Support for the creative economy

Written evidence submitted by The Association for UK Interactive Entertainment (UKIE) [SCE 031]

1. Introduction

1.1. The creative sector is a hugely important one for the UK. Within this, the games industry is one of the biggest, most agile, and most diverse creative industries in the UK. The boxed and digital UK video game retail market was worth close to £3bn in 2011.

1.2. The games industry supports 28,000 jobs across the UK, 9000 of them of them in the highly skilled games development sector.

1.3. Games have become an increasingly popular form of entertainment. The launch of major games franchises now regularly out-grosses any other entertainment launch, including Hollywood films.

1.4. The UK games industry is also at the forefront of developing innovative digital business models.

1.5. Recent UK global successes include ‘Batman: Arkham City’ developed by North London studio Rocksteady Studios and ‘Football Manager 2013’ by Sports Interactive, also based in London. This is not to mention web based successes like Moshi Monsters and online role playing game Runescape, with over 100 million registered users between them.

1.6. The UK has traditionally been a world leading centre for the industry. Britons were pioneers in games design and innovation and this continues to pay dividends-the UK remains a world leader in a global industry that is predicted to be worth over £50bn globally by 2016 in software sales alone. PricewaterhouseCoopers projects this sector will grow at an average annual rate of 7.2% between 2012 and 2016-faster than film, music and TV. [1]

1.7. Ukie has been pleased to see the Government recognise the value and importance of the games industry in recent years. We have been glad to work with them on a number of initiatives, most recently industry wide tax breaks, measures to develop the skills required by the industry and the successful launch of PEGI, the pan European age rating system for games, this summer.

1.8. Ukie wants to work with government to develop regulation and legislation fit for a digital age that will allow the UK’s games and interactive entertainment sector to thrive and make Britain a global hub for technology growth and digital creativity.

1.9. For the games industry to continue to thrive in the UK it needs the following:

· People with the right skills. Creation of a game, among all other types of media and entertainment, involves perhaps the greatest combination of creativity and technical skills. It requires a huge range of skills to produce a modern game, including art and illustration, writing, and marketing as well as the computer science skills that almost all modern businesses need.

· A business environment which encourages investment in the UK. This includes a competitive tax environment and access to finance for UK companies.

· Accurate measurement of the size of the UK games and interactive entertainment industry

1.10. Government has a role to play in helping achieve this. Below we set out Ukie’s assessment of current Government initiatives and discuss how Government could maximise its opportunities to support the games industry in the UK.

2. Skills

2.1 Hi-tech digital skills are vital for a range of industries, including video games, but the UK faces serious challenges on this front, particularly with regard to Computer Science and ICT.

2.2 Until the recent reforms, little or no Computer Science or programming was taught at GCSE level in UK schools creating serious skills shortages because of poor curriculum and little or no career articulation.

2.3 Next to curriculum reform, there are also structural problems in UK education. According to the Royal Society two thirds of teachers are judged not to have sufficient qualifications to teach even the outmoded ICT curriculum dis-applied in September 2012.

2.4 The combination of these factors has had a knock-on effect on the take-up of Computer Science later on. In 2011 only 3,517 out of the 782,779 (or 0.4%) qualifications entered at A-level were in Computing and only 7% (241) of Computing A-level students are girls. [2]

2.5 In November 2011 Ukie launched the Next Gen Skills campaign [3] , an alliance between the digital, creative and hi-tech industries and the UK’s leading skills and educational bodies to ensure the UK develops the computer programming skills it needs for the UK’s economy.

2.6 Over the last year the campaign has made significant progress due to engagement by the Departments for Education and Culture Media and Sport, both of which recognise the need to turn education around. The DfE’s consultation on ICT reform in January this year and work commissioned by the DfE has developed a draft Programme of Study for ICT which will include a computer programming option. [4]

2.7 Aligned with this there has been significant movement in making Computer Science a recognised, rigorous discipline in its own right at GCSE. We are now working with DfE on the implementation of these measures, in particular the new Computer Science curriculum. Major examination bodies have developed or are developing new Computer Science GCSEs and qualifications-removing a major obstacle hindering progress-and together with Computing at School, the Royal Academy of engineering, British CS and others we have submitted a paper to the DfE on the case for inclusion of Computer Science on the E-Bacc.

