Written evidence from Ludometrics Ltd
RESPONSE TO
THE VIDEO
GAMES INDUSTRY
IN SCOTLAND
1. The Scottish video games industry has
a long and distinguished history, stretching back over the last
25 years—almost as long as the industry has existed. Household
names such as Lemmings and Grand Theft Auto were created in Scotland,
and Scottish developers have been instrumental in creating hit
games for all of the world's leading publishers and media companies.
2. Latest figures suggest that the industry
in Scotland employs some 600 people, mostly graduates, and contributes
£67 million to UK GDP. These are exactly the kind of jobs
the country needs to create and retain if it wishes to succeed
in the knowledge economy.
3. Despite this success, however, the industry
has never succeeded in establishing itself as a sustainable business
sector in the country. In other words, it has generally been reliant
on funding from private, public or industry organisations to stay
in business. The model of the industry means that very few if
any games have generated money over and above their initial advances.
In turn, developers have very rarely been able to generate a strong
cash position from which to operate.
4. No strong publishing games company has
ever emerged in Scotland. When games on mobile devices initially
emerged in 2000, Digital Bridges looked primed to be such a company.
However, the critical skills in a publisher—namely marketing,
distribution and product management skills—were never housed
in Scotland. As a result, the industry here has never had an opportunity
to develop talent on the commercial aspects of games creation,
and has also lacked any substantial distribution clout.
5. The current situation of the industry
in Scotland is that while there is an abundance of creative and
technical talent (although after the collapse of Realtime Worlds
it is an open question how much of it remains here), there is
a dearth of commercial talent. By developing this talent, the
industry in Scotland has a chance of establishing itself as a
substantial contributor to Scotland and the UK as a whole.
6. Tax relief has often been mooted as a
silver bullet for the sector, but I do not believe this to be
the case. Particularly, the idea that suddenly companies will
"take more risks and create more new and original titles"
is a fallacy. To take one example, Denki created a hugely original
title for Xbox 360 called Quarrel. Unfortunately, it has not found
a way to market because games publishers and the platform holder
itself cannot predict how many copies it will sell, despite hugely
compelling evidence from public demonstrations of the game that
suggest otherwise. As a result, Denki laid off 75% of their staff
earlier in 2010.
7. Canadian tax breaks are often cited as
the model to copy. However, what is often left unreported is the
fact that a company must spend $CA 1,000,000 on labour costs per
annum before they qualify. My own analysis suggests that a company
would need to employ around 10-12 people in order to hit this
threshold. The vast majority of development companies in Scotland
would struggle to hit this threshold, so would not be able to
take advantage of the scheme.
8. Tax breaks also do not contribute to
attracting talent to Canada (or any other location). What attracts
talent to a particular location is the ability to work on a high-profile
title, with other high-profile talent. With a couple of exceptions,
Scotland lacks both the titles and the high-profile talent.
9. Finally, the "Canadian games tax
break" is actually a digital media tax break, applying not
just to games companies, but interactive design agencies, web
agencies, and others. This would be a far stronger targetting
of any tax break aimed at the sector.
10. Regarding consultation with the industry
prior to the abolition of games tax relief, I am not aware of
any taking place. Given the general surprise of the industry,
it did not seem as though as any consultation prior to the decision
being announced took place.
11. That said, there was no actual games
tax relief scheme in place to be scrapped—it had barely
even made it to the proposal stage, and was certainly far from
being available to companies.
10 September 2010
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