R&D tax credits are widely used by leading companies.
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• DTI schemes: the Department of Trade and Industry has a range of
schemes to assist businesses, many of which are delivered by regional
redevelopment authorities or the DTI’s Small Business Service:
• Technology Programme: bi-annual competitions for grants from
consortia of two or more organisations (which must be company led,
but the partners could comprise universities and/or companies) to
develop novel technology, which typically cover 50 per cent of the
eligible costs of the project but, in cases of high technological risk,
may cover up to 75 per cent of the partners’ R&D costs in key areas of
interest. The programme is designed to assist projects three to seven
years before they reach the market, which time frame is largely
inappropriate for the games industry. As such, while a few more
companies benefited from 2004’s competition, fewer of 2005 or 2006
competitions’ priority areas for technology were applicable for games
companies and only one games company is reported to have benefited
from these grants (although more research is necessary to establish
this). 2007’s priority areas include US$78 million allocated to projects in
the Design, Engineering and Advanced Manufacturing theme, under
which projects which seek new paradigms in simulation and
visualisation with applications in the creative industries will be funded
for US$1,000-US$3.9 million.
• DTI Grant for R&D (formerly SMART): delivered by Regional Development
Authorities (RDAs), grants are available for micro-projects (sub-US$39,000
to a maximum of 50 per cent of applicable costs for sub-ten man
companies), research projects (new scientific or technical research to
US$147,000 for sub-50 man companies), development projects (industrial
and pre-prototype development to US$393,000 for sub-250 man
companies) and exceptional development projects (strategically
important projects of up to US$982,000).
• DTI grant for investigating an innovative idea: cover 75 per cent of cost
of hiring a mentor or consultant to study a plan for a new product. Up
to US$22,800 is available.
• Small firms loan guarantee scheme: helps SMEs access loans of up to
US$491,000 from banks by guaranteeing 75 per cent of a loan over twoten years.
• Knowledge Transfer Partnership: helps companies with a strategic
need, research organisations and graduates hire staff to introduce new
skills to the company. Grants range US$31-35,000, and higher from the
second year.
• Enterprise Capital Funds: equity financing of up to US$3.9 million in
matching funds in return for some profit sharing. Latest funding round
closed in February 2007.
• Early Growth Funds: regionally managed funds providing matched
funding for start-ups in high technology and knowledge-intensive
industries. Up to US$196,000 is available. Many schemes exist around
the country, which, due to their number, will not be listed here or below.
• Business Links: regionally managed support centres providing advice
and services.
• TIGA: DTI also funds a number of TIGA’s specific activities.
• Flat rate VAT scheme: businesses in various sectors with turnover of
under US$295,000 can benefit from a scheme that caps VAT owed to the
Inland Revenue at various levels depending on the industry, while
allowing the company to continue charging VAT at 17.5 per cent, creating
tax relief. Software development is not listed in an HMR&C list of different
levels of flat rates for different industries and therefore the rate is likely to
be ten per cent.
• UKTI has a handful of schemes to assist games companies:
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• The Computer Games Strategy Group: a cross-government group, driven
by UKTI but including BERR, DCMS, Skillset, and trade bodies, that coordinates efforts to support the games industry and has produced the
games delivery framework under which this study is funded.
• Trade programme budget: this provides funds for trade events such as
the UK presence at GDC, E3, and 3GSM, and support for the London
Games Festival. The programme also funds TIGA’s international trade
activities, and some inward investment initiatives. It also organises and
assists with the costs of trade missions to important territories such as
the USA, Japan (“Play UK”), Korea (Gstar), China (China Joy) and India.
It also brings overseas companies to the UK to attend trade events,
visit UK companies and encourage partnerships.
• Trade Show Access Programme: UKTI provides grants of up to
US$3,500 to assist new exporters to attend and exhibit at trade shows
in new territories. A similar but wider scheme supporting existing
businesses (SESA), which was popular and effective for games
companies, was closed in 2006.
• Export support: advice on international trade from local advisers on
planning and linguistic challenges, and the “passport to export”
programme, a package of support and training for new exporters.
• Information and Opportunity identification: generic assistance with
finding sales leads, assistance to find sources of aid-funding, and
research including free information on specific territories and in some
countries some broad industry sector data. The Overseas Market
Introduction Service is a networking service that charges a small fee
to companies who want introductions to contacts in new countries.
• New Deal employment scheme: grants are available for hiring 18-24 year
olds, and over 25s, who have been unemployed for over 18 months.
• National Endowment for Science, Technology and the Arts (NESTA): a
£300 million early-stage venture fund financed by the National Lottery
aimed at stimulating innovation in the UK. NESTA has invested over £105
million to date. This fund has historically only rarely funded games
projects and its games strategy is currently under review.
• Skillset: this government-funded and industry-supported body works to
ensure a flow of skills into the audio-visual industries. It subsidises up to
60 per cent of the course fees for a range of accredited games-related
professional training courses, and they have begun to accredit (but do not
financially assist) three undergraduate courses at three universities out of
the 46 universities offering 80+ courses. The scheme has been running for
a year, 16 courses have already been assessed with the help of industry
(some of which are reapplying), and more universities are going through
the accreditation process, so this number is expected to rise. Skillset has
also successfully piloted an apprenticeship scheme for games testers
with NCsoft in Brighton, and it now plans to roll this out across the UK.
Government awareness of games industry: low-medium. Government
awareness and understanding of the games industry is relatively low, despite
vigorous efforts from various staff in different ministries.
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• England has the following schemes:
• Regional Venture Capital Funds: up to US$982,000 is available in each
of the nine English regions to provide risk capital for high-growth
businesses. These funds (with values that range US$29-98m) are
commercially managed and generate commercial returns. No funding
is known to have been made to games companies.
• Selective Finance for Investment: 10-15 per cent of capital expenditure
(minimum US$19,600) may be covered for companies opening offices in
assisted areas.
• Coalfields Enterprise Fund: US$79,000 to US$982,000 in loans (straight
or preference share) are available for businesses to cover up to 50 per
cent of costs.
• East Midlands has the following schemes:
• Shoutout: a networking organisation helping match creative companies
to partners and very small local grants (eg CIBS grants for US$9,800
in Leicester)
• Sparkhouse Studios: Lincoln University-based incubator that houses
and assists start-ups
• Lachesis Fund: a US$13.7 million fund designed to encourage five
universities to secure research funding and harvest new IP from
their faculties.
The games industry has a fraction of the profile that the film and television
industries enjoy, despite contributing 30 per cent of the UK’s media exports156.
This reflects several factors, notably the industry’s relative youth, its lack of
high-profile political representation, and its lack of ‘star power’. Trade bodies,
particularly TIGA, and staff in various ministries do lobby vigorously to
increase the awareness of politicians about the games industry. Unfortunately,
the frequency of changes in ministers and the unfortunate prominence of
negative headlines about video gaming have seen the majority of comments
from government focused on ratings systems and the impact of violent or adult
games, rather than the state of an important knowledge economy industry of
the future. A recent keynote by the Prime Minister celebrating the creative
industries noticeably omitted to mention the games industry. Only more
recently has the Minister for Culture, Media and Sport (DCMS) suggested
there is a need for a games academy – but there appears to be considerable
distance between the DCMS’s agenda and that of the industry157.
Local-level incentive schemes: low-medium. Individual regions of the UK have
some local initiatives through Regional Development Agencies or Regional
Screen Agencies. The level of support is inconsistent and sporadic. Some large
clusters have virtually no dedicated support whilst smaller clusters do very
well. Many of the games-related programmes run out of the regions of the UK
derive from European funding, rather than central UK government. It is
important to note that although lots of schemes exist, they are mostly for very
small amounts (representing tiny proportions of an average game’s
development budget) which, combined with the time, complication and red tape
involved with applying for grants, means that not many games companies have
bothered applying for grants overall. The following schemes are available:
156 ELSPA, The UK Interactive Entertainment Industry 2005 report
157 The Minister’s announcement appeared to refer to a school-age academy whereas the UK
games delivery framework (and both TIGA and ELSPA’s work on this area) focuses on finishing
schools for graduates.
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• Various networking organisations such as Creative Industry
Regeneration team (funded by Europe, a networking and mentoring
organisation which assists businesses in target areas of Leicester),
Second Wednesday (digital media networking in Nottinghamshire), and
Creative Leicestershire and Rutland.
• EM Media: distributes European (ERDF) funds through its EM Media
Investments arm and has secured US$11.7 million to invest over a three
year period. Using equity and loan finance, EM Media invests up to
US$488,000 per film or games project and is one of the few regional
agencies that has a games focus and has already successfully
provided funding (and other support) for games projects.
• East England has the following programmes:
• Screen East: runs a company development fund which disburses
repayable investments of up to US$39,000 for script development costs,
which theoretically include games. No games companies are known to
have benefited to date.
• East of England Multimedia Alliance: wide-ranging support for games
companies, but no funding for games companies.
• Proof of Concept Fund: US$1.96 million fund disbursing an annual round
of funding of US$9,800-79,000 for entrepreneurs and university start-ups.
• London has the following programmes:
• Creative London: funds the US$9.8 million Creative Capital Fund (run by
AXM Venture Capital) to invest US$147,000 (round one) and up to
US$835,000 in later rounds in matched funding for media companies.
Creative London is also planning local hubs to act as incubators for
new companies, and offers assistance with finding properties, IP
advisory services and networking opportunities.
Mediabox funds 13-19 year olds, and one small games project is known
to have been funded.
• Cultural Industry Development Agency (CIDA): supports creative
industry in East London, providing business support through workshops
and advisers. CIDA no longer runs an access to finance programme.
• Interactive Course Funding: the LDA will pay for 80 per cent of training
employees of creative industry SMEs.
• North East England has the following schemes:
• Northern Film and Media: their networking fund provides US$2,900
towards attending trade shows and their fund for content has a range
of programmes that fund mostly film-and TV-related projects for
modest sums (US$2,900-9,800)
• Northern Arts Council: runs a cultural business venture grant that
disburses up to US$19,600 for companies that can match 25 per cent of
the funding from other sources
• Regional training agency: the Northern Cultural Skills Partnership
offers training assistance
• Codeworks: provides assistance for local digital companies to attend
trade shows and get advice from specialists, runs networking events
and helps with recruitment
• Game Horizon: a network of local games companies run out of
Codeworks which assists trade show attendance, networking,
university links and training
• Knowledge House: provides up to 50 per cent of consultancy costs of
engaging university-based specialists on a range of industries.
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• North West England has the following schemes:
• North West Vision offers a range of funding schemes for Merseyside
companies, each disbursing US$£19,600-US$490,000, including company
development (capital investment, marketing and training costs covered
to 37 per cent of eligible costs), product development (37 per cent of
eligible costs) and production funding (equity investments of up to 25
per cent of eligible costs). No games projects are known to have been
funded.
• Game Alliance: a network of local games developers which produced a
directory of local games companies in 2003.
• International centre for digital content: Liverpool John Moores
University-run unit providing networking, support, incubation and
workshops
• ACME: Merseyside-based unit providing trade show attendance
support., workshops and networking
• South East England has the following schemes:
• Screen South provides assistance, possibly funding, for film- or TVrelated projects, but no games projects are known to have been
funded
• South East media network: runs a games-focused business mentoring
scheme
• Wired Networks: runs Game Girl (encouraging females to enter the
industry) and business clinics (workshops focused on games)
• Various smaller schemes exist including the Maidstone Media Tree
(training and networking), and Medway Enterprise Gateway
(networking, support and training)
• South West England has the following schemes:
• Cornwall Film: can provide unspecified amounts of flexible loan funding
for games of up to 45 per cent of eligible costs and assistance for trade
show attendance.
• A range of smaller services offering networking and training
• West Midlands offers the following schemes:
• Creative Industries Business Plan has £11 million for skills training and
networking across high technology companies, with a games plan
focused on education and establishing a games incubator
• Screen West Midlands: can fund up to 25 per cent of a project’s costs
up to US$491,000, provide loans under the Advantage Broadcast Fund
for an additional US$59,000, and take out equity investments of up to
US$491,000 in new media companies. No games projects have been
funded to date.
• Support for Creative Industries in Birmingham: offers 50 per cent
funding of a range of activities, to unknown levels.
• Birmingham City Council: small grants available from the Creative
Development team for market scanning (US$4,900) or expansion
(US$9,800)
• Yorkshire offers the following schemes:
• Game Republic: assists game developer members to raise finance
(US$2.7 million raised since 2004). Game Republic ran an Integrated
Prototype Production scheme (GRIPP), which liaises with publishers
during the process of prototype production, and provides financial
support for existing and new IP from a large pot of European money
of US$78,000-196,000.
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• Screen Yorkshire’s Production Fund for Interactive Entertainment: the
GRIPP fund is being restructured for re-launch in 2007 under Screen
Yorkshire, which has raised US$7.9 million to invest in interactive
entertainment over four years.
• A range of local support and incubation services exist such as Inspiral
(help with finding grants and networking), First Thursday (networking),
Creative Industry Development Agency (training, networking and
advice), the Media Centre and the Round Foundry (incubators) and
Sheffield Creative Industry Quarter (incubation and networking).
• Northern Ireland has the following support schemes:
• Department of Enterprise, Trade and Investment: DETI provides support
under the Telecoms Unit’s Broadband Content Initiative for a range of
local businesses. Dark Water Studios received US$391,000 over one
year to develop a prototype game. Although DETI effectively procured
the rights to the prototype, the rights will be handed back to the
developer to commercialise as it sees fit.
• Invest Northern Ireland: runs a non-games-specific scheme called
Compete, which provides up to US$29,000 (and 50 per cent of costs) for
planning and up to US$490,000 (and 40 per cent of costs, less any
planning grant) for project development.
• Momentum: provides news and networking
• Technology and Software Innovation Centre: an incubation centre run
by the University of Ulster
• Wales provides the following schemes:
• Creative IP Fund: run by the Welsh Assembly, this US$13.7 million fund
provides 60 per cent matched funding of US$98,000 to US$1.4 million for
existing games projects, among many other creative industries. Two
games projects have been funded.
• Incubators: Techniums and the @Wales digital media initiative run a
number of business incubators across Wales
• Scotland has the following schemes:
• Scottish Development International: assists companies to attend trade
shows and missions
• Scottish Screen: another agency that will not fund games directly
unless connected or adapted for screen, and their grants are small.
A Writing for Games course is available.
• ITI Techmedia: the Scottish Executive-funded Institute ITI is disbursing
US$293 million across a number of sectors to research and develop
new technology that will be commercialised in Scotland. One institute,
Techmedia, currently funds two games projects. The games-based
learning project has received US$3.7 million to develop an authoring
programme, which was recently licensed to one of the developers of
the programme for commercialisation. The online games development
programme has US$10.5 million to invest in online games development
production tools and technology. Partners from the games industry act
as R&D providers158, and a number of local games developers sit on
the ITI Techmedia Board.
• Award scheme for creative industries: Ideasmart awards up to
US$29,000 to creative companies via a competition.
158 GIC was one R&D partner of the online games development scheme.
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Availability of European support schemes: no specific support for games
companies exists but a number exist to support applicants across
European industries:
• Framework 7: the Information Society technology programme has a range
of research-driven projects which grant US$2.6 million to US$13.1 million
for up to 50 per cent of project costs. TIGA and the European Games
Developers Federation have lobbied and some allocation has been made
for games related projects. A number of applications are now being made
by EGDF member companies
• Media Plus: a range of schemes were available to games companies,
such as the training scheme (reduced from 2005) which helps universities
fund places for courses such as animation, the single projects fund (up to
US$65,000 for multimedia projects and 50 per cent of eligible costs), slate
funding (US$78,000-US$196,000 for multiple projects) and training
(US$13,000-US$19,500). However, the programme’s organisers have
recently said they will exclude games from their programme.
• E-content plus: a scheme to promote cross-cultural content and
digital delivery.
• Eureka: a BERR-managed programme to promote pan-European
networking which is disbursed through the BERR grant for R&D(see above)
Number of graduates per annum: the following is the total number of graduates160
from courses with specific focus on computer and video games. On average,
between 25-30 per cent of these graduates successfully find work in games
companies, although rising pressure on team sizes may drive this proportion up
towards 40 per cent between 2007-8, risking lowering quality levels.
Table 13: UK games graduates
Year
2006
2007 (est.)
2008 (est.)
Graduates
1200
1400
1700
As games graduates rise, the number of applicants for mathematics and
computer sciences, who are preferred by the industry, fell by 23 per cent from
34,000 in 2002 to 26,000 in 2005161. In contrast, the number of applicants for
creative arts and design rose by 23 per cent from 48,000 in 2002 to 59,000 in 2005.
