Written evidence from the Department for
Culture, Media and Sport (DCMS) and the Department for Business,
Innovation and Skills (BIS)
INTRODUCTION
1. This memorandum is jointly submitted
by the Department for Culture, Media and Sport (DCMS) and the
Department for Business, Innovation and Skills (BIS) which since
2005 have shared the policy responsibility for the video games
industry. It aims to provide background that might be helpful
to the Scottish Affairs Select Committee's inquiry into the video
games sector in Scotland. The paper does not respond directly
to questions relating to tax policy, which is the responsibility
of the Treasury.
BACKGROUND
2. The video games sector is inherently
innovative, IP-rich and offers good opportunities for growth and
high-value, high-tech job creation in Britain. Estimates from
PWC suggest the global market for video games will grow from $52.5
billion in 2009 to $86.8 billion in 2014, representing an estimated
10.6% CAGR.[1]
This makes video games the second largest growing entertainment
and media sector after online advertising. The UK computer games
industry is part of the wider creative industries which contributed
£59.9 billion to our GVA in 2007 or 6.2%. These industries
have continued to grow through the economic downturn and the software,
computer games and electronic publishing sectors showed growth
of 5% per annum between 1997 and 2008, the highest across the
creative industries.[2]
3. The wider context to any discussion about
public policy for the games sector is the Government's overarching
aim to tackle the deficit, rebalance the economy, and create a
stable platform for long-term, private sector-led economic growth.
At this point it is not possible to set out detailed plans for
pursuing these aims; the Comprehensive Spending Review is ongoing
and Government is currently in an intensive policy development
process which includes several public consultations.
4. Government is considering options for
ensuring that the UK is not so dependent on a narrow range of
economic sectors, with a particular focus on supporting areas
of comparative advantage including advanced manufacturing, low-carbon
manufacturing, the life sciences, and service and the creative
industries (including video games). BIS is developing a strategy
in this area over the summer with a view to publishing a cross-government
White Paper in autumn 2010.
5. Priority issues for the UK video games
sector include difficulties in attracting finance, problems for
small companies in creating and exploiting IP, ensuring a steady
supply of appropriately skilled employees and growing global competition.
These problems are not unique to video games companiesaccess
to finance for example is reported as a problem in the wider creative
industries and indeed by small, creative businesses in other sectors,
such as biotech.
ACCESS TO
FINANCE
6. Several UK schemes offer additional finance
for SMEs. The Enterprise Finance Guarantee scheme provides bank
lending to viable businesses lacking collateral to secure a normal
commercial loan. The Enterprise Capital Funds address a market
weakness in the provision of equity finance by using Government
funding alongside private sector investment to establish funds
that operate within the "equity gap". The UK Innovation
Investment Fund (UKIIF) is a UK wide Fund of Funds that will invest
in underlying technology funds that target businesses in advanced
manufacturing, clean technologies, digital and life sciences.
7. The Government is working with businesses
and the financial community to consider all the options for ensuring
that access to finance is not a barrier for companies looking
to invest and boost growth in the economy. A Green Paper on business
finance was published on 26 July by BIS and Treasury.[3]
We hope to see a substantial response from the games sector to
this consultation.
BUSINESS SUPPORT
8. Business support and its delivery in
Scotland is a matter for the Scottish Government which offers
a number of support measures, such as Regional Selective Assistance.[4]
9. For businesses located in England, BIS
is currently reviewing the Solutions for Business portfolio and
also the services provided by Regional Development Agencies, including
business support delivery via Business Link. The outcome of this
review will be dependant on the conclusion of the Comprehensive
Spending Review.
BUSINESS TAX
10. The Emergency Budget announced that
the Government would not be introducing a tax relief for the UK
video games industry. The sector will benefit from the wider package
of reforms to business taxation announced in the Budget, which
included reducing the main rate of corporation tax to 24% by 2014
and the small profits rate to 20% from April 2011. The changes
will reduce the corporation tax rate for nearly one million companies.
