Seemingly everyone agrees on the importance of the video games sector to the UK economy. Yet the fiscal environment may prevent policymakers giving the sector what it most wants – a tax credit that helps to level the international playing field. Policies to improve the quality of university video games courses are crucial, but they will not stave off the industry’s near-term decline in global development rankings. Fresh thinking is urgently needed on what government can do. This briefing – the first in a series on this topic from NESTA – looks at one such idea, encouraging external project finance. Video games studios in the UK rely on global publishers for the financing of their development activities. Although this has helped to channel funds into the video games sector, it has also made it difficult for UK studios with high growth potential to scale their businesses – under this model, publishers retain ownership over the Intellectual Property (IP) that is generated, a crucial source of long-term value in the sector. And there is recent evidence showing that publishers are commissioning less original IP. This puts UK studios in a tight spot – they can’t compete on costs, particularly against territories overseas where development is publicly subsidised, and leveraging their creative talent and ingenuity seems to be getting harder, at least with publisher-backing. Excessive reliance on publisher funding might also be hindering UK studios’ transition to booming online and mobile gaming markets. This is because business models in these new markets are less suited to traditional models of publisher finance. There is evidence that UK studios are already lagging behind in these markets. New financing instruments are needed if UK studios are to remain innovative in established markets, and take advantage of the opportunities presented by new ones. More mature creative sectors like film and television offer production companies a wider range of financing options, including project – as well as corporate – finance drawing on external investors. External project finance models can make the video games sector more attractive to investors because they allow them to manage their risks in a more controlled manner than if they had to take an equity stake in a whole business. Studios, in turn, are able to retain more of their original IP, and generate additional revenues that can be invested in growth and innovation. Finally, publishers are also able to share with other investors the risks of financing more innovative and original projects in the UK. It is estimated that over £23 million has been invested in the UK games sector in the last five years using external project finance instruments. But this is a tiny fraction of overall investment in UK video games development – there are significant barriers to the wider uptake of external project finance. Awareness of project finance models, particularly among studios, is low. External project finance can be complicated, and the fixed legal and administration costs are currently too high for many studios. The main tax schemes to encourage investment in the UK – the Enterprise Investment Scheme and Venture Capital Trusts – are not as well suited to project as they are corporate finance. Policy has an important role to play in lowering these barriers. The television and film industries also receive some public project finance in the form of broadcaster and Lottery money. It is time that some of this was redeployed towards video games development.
|Number of pages||12|
|Place of Publication||London, UK|
|Publication status||Published - Feb 2010|
- Video and computer games
- Creative industries