Labour market
159 BA Hons Computer Arts and BSc in Computer Games Technology at Abertay University, BSc in
Number of universities offering games-related courses: 46 universities offer a
total of 81 courses, including BAs, MSCs, MAs and other diplomas. Of these
courses, so far only four159 are accredited by Skillset and receive support in
kind from industry companies. Ad hoc feedback from the industry suggests that
most games graduates are not considered high enough quality by the industry,
which to some extent accounts for the low number of accredited courses.
Computer Games Technology at Paisley University, and BA in Computer Animation at
Glamorgan Centre for Arts and Design Technology.
160 GIC spoke with over 75 per cent of universities offering such courses to get their historical and
projected data on graduate numbers.
161 UCAS. Unsurprisingly, the number of successful applicants to a mathematics and computer
sciences degree rose from 92 per cent in 2002 to 97 per cent in 2005.
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Number of industry jobs (development staff162 in publisher and development
studios only): 8,000 permanent staff plus 700 freelancers, 3,850 development
staff are found in independent studios and 4,150 in publisher studios163. Despite
the collapse of many independent developers 2000-2005, the total number of
development staff in the industry has been growing since 2004. As companies
collapsed, many staff simply moved sideways into a surviving studio in the
same region. Publisher studios’ headcounts have grown the fastest during this
period, through acquisition of large studios but also through organic growth,
particularly through bilateral graduate programmes164. Recruitment has long
been reported to be in crisis, and preliminary results from WP1 survey of 15
leading UK-based companies suggests that recruitment of properly qualified
personnel, particularly experienced senior staff, is still difficult, exacerbated by
the growth in team sizes.
A number of British developers have reported the effects of a brain drain to the
USA and Canada in recent years. Such effects are often overstated. The brain
drain to North America has been a permanent and natural feature of the UK
development market for decades, with negligible negative impact and arguably
the positive impact of providing a training ground for British developers.
Several larger USA studios are run by expatriates. If any brain drain has
occurred, it is from European countries to the UK, as any quick census of a UK
studio will show. The threat of a brain drain is more pronounced in future,
particularly as larger UK companies such as Eidos open large studios overseas
especially in territories such as Québec with immigration programmes of tax
holidays specifically designed to tempt individuals as well as companies over
there165. The scarcity of experienced senior staff in the UK means that their
loss to competitor territories would have a serious impact on the UK’s
development market.
The growth in headcount in recent years has been largely driven by the
increased technological complexity of new consoles and the pronounced leap in
graphical definition, which has seen the headcount in an average game’s art
team double between Xbox and Xbox 360. Although we believe that there are
still some inefficiencies in production, particularly in publisher studios which
have greater financial freedom than independents, we do not believe that
greater production efficiency will eventually result in contraction in the labour
force. The larger studios, which represent the majority of the workforce, are
currently in a market where there is an undersupply of experienced studios; and
so they are growing as fast as they can without compromising quality or
becoming unstable. This will continue to drive growth for the foreseeable future.
162 Includes QA and technology development staff, but excludes distribution, manufacturing, sales,
marketing, retail, administrative staff and staff working in service companies.
163 Note that ELSPA’s UK Interactive Entertainment Industry 2005 report gave a publisher
headcount of 4,851 which included non-development staff. Publisher studio staff numbers have
been growing rapidly since then.
164 These are all bilateral arrangements between companies and specific universities. EA, for
instance, says that 32 per cent of its headcount growth is from graduate programmes and that
it expects that to rise to 50 per cent in the near future. Matthew Jeffery, head of European
Studio Recruitment, EA in Develop Magazine February 2007.
165 Québec has reportedly made foreign experts exempt from income tax for five years, as well as
subsidising salary costs for 100 per cent in year1, dropping 25 per cent per annum.
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To get access to new recruits games companies have forged links to some
universities producing high-quality graduates; the links are predominantly
limited to recruiting graduates. In only a handful of these schemes companies
advise universities about the focus of their courses166 (or even closer links such
as industry-funded academies) found elsewhere between games companies
and universities. The projects found in many degree courses often have no links
to working development studios, and are thus starved of access to
commercially viable product and experience. Internship schemes are rare,
although one of the largest employers (EA) has one in place167.
Flexibility of employment laws: medium-good. A relatively liberal employment
environment has made the UK the destination of choice non-EU publishers,
acting as a bridgehead to access the EU marketplace. Employees have some
protection against unfair dismissal via employment tribunals, a minimum wage
(which barely affects the games industry whose wages are well above these
levels), maternity and some limited paternity leave, and freedom of association
with unions. Employers have the ability to scale up and down their companies
without heavy statutory pay-outs or employee protection. This is generally
believed to have benefited the UK’s ability to retrain large numbers of workers
and regenerate deprived areas following the collapse of car, ship and coal
manufacturing industries, in contrast to some countries on the continent
where restructuring has been delayed or frozen. Ignoring its high labour costs,
the UK is generally seen as a good place both to employ staff and be employed
in the games industry.
The exception to the rule is Abertay University’s Dare to be Digital competition
(DTBD), which funds teams of students to develop prototype game engines and
playable levels of games in a ten week intensive course. The resulting games
are then judged by a panel of industry specialists and small cash prizes are
given based on a range of awards from ‘most commercially viable’ to ‘best use
of technology’. The resulting games, their excellence and their creator’s
employability have shown the industry the creativity and ingenuity of the new
talent emerging from the handful of UK universities so far involved. 25 out of 46
current courses have contributed entrants to date, and 80 per cent of Dare’s
participants win jobs in the industry after competing.
University-to-industry linkages: low-medium. The general picture is that the
UK is not as progressive a location as many other territories (particularly the
USA, Canada and Australia) for companies to extract, exploit and harvest
commercially viable ideas initially incubated in universities. This is largely due
to structural problems within universities which are now being addressed.
There are some good examples on which to base new strategies such as the
pharmaceutical and biochemistry industries, particularly those found clustered
around Cambridge, and a handful of other universities which gain research
funding from industry. A number of schemes and funds have been set up to
encourage such linkages but in general the UK needs to do more.
166 Eidos, Blitz and EA are among those that talk directly to universities about their courses. EA
offers placements.
167 The EA Academy is a graduate placement scheme offering a six month internship after which
90 per cent of graduates get permanent roles at EA. 32 per cent of EA’s recruitment in the UK
is from new graduates.
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Given the industry’s scepticism about the quality of graduates from gamesspecific degrees, the results have been refreshing. The DTBD scheme is due to
be rolled out to three centres in 2007 (including Guildford), although a number
of universities have complained they lack the funding to host such a scheme.
DTBD is not related to any university course, and as such cannot directly
address the problem of updating academic courses with current industry
practice. But it is a useful way to tie industry in to students and for industry to
access the fresh, original ideas for new IP created by students.
A note of caution needs to be sounded here about the breadth of the UK’s skills.
Although well represented in the mobile games market, the UK is conspicuously
under-represented in the online games market and has only a few large
companies with online gaming skills (Runescape, Real Time Worlds, and
Codemasters), a couple of defunct massively multiplayer online games and a
handful of online games technology providers. It lacks the depth and breadth of
experience in online platforms found in the USA or Korea. Skill sets need
continual updating, and the UK’s ability to turn fire-and-forget games
development studios into development and services companies for online
games with long tails is largely untested. The UK appears to be slow to respond
to this critical and unavoidable change in methodology for making games, all of
which are now expected to have online components.
Salary levels168:
Average salary level for junior artist (<3 years experience): US$34,000
Average salary level for lead artist (>3 years experience): US$78,000
Average salary level for junior programmer (<3 years experience): US$41,000
Average salary level for lead programmer (>3 years experience): US$98,000
Dominant skill sets: largely strong across the board, especially technical and
creative skill sets such as design, gameplay, programming, physics, artificial
intelligence and animation. The UK is particularly strong in current generation
programming (all major console development studios have two or more years’
experience of working on 360 and/or PS3), casual gaming, mobile, PC gaming
and some online gaming, including a limited amount of massively multiplayer
online gaming. The formerly industry-leading RenderWare middleware suite
was developed by UK’s Criterion Studios before it was acquired by EA and has
since been discontinued as a third party product. The UK still retains a good
number of technology companies, including a number of tools and middleware
developers. Most focus on technologies that expedite or increase the quality
of product development, and include emerging fields such as procedural
content generation. 169. Many developers, however, create their own games
tools and middleware.
168 Develop Salary Survey, February 2007
169 For example, NaturalMotion’s Euphoria middleware was recently chosen to work on multiple
current generation games for Take 2’s Rockstar and has been in use by LucasArts studios for
some time.
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Analysis
Strengths
Weaknesses
Strengths
Weaknesses
Creative and technical talent is
among the strongest worldwide, and
companies continue to innovate on
new platforms
Breadth of experience covers all
platforms, attracting large publisher
studios and work for hire for platform
specialists
Historical UK companies have
created world-class AAA IP across
all genres
The wide range and number of
independent developers (half the
number in Europe) is balanced by
massive studios run by foreign
companies like EA, Sony and Take 2
Strong technical ability has seen
industry-leading tools and
middleware originate in UK
UK companies were early adopters of
outsourcing to cheaper territories
A winnowing of developers has seen
stronger, better run companies
survive and thrive
Lack of indigenous publishers with
global scale
Lack of independent AAA IP in recent
years
Most developers have poor access to
funding, and struggle to get new IP to
market
Even the larger developers struggle to
fund and retain ownership in new IP,
particularly for current generation
console games
Work for hire on third party IP
dominates most developer’s output,
and the predominant commercial
models ensure that overages are rare,
capping growth potential of most
studios
Many of the best developers are now
in foreign hands after a rash of
acquisitions of companies strong in
working for hire
A multitude of acquisitions has seen
the UK as a premier location for
publishers looking for experienced
teams
Good base of technology innovation
has seen a number of leading
technology IPs originated in the UK
Native English-speaking country with
close cultural proximity to the US
Liberal employment environment and
access to EU market
High-cost economy, with labour costs
just below USA, but far above Canada
Low levels of governmental support
sees UK companies competing on an
uneven playing field, and steadily
losing ground
Industry-academic links are largely
skin-deep and recruitment is difficult
for most
Consolidation resulted in a
concentration of talent in more stable
studios, which become targets for
publisher takeover
The weakness of the US dollar has
made development in the UK more
expensive for a largely US-dominated
publisher market
Under-represented in the increasingly
important online games sector
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Opportunities
Threats
Continued position as one of the
world’s leading destinations for AAA
IP creation as work for hire produces
strong games from independent and
publisher studios
Cross-fertilisation from other worldclass media enables new IP to
flourish
New platforms offer opportunities to
harvest value from older IP, and
experience of older platforms will win
new business for studios
Rising numbers of games and nongames graduates supplies demand
Service companies thrive as the
supply chain diversifies via online
service provision
Grassroots could fail to be renewed as
barriers to entry restrict smaller
companies starting up
Stasis – larger companies could grow
their development resource overseas
(especially Canada) and not in the UK
Senior staff could be drained to US
and Canada
AAA IP fails to stay in UK
companies’ hands
The cycle of start-ups is broken as
large studios sequester increasingly
rare talent
Independents could no longer afford to
create AAA IP for current generation
consoles, leading to technology and IP
poverty, and loss of world-class status
Poor links between industry and
universities could prolong recruitment
shortage
New world-class IP could fail to reach
the market
The US dollar may continue to
weaken, increasing the cost for US
publishers of using UK development
Context
Maturity
The UK is one of the world’s great games development markets, having
produced hit after hit for decades, and changed consumers’ definition of a
game several times over with iconic games series such as Tomb Raider and
Grand Theft Auto. The UK has without doubt lost ground to emerging markets,
particularly Canada, over the last five years. Until recently, the UK had
maintained its position as the third most productive and revenue-generative
games development market in the world, after the USA and Japan. Canada
overtook the UK in 2006 to become the third most revenue-generative games
development market, with games made in Canada taking an estimated 13.2 per
cent of western games retail revenues, compared to the UK’s 12.4 per cent170.
170 GIC research. based on Develop 100, The world’s most successful games studios,
Develop/ELSPA/Chart Track 2007 and Next Gen Top 100 games of 2006, February 2007. For
instance, of the 100 top-selling games in the USA in 2006, games created in Canada generated
US$322 million vs. US$191 million from games created in the UK.
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The UK’s leading studios still rank well on the world stage: 29 out of Develop’s
top 100 studios (in terms of revenue generated at retail in the UK171) of 2006 were
based in the UK172, and six out of the top 100 USA games in 2006 were made in
the UK173. In terms of development expenditure, the UK is much further ahead,
due to dollar – sterling exchange rates, the higher cost of development resource
and the larger number of development staff in many more development
companies in UK studios. These factors may keep the UK ahead in expenditure,
but not in terms of revenue generation. So, to contrast Canada and the UK:
UK expenditure on production in 2006 was 75 per cent higher than Canada, but
UK-made games grossed less than Canadian games world-wide in 2006174. The
UK development market’s growth in terms of revenue generation at UK retail175
by games made in UK studios is being outpaced by that generated by games
made in Canadian studios176. 2005 saw only one (and 2006 only two) UK-made
game in the top ten best-selling games at retail in the UK. In the USA, 2006 saw
only one UK-made game in the top ten sellers (Canada also made one), and six
games in the top 100 sellers (Canada made ten). 2007 may buck the trend, as a
number of major UK-made titles are due for release, but one or two best selling
UK-made games per year looks like a long-term position for the UK. Canada’s
lead is not yet large, and the two territories will jockey for third position for
several years yet. More research is necessary to monitor this accurately.
Innovation
The UK has historically generated strong IP. In the past decade, UK-made
games such as SingStar, Goldeneye, RollerCoaster Tycoon, and Grand Theft
Auto have created or defined genres. Many UK studios were founded when
developing a game from concept to gold master involved a team of ten staff,
programming a game engine from scratch, six to nine months of development
and a budget of a few hundred thousand pounds. In those early years,
adequate returns could be made by publishers and developers based in local
markets like the UK. The UK industry’s strongest period of originating
groundbreaking new IP came when game production budgets could be
financed from a developer’s own cash resources or when the break-even
points for the developer were within reach. This is no longer the case. While
the UK is still likely to be the location of another genre-redefining or industrychanging game, it is, however, guilty of resting on its laurels. Although still a
premier location for innovative game development, much of the investment in
successful new IP is being made by foreign-owned studios based in the UK,
and the pace of original IP deriving from UK-owned companies appears to
have slowed in recent years.
171 Develop’s figures are for UK revenues generated by global studios and the UK market has
characteristics that are not mirrored in all markets. However, these and the Next Gen 2006 best
sellers of 2006 list are broadly representative of the UK’s stature in the global market.
172 Versus seven in Canada
173 Versus ten in Canada, Next Gen Top 100 games of 2006, February 2007
174 The length of the development cycles of most games means that expenditure on development
in 2006 would produce revenues from games released in 2006 to 2008, so while these figures do
not correlate exactly, they are strongly indicative of the ratio between development
expenditure and revenues generated by games developed in each territory.
175 UK experienced 12 per cent annual games revenue growth 2004-06
176 Canada experienced 17 per cent annual games revenue growth 2004-06
The UK games retail market has been growing well for several years, helped in
2005-6 by a surging handheld sector that cushioned the cyclical fall in games
revenues between console generations. The correlation between the retail
market and the games development market is delayed and not as close as it
has been portrayed, and retail statistics have been misleading in describing
the health of the UK games industry – for instance, between 2000 and 2004 the
development industry was in a state of serious consolidation as the retail
market boomed.
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Most non-governmental funding in the UK sector derives from direct publisher
to developer deals, and following acquisitions of independent developers. The
UK has been a primary target for acquisitions by foreign-owned publishers
looking for experience and IP. Such acquisitions are an entirely natural part of
the ecosystem of the industry. They inherently create short-term value for UK
entrepreneurs (some of which may well be invested back into the sector at a
later stage) and often precipitate substantial injections of capital by the parent
company to finance their new acquisition’s expansion.
This lack of ground-breaking new IP is not due to a deficit in creativity. It has
more to do with structural and cyclical drivers around how games production
is financed. These include dramatic hikes in console development costs
driving up break-evens for publishers (and even higher for developers); riskaversion among publishers as they invest in titles and technology for new
consoles, the inability of independent developers to access external finance;
commercial models delivering little if any royalty flow to independents;177 and
the costs of technology insecurity as online gaming becomes a reality for all
new games. The result is that few UK studios can afford to self-fund a new IP
on a current generation console: they have to undertake lower value work for
hire projects to maintain their understanding of new console platforms and
invest heavily and continuously in updating their games production technology.