One of the principles underpinning this reform is that a simpler
tax system with lower rates for all is usually the most effective
way to support economic growth and investment. As part of the
next steps in reform, Government will consult with business in
autumn 2010 to review the taxation of IP, the support R&D
Tax Credits provide for innovation and the proposals of the Dyson
Review. The Government will welcomeevidence from the video games
industry in response to this consultation.
11. The Budget also confirmed a relaxation
of the IP rules for the SME R&D tax credits scheme which will
be of benefit to many innovative companies, including independent
games development studios working on projects on a work for hire
basis.
THE UK VIDEO
GAMES INDUSTRY
12. The UK has a reputation for innovation,
creativity and talent in video games development. A number of
highly successful games and technologies have originated in the
UK including franchises like Tomb Raider (from Eidos) and, created
in Scotland, Grand Theft Auto (from Rockstar North). The UK has
a large mix of independent and publisher-owned studios in clusters
all around the UK, including in Guildford, Brighton, London, Dundee,
Edinburgh, Sheffield, Leeds, Newcastle, Liverpool, Manchester,
Cambridge, Oxford, Leamington Spa and Birmingham. It has been
the location of choice for the European HQs of many of the large
video games publishers, such as Activision and Sony Computer Entertainment
Europe.
13. Definitive data on the UK's video games
sector has been hard to source, particularly in the absence until
recently of a separate Standard Industrial Classification (SIC)
relevant to the sector and varying distinctions between games
development and other computer software and services activities.
Data published by trade association Tiga and analysts Games Investor
Consulting (GIC) estimates that in 2008 the UK's games industry
employed 28,000 people including over 9,000 in games development
and UK studios made £2 billion in global sales.[5]
In a separate publication for NESTA, GIC suggested that in 2008
there were 47 publisher-owned and 166 independent games development
studios in the UK.[6]
14. Following agreement at European level
in 2007 of revised SIC codes, some more specific official statistics
are beginning to emerge. The Inter Departmental Business Register
(IDBR) offers an assessment of the size of the sector though it
has limitations. The IDBR snapshot for June 2010 estimates that
there are 635 video games "local units" in the UK employing
around 6,000 people (the number of local units in the UK for all
sectors is 2,548,630 employing around 27,708,300 people). However,
it seems likely that these figures may feature significant undercoverage.
Each business in the IDBR is allocated an industry classification
based on the companies' predominant business activities. Therefore
where video games activity is undertaken but it is not the primary
activity, employment and business estimates for the video games
sector would be underestimated.[7]
THE VIDEO
GAMES INDUSTRY
IN SCOTLAND
15. Scotland is world renowned for excellence
in computer games design. With hubs in Edinburgh, Glasgow and
Dundee it is responsible for an impressive list of iconic, globally
successful games. Grand Theft Auto IV for example reportedly sold
some 6m copies in just the first week of release and is argued
to be a key reason why the UK was placed third in the world rankings
for games development in 2008.
16. The IDBR snapshot for June 2010 estimates
there are 20 video games "local units" in Scotland employing
around 200 people. However, as previously noted we believe the
figures feature significant undercoverage. The snapshot shows
the number of local units for all sectors in Scotland is 192,170,
with employment of 2,392,200.
17. Dundee has had a particular reputation
for excellence in games development. Recent redundancies in Dundee
and particularly the news in August 2010 that major local employer
Realtime Worlds had experienced far less than anticipated sales
of its game APB and subsequently had gone into administration
was obviously very disappointing.
18. Dundee is recognised for the close,
productive relationship between the University of Abertay and
local games businesses. The University was the first to achieve
sector skills council Skillset's accreditation for games-related
courses back in 2004. To date four of the nine courses to be awarded
Skillset accreditation are in Scotlandthree at Abertay
and one at the University of West of Scotland.
19. In December 2009 BIS announced a £2.5
million Strategic Investment Fund grant to the University of Abertay
to support a new video games centre of excellence. Total investment
in the centreincluding aid from the European Regional Development
Fundwill total more that £8 million. The project includes
the creation of a new prototyping lab and other facilities at
Abertay, scheduled for completion this year.
20. Key to this project is the creation
of a £2 million fundformally launched by Abertay in
July 2010to help small companies develop new games prototypes,
address issues with attracting finance and improve their prospects
for bringing their new games concepts successfully to market.