2.8 In order to address our talent pipeline problem, there is much work still to be done around creating rigorous courses and it is essential that we do not lose momentum here. For example, support for bursaries for 50 new teachers and a Network of Excellence announced on 19th October will need to be enhanced by additional funding in order scale reforms adequately.

2.9 The campaign also advocates concentration on ‘STEAM’ not just ‘STEM’ subjects.  Google Chairman Eric Schmidt critiqued British education in August 2011: "Over the past century, the UK has stopped nurturing its polymaths. You need to bring art and science back together." As the NESTA-Next Gen Report shows, the creative economy needs creative employees – labour market entrants who are not just skilled in Computer Science, but also Art and other creative subjects. There is continuing uncertainty over the status of Art in the new curriculum and the indications are that inclusion in the English Baccalaureate have been rebuffed. We firmly believe that the status of the subject as an essential discipline in the education system needs to be defined at Key Stage 4 and 5.

2.10 Ukie, through its Next Gen Skills Campaign, will continue to work with government to ensure computer science is fully embedded in the national curriculum and that there are enough teachers being trained to teach this crucial subject. We also call on government to make computer science a part of the English Baccalaureate and to recognise art as a crucial skill required by many of the UK’s digital and creative industries.

3. UK Tax Environment

3.1. The games industry is both highly competitive and truly global. The UK industry has also found to its cost in recent years that the talent that supports the industry is highly mobile. Ukie campaigned for several years for the Government to implement a form of targeted tax relief for games production to allow the UK to compete with the likes of France and Canada, whose governments had decided to actively encourage the growth of the industry in their country.

3.2. The Government’s announcement in Budget 2012 of a tax relief targeted at the games and animation sectors was most welcome. We think this is an important step to preserving the UK’s leading status in games production globally, not least as it is combined with broader reforms to corporation tax rates designed to increase the competitiveness of the UK’s tax environment.

3.3. Since March, Ukie has engaged in active dialogue with DCMS and HMT to assist the development and implementation of such a relief. Ukie itself has also engaged with over 200 individual games companies of all sizes to help understand the implications of tax relief and concerns of games developers and publishers. Some important questions remain about how a tax relief scheme would function in practice.

3.4. In our recent submission (http://ukie.org.uk/content/ukie-response-hm-treasury-consultation-creative-sector-tax-reliefs) to the DCMS consultation to the scheme, we called for:

· The relief to be designed to make sure that the new scheme supports all parts of the industry-encouraging growth from small independent studios, existing bigger studios and attracting inward investment from multi-national companies

· The rate of relief to be set at 30% for all UK games development

· There to be no need for a minimum budget threshold for games to qualify for relief

· Assurances that the new business models and ways of making games which stretches beyond "release" are recognised in the new tax system - which means that games businesses can claim for production costs incurred for DLC or as games continue to be developed and iterated.

· A specialist team dealing with Tax Returns and Cultural Test applications for the games industry

· A voluntary contribution allowed for companies to invest in talent development and skills.

3.5. DCMS is now also consulting on the application of the ‘cultural test’ required under EU law. Ukie will be working with DCMS to ensure that any cultural test is relevant and applicable to games development in the UK.

3.6. The introduction of targeted tax relief for the games industry represents a huge opportunity to bolster the UK’s leading position in a growing, high value global industry. But Government must continue to work with industry to ensure that any relief is relevant, future proofed and as effective as possible.

4. Access to finance

4.1. Many games companies are small studios or even individual developers, so as with any SME access to finance is critical. As well as traditional forms of financing, Ukie sees non-bank lending becoming an increasingly important source of funding.