The UK is home to one of the world’s most robust and sizeable listed finance
sectors as well as a buoyant private equity market. However, games
companies have to date proven ill-suited to the listed markets. Only two of 15
games companies to have floated to date are still listed, most having gone into
liquidation or been sold at a fire-sale price. A wave of investment in games
development companies during the dotcom boom years has also produced few
successful exits for VCs, and the market largely remains sceptical of the
sector’s viability. A major international investment boom is taking place in
online games companies but, with one or two exceptions, this is passing the
UK by as the UK is conspicuously under-represented in the online games
development and publishing market.
Access to finance
The sources of finance for games companies are few. Despite a modest rise in
support in the 2007 budget – when compared to the UK’s competitor markets –
R&D tax credits still do not extend to cover more than a small (four to five per
cent under the previous definitions) proportion of games production, which has
only a small impact on games development companies. R&D tax credits are
below the level provided in some competitor territories, mostly because of
eligibility definitions178. Regional activities by various games clusters and RDAs,
which are funded largely by Europe not central government, vary widely. The
provision of IP funds is useful in targeting market failure but the availability of
such funds does not usually correspond to the location of games companies.
Much generic support risks being too ‘one size fits all’ to materially assist games
companies. What little national support was available is being further reduced.
177 The survey of leading industry figures in the Industry Survey found that only 12 per cent of
independent studio’s revenues derived from post-advance royalties or overages.
178 UK definitions of R&D use the Frascati definitions.
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major development territories
Growth potential
The value of the UK games development market, unlike the UK games retail
market, fell between 2000 and 2004, driven down by the same factors that
caused the collapse of numerous games companies (see above section on
independent development). Numbers of independent developers have not
recovered substantially, but this is not necessarily a bad thing. The extinction
event was Darwinian in outcome, leaving as it did the better-run, more
financially stable and effective developers, who are better able to service their
publisher partners, and who should be better positioned to develop new IP.
Since 2004, the value of the market for development in the UK has stabilised
and even experienced some growth, but has not returned to 2000 levels. This
growth is partly driven by rising costs and team sizes for current generation
development, and partly by the fact that the UK houses a good number of
experienced teams who can charge a premium to publishers looking for on
time, on budget and on spec development. Screen Digest has predicted a
plateau or downturn in global games retail market by 2009/10, but there is
debate about whether these figures need to be re-addressed in light of new
audiences attracted by new consoles (such as the Nintendo DS and the Wii)
whose games sell in a very different way from to traditional games. The advent
of new consoles and new delivery channels for games, the massive investment
in a new console generation by Sony and Microsoft (which may not be
repeated), and the extension of shelf-life by console manufacturers may
reduce or delay the next cyclical downturn in the industry.
UK universities released well over 1,000 games specific-students into the job
market in 2006, and that number is rising fast. However, the quality of these
courses has been questioned by many employers, and Skillset has accredited
only four university courses and one commercially-run course. In the wider
field of education, the number of applicants for mathematics and computer
sciences dropped by nearly 25 per cent between 2002 and 2005179. This has
triggered concern from larger employers about the UK’s ability to supply new
graduates at the demanding quality levels required by games development
studios. It is fair to say that games companies set themselves extremely high
standards, mainly because games production is a demanding and highly
technical skill set which requires very strong and often mathematical brains. As
a result, only around 30 per cent of graduates find work – even those from the
most accredited and successful courses.
The UK industry has grown in past years by renewing itself when new studios
are founded to bring new game concepts and genres to market. Because
publisher-owned studios have the biggest recruitment budgets, the risk of
talent being sequestered within foreign-owned publishers is high, particularly
because there are not that many places in the UK where production staff can
work on the most appealing current generation games. This impacts on but
cannot extinguish the natural circulation that drives entrepreneurial individuals
out into the independent market to create new product.
UK games companies now rely on graduate recruitment and headhunting to
grow their studios, and supply currently cannot service the demand. It is not that
there are not enough candidates for positions.
179 Source: UCAS
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Outlook
Unlike some development markets, France in particular, the UK games
development market is not under imminent threat of collapse. It has been
growing as the console cycle upturns, and as highly experienced, technically
proficient studios win work on current generation games for foreign-owned
publishers. However, its growth is well below that of the USA and Canada. The
UK is the highest cost market for development in the west180, and, unlike the
UK film industry, the UK’s games industry gets no direct financial or tax
incentive support from central government. Compared to the high level of
support offered in every other major games development market in the west,
the UK’s patchwork of mostly indirect support is considered inadequate by the
industry181 and fails either to address the challenges to the UK’s ability to
generate original IP and revenue, or to match the support found in competitor
territories. The result is a very uneven international playing field in which UK
companies compete with a distinct competitive disadvantage182.
This results in the primary long-term problem of IP poverty, and could
eventually see the UK losing the one unique selling proposition which can
counteract the cost argument – creativity184.
As development resource costs continue to rise and average development
experience in lower cost markets rises to meet that of more mature markets,
international companies will find it harder to justify locating in the UK, and
problematic to justify continued growth in the UK. The immediate threat to UK
development is stasis or possibly mild contraction in the face of overwhelming
competition from developing markets, particularly Canada183. Any major
contraction is likely to be dominated by lower end roles such as QA, but
competitors like Canada are offering specific individual tax breaks to senior
developers to relocate there. Commercial models and rising production costs
are causing a bottleneck of new IP that will continue to struggle to get to market,
despite the advent of new distribution channels like casual games on consoles.
180 See competitive benchmarking below
181 The survey of leading industry figures in the Industry Survey found that 87 per cent surveyed
said that tax breaks were the best way to help the industry.
182 The survey of leading industry figures in the Industry Survey found that nearly three-quarters of
respondents thought that incentives offered overseas destroyed the level playing field, and
made the UK less competitive.
183 The survey of leading industry figures in the Industry Survey found that 40 per cent of
respondents have set up or acquired studios in markets where financial incentives are offered
by local or national government, half of those in Canada. 47 per cent of respondents thought
that Canada had drained talent from the UK.
184 The survey of leading industry figures in the Industry Survey found that 40 per cent thought UK
companies would slow or stop their growth in the UK, with a knock on impact on creating
new IP.
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Ratings
Rating
Score Justification
Maturity rating185
9
Broad, deep experience, strong skills in
creative and technical roles, many AAA
titles, many robust studios
Innovation rating186
9
Strong track record and creativity
across genres and platforms, many
examples of boundary-breaking games
Funding access rating187
6
A reasonable level of trade capital flows
into UK, other capital has become
sparse, governmental support is low
Growth potential rating188
6
Developer numbers stable, start-up
funding low, student numbers tolerable,
high costs favour overseas
7.5
Resting on laurels and facing stiff
competition, but not under threat of
extinction, some opportunities still exist,
but IP creation is in decline
Overall competitiveness
rating189
185 Maturity rating: score based on retail market size, the number of developers and publishers,
the age of industry, number and range of AAA games, range of skills available in the territory,
the number of games staff and relevant criteria from the SWOT analysis.
186 Overall competitiveness rating: score based on the ability to create IP, number and range of
AAA games released, and relevant criteria from the SWOT analysis
187 Funding access rating: score based on the retail market size, availability of public and
private funding, government awareness of the games industry, and relevant criteria from the
SWOT analysis
188 Growth potential rating: score based on the mortality rate for developers, growth potential of
the retail market, ability to create new IP, overall availability of funding for games companies,
the number of games-related courses, and students graduating per annum, salary levels and
relevant criteria from the SWOT analysis.
189 Overall competitiveness rating: the average of the previous four ratings
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Independent UK developers
Table 14: UK developers
3rd Dimension Software
Blitz Games Ltd
Customplay
Eutechnyx
Games Faction
4J Studios
Broadsword Interactive
Dark Water
Evolution Studios
Gameware Development
8 Bit Games
Bulldog Interactive
Darkling room
Exient
Genuine Games
Abstract
Caspianlearning
Data Design Interactive
Firefly Studios
Giantcurcuit™ Productions
Addictive 247
CAT Games
David A Palmer Productions
Fish in a bottle
Greenstreet Sales
Adventuresoft
Claymore games
Deadline Games
Fluid Studios
Gusto Games
Affinity Studios
Climax
Deep Red
Four Door Lemon Limited
Hailstorm
Airplay UK Ltd
Clinicalgames
Deibus
Free Radical Design
Hermit Games
Alten8 Limited
Code Monkeys
Denki
Frontier Developments
Hiding Buffalo Games
Aqua Pacific
Cohort studios
Desq
Fullfat Productions
Honourbound
Astraware
Complete Control
Digi-Guys
Fuse Games
Hotgen/Netherock
Atomic Planet Entertainment
Corefootball
Distinctive Developments
G Cell Software Ltd
Ideaworks 3D
Bigbig
Coyote Developments
Dynamo Games
G2 Games
Imaginary Productions
Bizarre Creations
Crazed Games
Elite Systems
Game Mission
Indiepath
Black Ridge Games
Creative North
EM Studios
Gamerholix
Infusion Games
Blade Interactive
Curve
Eurocom Developments Ltd
Gamersauce
Introversion
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Table 14: UK developers (cont)
Jagex
Ndreams
Razorback Developments
Splash Damage
Viperante
Jester Interactive
Neutral
Real Time Worlds
Squidsoup
Vulcan Software
JPM
Nicely Crafted Entertainment
Rebellion Interactive Ltd
Stainless Games
Zoo Digital
Llamasoft
Ninja Theory
Red Bedlam
Strawdog Studios
Zoonami
Magenta Software
Nu Generation
Relentless Software
Sumo Digital
Make-Believer
Onisoft
Revolution Software
Supersonic Software
Massively Mobile
Online Games Company
Rocket Dog
Swordfish Studios
Maverick Developments
Outerlight
Rocksteady Studios
Tag Games
Media Molecule
Perfect World Programs
Rusty Nutz
Team 3 Games Ltd
Melted Games
Pixel Magick
Shoecake Games
Team Play Learning Dynamics
Microvalue
Playbox Limited
Slam Games
Team17
Mind Candy
Pocketeers
Slitherine Software
The Imode Limited
Miracle Studios Limited
Pompom
Small Rockets
Tiretex
Monumental Games
Positech Computing
Smilie Ltd
Traffic Games
Moonpod
Puppy Games
Smoking Gun
Travellers Tales
Morpheme
Puzzle Kings
Spiral House
Tuna Technologies
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USA
Development and publishing
Introduction
Number of independent developers: 650192
The USA video and PC games industry is the largest games market in the
world, and is also the cradle of many of the largest games developers and
publishers. Its retail market boasts 100 million gaming households190, who
support over 600 developers and roughly 100 publishers with expenditure that
topped US$11.5 billion (including hardware) in 2005. The USA retail market is
projected to grow through the current (Xbox 360 / PlayStation 3) generation,
continuing to provide a powerful revenue stream to companies.
Mortality rate: estimated193 to be roughly 25 per cent since 2000, a rate half
that of UK developers. In the USA the massive retail market has more room for
companies involved in creating bargain titles on PC, or to a lesser extent
creating mobile or casual games. A number of companies have shifted down
the value chain from full-scale development to provide outsourced services to
USA publisher studios and developers, who are still relatively wary about
sourcing content outside North America, a trend which has also benefited the
Canadian services market.
Development clusters: California – San Francisco (Stanford University), San
Rafael, Los Angeles; Texas – Austin (University of Texas, Austin); Washington –
Seattle (University of Washington); Florida – Orlando; North Carolina – Durham
and Morrisville; Massachusetts – Boston; Maryland – Baltimore.
Retail market size191
Table 15: US retail statistics
2000
2001
2002
2003
2004
2005
2006
Software
$5.6bn
$6.1bn
$7bn
$7.1bn
$7.4bn
$7bn
$7.4bn2
Units sold
197m
211m
226m
241m
250m
228m
41m
Export value of domestically produced games: Unknown194
Number of publishers: 120195
190 Yankee Group, November 2004
191 The Entertainment Software Association / NPD 2006 Essential facts about the industry
192 GIC research
193 GIC research
194 An ESA report cited US$2.12 billion as the export value of the top six USA-based publishers in
2004. However this included firms like EA whose production capacity is based in many
countries outside the USA. More study is required to ascertain this figure.
195 GIC research
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IP creation
Major publishers located in territory: EA, Activision, Take 2, THQ, Ubisoft,
Midway, Vivendi, Buena Vista Games, Sega, Atari / Infogrames, Namco,
Microsoft, Sony Computer Entertainment of America, Sony Computer
Entertainment Online, Nintendo, Eidos, Capcom, Square Enix, Konami,
LucasArts, among others. Non-USA publishers have historically found it
difficult or been reluctant to establish a presence in the USA market. However
increasing numbers have located themselves there, including a recent influx of
Asian publishers who have begun to commit major investment into selfpublishing operations in the USA. In parallel, several USA-founded publishers
have acknowledged the importance of global markets to their operations196,
and have strengthened their regional centres accordingly.
New IP generation and ownership: the USA is the largest IP-generating
market in the world by value, originating new IP continually throughout the
history of the industry, which started in the USA. The size of the domestic
market means that many of the world’s largest publishers are located if not
headquartered there. As in most western countries, USA publishers tend to
own the IP which they publish, reducing their liability for sharing royalties with
developers. Some exceptions are found in larger developers which have
retained their IP, such as Bethesda (Elder Scrolls Series), Valve (Half-Life
series), and Id (Doom/Quake). In addition, cross-fertilisation between other
media, particularly Hollywood, has led to the founding of new IP production
intermediaries – led by Apogee and Bethesda but with others beginning to
follow their model – who provide initial funding for innovative new ideas being
developed by third parties, secure the rest of the funding from major publishers
and manage the production process.
Largest indigenous games companies in territory
Table 16: Key US companies
Company
05-06 turnover
Market
capitalisation
(10/06)
Staff numbers
EA
$2.95bn
$16.8bn
7,200 (3,200 in US)
Activision
$1.41bn
$4.16bn
2,150
Take 2
$1.01bn
£1.06bn
2,000
Major IPs created in territory: Age of Empires, Call of Duty, Command &
Conquer, Crash Bandicoot, Diablo, Doom, Elder Scrolls, Everquest, Flight
Simulator, Half-Life, Halo, Matrix (games), Madden, Mortal Kombat, Need for
Speed, Civilization, Medal of Honor, Lord of the Rings (games), Quake, Sims,
SOCOM, Spyro, Starcraft, Star Wars (games), Tiger Woods PGS Tour, Tony
Hawks, Ultima Online, Unreal, Warcraft, World of Warcraft among others.
196 EA for instance noted in its 2006 annul report that 46 per cent of its revenue derived from
outside the USA.
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First games company founded: Nutting Associates founded in 1971 (created
the first arcade game, Computer Space). The founders went on to start Atari in
1972, creating coin-operated games from which effectively was born to the
computer and video games industry.
Availability of federal government assistance: low-medium. The Federal USA
government offers almost no subsidies to the games industry198. However, a
number of tax breaks are available which help companies and investors,
particularly those in the American Jobs Creation Act of 2004:
Date of first break-out global hit game: Atari’s Pong, 1972
• Three per cent tax deduction on taxable income for domestic production
in 2005 for all companies, which rises to nine per cent by 2010 (covering
no more than 50 per cent of salary costs), as well as some incentives for
investors in USA companies from 2009.
• Stock options tax exemption: USA tax law ignores the exercising of
stock options.
• Investment expensing: the first US$100,000 of any new investment can be
expensed (written off against income).
• Repatriated earnings: although the Act reduced earlier tax breaks on
exports, it allowed a one-off earnings repatriation based on 85 cent
dividends, which for EA in FY 2006 represented a US$358 million windfall.
Funding environment
Acquisitions and the availability of non-government funding: good. The USA is
by far the most frequent location of companies acquiring studios, spends and
receives the most in trade sales, and has raised the largest amount of nongovernment financing. The USA currently is experiencing unprecedented
levels of investment into the games industry from non-government companies,
both trade capital (games publishers and production companies), and from
non-games media companies197 from investment companies. The USA is a
great territory to raise capital and start a business, which is attributable to
various factors: higher level of wealth creation and personal disposable
income, the large and advanced economy, greater culture of
entrepreneurialism compared to Europe (more businesses start and fail in the
USA than most countries globally), broader understanding of and use of equity
investment and greater acceptance of risk (there are few interest-bearing
bank accounts in the USA). This in turn leads to abundance of investment
capital targeting both privately held and publicly-traded companies. This
results in greater diversity of investment, with more firms specialising either in
interactive entertainment industry or in complementary fields into which this
industry falls. Valuations are less conservative in the USA than they are in
Europe (probably from the greater tolerance of risk). Finally, angel investors
are given major tax breaks (see near end of next page).