The fund offers valuable help to Scottish companies but eligible
companies elsewhere in the UK can also apply. An innovative aspect
of the project is the opportunity it offers to undergraduates
to work on games development projects using Abertay's very successful
"Dare to be Digital" model, helping increase the supply
of "industry-ready" new entrants to the workforce.
GLOBAL COMPETITION
21. Like all sectors, the UK games sector
is challenged by competition for investment from overseas territories.
Measured in revenue, the UK was for many years the world's third
largest producer of games placed behind the US and Japan until
2007 when, according to GIC, it fell to fourth place, displaced
in the rankings by Canada.[8]
GIC's ongoing monitoring claimed that the UK regained third place
in 2008 though they suggested it was likely to have fallen to
fifth place in 2009, overtaken by Canada and for the first time
South Korea.[9]
22. In 2007, GIC's Playing for Keeps
report for UKTI and BERR listed aid available to games companies
in several territories, including Canada.[10]
Though this information is now out of date it may be of historic
interest.
POLICY FOR
VIDEO GAMES
23. The Emergency Budget announced a package
of reforms as a first step in the Government's long-term aim to
create the most competitive corporate tax system in the G20, promoting
the UK as a more compelling environment for both our indigenous
and inward investor games companies.
24. Additionally we want UK video games
businesses to be particularly well placed to respond to the new
opportunities offered by the rapid growth in global demand for
interactive entertainment, the new routes to market we see from
the growth of online delivery, the broadening demographic for
games and the potential for SME games businesses to create new
business models.
25. DCMS and BIS are talking to the video
games industry regarding what Government, industry and others
might do to promote the sector's competitiveness, including by
ensuring the games sector is fully considered in broader ongoing
exercises such as Government's focus on supporting growth and
on business access to finance. Specific new activities initiated
to date include:
the appointment of Ian Livingstone
OBE, Life President of Eidos, as a skills champion for video games,
building on his role as Chair of Skillset's Games Council to drive
forward work to produce a better skilled workforce for the sector;
an independent review, led by Mr
Livingstone and Alex Hope, and carried out by NESTA and Skillset,
of education and training in the UK games and visual effects sectors.
This is likely to report in January 2011;
a series of ministerial roundtables
with the sector on themes such as finance and skills; and
work with UK Trade and Investment,
the industry and others to update and better define the proposition
the UK offers for video games inward investors/potential inward
investors.
9 September 2010
1 PWC Global Entertainment and Media Outlook 2010-14,
published 15 June 2010. Back
2
DCMS Creative Industries Economic Estimates, February 2010 http://webarchive.nationalarchives.gov.uk/+/http://www.culture.gov.uk/reference_library/publications/6622.aspx Back
3
Financing a Private Sector Recovery, BIS 26 July 2010 http://www.bis.gov.uk/Consultations/financing-private-sector-recovery?cat=open Back
4
http://www.scotland.gov.uk/Topics/Business-Industry/support Back
5
Tiga/Games Investor Consulting, January 2009. Back
6
Raise the Game, NESTA/GIC December 2008. Back
7
Here the video gaming industry is defined as SIC 2007 codes 58.21
(Publishing of computer games) and 62.01/1 (Ready-made interactive
leisure and entertainment software development). Units counts
have been rounded to the nearest five and employment counts to
the nearest 100 in line with ONS requirements. Despite improvements
following the move to SIC 2007 codes, at this level of detail
the IDBR dominance rule may mean some video games businesses,
and all their employment, are being classified under a different
SIC code. As an example a business that is undertaking both video
game development and computer consultancy, would have all activity
and employment classified under computer consultancy, if the majority
of the activity was in this sector. It is likely that this classification
problem is more of an issue for certain industries and will be
magnified when very detailed industry classifications are being
considered. Back
8
Playing for Keeps, Games Investor Consulting for UKTI and
BERR, October 2007. Back
9
Raise the Game, NESTA/GIC, December 2008. Back
10
Playing for Keeps, Games Investor Consulting for UKTI and
BERR, October 2007. Back
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