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Cutting Through the Red Tape: UK/Euro Government Support of the Games Business

by Toby Barnes

(This article is an extension of a 2005 GDC Europe lecture on the same topic.)

As games development budgets grow exponentially, so developers are looking to non-traditional models to finance their ideas - from venture capitalists, to self-financing, from alternative distribution models, to government grants.

This article looks at a range of government backed finance-based interventions to support the development and growth of the video game industry (primarily) in Europe, and investigates some of the priorities behind these interventions.

If you are a developer this will give you a tour of potential support available to you. If you are looking to support the video games industry either locally, regionally, nationally or internationally, this article will give you an idea of why intervention is required to help the industry grow, and some success and failure stories.

 

The History of Government Intervention

Government intervention is not a new phenomenon. Historically, Governments have often stepped into markets, intervening to drive results in their favour - from subsidising the silk trade throughout the Crusades, to the tea wars, right up to the steel, coal and oil battles of the 1980's. This history is not only well documented, but studied by economic and sociology students across the world in universities and economic institutions. This history, thought and learning, heavily influences contemporary intervention methods – that isto say, we are currently working to rules that have developed over time.

Intervention, for any sector of industry, often originates from the coffers of central government and any use of public monies is always carefully monitored and controlled. So, any support the video games industry can achieve must play by the same rules as any other industry. There are no short cuts, no special measures – there is as much red tape for the games industry as any other industry, and in some cases there may be more.

Although the video games industry is of significant size, it is only a sub sector of the creative industries, or ICT in some cases, which in itself is a small player in the greater scheme of things.

What does all this mean to the games developer looking for assistance from government for start up costs? It means he (or she) is plagued by the system. There is no short cut, no express lane, no easy way for games - if we want to play, we have to play by the rules. But there is also an opportunity to influence how those rules work.

Creative Industries is Big Business

As the manufacturing industry of the last century fails to continue to create the economic and social impacts that they have done, governments are looking elsewhere for growth.

In the 1950s, the giants of industry were all industrial manufacturers and raw materials suppliers, for example Ford, General Electric, Philips, General Motors. From the 1990s onwards we have seen the rise of a new type of manufacturer - Time Warner, Disney, Bertelsmann, News Corporation, television broadcasters, publishers, and entertainers.

These new manufacturers produce ‘meaning' - knowledge, content, style, ideas, plans, stories, concepts, designs, fashions - chunks of ‘meaning' that people can understand, use, value or love but most importantly, buy. In short, there has been a huge shift from industrial manufacturing to new manufacturers of what is now termed the Information Economy.

"We define the creative industries as those industries which have their origin in individual creativity, skill and talent and which have a potential for wealth and job creation through the generation and exploitation of intellectual property." - UK Department of Culture, Media & Sport

With this shift, there is growing belief that the creative industries can fill the gap that traditional industry has left. The creative industries are seen as unique among industry in that they are capable of delivering value in economic, artistic and social terms. They generate high quality jobs, they project the identity of communities, cities and regions, they promote linguistic and cultural diversity, they open minds and they can be highly profitable. This puts games in a unique position. In addition:

 

The 'New' Rules of the Game - Intervention for Growth

The primary reason any government intervenes is to balance some form of market failure. This failure is primarily an economic failure, but can often be a cultural failing. For example the talent development and training of an industry is often ignored by producers of content, as they are focusing on the here and now, the economic realities of today without being able to invest in the longer term. Cultural diversity is an often quoted reason for intervention - in an advanced culture or society it is imperative to ensure a diverse range of stories, and voices are heard, and without some form of intervention, the market will ignore the niches or the more diverse of these. Art-house film represents a good model for ensuring a wide range of stories are told.

Taking this a stage further we are going to look at some of these market failures in greater detail. These failures are not criticisms of the system, as they are often the by-product of a successful system focused on one self-generated goal. These can also be seen as opportunities, if you as a developer or industry professional can help to solve these short-comings, in return you could create the type of support mechanisms which would truly meet your needs.

"Academia doesn't talk to industry, but should"

For the purposes of this article, academic work within the games industry is simplified into two main activities: research and teaching.

Research - Industry research is usually based on a 7-10 year time scale. What will the world look like in 7-10 years time? Grant applications to research councils can often take over 12 months to be evaluated. The issue here is the fact that as the speed of technology accelerates the relevant research for the industry decreases. The industry works in 3-5 year technology cycles, so instant research opportunities are often limited to human computer interface research, player psychology, non specific AI work, and future gazing.

Many academic institutions attempt to “spin out” companies to exploit research and understanding however few of these survive the first year as university funding dries up, often due to a lack of focus of staff between teaching and business endeavours.

On the plus side, research and development in the UK is well funded. Over £14 billion is spent each year by a combination of public bodies, private enterprise, the non-profit sector and international organizations. Approximately £4.5 billion of this is invested by the public sector, largely through the various UK research councils. It's a vicious circle, waiting to become a virtuous circle.