197 Such as Viacom/MTV’s 2006 purchase (and subsequent expansion of Atom, Harmonix and Xfire
and the 2005 acquisition of IGN/Gamespy by News International.
198 The federal government offers a US$5,000 disability-based tax credit for games companies that
implement closed captions in games.
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Government awareness of games industry: low-medium. Federal government
awareness of the games industry appears limited to controversy around violent
games, ratings and the educational possibilities of gaming. There is an
argument in left-wing US politics that games should be regulated like arms and
tobacco, but it has not gained much ground. Hilary Clinton is one of a number
of national US figures who have pronounced on violent games and the ratings
system. The US Department of Defense has used several video games to help
enlist and train recruits for the army, and the US Department of Health
commissioned a study that said that games were good for learning199. EA used
the Bush brothers in a marketing initiative for a game made in Florida200, but
otherwise the US government has made few statements on the subject,
preferring to let the market manage itself. However, the general lack of federal
assistance for the games industry disguises a wide range of state initiatives to
attract games companies to individual states (see below).
•
•
Local-level incentive schemes: medium-good. Many individual USA states
have substantial incentive schemes to attract games companies, of which
these are a sample of the most game related:
•
•
•
• Louisiana – 20 per cent tax credit for video games developers (under the
Digital Media Act) who locate in the state in the long term and develop
ties with universities.
• Wisconsin – 25 per cent tax credit on wages for certified games
companies located in the state.
• North Carolina – legislating a 15 per cent tax credit on equipment and
labour costs for games companies that do not create obscene games
• Florida – Florida offers (unknown levels of) financial incentives for games
companies (like EA). Digital Media Florida lobby group represents online,
•
broadcast and some games companies, forging partnerships outside
games industry, but has little funding. Metro Orlando Economic
Development Commission is a business support group which links local
businesses into funding groups
Great New Orleans Inc. – regional body tasked with regenerating New
Orleans after the hurricane, offering tax breaks, holidays and other
incentives to business that return or relocate there, including 5-6 per cent
cash rebate on salary costs (if over US$500,000), US$2,500 credit for each
new job created, decreasing 20 per cent R&D tax credit for digital media,
and additional 15 per cent for partnering with universities, grants and loan
programmes for new employers.
Georgia State – offers an unspecified range of tax breaks and grants for
new multimedia companies, getting nine per cent tax credit to
expenditures within Georgia, three per cent staff salary credit plus three
per cent more if the games company locates in specific counties.
Washington State – the state has a low/no corporation tax regime, and
offers R&D tax credits of up to US$2 million
California –two-year tax credit of ten per cent of labour costs
New York State – ten per cent tax credit on investment by angels, rising to
20 per cent if over four years, plus companies get US$1,000 per employee
tax credit per year if working in a high technology industry.
New Mexico – unknown levels of tax credits available for film and new
media companies201
199 BBC News, May 2003
200 Jeb and George Bush were featured in EA’s Tiburon’s Madden one year. This coincided with
the implementation of a tax credit scheme for games companies relocating to Florida
201 British Columbia Film Commission report on opportunities for growth and competitive
advantage for British Columbia’s Film and New Media Industry, March 2006
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Labour market
Salary levels206:
Average salary level for junior artist (<3 years experience): US$46,000
Average salary level for lead artist (>3 years experience): US$68,000
Average salary level for junior programmer (<3 years experience): US$53,000
Average salary level for lead programmer (>3 years experience): US$82,000
Number of institutions offering games-related courses: 200
Number of graduates per annum: 4,700 games design, programming and graphics
graduates per annum202; 85,000 computer science graduates per annum203
Dominant skill sets: All, with a skill set in PC and online gaming concentrated
in the Austin cluster
Number of development jobs (publishers and development studios only): 25,000204
Flexibility of employment laws: good. The USA has an extremely flexible
environment for employers, with little protection for employees, weak or nonexistent regulatory environment depending on the industry, and relatively weak
union legislation. This gives employers almost complete free rein to hire and
fire staff as they require. This is widely believed to encourage a very
entrepreneurial environment across all industries.
University-to-industry linkages: good. The USA has none of the structural
problems in harvesting value from university-developed games or technologies
found in the UK. In contrast, it is a well-worn path for start-ups. By 2000, MIT’s
Lincoln Laboratory alone had spun off more than 65 technology companies,
generating over US$15 billion of sales205. A number of universities work closely
with games companies. In a good recent example, is Valve took a student
project from DigiPen which resulted in a game called Portal, now on Valve/EA’s
product roadmap. EA also regularly shops for new hires at Carnegie Mellon,
among other universities.
202 GIC research
203 National Science Foundation, Dev 05
204 GIC research into USA development and publishing companies, finding 23,000 employees in 40
largest companies, 9,000 in smaller development companies, benchmarked against IGDA
informal estimate. These figures exclude employees of games services, and distribution
companies, and sales and marketing employees of publishers.
205 FT European Venture Capital Report, 2000
206 Audience Insights survey 2006 Games Industry salary survey, April 2006
Game Developer magazine
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Analysis
Strengths
Weaknesses
Many market-leading games IPs have
been developed in the US
Unparalleled experience in games
development
Location of many of the world’s major
publishing companies and many worldclass developers
Healthy market for games financing
with a number of state tax schemes
Largest global retail market sustains
many more strata of games companies
than other countries
Smooth path between universities and
commerce allows commercialisation of
new technology
Rising number of games graduates and
growing industry staff numbers207
sustains innovation levels
Strength of complementary indigenous
media industries (film & television
production, music, publishing, internet)
provides access to excellent source of
non-games IP
High staff costs in most states,
particularly around oldest
development clusters
Medium-high infrastructure costs
Only one of the three largest hardware
manufacturers is based there
Often inward-looking culturally, less
effective at understanding global
audiences and need for localised content
in an increasingly globalised industry
Slower adoption of outsourcing as
methodology than Europe, leading to
slower adoption of price control
mechanisms, impacting publisher
profitability
Some degree of development
inefficiency found in major studios (blank
cheque mentality)
Largest US publishers often accused of
stifling innovation by risk aversion and
favouring franchises – one size fits all
Slower adoption of mobile games
Opportunities
Threats
Continued production of world-class
games expected
Rich cross-over between other
media, particularly those located
near games clusters, is expected to
continue
Massive retail market allows the
survival of higher proportion of
independent developers
Continual refreshment of the games
paradigm by developers sustains
innovation at good levels
Growth of the retail market to
encompass new categories of player
Rising cost of games staff continues
to favour near-shoring games
development to Canada and soon to
Latin America, and to culturally
proximate India
Slower movement of Microsoft and
others into mass-market gaming may
allow foreign companies (Nintendo,
Sony) to harvest new gaming
demographics
Context
The USA sits at the top of the global games industry in terms of retail market
size, development skills, publishing might and its ability to cross-fertilise with
its other world-class media. Because it is also structurally at the centre of the
industry, games companies the world over travel to the USA to strike global
distribution deals with publishers who are (with the exception of some
Japanese and a smaller number of European companies) largely
headquartered there. Until recently the industry’s leading trade show, E3, drew
all major players to California and it is expected that even the updated, scaleddown version will continue to attract the industry’s leading decision makers
and opinion formers.
207 USA Bureau of Labor Statistics, Occupational Outlook Handbook 2006-07 predicts that
employment in this industry will increase 68 per cent between 2004-2014.
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Ratings
The country also has some of the world’s largest independent development
studios, such as Foundation 9 (which also has a key development subsidiary in
Canada), Pandemic (part of the Bioware/Pandemic group) and MMOG
developer/publisher Turbine, whose fundraising capacity is significant208.
Rating
Maturity rating209
The USA is coming under pressure from increasing resource costs of a new
generation of console technology and from globalisation. Companies have
begun, slowly, to respond by the need to reduce their overheads, increase
their efficiency, and use outsourcing of lower-end jobs, including content
creation, to lower cost markets. US publishers have development studios
located around the world, the primary beneficiaries being Canada (Vancouver
and Montreal), the UK and, increasingly, China. Continued pressure on
resources will see the increase in studios in lower cost markets such as China,
India and eventually Central / Eastern Europe.
Innovation rating210
Funding access rating211
Despite a changing industry, the USA will continue to be the single most
important country in the industry for many years to come. It is the financial
heart of the games industry, it is home to wealthy publishers who have used
their strategic and financial positions to secure the rights to or simply buy up
the most promising IP from independents, a trend that continues to this day (eg
EA’s acquisition of Sweden’s Digital Illusions CE). Although it is being stretched
by globalisation to localise its games, production methodology and revenue
streams, it will continue to drive the industry forward. Microsoft in particular is
expected to increase its market share substantially in the current (Xbox 360,
PlayStation 3, Nintendo Wii) generation of consoles, although the early launch
of the 360 console means that Microsoft will largely be excluded from
benefiting from the anticipated growth of a new gaming demographic
introduced by Nintendo and to a lesser extent Sony.
Score Justification
10
High scores on age of industry, range of
skills, number of games staff, range of
AAA games across genres
8
High on new software, delivery platforms,
technology and availability of funding for
new games concepts, medium on new
hardware
9
Low-level access to federal government
assistance but good levels of access to
state assistance. Very high and increasing
levels of investment and trade capital for
games companies from US companies
which is unparalleled globally
208 Foundation 9 raised $150m from Francisco Partners in 2006, and subsequently bought
Shiny Entertainment.
209 Maturity rating: score based on retail market size, the number of developers and publishers,
the age of industry, number and range of AAA games, range of skills available in the territory,
the number of games staff and relevant criteria from the SWOT analysis.
210 Overall competitiveness rating: score based on the ability to create IP, number and range of
AAA games released, and relevant criteria from the SWOT analysis
211 Funding access rating: score based on the retail market size, availability of public and nongovernment funding, government awareness of the games industry, and relevant criteria from
the SWOT analysis
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Rating
Score Justification
Growth potential
rating212
7
High numbers of graduates, very strong on
retail’s potential to support new games
companies; however high resource /
infrastructure costs, and high market
penetration will hamper industry growth
Overall
competitiveness
rating213
8.5
The place to be headquartered but
development is slowly moving outside USA
212 Growth potential rating: score based on the mortality rate for developers, growth potential of
the retail market, ability to create new IP, overall availability of funding for games companies,
the number of games-related courses, and students graduating per annum, salary levels and
relevant criteria from the SWOT analysis.
213 Overall competitiveness rating: the average of the previous four ratings
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Competitive benchmarking of major development
territories
Table 17: Competitive benchmarking
Australia
Canada
Canada
France
Singapore
S Korea
UK
USA
Market values (2006)
2006 retail market
Proportion of western retail sales
Development expenditure
$596m
1.3%
$55m
$584m
13.2%
$420m
$1,435m
2.9%
$180m
Neg
NA
NA
$3,200m
NA
NA
$2,650m
12.4%
$730m
$7,400m
44.0%
$1840m
Development and publishing
Number of independent developers
Mortality rate since 2000
Export value of games
Number of publishers
Top three games companies revenues
45
25%
$77m
15
NA
110
40%
$1750m
20
$67.5m
85
45%
NA
20
$2010m
25
40%
neg
15
neg
211
25%
$565m
20
$967m
160
45%
$881m
70
$507m
650
25%
NA
120
$5,370
IP creation
New IP generation and ownership
Date of first games company founding
Low-medium
1980
Good
1985
Low-medium
1983
Low
1999
Medium-good
1994
Good
1982
Good
1971
79
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Competitive profiles of
major development territories
Competitive benchmarking of major development
territories (cont)
Table 17: Competitive benchmarking (cont)
Australia
Funding
Non-governmental funding
Games-specific funds (federal)
Government awareness of industry (federal)
Games-specific funds (local)
Acquisitions (ranking by location of acquirer)
Values (ranking by acquirer expenditure)
Acquisitions (ranking by location of acquired)
Values (ranking amounts received by acquired)
Private financing (ranking by no. of funding rounds)
Private financing (ranking by values of funding rounds)
Low-medium
Low-medium
Low-medium
Good
-
Labour market
Number of insitutions offering games courses
Games graduates per annum
Graduates / university
Related graduates per annum
Number of development jobs
Flexibility of employment laws
University-industry linkages
15
600
40
25,000
1,250
Good
Medium-good
Canada
Canada
France
Medium-good Medium-good
Medium-good
Good
Medium
Good
Good
Good
4
3
5
3
5
4
3
3
4
48
800
17
43,700
6,100
Good
Good
80
7
250
36
NA
1,750
Low
Low-medium
Singapore
S Korea
UK
USA
Good
Good
Good
NA
-
Medium-good
Medium
Medium
Low-medium
4
-
Medium
Low
Low-medium
Low-medium
3
4
2
3
2
2
Good
Low-medium
Low-medium
Medium-good
1
1
1
1
1
1
5
100
20
36,500
500
Good
Good
33
800
24
NA
9,000
Medium
Medium-good
45
1200
27
26,000
8,300
Medium-good
Low-medium
200
4,700
24
85,000
25,000
Good
Good
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Country profiles
Competitive profiles of
major development territories
Competitive benchmarking of major development
territories (cont)
Table 17: Competitive benchmarking (cont)
Australia
Canada
France
Singapore
S Korea
UK
USA
Labour market (cont)
Junior artist salary
Lead artist salary
Junior programmer salary
Lead programmer salary
$27,000
$42,500
$35,000
$54,000
$42,000
$59,000
$54,000
$68,000
$56,500
$67,000
$47,500
$93,000
NA
NA
$43,000
NA
NA
NA
NA
NA
$34,000
$78,000
$31,000
$98,000
$46,000
$68,000
$53,000
$82,000
Maturity
Innovation
Funding access
Growth potential
Overall competitiveness
4
3
5
5
4.25
7
8
8
8
7.75
6
6
6
4
5.5
2
2
7
2
3.25
6
6
6
5
5.65
9
9
6
6
7.5
10
8
9
7
8.5
81
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The industry survey
Introduction to the industry survey
The interview data has been anonymised, although permission has been sought
for any quoted material. Companies were reassured that the interviews were
confidential and that individual company opinions would not be published.
The interview programme
We have aggregated the opinions of both publisher-owned studios and
publisher head offices. Where appropriate, some results have been defined in
terms of these two sub-groups (some results have been highlighted as data
provided by acquired studios from before their acquisitions), but by default the
term publisher refer to both sub-groups.
GIC conducted an interview programme between November 2006 and March
2007 investigating games development in the UK with a particular focus on the
development of games intellectual property (IP), the UK as a market for games
development and the commercial climate for making and distributing games.
The interview programme targeted leading developers and publishers of
games, covering independent studios, publisher-owned studios and publisher
head offices. The programme succeeded in interviewing managing directors,
commercial directors, chief executive officers and senior technologists at 15
UK-based development and publishing companies.
We have aggregated the opinions of independent games development
studios and the one non-independent studio, Kuju (which is an independent
developer recently acquired by a media services group that still retains its
independent status in terms of how it works with publishers), under the
heading of independents.
These companies are:
Questionnaire content
We proposed a first draft of the questionnaire, which was subsequently checked
and amended by the programme sponsors. The interviews were conducted as
conversations which GIC guided towards specific questions. Some questions
were open discussion questions, and some were built as scored answers. After
the interview, GIC gave marks to grade the strength of some companies’
responses to these scored questions; but to increase the fluidity of the
conversations, few interviewees were asked to grade statements directly.
Blitz, Codemasters, Eidos, Electronic Arts, Eurocom, Eutechnyx, Climax,
Iomo (Infospace), Kuju, Rebellion, Revolution, Team 17, Sony Computer
Entertainment Worldwide Studios, Sports Interactive (Sega),
Swordfish (Vivendi).
Of the sample, seven are independent developers, three are development
subsidiaries of publishers, one the development subsidiary of a media services
company and four are the publisher head offices (or in Sony Worldwide
Studios’ case, the publishing arm of a console manufacturer). Each interview
was conducted by telephone for one to one and a half hours.