4.2. In the creative economy especially we are seeing some exciting developments around crowdfunding. Crowdfunding is a catch-all term encompassing a range of different models to allow companies to raise money from a broad pool of individuals, and individuals to support or invest in schemes which interest them.

4.3. At the moment there are three main models for crowdfunding:

· The donations model, whereby individuals back specific projects with a donation in return for a product or perk. An example of this is Kickstarter, recently launched in the UK, which several games companies have used with great success to raise funds to support the development of games.

· The debt model, whereby a wide pool of investors lends money to a business on agreed repayment terms. In the UK one example of this is Funding Circle.

· The equity model, whereby individuals take a stake in a company in return for an investment. Seedrs is an example of this model of crowdfunding platform operating in the UK.

4.4. The internet has created a huge opportunity for companies to exploit the potential of crowdfunding to raise finance. But there remain issues to be worked out before this potential can be fully realised.

4.5. Although the donations model may be the most well known form of crowdfunding at the moment, and high profile success stories have helped raise awareness of crowdfunding among both investors and companies, in general the functioning and implications of crowdfunding are still poorly understood.

4.6. Current regulatory frameworks around the equity model were not created to cater for crowdfunding platforms. This makes compliance technically possible but practically confusing and difficult

4.7. Ukie is working with several other industries and crowdfunding platforms to explore what the Government, and the industry, needs to do to fully unleash the potential of crowdfunding in the UK.

4.8. Ukie has found so far that while Government is enthusiastic about the potential for crowdfunding to support the creative economy, there has been little coordination between Government departments to understand either the implications of crowdfunding or the regulatory changes needed to ensure UK businesses can make the most of this opportunity.

4.9. Ukie would therefore like to work with government and representatives from the crowdfunding sector to develop regulations that will allow crowdfunding to flourish in the UK and particularly to allow the equity model to operate as effectively as possible.

5. IP

Copyright enforcement

5.1 Ukie believes that protecting intellectual property rights nee ds lots of different approaches. E nforcement measures, education about copyright , and accessible, legal offerings - at the right price - are all   crucial.

5.2 Any enforcement measures must always be proportionate, targeted and balanced enough so as not to undermine the valuable relationship games makers have with their audiences and players .

5.3 The video games industry provides myriad successful and sustainable business models, which deliver consumers easy access to the products that they want-from £40 boxed products and cloud-based offerings to free to play apps, casual, and social games.

5.4 The UK’s video games industry is capable not only of delivering digital entertainment which is scalable internationally and can contribute to our national GDP, but also providing high quality career opportunities for the next generation.

5.5 Despite the range of offerings, IP theft remains a challenge to the games industry.

5.6 Ukie calls on all parties involved in the debates around IP enforcement (government, search engines, ISPs and rightsholders) to work together to create enforcement measures that will help prevent the large scale of illegal downloading that we have today. We continue to be involved in government hosted discussions around this debate.

Copyright exceptions

5.7 Ukie does not see the need to change the UK’s IP system. The UK’s IP system already supports the many business models that make up the games industry-equating to the biggest, most agile, and most diverse creative industry in the UK. Any changes that are being considered must be evidence based and be shown to deal with known market issues. Rather than benefit the market, Ukie believes that any changes could damage the UK’s games and interactive sector.

5.8 Ukie believes that extending exceptions to copyright threatens the growth of the UK’s creative industries and the games and interactive entertainment sector with them.

5.9 Video games are classified as software under the EU Software Directive. Any copyright exceptions have been carefully tailored to deal with the issues relevant to computer programs and have been created within the EU Software Directive and the Copyright Designs and Patents Act after careful consideration and consultation. These exceptions have worked well and provided needed flexibility for software producers and users in particular.

5.10 Any private copying of computer software as such is not permitted and indeed is unnecessary beyond the limited provisions provided for back-up copies in defined circumstances.