Teaching - Universities have been driven to a far more economic mentality in recent years, encouraging institutions to focus on "bums on seats” rather than effective courses for industry. Over the last few years there has been an explosion of game related courses, and a concern voiced by employers is that graduates from these courses do not have the requisite skills to sufficient level to meet the needs of the industry.

Skillset, in partnership with ELSPA, TIGA and the DTI, is developing an industry accreditation scheme for degree courses relevant to the games industry. This scheme will help identify courses throughout the UK that provide the skills, knowledge and experience needed for individuals to confidently enter the industry.

After a long consultation with industry members Skillset state "industry sees accreditation as the best means of enhancing provision of education in this sector. It will assist course providers in continuing to raise overall standards of their provision and will promote closer liaison between educational institutions and the industry."

Ian Livingstone, Creative Director of Eidos and a member of Skillset's Computer Games Skills Forum, said: "Our initial research shows that there has been a very significant increase in computer games degree courses, from 16 in 2001 to a potential 165 at present. Through this project we want to establish how industry can work with colleges and universities to tailor courses so that graduates learn the skills and have the experience that employers need them to bring to the table and so that individuals can identify which courses are truly industry-relevant. In the long term this will have a powerful impact on the professionalism and productivity of the business."

"Industry doesn't talk t o academia, but should"

As team sizes have grown, so companies have had to look harder to find new talent. In the past companies often found they did not have to work with universities to find graduates as the best always rose to the top and came calling. But, with competition growing for those top graduates, working closer with the top universities has become essential to get the right talent. In addition, the industry is changing and so the skill set required "then" isn't the same as the range of skills required "now".

This engagement – between industry and academia - has been far from straight forward due to a range of issues:

 

Current Interventions at Your Disposal - Financial Support

R&D Tax Credits

Research and development (R&D) tax credits are a company tax relief which can either reduce a company's tax bill or provide a cash sum. The aim of the tax credits is to encourage greater R&D spending in order to promote investment in innovation. The R&D tax credit works by allowing companies to deduct up to 150% of qualifying expenditure on R&D activities when calculating their profit for tax purposes, or if not profitable 24% of costs incurred in R&D from NIC and Paye contributions companies which are SMEs can, in certain circumstances, surrender this tax relief to claim payable tax credits in cash from the Inland Revenue. Full details of the R&D tax credit legislation are provided in the Inland Revenue's Corporate Intangibles Research and Development (CIRD) manual.

It is important that companies keep TIGA appraised of any issues or problems they may be having with claiming R&D Tax Credits, because it is likely that its application will be different depending on the experiences of local tax inspectors.

An Example from France - Jeunes Enterprises Innovantes

The French government has adopted a special incentive status for Young Innovative Companies. From 2004, innovative companies have been exempt from tax and social contributions for 8 years. The initiative (Jeunes Enterprises Innovantes - JEI) is making France a leading player in attracting innovative companies to its shores. This has all but saved the French development industry. It is quoted that over the last 10 years 50% of its workforce have moved to Canada. The initiative was proposed to the French government last year as a way to rapid and strong economic growth, half of which is coming from innovation. Further:

Production Investments

A number of regions across Europe have begun to embrace the videogames industry as part of the creative industries, or as part of digital media production and can therefore provide a substantial production investment. These investments will never be larger than £250,000 and are usually reserved for SME's within certain areas of the European Commission. Funds are administrated very much as investments aimed at stimulating innovation, regional growth or specific industry drivers such as IP retention. For example: EM Media "place media at the heart of the cultural economy of the East Midlands through innovation, inspiration and investment. EM Media will lead and promote a culturally diverse, nationally significant and sustainable media sector." Their investments act as a catalyst and enabler by investing in media opportunities.

In Yorkshire, in the North of England, Yorkshire Forward and Game Republic have launched the GRIP scheme "Following extensive consultation with our members, publishers, format holders, … Game Republic has implemented a pilot project that mitigates the risks associated with prototype production. The pilot is focused on the members of GR however GR actively encourages its members to establish partnerships and joint ventures with developers from around the world. This pilot is GR's Integrated Prototype Production (GRIPP)."

Regional development is a competitive endeavour, and as such most of the regions of Europe are competing to attract your business to their region. If it means jobs created, jobs secured, a healthy revenue in the region and a thriving business, regional development agencies will go out of their way to attract your euro. Regions across the world have dedicated inward investment teams who can highlight the benefits of being in a particular region, arrange for building provision if it is needed, and help you find the right resources.