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Response rate
The questionnaire had a total of 38 (publishers) to 41 (developers) questions. GIC
obtained an average of 85 per cent of the questionnaire answered, exceeding its
own expectations. However, inevitably, some questions remained largely
unanswered. This is partly due to the deliberate repetition of some questions
through the report, which were designed to elicit a range of responses from the
more reticent interviewees. However, it is also due to the structure, of the
survey, conducted as wide-ranging conversations in which it was inevitable that
gaps would result.
Formats and appendices
The format of this report will be to state the results to each question, giving
percentages where appropriate, then analyse trends and identify specific
statements that illustrate such trends. Because of the wide-ranging nature of
some of the more open questions, we cannot discuss all answers and ideas
generated by our interviewees. At least three questions (26-28) that reworded
earlier questions were deliberately included to encourage less forthcoming
interviewees and the results have been included in the earlier questions rather
than being repeated later.
How results are analysed
It should be heavily stressed that such a small sample group of such
heterogeneous companies, in different commercial situations and multiple sectors
of such a diverse industry, cannot deliver statistically significant data, and GIC has
always strived to manage expectations about this interview programme. Although
we have presented results in terms of percentages and average scores, the
results of this survey are presented as indicative of broad trends, rather than
representative of the industry as a whole or any one games company type.
The results of this survey have been aggregated into a spreadsheet for ease of
analysis. Answers to more discussion-based questions were grouped together
into broad themes. GIC’s methodology has been to use these results to direct its
analysis of answers to each question in turn. The following results are from the
entire sample, which includes publishers and developers. GIC has also
conducted differential analysis to isolate opinions by different groups, namely
independent developers and publishers, which comprise publisher studios and
developers acquired by publishers. The aggregate results from the spreadsheet
are in The industry survey.
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Headline results
• R&D tax credits were the most frequently accessed source of finance
(after publisher funding for games development)
• Fifteen independent developers, publisher studios and publisher head
offices were interviewed by phone about the UK as a market for games
development
• A wide array of methodologies for capturing ideas for new original IP is in
practice, but formal assessment of these ideas is used by only half of the
sample. Technology development is more formal and continuous
• Only 12 per cent of independent studios’ revenues derive from overages,
and most revenues came from advances for work for hire deals
• Design and project management skills are considered the most important
skills for creating new original IP. Opinions were split about how difficult it
was to recruit in the UK, but nearly half of respondents have links to
universities
• Most acknowledge that new games IP is a critical revenue stream and
nearly 90 per cent of independents will self-fund part of a new game’s
development. For independents, owning technology IP is a critical factor
in increasing production efficiency and winning work for hire
• Staff are trained mostly through mentoring, and nearly half expect new
hires to learn on the job
• All respondents agreed that publishers will not distribute new original IP
without controlling or owning its rights, and most agreed that publishers
invest less time, effort and money in new independent IP
• There was strong agreement that independents struggle to get new
original IP distributed. Many think new platforms open opportunities for
new original IP, but a sizeable number of respondents think new UK IP is
shrinking. Most think this situation will persist for the next five years
• Most publishers acknowledge the creativity and importance of the
independent sector as a source for new original IP, but several thought it
unlikely they would licence independent IP
• Eighty seven per cent of respondents think that the UK government should
introduce tax breaks for games production similar to those available for
film production to counter the threat of subsidies in competitor markets.
Prototype funding also gets good support.
• Sixty per cent of respondents are using, or are planning to use, project
financing and 75 per cent of independents plan to go direct to consumer
via Xbox Live Arcade (or similar)
• All respondents were aware of the Canadian incentives. Forty per cent
have set up or acquired studios in markets where such incentives are
offered, half of those in Canada. Forty seven per cent of respondents
thought that Canada had drained talent from the UK
• Variable rate royalties, royalties at publisher break-even or partial selffunding are seen as the best commercial models, because they deliver the
fastest recoupment
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Strategies for intellectual property
• Nearly three-quarters of respondents thought that incentives offered
overseas destroyed the level playing field, and made the UK less
competitive. Forty per cent thought UK companies would slow or stop
their growth in the UK, with a knock-on impact on creating new original IP
Own IP vs third party licences (Question 4)
Interviewees were asked what proportion of their revenues over the past three
years derived from original IP and what proportion from third party licences.
• Nearly three-quarters of respondents see outsourcing as an opportunity
to design a game in the UK but to build it overseas, resulting in leaner,
more cost-effective and efficient studios
Table 18: Ownership of IP versus third party licences
• When asked for one single measure to help UK companies create IP, 60
per cent said tax breaks
• Forty per cent of respondents thought that digital distribution of games
would transform the industry
Total
Independents
Publishers
Own IPR
52%
42.5%
67%
Third party
licence
48%
57.5%
33%
This fairly anodyne result illustrates the make-up of our sample. Half of the
respondents are independents, among whom work for hire predominates, and
the other half of respondents are publishers or acquired studios, among whom
work on original IP predominates. Here is Kuju on the subject of work for hire:
Work for hire is consistent, scaleable and since demand outstrips supply, we
have no problems generating revenues. Jonathan Newth, CEO, Kuju
When split into these sub-groups, independents are deriving more revenue
from working on IP that is not their own, and publisher studios are clearly
focused on internally generated IP.
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The higher level of overages at acquired studios indicates that they were probably
more successful in driving revenues from their IP (a fact that undoubtedly
contributed to their acquisition), but none reported revenues from overages of
over 40 per cent as independents. Here is Revolution on the Catch-22 situation:
However, while independents are almost inevitably working on IP that derives
from publishers (including licences from other media), it does not follow that
publishers are working on games IP originated by independents. Most of the
work discussed by publishers involved licences from other media such as film
and television.
The problem with production values rising, and therefore costs, is that
developers of original IP very rarely earn any royalties under the traditional
recoupment model; and yet publishers expect developers to create the
products at cost. The effect of today’s business models is that it either drives
developers down a work for hire route which, ultimately, doesn’t build value in
their companies, or encourages them to go down the value chain towards
cheaper formats that disintermediate publishers altogether by going direct to
consumers digitally. Charles Cecil, MD, Revolution
Frequency of overages (Question 5)
Interviewees were asked what proportion of their revenues over the past three
years derived from overages generated after their advances. Included in these
payments are additional revenues from original IP and a proportion from third
party licences. Acquired and independent studios answered this question,
although acquired studios were asked to give historical figures from before
their acquisition.
Partial game development (Question 6)
Interviewees were asked what proportion of their last three years’ revenues
came from doing parts of games rather than complete development (excluding
porting from one platform to another). An example might be that one
development company might create the main game, and another might create
the multiplayer version or technology.
Table 19: Frequency of overages
Overages
Total
Independents
Publishers
13%
12%
25%
These statistics confirm the conclusion in Monograph 3, Commercial Models
(which detailed the drivers, inhibitors and metrics of the predominant
commercial model in the industry) that overages are rare and do not represent
significant portions of most studios’ revenue streams. The independents in this
sample are all at the more successful end of the market, which means that
they have a higher chance than most to develop new original IP. If they cannot
derive meaningful revenue streams from new original IP, then smaller, less
successful developers cannot either.
Only two studios (7 per cent of respondents) reported that they worked on
partial game development, representing 20 per cent of their revenues. This
practice is clearly rare among large studios, but is probably likely to occur
more frequently among smaller ones, who may need to pool resources to work
on more expensive platforms.
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The importance of IP has resulted in some changes in direction, as
Climax describes:
IP ownership (Question 7)
Interviewees were asked to describe the IP that they owned in terms of game
and technology IPR.
We’ve gone from being Europe’s largest full service work for hire games
company to being a development hub that creates IP with multiple partners.
When we looked at how to grow to company, we decided that the real value is
in creating IP. We aim to self finance a game to the point of a prototype, and
then licence the IP to publishers, getting a better royalty position, and getting
that all-important rapid recoupment of any advance. Karl Jeffrey, CEO, Climax
Table 20: Ownership of IP
Total
Independents
Publishers
Games engine
IPR
87%
75%
100%
Tools
80%
75%
86%
Productivity tools
40%
38%
43%
Licences from
Third parties
40%
13%
71%
3
3
4
Games IPR
(no./ studio)
All studios in our survey possess games IP, but they were asked how many IPs
(whether completed games, games in development or game prototypes) were
owned. The results show that in general low numbers of unique IPs are
possessed by studios in the industry working on traditional console platforms.
However, publishers were not asked to list all the extensive IP in their
portfolios, and as such these results are indicative only of independent and
acquired studios.
The role of games IP (Question 8a)
Interviewees were asked to describe the role that games IP played in their
company. The following is a selection of the most common responses.
Games engines (and to a lesser extent tools and project management tools) are
highly important features of successful games studios, irrespective of who owns
them. As we shall see with later questions, having good technology is a critical
success factor for independents working for hire for publishers. A few
independent studios have no engines of their own, but they are either those that
operate using the Hollywood model of having no permanent development
resource, or those that rely on publishers to provide game engines such as Epic’s
Unreal Engine. The importance of licences for publisher studios is highlighted by
71 per cent of publisher studios owning licences for movie or television IP.
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This market structure is also behind the lower importance given towards new
original IP as a revenue stream (versus work for hire) by independent studios.
Some publishers and a few independent studios were also keen on exploiting
IP across different media, such as film, TV and print. Many independents see
IP as an important business line that balances the majority of their work
performed for publishers.
Table 21: Role of games IP
Total
Independents
Publishers
Critical revenue
stream
67%
38%
100%
If you can’t own
the IP, it’s not
worth anything
53%
25%
86%
Exploit IP
across or from
other media
47%
38%
57%
Balances work
for hire revenue
33%
63%
0%
Studios are
self-funding
prototypes
33%
63%
Over half the independent studios interviewed were investigating new funding
vehicles for IP, mostly single project financing. Some of these were alternative
financing schemes, including some specifically targeting games production (eg
debt-based and off-balance sheet finance such as completion bonds), and
others were being set up in Germany where fund management companies
have created funds to benefit from tax breaks for individuals’ financing media
projects. Here is Kuju on the subject:
What we really need is better access to financing that is less risk averse,
which means there should be a better tax regime in the UK to promote
investment in riskier projects. Sadly, political reality means that this is unlikely
to happen. We don’t approve of hand-outs or grants, because an industry
builds up around them which is not based on the market and which will
collapse when the grants are stopped. Instead we need a more favourable
environment for risk financing. We are now part of a group which is listed on
the German stock exchange and will be looking outside the UK for alternative
financing going forwards. Jonathan Newth, CEO, Kuju
0%
The strongest message concerning IP from this section is that IP is a critical
revenue stream. Publishers are very clear that they want to own any IP that
they publish. This is because they make such a significant investment in a
brand that the risk of a developer going to another publisher for a sequel
negates the viability of picking up rights to only one iteration of a game. Eighty
six per cent of publisher studios voiced this sentiment. The market reality of
the strength of publishers’ opinions on this naturally results in a lower
percentage of independents wanting to retain their rights in new original IP.
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Value of Games IP (Question 8b)
Interviewees were asked to describe the value that the ownership of games IP
provides to their company. The following is a selection of the most common
responses.
When it comes to new original IP, it’s all about the long game – you have to
own the IP you’re developing to exploit franchises and get long-term customer
buy-in to a brand. The only people who really benefit from an IP are those that
own it 100 per cent. Shawn Layden, Vice President, Sony Computer
Entertainment Worldwide Studios Europe
Table 22: Value of games IP
Total
Independents
Publishers
Highly valuable
revenue stream /
essential to
own IP
93%
88%
100%
Licences from
other media are
too important
to ignore
20%
0%
43%
Must keep a
fresh supply of IP
coming in from
independents
20%
0%
43%
Some publishers acknowledged that world-class independent studios have a
right to retain ownership in part of a strong new original IP going forward.
Interestingly, the publishers surveyed see equal value in harvesting new
original IP from licences as they do from a vibrant independent sector.
Strategy for Games IP (Question 8c)
Interviewees were asked to describe their company strategies for games IP.
The following is a selection of the most common responses.
Every publisher and almost all independent studios stressed the importance of
owning games IP. Here is Sony Worldwide Studios on the subject:
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Table 23: strategy for games IP
Total
Independents
Publishers
Self-fund part of game, keep rights
53%
88%
14%
Must not relinquish sequel rights
53%
50%
57%
Scale of prototype makes selffunding difficult
47%
75%
14%
Strong IP allows better negotiating
position
40%
63%
14%
Invest in new platforms with
minimal or no publisher
involvement
33%
63%
0%
Looking to create specific funding
vehicles for new original IP
33%
63%
0%
Long-term investment in brands
33%
0%
71%
Go direct to consumer
27%
50%
0%
License media brands
27%
0%
57%
Must keep an open mind about
independent IP, unpredictable but
essential
27%
0%
57%
From this study, it is clear that most games studios (as opposed to head
offices, for which this is not relevant) have in the past self-funded or, for those
still independent, currently do self-fund part of a new game IP (often the
prototype) in order to win a larger share of the rights or royalties from their
publishers. Again, this reflects the more successful studios in this list, rather
than the entire industry. This has become core company strategy for some –
such as Kuju:
Publishers won’t fully back IP that they don’t own or have a significant interest
in, so we decided not to produce new original IP and try to keep all of it.
Instead our strategy is to provide an IP generation service for publishers.
We can make better revenues from a game that is fully backed by the
publisher than we could if we tried to keep a hold on to 100 per cent of the IP,
won a better revenue share percentage on a game that was then not fully
backed by the publisher. Jonathan Newth, CEO, Kuju
Just over half of respondents agreed that the rights to a sequel are too
important to give away. Most independents who voiced this opinion said that
they would expect to develop the sequel, or at the least get paid a royalty if
their technology were used by another developer. All publishers voicing this
opinion said that their investment was in a franchise not a single iteration of a
game. Almost all independents want to self-fund lower cost games on new
platforms in order to get more revenue, retaining more or all of the rights.
Some anticipated using the distribution services of publishers to get their titles
onto the decks of Xbox Live Arcade or its PC and console competitors. A
number expressed the desire to bypass the publisher altogether and selfpublish online or on online consoles. Here is Blitz on the new platforms:
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Table 24: Challenges of games IP
We want to develop new original IP for new platforms like Xbox Live Arcade,
for one tenth of the price of a full console product. It’s attractive because there
is the opportunity to go direct to the consumer, take 60-70 per cent of the
revenues, equating to roughly £3.50 per unit sold – not far off what we would
earn from a full console product selling for £40. Philip Oliver, MD, Blitz
Total
Independents
Publishers
100.0%
100%
100%
Must be crossplatform
60%
63%
57%
Publishers underperform on IP that’s
not 100% theirs
47%
63%
29%
New original IP
brands are very
(even too) expensive
to market
47%
25%
71%
Publisher will not
publish new original
IP without owning all
(or most of) the rights
Publishers are reasonably enthused by well-known media brands, in which
they make long-term investments. The same number endeavour to keep an
open mind about the opportunities coming from the independent sector, which
were often described as unpredictable in throughput but an important
ingredient for a successful portfolio.
Challenges of games IP (Question 8d)
Interviewees were asked to describe the challenges of developing original
games IP. The following is a selection of the most common responses.
In the clearest indication of the conflict between developers and publishers,
every respondent agreed that publishers will refuse to publish new original IP if
they have funded its development without taking a controlling stake in the IP
in question. Independents see this as a challenge because they want to retain
control over their creation and keep revenue streams flowing from it in sequels.
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The role of technology IP (Question 9)
Interviewees were asked to describe the role of creating and owning
technology IP and its position in their portfolio of assets. The following is a
selection of the most common responses.
Publishers see this as a challenge because independents try to negotiate
retention of rights, and face losing a sequel to a rival. In another indication that
the studios profiled here are at the highest end of the industry, most publishers
and half independents said that their work must cross platforms to perform
well, and that this brings high production costs, particularly in games engines
and other development technology which must deliver across games
platforms. A strong sentiment among independent studios is that games that
were not owned by a publisher were given lower priority and thus
underperformed in sales and revenues. A few acquired studios agreed that
this was often the case. Several independents reported changing their
strategies for IP in the face of publishers’ newfound demand for control or
outright ownership of IP, commenting that this is driving them towards digital
downloads, project financing or even towards creating IP for the sole purpose
of selling outright to a publisher.
