Written evidence from Mr Nicholas Lovell,
GAMESbrief
1. The decision not to introduce games tax
relief will prove to have been a great boon for the UK games industry.
2. The games industry, like all media businesses,
is undergoing a major transition. The old business models, predicated
on the challenges of distributing content in physical formats,
is collapsing under pressure from the Internet.
3. We are at the start of a new era of games,
similar to the emergence of television in the 1940s and 1950s.
There will still be successful, tentpole games with large development
budgets and huge marketing spend. But the also-ran games, the
equivalent of B-movies, will struggle and ultimately die in the
face of competition from games on new digital platforms such as
iPhone, Facebook, and download channels on PlayStation, Xbox and
Wii.
4. I fear that tax breaks might help the
UK in the short-term, but cause substantial long-term gain.
5. It makes the UK compete on a lowest common
denominator of price. As countries such as India and China continue
to strengthen their gaming expertise, competing on price will
only work in the short term.
(a) Tax breaks misalign incentives. Developers
are no longer choosing to design games that consumers want to
buy or publishers want to commission; they are making games that
tick the boxes that government want to fund. The track record
of government picking winners is not strong.
(b) Tax breaks will divert the best from creating
the games business of the future. Britain has successful games
companies developing the games businesses of the future. Examples
include Jagex (developer of RuneScape), Playfish (developer of
Restaurant City, bought for up to $400 million in November 2009)
and Mind Candy (developer of Moshi Monsters). Tax breaks predicated
on the games industry of 2009 are unlikely to help the UK stay
competitive as the industry goes through dramatic change over
the next 5-10 years.
(c) Industry specific tax breaks reward those
who play the system. Making the UK a good place to do business
(lower corporation tax breaks, less red tape) is a better use
of public money than specific-targeted breaks that are expensive
to apply for and expensive to implement.
(d) Tax breaks will benefit overseas companies
more than British ones. Globally, games publishers are overwhelmingly
non-British. Tax incentives might keep jobs in the UK (although,
in my view, it would be the wrong jobs), but the majority of the
financial benefits would accrue to giant French, Japanese and
US publishers.
6. I have written more about my opinions
at GAMESbrief.
(a) http://www.gamesbrief.com/2010/07/video-game-tax-breaks-short-term-gain-for-long-term-pain/
(b) http://www.gamesbrief.com/2010/07/are-tax-breaks-dooming-canada-to-second-class-status/
7. Ed Balls has also claimed that the demise
of RealTime Worlds is evidence of the need for tax credits for
the UK games industry. Nothing could be further from the truth.
RealTime Worlds was a mismanaged company that failed to understand
how the games industry was changing. It raised over $104 million
in investment from professional investors, and was unable to make
a success of its ambitious game, APB. RealTime World's problem
was not that it had too little capital; it was that it had too
much.[26]
8. The primary needs that the video games
industry has are:
(a) For improved education, particularly in the
areas of science and technology;
(b) For a benign environment for starting up
and running a business; and
(c) I would also be supportive of ensuring that
the R&D tax credit regime supports the wide range of original
research carried about the games industry. I believe that there
could be a role for government in helping different media (games,
television, music, publishing, web) to interact, and potentially
for some knowledge transfer and training, although my instincts
would be to keep this support at a very low level.
9. The parts of the UK games industry that
are suffering are suffering because their industry is changing
around them. Tax credits would stave off the pain for a while,
but it would prevent a much-needed change in structure, attitude,
staffing and business models. They would be damaging to the UK's
long-term prospects as a games powerhouse.
10 September 2010
26 http://www.gamesbrief.com/2010/08/hubris-ambition-and-mismanagement-the-first-post-mortem-of-realtime-worlds/ Back
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