A good example of inward investment opportunity lies in the Isle of Man whose government is targeting the video games industry as part of new plans designed to encourage more businesses to set up shop on the island. The Isle of Man recently announced plans to abolish its general corporate tax rate with effect from April 2006. In addition, the government is offering grant packages of up to 40% to help offset the cost of moving, setting up operations and acquiring new office equipment. The games industry is a desirable addition to the island - the government's e-business director, Tim Craine, recently commented, “We look forward to meeting with members of the computer games industry and discussing the benefits of doing business in the Isle of Man"

Regional Industry Support Networks

Many regions have funded or supported a group of organisations through financial support of a regional network. Most networks have grown from the bottom up, with developers gathering together and acting as a lightning rod for funding to grow the particular region. One of the strongest advantages of working with networks is that they can set up partnerships with larger public sector groups, and academia on your behalf. For example: In the UK, Game Republic in Yorkshire help their members develop their businesses by providing networking events, business development, and R&D support. Game Republic holds four networking meetings a year to allow the industry in to come together with key figures from the games industry, universities and government organisations to discuss the issues that affect the development of their businesses. This allows the members of Game Republic to develop their businesses economically and creatively, while participating in a range of projects that they would not be able to pursue individually.

See the reference section below for a list of UK support agencies all of whom have networks around Europe, and the European -based chapters of the IGDA, as well as some other useful links.

Cultural Investments (aka Tax Breaks)

The film industry for a number of years has enjoyed tax benefits of making what is termed as a ”cultural product”. Something that could/should be applied to games as well... This funding relies upon the idea that a film has cultural relevance. The new tax incentives for the production of culturally British films have the objective of promoting sustainable production of culturally British films in effective ways. It is envisaged that the new film tax relief will be underpinned by a new cultural test that will ensure that film tax incentives are provided for culturally British film products. Cinematic film provides a universal and readily accessible medium for the expression and representation of culture and national identity.

It is felt that “Films can help reflect, explore and challenge our diverse history, cultural beliefs and shared values. In doing so, the best British films not only help us to reach a better shared understanding of Britain and its place in the world, but are also instrumental in spreading awareness and appreciation of British culture around the world. As such, British films are an important part of our cultural heritage and a significant channel for the continuing expression and dissemination of British culture.”

Can the same be said about games?

 

Getting Into the Game - Steps to Take

To cut to the chase, what steps can you take to make sure you are in the right place to take advantage of government intervention?

  1. Work with your regional development agency
    1. Meet with your creative industries representative at the regional development agency
    2. Research into available inward investment opportunities at potential sites for your business
    3. Talk to your regional development agency about your export plans, working with US, European, or Far Eastern publishers
    4. Let people at the regional development agency know who you are, what you do and importantly what impact you can make to the region
  2. Work with a development specialist to highlight the opportunities (there are many consultants who can help)
  3. Work with the local networks in your area
    1. Join a network set up in the region or you local IGDA chapter
    2. If one doesn't exist create one with other local developers
  4. Work closer with local universities
    1. By working with your local university it potentially provides access to research money. Universities need to work with industry not only to ensure they receive their research grants, but also to ensure their research projects are relevant
    2. Working with universities may provide a valuable resource to recruit from before others get access to the top students
    3. Placement students may well need industry positions which you can define as a university partner
  5. Work closer with the Trade Bodies and Associations
    1. One of the primary roles of trade bodies is to lobby on your behalf: "Trade Associations are the interface between government, the EU and the industry, and the everyday work of communicating with government is a collaborative two way process. Sometimes the wishes of the sector and the policies of the government may not always coincide. But that is what TIGA is there for!"
    2. These types of organisations often have access to lawyers, insurers, and solicitors at reduced rates
  6. If all else fails…Move! Take advantage of regional production money, inward investment opportunities, and a strong regional network by moving to a region where the video game industry is a high priority.

The First Hurdle - The Application Form

These forms, however dull, are the only way the funders can capture all the information they need for their auditors. So remember the following:

 

Conclusion

While there is no doubt room for improvement and a need to extend current interventions, there is indeed support to be had. Developers need to take the time to explore their options as every bit of support can help offset the massive amount of risk involved in developing games.

 

Related Resources/Links

 

Authors' Bio

Toby Barnes

Toby Barnes is the founder and executive producer of Pixel-Lab. Working at a strategic level Toby has become a key figure in leading the UK games development community into the future. Pixel-Lab a video game development company dedicated to the long term development of the UK game industry. The company works with a number of public sector and blue chip entertainment companies. As well as delivering a range of strategic projects, and industry events, Toby is currently working on creating the UK's British Games Institute, and the British Games Foundation.

Toby's experience in the public sector started with EM Media, as Executive Producer for Digital Media, where he was instrumental in supporting and developing the videogame cluster in Britain's Midlands, where he managed a number of large product development investments as well as growing the skill base of the development community.

His private sector experience comes from hands-on content development – he started with the launch of Emap's online group, moved on to NTL and founding their interactive division for iTV, broadband, and multi platform access. Toby then went on to launch the world's first interactive TV channel. Whilst at MTV Toby also created a number of innovative entertainment sites, headed the interactive division, won a Bafta and brought a fresh approach to their mobile ideas.

Most importantly though, he is a dad with too little time for his Xbox.

 

The opinions expressed in this article do not necessarily represent the IGDA.