Written evidence from Abertay University
EXECUTIVE SUMMARY
— Abertay University is making this submission
in order to provide written evidence to the Scottish Affairs Committee
regarding the above.
— Our submission is made in the context
of our high level of involvement with the games development industry
in Scotland and the UK through a range of activities and our leadership
in computer games education.
— The games development sector has high
growth potential with opportunities for both positive economic
impact and cultural leadership.
— Games development requires a significant
upfront investment before revenues are generated. Content IP is
less attractive to conventional equity investors than, say, technology
IP. There are challenges associated with the sufficiency of working
capital. For these reasons we continue support Games Tax Relief.
— We also believe that additional financial
incentives could be developed to grow the availability of working
capital. These include project finance funds using private capital,
encouraged by an existing instrument such as EIS, if such a scheme
were to be modified to promote this area.
— We have noted the relevance of a number
of these areas to the BIS Green Paper Financing a private sector
recovery which although UK focused could have an impact in Scotland.
1. Credentials
1.1 Abertay University's Institute of Arts,
Media and Computer Games is the UK centre of excellence in computer
games education. The Institute's taught portfolio includes highlights
such as three Skillset accredited programmes and a Masters in
Professional Practice in Games Development with forty publicly
funded places allocated for UK and EU students. All courses reflect
the high level of industry involvement in our activities, underpinned
by academic rigour and innovation. The Institute is also the home
to Dare to be Digital, the international talent competition that
provides the exclusive pathway to the BAFTA Ones to Watch Award,
which this year attracted entries from students from over eighty
universities world-wide. Abertay University also has a portfolio
of innovative interdisciplinary research associated with the visualisation
of complex data associated with games technology and also new
models for new media audiences. This work spans the whole University
and also includes disciplines within Arts, Media and Computer
Games. The Institute's new business support project is run by
a team recruited from industry and draws on all of the successful
facets of Abertay University's activities described above.
2. Context
2.1 The context in which this submission
is made is the University's high level of interest in the stability,
survival and growth agenda for games developers and related businesses
in Scotland. This interest is driven by a number of factors:
— Direct employment and business start
up opportunities for our graduates.
— Our close relationship with industry
via accreditation, programme design and input, guest lecturers,
University Court membership and visiting professors.
— The Developer Accord—an association
of games developers and related organisations that contribute
mentors and other support to the Dare to be Digital competition,
the international talent competition that is the pathway to a
BAFTA award.
— Our significant experience of supporting
fledgling creative teams and small companies.
— Recent public investment in our Centre
for Excellence in Computer Games Education and our Business Support
projects providing prototype grant funding for SMEs, matched by
significant investment by Abertay University.
— Our studio-based learning approach
and distinctive workplace simulation activities which provide
real-world experience for students and contribute to the widely
recognised, positive attributes of our graduates.
— Interdisciplinary and research dimensions,
for example where we have used games technology in the visualisation
of complex data demonstrating the spill-over potential of this
sector.
3. Submission
3.1 We recognise that the Committee will
already have significant evidence regarding the contribution made
by the Scottish video games industry to the Scottish and UK economy.
We also recognise that the Committee will be well aware of the
competitive threat of incentives in competitor countries. We wish
to highlight the following, based on our direct experience:
— The Scottish and UK strengths in
original IP generation. However, more new starts and original
IP are needed to feed this growth opportunity and reach critical
mass.
— Changing business models (eg online,
short lifecycle apps, proprietary platform dominance) as representing
both threats and opportunities.
— The inseparability of talent from
IP evidenced by the history of creative teams and IP moving ownership
in tandem.
— The different nature of this business
in terms of business failure. Failed development businesses do
not leave a long tail of unemployment because it is driven by
talent and the talent is hired elsewhere. Better ways of retaining
talent in Scotland are required.
— Our ambition to promote greater IP
retention and ownership (alongside properly resourced routes to
market)—this could be in the context of anything from direct
online sales to enhanced developer/publisher relationships (to
ensure maximum buy in) as evidenced by our prototype grant fund.
— The particular characteristics of
content development businesses—eg long lead in to revenue
but costs primarily labour.
— The evidence contained in the CIHE
Task Force Report on the Creative Industries.
3.2 A consistent theme in our wide-ranging
engagement with industry is the challenge of sufficiency of working
capital for games and other interactive content development businesses.
Our support for the Games Tax Relief scheme outlined by the previous
government was given in recognition of the contribution that such
a scheme could make to liquidity for medium-sized and well established
developers. We would continue to advocate such a scheme.
3.3 A further reason why we continue to
support Games Tax Relief is the potential for such a measure,
when combined with the distinctive and vibrant development cluster
in Scotland and the availability of talent, to drive future inward
investment.
3.4 Our work with small creative teams and
emergent companies has shown the difficulties faced in securing
up-front funding for content development ahead of commercial deals.
Equity finance models have limited potential in funding content
creation for small companies. The limitations of equity funding,
including the equity funding gap, are highlighted in the BIS Green
Paper Financing a private sector recovery.
3.5 Interestingly, the emergence of start-ups
in the heart of a vibrant games cluster exposes additional frailties
because of the potential for key team members of start-ups to
be hired to more secure jobs before a commercial deal is secured
for the start-up and because working capital in the start-up is
limited. Games Tax Relief would not help such start-ups so we
believe that additional measures are necessary.
3.6 We have secured £5 million of funding
to operate a UK prototype grant scheme (which includes a £1.5
million contribution from Abertay University) to help improve
working capital in small companies and start-ups. We are also
actively seeking private investment partners to establish project
finance funds which are not equity based and provide returns from
an upside through sales revenue sharing. We anticipate that our
prototype grant fund will help to de-risk private project finance
investments if we can link with such a fund. We are keen to encourage
the investigation of stimulating the establishment of such private
project finance funds through tax incentives. This could be achieved
by creating and carefully defining an eligible category within
the EIS scheme for example. There is presently a blanket exclusion
on financial activities as an EIS eligible business.
3.7 We note that the BIS Green Paper Financing
a private sector recovery also highlights supply chain finance,
primarily in the context of Buyer Driven Receivables Programmes
and the like. Consideration of supply chain finance stimuli should
extend to digital content businesses where the challenges are
different from advanced manufacturing etc in that the pre-sales
costs are nearly all related to labour.
4. Relevance to terms of reference
4.1 Our submission notes our continued support
for Games Tax Relief but is also particularly relevant in the
context of the term of reference regarding alternative financial
incentives for the industry. We are particularly keen that ways
to stimulate a greater availability of private project finance
are investigated.
9 September 2010
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