Table 25: Role of technology IP
Here is Eutechnyx on the financial barriers affecting new original IP and the
need for alternative financing:
For the future growth of the UK industry, we must find new ways to finance
game production in order to retain ownership of new original IP. If a publisher
is spending US$8 million on production, the same again on marketing, it’s
natural that they would want to own the IP themselves. The problem is that
developers generally need the advance funding to finance their overheads,
and are therefore forced to hand over their IP. Alternative financing would
separate the money from the deal, making it faster to recoup, generating
better deal terms and sharing more risk with the publisher. Darren Jobling,
Director of Business Development, Eutechnyx
92
Total
Independents
Publishers
Makes production
more efficient, esp.
across platforms
60%
75%
43%
Sharing technology
across the group
47%
0%
100%
Critical in terms of
winning work
for hire (proves
capabilities,
lowers risk)
40%
75%
0%
Proportion of
development
headcount working
on technology
full time
12%
7%
22%
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Publishers’ work with independents
Following the earlier indication of the importance of game engine technology to
studios, the results about the role of technology IP are clear. Two-thirds of
independents see creating and utilising proprietary game engines and
technology as important for their efficiency, although a lower number of
publishers mentioned this factor, which reflects the lower premiums put on
efficiency in publishers’ internal studios. However, closely related to this was the
need to reduce duplication and share knowledge across global organisations,
which of course would increase efficiency if effective.
Working with independent studios (Question 10a)
Publisher head offices were asked about their attitudes towards working with
independent developers. The following is a selection of the most common
responses:
Table 26: Working with independent studios
Many independents see technology as a demonstration of their ability to win
work for hire, or as a separate business line. Developers with complete and
proven game engines are considered lower risk by publishers and are more
likely to win time-critical licence development contracts such as those based
around upcoming movie releases. One example is a production management
system created by Climax:
Total
Our proprietary web-based production management technology is making our
production much faster and more efficient, and despite not marketing it heavily
we have now licensed it to partners such as Disney and Microsoft, after they
saw it in action on games in development. Karl Jeffrey, CEO, Climax
Several respondents provided statistics about the number of staff working in
their UK studios on technology development in full-time creation and
maintenance roles, and the average proportion of their total headcount was 11
per cent. Significantly, publishers dedicate over three times the resources (22
per cent of publishers’ UK studio headcount vs. 7 per cent of independents’
studio headcount) to this role than independents, which reflects the need for
control over proprietary technology (particularly after EA’s purchase of
Criterion) but also their focus on expensive and often cross-platform current
generation games, and possibly looser budgetary controls.
Independents are an important creative source
67%
Must maintain their growth through external and
internal development
67%
Internal teams work on new original IP, external teams
on licences
50%
External teams used when internal resource is
unavailable
33%
Despite the low proportion of most major publishers’ revenue that derives from
licensed third party IP, senior executives at publisher head offices were
extremely positive about the creativity of work provided by third party studios.
Many see their growth as inextricably tied to genre-changing or genreredefining games that spring unanticipated out of the independent sector. Here
is Electronic Arts on the subject:
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The industry will continue to grow with games created by companies like EA
and by independents. That growth is very dependent on what’s available, and
it’s very important to keep a flow of fresh ideas coming in from independents.
Colin Robinson, EA Partners
In some contradictory statements, the majority agreed that independents were
an important source of new original IP (only one publisher, working on lower
value platforms, refused to consider publishing third party game IP). All
publishers considering third party games as viable said that they must own the
IP to fund its development and publish it. Here is Codemasters on working with
independents:
A number use external teams as overflow when internal teams are too busy or
as developers of licensed content.
We want to be a magnet for talent, and we won’t turn away emerging talent.
Talent is unpredictable. It doesn’t matter what marketing research you get, if
someone walks in with a good idea, and we love it, they are entitled to own a
part of the new IP, share royalties and risk. Having said that, we must see a
prototype before we’ll sign a game. Rod Cousens, CEO, Codemasters
Working with independent studios’ original IP (Question 10b)
Publisher head offices were asked about their attitudes towards working with
independent developers who approach with new original IP ideas or
prototypes. The following is a selection of the most common responses:
Some publishers said that independents’ game ideas were rarely if ever
funded. A number said that they would not fund anything until they had seen a
prototype, because the ability to produce a high-quality game was as
important as a great game idea.
Table 27: Working with independent IP
Total
Independents are an important source of new
original IP
83%
We must own the IP
83%
Extremely unlikely we’ll hire them / buy the idea /
fund it
33%
Must see a prototype
33%
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Table 28: Impact of the advance model
Business models
The impact of the advance model (Question 10)
Interviewees were asked to describe the impact of the predominant
commercial model in the industry, the advance model, on their company.
Publisher head offices were not asked this question, but acquired studios
were. The responses were graded (1 = strong disagreement to ten = strong
agreement) and the following is a selection of the most common responses.
95
Total
Independents
Publishers
Publishers invest
less time, effort
and money in
new original IP
9.5
9.8
8.7
Publishers want
to own the most
successful IP
8.7
9.5
6.7
Post-advance
royalties are rare
5.5
7.5
0.0
Reduces our
ability to invest in
new original IP
4.6
6.4
0.0
Post-advance
royalties are nonexistent
2.5
3.4
0.0
Impossible to do a
current generation
game without a
publisher
1.8
2.5
0.0
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Only a low proportion responded (31 per cent) with estimates of their breakevens.
More (61 per cent) responded when asked about the level of advance and
royalty share of net receipts, although no publisher head offices answered that
question (eg acquired studios gave historical numbers).
As we have seen, independents strongly believe that publishers downplay
games which they do not own, but from these results it is clear that acquired,
formerly independent studios strongly agree with them. Here is Revolution on
the problem:
IP owned by developers is inevitably exploited more aggressively and it
therefore assumes a greater value. If ownership of the IP is taken by the
publisher, the likelihood of it being effectively exploited is greatly reduced.
Charles Cecil, MD, Revolution
Table 29: Average deal terms
Total
Independents
Publishers
700,000
800,000
300,000
Advance
NA
£3,916,667
NA
Revenue share of
net receipts
21%
20%
26%
Unit sales breakevens
Most reiterated that publishers want to own the most successful IP, and
several said that this was a sign of the times, suggesting that the climate had
changed over the last few years. Although there is a spread of results about
the frequency of overages, the two strongest opinions voiced were that
overages are rare or non-existent. Almost no-one said that overages were
routine or even patchy, which reinforces the key finding of Monograph 3,
Commercial Models that production costs have driven up break-even points
over the average game’s unit sales.
Break-evens are higher for independents because they get a much lower
share of gross revenues with which they have to recoup their advance before
breaking even. Publishers have lower break-evens because they receive a
higher share of gross revenues. The level of advance for independents reflects
their work on more expensive current generation games. Revenue share levels
are also fairly accurate as approximate industry averages for console games –
the levels indicated for publishers represent the respondents’ status as
formerly independent studios with strong IPs that allowed better revenue
share. For more accurate indications of standard advances, break-evens and
revenue shares for different platforms, see Monograph 3, Commercial Models.
Deal examples (Questions 11-13)
Interviewees were asked for examples of average deals, and the following
results were recorded. They come with a strong proviso because they are
hypothetical rather than actual deals, because they span different platforms
and because production values and commercial terms vary so much between
companies and games (particularly in the definition of what constitutes a net
receipt). Publishers were asked what sums they would pay out as advances,
whereas independents were asked what sums they would receive.
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We have self-financed parts of our development before, and we like the game
bonding model. Roles are simplfied – the developer develops, the bank
finances, the insurer insures and the publisher publishes. We may get slightly
lower margins but it means less risk for all parties and it’s good for everyone.
Jason Kingsley, CEO, Rebellion
New commercial models (Question 14)
Interviewees were asked whether they see any new models emerging from the
marketplace that might vary or replace the traditional advance recoupment
model. The following is a selection of the most common responses:
Table 30: New commercial models
Total
Independents
Publishers
Project financing
vehicle being
planned / in use
60%
63%
57%
Sell direct to
consumer
53%
75%
29%
Royalties start
from publisher
break-even point
47%
63%
29%
Advertisingfunded
development
13%
13%
Many independents and formerly independent studios agree that selling games
directly to the consumer represented a viable alternative to the standard
commercial model in the industry. Most relied on Xbox Live Arcade (or its PC
and console competitors) as the distribution channel of choice.
A number, just under half of respondents (including, significantly, two publisher
head offices), agreed that royalties paid to independents when the publisher
had broken even were a viable and fairer alternative for independents. A
couple of companies had optimism about advertiser-funded gaming but they
were not echoed more widely by the sample.
Best commercial models (Question 15)
Interviewees were asked which were the optimal commercial models for third
party development deals. The following is a selection of the most common
responses, and respondents were not limited to one response:
14%
Top in overall popularity was the suggestion of using some form of nonpublisher project financing of single purpose vehicles in which the developer’s
IP resides to avoid the advance recoupment model and simply rent a
publisher’s services. This model was suggested by several publishers and
indeed a couple were utilising alternative financing like completion bonds to
free up cash flow. Here is Rebellion on completion bonds:
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Table 31: Best commercial models
Total
Independents
Publishers
Royalties at
publisher break
even
54%
63%
40%
Variable rate
royalties to speed
recoupment
46%
50%
40%
Self-funded (in
part)
46%
50%
40%
All development
funded in
advance, higher
share of net
revenues
23%
13%
40%
Some
development
funded in
advance, higher
share of net
revenues
Half of respondents agreed that royalties at publisher break-even point were
the best kind of deal and these results were the same for independents and for
non-independents. Independent studios were keener on variable rate royalties
(royalties based on revenue share percentages that vary depending on prerecoup, post-recoup or some other sales milestone and are designed to speed
recoupment) and self-funding than publishers. However, both variable rate and
self-financing deals are certainly seen as viable by a reasonable number of our
sample, including a few publisher head offices. In joint fourth place comes the
model based on strong, branded IP which led several studios to claim bullishly
that this is the best model. However given the paucity of strong independent IP,
it is unlikely that these respondents would agree that this model is viable for
every studio. The other fourth placed model was that where a self-funded
prototype delivers a higher share of net receipts.
Reasoning behind the best commercial models (Question 16)
Interviewees were asked for the reasoning behind their choice of optimal
commercial models for third party development deals. The following is a
selection of the most common responses:
Table 32: Reasons for best commercial models
23%
25%
20%
98
Total
Independents
Publishers
Fastest route to
royalties
46%
75%
0%
Strong IP allows better
negotiating position
23%
13%
40%
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The need for faster recoupment was stated by two-thirds of independents, and
those independent or acquired studios with experience of using strong IP in
their negotiations cited is as strong leverage in getting better deals in the past.
Table 33: Types of deals struck
Independents
Types of deals struck (Question 17)
Interviewees were asked for the proportions of types of deals struck in terms
of their total revenue over the last three years. Too few publisher studios or
head offices responded to make the data meaningful or indicative, and their
responses are not listed here. The following lists responses from independents
in their entirety:
99
Licence work, advance, low share of
net receipts
33%
Own IP, advance, net share of net
receipts
22%
Licence work, advance, variable rate
share of net receipts to speed
recoupment
21%
Licence work, all advance, no
revenue share
9%
Own IP, partly self-funded, reduced
advance, higher share of net receipts
6%
Licence work, advance, share of net
receipts at publisher break-even
4%
Own IP, advance, variable rate share
of net receipts to speed recoupment
3%
Own IP work, advance, share of net
receipts at publisher break-even
2%
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For independents, the most frequent deals are clearly for licence work (which
is dominated by the traditional advance recoupment model and to a lesser
extent variable rate revenue share) which totals 67 per cent of revenues.
Traditional publisher-funded, advance recoupment deals for own IP represent
23 per cent of an average independent’s revenues from our sample. Deals
involving own IP (funded mainly in the form of advances) represent over a third
of independents’ revenues, the majority of own IP deals are struck with the
traditional advance recoupment models, with under 15 per cent of total
revenues coming from more equitable – deals like variable rate revenue
sharing – that speed recoupment.
Table 34: Access to finance
Access to finance (Question 18a)
Interviewees were asked which sources of financial assistance they had
accessed during the lifetime of their companies, and those who answered the
question (85 per cent of the total sample) responded thus:
Total
Independents
Publishers
R&D tax credits
92%
100%
75%
Publisher
advances
75%
100%
25%
Grants
42%
50%
25%
VC / angel and
other unlisted
company
investors
42%
25%
75%
Debt
42%
50%
25%
Listing & public
funds
33%
25%
50%
Completion bonds
33%
25%
50%
R&D tax credits are clearly popular with games companies – although as we
see in Question 32 (page 112) the extent to which they provide relief is
questioned by a quarter of the total sample. Here is Rebellion on the value of
R&D tax credits:
R&D tax credits are very, very important. We can do real R&D and it won’t cost
a fortune. We have our battles with HMC&R over what constitutes R&D but it’s
very useful. Jason Kingsley, CEO, Rebellion
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Independents also appear to have no trouble accessing work from publishers,
which is undoubtedly the largest source of finance for such companies.
Interestingly, over half of respondents have accessed local grants, with twothirds of independents having done so. Venture capital funds have not been
accessed (and indeed are viewed with suspicion) by independents, but equity
investment is a critical source of capital for publishers. Debt is apparently not
popular with publishers (although almost all are understood to have either
short-term credit or factoring facilities) but half of independents had used
some form of loan. Completion bonding, which has risen in profile and
popularity in recent years, has been used by over one-third of respondents.
The results indicate that independents find it easiest to access R&D tax credits
(which given their role as creators rather than distributors of games, is no
surprise), publisher funds and grants (which are normally of insufficient size to
provide anything other than minor ancillary financial assistance for most
independent developers). Independents find it difficult to access other sources
of finance such as venture capital, debt and completion bonds. Publishers find
it easiest to access R&D tax credits, publisher funding (in this case when
studios were once independent) and venture capital. Completion bonding is
difficult for everyone. One publisher called for publishers to work together to
finance new games IP. Codemasters made the following call to the industry:
Ease of access to finance (Question 18b)
Interviewees were asked about the ease with which they accessed the
following sources of finance over the lifetimes of their companies. The
responses were graded (1 = easy to ten = very difficult) and a selection of the
most common responses follows:
We’d like to see publishers working together to create a fund for developing
new IP in the UK. The fund could act like a private equity company and fund
UK development. Rod Cousens, CEO, Codemasters
Table 35: Ease of access to finance
Total
Independents
Publishers
R&D tax credits
6.5
7.9
4.3
Publisher
6.2
7.4
4.0
VC / angel and other
unlisted company investors
4.3
3.1
6.3
Grants
3.6
5.3
0.8
Debt
3.5
3.3
4.0
Completion bonds
2.1
1.9
2.5
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Innovation
Most new game IP generation occurs from the top down in independent
studios, a practice dismissed by one senior executive at a major global
publisher as delivering lower quality games. Senior managers and executives
discuss ideas and then propose them to their peers. Equally popular was the
formal request for ideas from the ranks, which occurs more often in publisher
studios where innovation from within has become more important in recent
years. In joint first place is the ad hoc practice where individuals fight from the
ranks to present their ideas without a formal process. Some companies
confine innovation to an R&D team that formally harvests ideas from within the
company and then builds them into viable concepts.
Innovation practice – idea capture (Question 20a)
Interviewees were asked about the process of harvesting new game IP in their
studios. The following is a selection of the most common responses:
Table 36: Idea capture methodology
Total
Independents
Publishers
Top people meet
to generate &
propose ideas
36%
50%
17%
Formal request
for ideas
36%
38%
33%
Innovation practice – idea filtering (Question 20b)
Interviewees were asked about the process of filtering ideas once they have
been generated. The following is a selection of the most common responses:
Table 37: Idea filtering methodology
Creative
individuals
informally pitch
their ideas
36%
R&D team create
new ideas
21%
25%
0%
Total
Independents
Publishers
Team assigned to
investigate and
cost idea
64%
63%
67%
Stage & gate
process assesses
cost & viability
57%
50%
67%
Market research
36%
50%
17%
50%
50%
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Table 38: Idea implementation methodology
A more uniform response towards how ideas are filtered. Most companies
have a team that works up concepts and then presents them to a board of
executives for discussion and green lighting. Some of these companies have
an evaluation process where the game concept must meet certain criteria
such as cost limits, viability, fit and in some cases enthusiasm of those
presenting the ideas. Market research at the concept stage is also a part of
some companies’ filtering processes. Some, such as Team 17 see market
research as critical to the success of future pitches:
We have seen lots of companies innovating without testing the market or their
potential partners first, something that Team 17 always does with new original
IP. Rushing ahead like that leads to poor business decisions. You need to
understand how publishers work and the fact that it’s a global market, and look
at how and where the game will be distributed on what platform before
starting full production. Martyn Brown, Studio Director, Team17 Software
Total
Independents
Publishers
Small team takes
ideas on an ad
hoc basis
64%
50%
83%
Prototype is
developed
50%
50%
50%
Concept is taken
to publishers for
feedback
21%
38%
0%
In over 60 per cent of cases, the game, once green lit by the studio, is taken by
a small team to the next stage, which in some cases is a prototype, and in the
remainder is a concept, to show to a publisher.
Innovation practice – implementation (Question 20c)
Interviewees were asked about the process of moving from filtering to
implementation. The following is a selection of the most common responses:
Innovation practice – innovation strategy (Question 20d)
GIC is thus in a position to describe companies’ innovation processes as
follows:
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There was a generally strong opinion that Xbox Live Arcade offered good
opportunities for companies, particularly among independents but also among
publisher studios.
Table 39: Innovation strategy
Total
Independents
Publishers
Periodic
50%
63%
33%
Formal
assessment
50%
50%
50%
Informal
43%
50%
33%
Innovation in technology (Question 22)
Interviewees were asked whether their innovation process differed greatly for
technology as opposed to games IP, and The following is a selection of the
most common responses:
Continuous
36%
25%
50%
Table 41: Technology innovation
The picture that emerges is that slightly more than half the sample conducts
innovation for new game IP sporadically, with a more continuous process
adopted by most of the remainder. The output of this process of innovation is
reviewed formally by half our sample and on a more ad hoc basis by the
other half.
Other comments about innovation (Question 21)
Of the other comments about innovation that GIC captured, only one was
repeated by a number of respondents:
XBLA is a good opportunity
Independents
Publishers
71%
88%
50%
Independents
Publishers
Continuous
process
77%
75%
80%
Dedicated team
62%
63%
60%
Driven by games
in progress
54%
50%
60%
More formal
54%
50%
60%
For three-quarters of our sample, the innovation process is one that iterates
every working day, unsurprising given the numbers of staff dedicated to
creating and maintaining technology that were indicated in Question 9 (page
92). Many reported having a dedicated team working on tools, engines and
middleware full time. In just over half the sample, that innovation process is
driven by games development in progress. One example is a game engine that
progresses as a game is developed. Just over half the sample described an
innovation process that was more formal than that for games IP.
Table 40: Other comments on innovation
Total
Total
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Skills and recruitment
Ease of recruitment (Question 24)
Interviewees were asked how easily they can access new staff. The following
is a selection of the most common responses:
Skill sets (Question 23)
Interviewees were asked which skill sets they needed to recruit to keep
creating new original IP. The following is a selection of the most common
responses, which were graded (between 1 and 3) in order of preference:
Table 43: Ease of recruitment
Table 42: Most important skill sets
Total
Independents
Publishers
Design
1.43
1.75
1.00
Project
management
1.07
0.88
1.33
Programming
0.86
0.88
0.83
Art
0.36
0.63
0.00
Design tops the list of skills, although several companies added the proviso that
they were unimpressed with the quality of graduates from degrees in games
design. The design skills required are in gameplay and level design. Project
management comes in second place and reflects the increased complexity of
the production process. Programming underpins all games development and it
is significant that this everyday skill is given over twice the emphasis as art.
Below the top four, a wide range of other required skills were mentioned by
individual companies, including looking outside the industry for new skills and
creative leaders and the need to find people passionate about games.
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Total
Independents
Publishers
Good – fair
amount of talent
if you know
where to look
40%
38%
43%
Poor – very
difficult to find
talent
27%
25%
29%
Medium – can be
difficult but no
problems filling
roles
20%
25%
14%
Excellent – lots of
talent and easy to
find it
0.0%
0%
0%
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Table 44: Other comments on recruitment
The results reflect studios at the higher end of games development in the UK,
and 40 per cent have no problem finding candidates. However, nearly 50 per
cent report some level of difficulty in finding staff, and this position is expected
to be worse for small games companies than for these larger, more successful
companies. Many complained of a lack of more experienced staff, and several
reported unease about headhunting, particularly concerning salary inflation.
Here is Sony Worldwide Studios on recruitment:
With regards to recruitment, there are lots of candidates but really good
people are always hard to find. We consistently need more high end
programmers, and good designers. We also need a new generation of
scriptwriters and will need to expand our search outside the industry. When it
comes to a brain drain, if anything we’re seeing an influx of talent into the UK
from Europe. Shawn Layden, Vice President, Sony Computer Entertainment
Worldwide Studios Europe
Additional comments on recruitment (Question 24b)
Some interviewees commented on recruitment as follows:
Total
Independents
Publishers
Have links to
universities
47%
50%
43%
All staff need
better project
management and
communications
skills
20%
25%
14%
Need to acquire
more studios
20%
0%
43%
Seeing influx of
talent from
Europe
13%
0%
29%
Low-quality
graduates from
games degrees
13%
25%
0%
No headhunting
13%
25%
0%
A number of companies have formal links with university courses, mostly in
their studios’ locale. These range from getting involved with degree courses
through internships, workshops and lectures, to milk runs to hunt for new hires.
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One fifth of respondents reported that all their staff need better
communications and project management skills. A handful commented that the
UK is “draining brains” from Europe, and that university degree courses were
producing low-quality graduates. A handful of publisher head offices simply
said that growth is best obtained by acquiring promising studios. A number of
independents were vociferous about not using headhunting.
The most common methodology for training new hires is to appoint (or allow
new staff to find) mentors who guide them through the six-month induction /
probationary period. Over 40 per cent adopt a more Darwinian ‘sink or swim’
approach of throwing new hires into work immediately, assuming that staff will
learn most effectively on the job. A more refined version of that is establishing a
path for new hires to work their way through lower end tasks towards actual
games development, but only one-fifth of respondents utilised this method. A
handful run formal academies with dedicated training staff, one of which (EA’s)
has received much press and turns out scores of staff every year.
Investment in skills and training (Question 25)
Interviewees were asked what steps they took to induct and train new staff.
The following is a selection of the most common responses:
Company valuations (Question 29)
Interviewees were asked what percentage of any company value lay in their
company’s various key assets. Independents but too few publishers responded
to make splitting out the results useful, but since those who responded
included recently acquired studios as well as independents, the aggregates
are useful and thus are reported here:
Table 45: Investment in training
Total
Independents
Publishers
Mentoring
60%
63%
57%
In at the deep
end
47%
38%
57%
Established
training path for
new hires
27%
13%
43%
Dedicated
academy and
training staff
13%
13%
14%
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IP creation in the UK
Table 46: Company valuations
Total
IP
31%
Production team
26%
Technology
24%
Contracts in hand
5%
Management
5%
Reputation
4%
Knowledge of outsourcing
4%
The state of IP creation in the UK today (Question 30)
Interviewees were asked how they viewed the state of the development
market and new original IP in the UK today. These questions produced the
most kaleidoscopic of responses, and we cannot list them all here, but the
following is a selection of the most common responses:
IP takes the largest share, but by no means dwarfs the values of the
production teams and technology. In part this may reflect the market for
acquisitions where, as we have seen, publishers buy companies for their
resource as well as for their IP. However, it is also the natural response of
managers of successful companies involved in a creative industry, who say
that high-performing teams are extremely important in terms of creating IP.
Technology comes in third place, and in previous questions we have seen its
importance to developers working for hire.
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Table 47: IP creation in the UK today
Total
Independents
Publishers
Independents have a hard time
getting distribution for new original IP
93%
88%
100%
New platforms are opening up
opportunities for new original IP
83%
81%
86%
New original IP is shrinking
57%
69%
43%
New original IP creation in the UK is
weak to nearly non-existent
43%
38%
50%
Work for hire dominates, reducing
new original IP
40%
38%
43%
Publishers buy promising developers
to reduce revenue sharing
30%
13%
50%
Publishers buy new original IP rights
quickly but share revenues with
independents
27%
38%
14%
Poor access to capital means less
original IP creation
27%
25%
29%
Consoles are too expensive for new
developers to work on new original IP
27%
38%
14%
There was strong agreement across the board that independents struggle to
get new original IP distributed in the current market, with publisher head
offices clearly saying that it is very hard for independents today. Here is Blitz
on barriers to entry for new original IP:
The cost of the new generation of consoles is staggering. There are no
developers able to fund such a game alone. In fact, few can afford to put
£1 million into a game prototype when you need an additional £5-6 million from
a publisher to finish the game. Publishers want to see prototypes before
agreeing to fund a full game. The sheer cost makes it hard to bring new
original IP to market. Philip Oliver, MD, Blitz
Many independents voiced their opinions that publishers raise barriers to entry
for new original IP, and that new original IP that does get funded and published
tends to under-perform. Another strong opinion is that new distribution
channels, particularly those catering for casual games on current generation
online consoles, offer all games companies opportunities to see their products
distributed more widely. Publisher studios and head offices were very keen on
new platforms while independents saw opportunities to specialise in creating
new original IP for new platforms that made the most of them. In third place, a
medium strength opinion was that IP creation is in decline in the UK, under
pressure from rising development costs, publisher risk aversion to new third
party IP and their concentration on producing fewer games with higher
production costs.
Almost as strong an opinion was that IP creation in the UK is almost nonexistent, and this opinion is stronger in publisher studios and head offices.
Here respondents pointed to a lack of AAA IP coming out of the UK,
particularly new original IP from independent studios.
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Work for hire is cited by some as a reason why new original IP fails to break out
– simply because independents are too busy on the treadmill of working on
somebody else’s IP to create their own. Some see the cost barrier to entry for
current generation consoles as a driving factor behind the lack of new original
IP. Publisher head offices are keen to say that they need the independent sector
to generate new original IP, and, while no independents stated this directly, it is
likely that this is a given for most companies. Finally, some cited the lack of
access to finance as a major barrier towards being able to deliver IP.
Table 48: IP creation in the UK in 2012
The state of IP creation in the UK in five years’ time (Question 31)
Interviewees were asked how they think the development market and level of
new original IP being derived in the UK will look in five years’ time. Again,
these questions produced many responses, which cannot be listed here, but
the following is a selection of the most common responses:
110
Total
Independents
Publishers
Independents
struggle to get new
original IP published
77%
63%
93%
New platforms offer
opportunities for new
original IP
73%
88%
57%
Very few original new
original IPs will break
through
43%
44%
43%
Lots of new IP
will come from
independents and
publisher studios
27%
25%
29%
Lots of platforms and
publishing partners
bring opportunities to
independents
23%
44%
0%
Publishers will buy
new original IP rights
fast but will share
revenues with
independents
23%
25%
21%
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Table 48: IP creation in the UK in 2012 (cont)
Total
Independents
Publishers
The UK faces terminal
decline
23%
6%
43%
Some new original IP
will come from
independents, but
mostly will be owned
by publishers
20%
6%
36%
Level playing field of
current generation
consoles makes
things easier
20%
38%
0%
Most developers do
work for hire but fail
to retain IP
20%
13%
29%
Most of the good
creative forces will
remain publisherowned
20%
0%
43%
The general tone of responses was that the prospect for IP creation in the UK
looks fairly bleak. Here is Revolution on the problem:
The problem with all the work for hire that currently dominates most studios’
revenues is that it’s heavily influenced by price. As Eastern Europe gets more
experienced, we’ll come under heavy competition from studios that can
undercut our rates for work for hire while generating high-quality products. So
if we don’t generate new original IP, the UK’s games industry will be in trouble.
Charles Cecil, MD, Revolution
Most (including a strong majority of publishers) agree that independents will
continue to find it difficult getting new original IP published, although this
pessimism is slightly offset (driven by a strong majority of independents) by the
expected rise in new platforms such as direct to consumer digital distribution.
Many believe that new original IP will struggle to break through from
independent UK studios, and that, without intervention, the UK’s games
development market is in terminal decline. Again, a wide spectrum of opinion
is found but the strongest themes are that publishers will acquire the rights to
the best IP via acquisition or negotiation, and that their studios will be where
most of the creativity occurs. Although some chinks of light are proffered by a
few respondents about the number of platforms opening up opportunities for
independents to specialise, on the whole respondents are gloomy. Not that
respondents are short of ideas about how to remedy the situation. Here’s
Codemasters on the future for UK IP:
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Government assistance
It’s been a tough few years for new IP. However, I see developers becoming
less despondent. They should form strategic alliances, collaborate to use art
and animation from a single source offshore and then rent the publisher. I see
more collaboration and consolidation coming. If we don’t innovate (and I don’t
mean more sequels), the industry will face terminal decline.
Rod Cousens, CEO, Codemasters
How can government help? (Question 32)
Interviewees were asked how the government can help the industry. The
following is a selection of the most common responses:
Table 49: How can government help?
A small number think that the best developers will remain those in publishers’
hands and that most work for hire developers are not creative and will fail to
retain IP.
112
Total
Independents
Publishers
Tax breaks to
encourage investment
in games development,
particularly early stage
87%
88%
86%
Prototype fund, with
commercial rules
60%
63%
57%
Help with protecting
start-ups when they’re
most vulnerable
27%
13%
43%
Anything to help British
companies reduce the
cost of their bids for
work
20%
25%
14%
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Table 49: How can government help? (cont)
Total
Independents
Publishers
More consistency and
generosity with R&D
tax credits
20%
13%
29%
Mentoring from
industry experts
13%
0%
29%
Academy
13%
0%
29%
Help protect the larger
companies not just the
small ones
13%
25%
0%
Most frequently cited as justification for this request were: the effect that the
current government’s tax breaks for film production had on the UK film
industry; and the rise of Canada (and other territories) that have begun to
attract key companies and staff away from the UK, thanks to generous
government incentives for both the emigrating employees and the employing
companies. Slight variations existed for respondents’ ideas about tax breaks,
but with most focused on trying to encourage investors to put risk capital into
early stage or prototype games, and all involved the need to level the playing
field against massive subsidies from competitor territories.
Fairly close behind tax breaks is a call for a prototype fund. Many (fearing a new
breed of professional grant-winners who lack market viability) thought it should
work along commercial lines, with profit sharing reinvested back into the fund,
and a panel comprising industry experts, especially from publishers, who would
help allocate funds. Mention of the Great Canadian Games Competition won
broad approval as a model. Here is Team 17 on prototype funding:
The sample speaks with a very strong and unified voice in asking for tax
breaks for encouraging investment in games development, often for the
earliest and riskiest stages of a game’s development where access to external
finance is almost impossible, but also for games production in general. Here is
Swordfish (Vivendi) on tax breaks:
It’s very difficult to protect developers who in the early days of their new
original IP can get beaten up in negotiations with publishers. If there were
funding available to ring fence the developer at the prototype stage, it might
stop them being forced to sign away the rights to the IP. You’d need a good
industry panel to judge which projects are worthy of getting support.
Martyn Brown, Studio Director, Team17 Software
Tax breaks for early stage prototypes are needed to provide stimulation for
new original IP to be generated by independents. After publishers become
interested, then financing is not too difficult, because there are enough
sources available. But the initial hurdle – creating working prototypes – is
often too high for most independents. Fred Gill, CTO, Swordfish
Less well-supported ideas were the need for funding to protect start-ups in the
earliest stages of their lives when they are most vulnerable (either to financial
collapse or to selling their IP rights for low cost), and the need to extend R&D
tax credits to encompass more of the development process than it does now.
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Government support in other territories
Finally there were additional requests for more help mentoring early stage
games companies by those with specific experience in the games industry; a
games academy to furnish high-quality graduates with hands-on experience of
games development via internships; and a call from larger, more established
games companies to assist them rather than just protect the start-ups.
Government aid in other territories (Question 33)
Interviewees were asked which territories they were aware of offering aid to
the games industry. Their most common responses were as follows:
Table 50: Government aid overseas
Total
Independents
Publishers
Canada (Québec)
100%
100%
100%
France
67%
63%
71%
Australia
47%
38%
57%
Singapore
20%
25%
14%
Switzerland
13%
0%
29%
China / Hong
Kong
13%
25%
0%
Malaysia
13%
13%
14%
Canada is the clear winner, with 100 per cent of respondents aware of the
drive of Québec and BC to tempt companies to locate or relocate there.
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In five to ten years’ time, we think that the UK will still be the home of good
project management, technology and creativity, but mass production will take
place in Asia. That’s why we have opened production offices in Hong Kong and
Western China. Darren Jobling, Director of Business Development, Eutechnyx
France and Australia come in second place, and the remainder have much
lower profile for respondents.
Setting up subsidiaries overseas (Question 34a)
Interviewees were asked whether they had set up new studios in new
territories. The following is a selection of the most common responses:
Subsidiaries’ locations (Question 34b)
Interviewees who had already set up or were considering setting up
subsidiaries in new territories were asked where they had set up their new
studios. The following is a selection of the most common responses:
Table 51: Setting up overseas
Total
Independents
Publishers
Have done
already
33%
25%
43%
Maybe
27%
25%
29%
No
27%
38%
Acquired studios
in new territories
7%
Intending to do so 7%
Table 52: Locations of overseas subsidiaries
Total
Independents
Publishers
Canada
47%
38%
57%
14%
Australia
13%
0%
29%
0%
14%
China / Hong
Kong
13%
13%
14%
13%
0%
Malaysia
7%
0%
14%
Eastern Europe
7%
0%
14%
USA
7%
13%
0%
Forty per cent of respondents operate studios overseas. One-third of
respondents have already set up a subsidiary, nearly a quarter are considering
doing so, and one either acquired a studio in new territories or intends to set up
overseas. Clearly, these questions are predictable for international publishers,
but both UK publishers and a number of independents have announced that
they are expanding overseas. Here is Eutechnyx on overseas expansion:
Again, Canada is the clear first choice in terms of attracting UK-based
companies to locate, relocate or acquire studios overseas. Australia and Hong
Kong are second choices, based on the language match.
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R&D tax credits are a good starting point but they need to be consistently
implemented, more generous and come with better guidelines. John Chasey,
VP Global Games, Infospace
Success of locating overseas (Question 35)
Interviewees who had already set up subsidiaries in new territories were
asked how their new studios had fared. However too few were in a position to
respond to give meaningful data.
Benefits of locating overseas (Question 37)
Interviewees were asked what the perceived benefits of setting up in new
territories were. The following are a selection of the most common responses:
Government assistance received (Question 36)
Interviewees who had set up overseas (40 per cent of total respondents) were
asked what governmental assistance they had received overseas. The
following are a selection of the most common responses:
Table 54: Benefits of locating overseas
Total
Independents
Publishers
Cost
87%
75%
100%
Shelter from the
weak dollar
20%
38%
0%
Access to talent
(Canada)
13%
13%
14%
Table 53: Government assistance received
Total
Independents
Publishers
Tax credits
40%
50%
33%
Grants
40%
50%
33%
Canadian salary
subsidies
40%
0%
67%
Canadian tax free
income for
foreign experts
40%
0%
67%
The clear driver for opening up subsidiaries or studios overseas is cost.
Beneath that headline, respondents were impressed by both lower salary
costs, higher subsidies against salary costs available in markets like Canada,
income tax incentives for foreign experts, generally lower cost of living
(including leasing real estate) and the wealth of incentives available for a
number of territories. Some studios, mostly independents whose margins are
getting hammered by the strength of the pound wanted shelter against the
weak dollar.
Although the sample is small, tax credits and grants have clearly been
available to some respondents. Several have benefited from Canadian salary
and income tax assistance. Among others, Iomo had some strong comments
about R&D tax credits as implemented in the UK:
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A couple of respondents were enthusiastic about the amount of talent to be
found in Canada.
Others (mostly those who had already set up in territories) voiced concerns about
the difficulty of managing staff at a distance and communications problems
which had added to the costs of locating overseas. Quality of staff was also
suggested as a major issue, particularly in newer markets or, as another group
said, after the best had been taken by Ubisoft and Electronic Arts in Canada.
Several mentioned the wage inflation found in Shanghai for experienced staff.
Risks and benefits of locating overseas (Question 38)
Interviewees were asked what the perceived benefits of setting up in new
territories were. The following is a selection of the most common responses:
Impact of overseas government aid on UK industry (Question 39)
Interviewees were asked about the impact of aid schemes such as those
offered in Canada, France or elsewhere on the UK games industry. The
following is a selection of the most common responses:
Table 55: Demerits of locating overseas
Cost isn’t
everything, it’s
about creativity
Total
Independents
Publishers
20%
25%
14%
Table 56: Impact of overseas government aid on UK industry
Difficulty of
managing remote
offices and
communications
20%
13%
29%
Quality of staff
20%
13%
29%
Competition for
staff
20%
0%
43%
The strength and unity of response and opinion were much reduced compared
to this question’s immediate predecessor, and a range of opinions was voiced.
Some raised concerns about a lack of creativity found in new markets, and
said that cost isn’t everything when it comes to games development.
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Total
Independents
Publishers
No level playing field, UK
less competitive
73%
75%
71%
UK companies will slow
their growth, stop hiring
40%
50%
29%
New original IP will falter
in UK
33%
25%
43%
Talent is more important
than cost
20%
13%
29%
Brain drain
20%
13%
29%
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A bullish minority believe that the talent is here and that higher costs will not
impact the UK’s development industry. This opinion was backed up by the example
of Hollywood whose high costs have not seen its relocation over the border to
Vancouver214. A number of respondents said that talent would move to Canada.
Over two-thirds of respondents felt that the UK was much less competitive
than competitor territories. They cited the lack of government support, higher
salary, property and living costs as putting the UK at a severe disadvantage to
territories where each of those factors is either lower or subsidised. Many
publishers spoke about man month costs in the UK as being a critical decision
factor against continued expansion here. Others emphasised the key finding in
Monograph 3, Commercial Models about the crisis in financing games
production, saying that financing production is the single most important issue
in games development, whether seen from the cost of production or the
availability of financing – both of which are significantly assisted by Canadian
provinces bent on building large games industry hubs. Here is Eutechnyx on
the uneven playing field:
Brain drain (Question 40)
Interviewees were asked whether a brain drain of UK talent overseas had
occurred. The following is a selection of the most common responses:
Table 57: Brain drain
If you go to a trade show, you’ll see French games companies with D250,000
worth of working demos for new original IP funded by by French government
grants. The British companies lity of funding in France and other parts of the
world makes the playing field uneven for UK companies. The French and
Canadians therefore have a huge competitive advantage, and they raise
expectations from publishers who begin to expect to see full working
prototypes. So, we need a commercially focused prototype fund which helps
developers create new products, and takes a percentage of revenues to
plough it back into other new exciting IP projects.
Darren Jobling, Director of Business Development, Eutechnyx
Total
Independents
Publishers
Yes
87%
88%
86%
Maybe
7%
0%
14%
No
0%
0%
0%
This question received a high number of responses (93 per cent of the sample)
and almost all respondents agreed that a brain drain had occurred (although a
couple of respondents claimed that the UK drained talent from Europe, see
Question 41). Several said that they had already seen a brain drain in action, such
as Kuju:
We have already lost staff to Canada. Jonathan Newth, CEO, Kuju
Half of independents and 40 per cent of the total sample think that the
availability of aid in other territories will, if unaddressed by the UK government,
result in UK companies slowing their growth as they expand overseas. One
third, and importantly over 40 per cent of publisher studios and head offices,
think that this will slow or stop the creation of new original IP in the UK.
214 This argument fails to acknowledge the success that Vancouver has had in drawing film and
TV production to British Columbia following tax breaks, making it one of the largest such
locations in the world.
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Impact of globalisation
Beneficiaries of a brain drain (Question 41)
Interviewees were asked which territories had drained talent from the UK. The
following is a selection of the most common responses:
Impact of outsourcing and globalisation (Question 42)
Interviewees were asked what impact, positive or negative, the practice of
outsourcing has on UK companies and games IP, and what measures were
taken to exploit opportunities or protect against the threats of globalisation.
The following is selection of the most common responses:
Table 58: Beneficiaries of brain drain
Total
Independents
Publishers
Canada (Quebec)
47%
50%
43%
US
33%
50%
14%
Canada
(Vancouver)
27%
38%
14%
To UK from
Europe
13%
0%
Table 59: Impact of globalisation
29%
The most popular location for draining talent from the UK was perceived to be
Canada, which 53 per cent of the total sample215 thought had drained talent to
either the east or west coast. A number said that they had already lost staff to
Canada, all of those to Montreal. One-third expected the USA to benefit, with
several mentioning that a fair number of US studios and publishers were run
by British people. Two respondents said that their UK studios were filled with
talent from across Europe.
215 Respondents could nominate more than one location.
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Total
Independents
Publishers
Build game
abroad, create
it here
73%
75%
71%
Cheaper costs
67%
50%
86%
Enables team to
scale up and
down as required
33%
38%
29%
Cheap labour will
tempt publishers
but managing
outsourcing is a
key skill
20%
25%
14%
Strengthen
processes
20%
38%
0%
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Closing questions
Table 59: Impact of globalisation (cont)
Use more
contractors,
emulate film
model
Outsourcers were
used initially, now
they have opened
subsidiaries
Total
Independents
Publishers
20%
13%
29%
One measure to help UK companies (Question 43)
Interviewees were asked to choose one measure to assist UK companies in
creating new games IP:
Table 60: One measure to help UK companies
13%
13%
14%
Outsourcing has been firmly embraced by 87 per cent of the total sample, for
whom it is standard operating procedure. Within this came a range of
response, the most popular of which was the idea that games should be
originated and designed in the UK (architect role) but produced overseas
(builder role). Two-thirds of respondents reinforced the earlier finding about
the primacy of production costs by saying that the main driver was cheaper
costs in other territories. One-third wanted the flexibility to scale production up
and down as their production pipeline demands. Others spoke about the need
to understand how to manage outsourcers, the role that outsourcing plays in
strengthening production processes, and the need to work from smaller core
teams and build temporary large production teams using contractors and
outsourcers. A few said that they started using outsourcing but decided to
open subsidiaries in the Far East. Only one respondent rejected outsourcing as
destructive of IP, skills and position in the value chain, with a disastrous impact
on the UK’s ability to create new original IP.
Total
Independents
Publishers
Tax breaks to
incentivise
investment in and
development of
new original IP
60%
50%
71%
Fund for
incubating games
companies or IP
20%
13%
29%
Prototype fund
13%
25%
0%
Again tax breaks were high on the list, although the emphasis was lower due
to some companies discussing how unlikely such tax breaks are. Here is Iomo
(Infospace) on the need to make the playing field more level again:
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Table 61: Trends that impact IP creation
A major USA publisher said recently that the UK had a brilliant reputation for
games design, innovation and high-quality products, but that the Eastern
Europeans are winning hands down on cost. Can grants solve this problem?
Probably not, since they could simply prop up poor quality companies.
However, tax incentives would help, as they do in Canada and France. This
kind of assistance makes for an uneven playing field for our industry and we
need to even that out. Any tax break should not be a blank cheque. It should be
for original IP developed and retained by UK companies, providing an incentive
for UK firms to be chosen for new original IP.
John Chasey, VP Global Games, Infospace
Several companies thought that a fund, perhaps sourced from the Lottery or
publishers could be set up to incubate new games companies. A few thought
that a prototype fund would be their single choice.
Total
Independents
Publishers
Going direct to
consumer
digitally
40%
75%
0%
Online
communities and
user-created
content
20%
0%
43%
With this very open question, a surprisingly large number of respondents
(three-quarters of independents) cited going direct to consumer as a
revolutionary change in the industry, opening up new distribution channels for
independents. In parallel to that, some thought that the YouTube / MySpace
phenomenon of online communities and user-created content would change
the way games companies interact with consumers. Again, a wide array of
opinions were expressed, including:
Trends that will impact the creation of new game IP (Question 44)
Interviewees were asked what impact, positive or negative, the practice of
outsourcing has on UK companies and games IP, and what measures were
taken to exploit opportunities or protect against the threats of globalisation.
The following is a selection of the most common responses:
• The weak dollar is causing havoc to UK developers
• Microsoft’s new “open source” games coding toolset, XNA, will bring
innovation just as such initiatives did with older platforms like
Commodore Amiga
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• Advertiser funded games are going to revolutionise the industry
for developers
• Publishers and their investors need to be focused on quality as opposed
to quarterly targets
• Developers must look to alternative sources of finance to retain stronger
control of their IP
• Major media companies such as Fox and Warner Brothers will soon enter
the games industry
• Ubiquitous computing means ubiquitous gaming, thus presenting
opportunities for new original IP from independent games developers
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UK Trade & Investment
UK Trade & Investment reports jointly to the Department for Business,
Enterprise & Regulatory Reform (BERR), and Foreign & Commonwealth Office
(FCO) Ministers.
UK Trade & Investment (UKTI) is the government organisation that helps UKbased companies succeed in an increasingly global economy. Our range of
expert services is tailored to the needs of individual businesses to maximise
their international success. We provide companies with knowledge, advice
and practical support.
For further information about how the Creative & Media Team
at UK Trade & Investment can help you, visit:
www:uktradeinvest.gov.uk or
Tel: +44 (0)20 7215 4353
We also help overseas companies bring high-quality investment to the UK’s
vibrant economy – acknowledged as Europe’s best place from which to
succeed in global business. We provide support and advice to investors at all
stages of their business decision-making.
www.uktradeinvest.gov.uk
We offer expertise and contacts through a network of international specialists
throughout the UK, and in British Embassies and other diplomatic offices
around the world.
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Partner organisations
TIGA
Tiga is the national trade association representing the interests of UK games
software developers.
Our principal roles are:
• To interface with government and ministers on all issues that affect the
sector across a wide area: R&D, finance, skills and education,
employment, trade, and industry profile.
• To help develop and implement strategies for the sector that make the UK
the place of choice to do ‘games’ business with our members.
Our objective is to keep the UK as one of the top most important global centres
for business and creativity.
UK is the fourth largest producer of games software. UK is the third largest
retail market for entertainment software worth £1.37 billion (£2.3 billion inc
hardware).
To contact Tiga please call: +44 (0)845 094 1 095
or mail info@tiga.org
www.tiga.org
Tiga has 157 members, 130 of which produce part or all of a game, and is
funded mostly from subscriptions.
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Partner organisations
ELSPA
ELSPA has always been dedicated to informing consumers about age suitability
ratings, clarifying misconceptions about the games industry and promoting the
industry to the press, public and retailers. The launch of the consumer and
press website www.askaboutgames.com continues to build on this work.
ELSPA (the Entertainment & Leisure Software Publishers Association) was
founded in 1989 to establish a specific and collective identity for the
British computer and video game industry.
Since then, the membership has steadily grown from 12 to nearly 60
companies, including almost all the major companies concerned with the
publishing and distribution of interactive entertainment and leisure
software in the UK. ELSPA works to protect, promote and provide for the
interests of its members.
ELSPA also plays a key role in two of the UK's largest video game festivals –
the Edinburgh Interactive Festival and the London Games Festival.
For further information please contact:
ELSPA
167 Wardour Street
The association's key policy areas are:
• Economic importance and fiscal support
London
W1F 8WL
Tel: +44 (0)20 7534 0580
Fax: +44 (0)20 7534 0581
Email: info@elspa.com
• Age ratings
• Anti piracy
• Use of games in education and the workforce for skills development
• Health and wellbeing
• Convergence
www.elspa.com
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Partner organisations
Games Investor Consulting
• Research and Strategy Consulting: GIC provides market forecasting,
competitive intelligence, market entry and growth strategy planning, and
company, market and IP due diligence
Founded in 2003, Games Investor Consulting (GIC) is a specialist games
research, strategy and corporate finance consultancy, with 11 consecutive
years’ experience, an extensive contact network and an in-depth
understanding of both the games and finance industries. With a portfolio of
over 40 international clients, GIC typically consults at board level on market
assessment, corporate strategy, market entry and development, fundraising,
investment and acquisitions. GIC also provides specialist analysis of the games
industry, authoring or editing a broad range of research reports published by
Screen Digest. GIC covers all facets of the rapidly growing global games
industry but has particular specialisation in online gaming and digital
distribution; outsourcing and production, tools and middleware; current and
emerging commercial models; media convergence; and company, technology
and content IP valuations. GIC provides:
• Investment Support: Market validation, opportunity identification and
introduction, due diligence, games company and IP valuation
Corporate finance consulting services
• Mergers and Acquisitions: GIC assists both buyers and sellers find and
transact with targets
• Private Equity Fundraisings: GIC maintains strong links to the venture
capital community
Research and strategy consulting services
• IPOs and Public Market Fundraisings: GIC helps clients achieve public
market listings
• Market Data: GIC tracks the global games industry, maintaining
extensive databases covering the industry. GIC has surveyed over 200
games companies
www.gamesinvestor.com
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Disclaimer
Whereas every effort has been made to ensure that the information given in
this document is accurate, neither UK Trade & Investment nor its parent
Departments (the Department for Business, Enterprise & Regulatory Reform,
and the Foreign & Commonwealth Office), accept liability for any errors,
omissions or misleading statements, and no warranty is given or responsibility
accepted as to the standing of any individual, firm, company or other
organisation mentioned.
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