5.11 If any exception to address private copying of other content were to be introduced in the UK-which Ukie believes could be done without re-opening the existing EU Copyright Directive-we trust that the introduction of any such law would comply with the Software Directive, and that only the existing exceptions in the Software Directive would continue to apply to video games and interactive entertainment (as computer software), and not any broader private copying exception.

5.12 Video games, being software, are not subject to collective management or compulsory licensing. Any obstacles Ukie members have in relation to rights clearance for other content (e.g. music) have tended to arise in the online game sector within the context of the collective rights management structures which exist at the international level. Of the numerous options considered which would make rights clearance for music content easier, we would favour streamlined pan-European and/or multi-territory licensing processes.

6. Clusters and hubs in the creative sector

6.1. The games industry hasn’t tended to be as London-centric as some others in the creative sector. There are major clusters of developers right across the UK, for example in Dundee and Liverpool.

6.2. The emergence of smartphones and tablets has also created new platforms for smaller developers to reach consumers, no matter where they are based. However the Government’s focus on the technology sector through the Tech City initiative has been welcome, and Ukie has welcomed the opportunity to engage with Government on how to encourage investment in the UK.

6.3. But access to finance is also a crucial a factor in the development of hubs/clusters-the Tech City cluster would be less likely to succeed if London was not also home to a clustering of venture capital. In this sense, realising the benefits of non-traditional funding streams including crowdfunding could be a viable way for some businesses outside the major ‘hubs’ to raise finance.

6.4. Government focus on the technology industry is welcome, but facilitating crowdfunding could encourage the growth of small businesses outside the established ‘hubs’.

6.5. Ukie would also like government to consider some recommendations made in a Demos report entitled ‘A Tale of Tech City’ (www.demos.co.uk/files/A_Tale_of_Tech_City_web.pdf?1340965124) and consider the wider application of these recommendations to encourage growth in other regional clusters. In particular looking at the recommendations concerning the role that local government can play in supporting clusters. The Demos report called for:

· Local authorities to ensure Local Plans explicitly encourage the provision of affordable and shared workspace, supplementing National Planning Policy Framework clauses on change of use;

· Local and central government to explore the potential for converting empty buildings that they own in East London into workspaces, tendering management to professional shared space providers;

· Government to encourage the provision of affordable workspace. This could involve modifying the existing Business Increase Bonus scheme-giving an additional subsidy when planning permissions for affordable space are granted.

7. Measurement of the industry

7.1 Official G overnment statistics are not measuring the true size of the UK games industry.

7.2 Improving the accurate measurement of the games and interactive entertainment industry is crucial in measuring the effectiveness of the G overnment’s policies that are designed to support the industry, particularly the success of the incoming games tax production credit scheme from 2013

7.3 The potential damage that can be done as a result of inaccurate data was highlighted recently by errors contained in Creative Scotland’s report (An Approach to the Economic Assessment of the Arts & Creative Industries in Scotland June 2012) that inaccurately stated that the Scottish games industry generated no revenue for the UK.

7.4 In this case, Ukie found that figures generated from publicly available data and our own members show that the Scottish games industry in Summer 2012 is made up of over 110 businesses, employs more than 500 professionals and generates at least £40million of value to the Scottish economy. Scottish studio output has generated over £1billion in revenues over the last 5 years alone.

7.5 Ukie has previously called for impro vements to be made to official G overnment statistics as a partner in last year’s Risky Business Report, produced by think-tank DEMOS (www.demos.co.uk/publications/riskybusiness) , and would like to see these recommendations implemented.

7.6 The Risky Business Report (pub lished October 2011) called for the Government to:

· C onsult the sector to establish where the current Standard Industrial Classification (SIC) codes system, currently used by UK and Scottish governments, is lacking and how it can be improved.

· P ress for international reform of SIC through the EU and the UN to enable the system to better reflect the reality of the UK economy.

· T ask its statistics agencies to make it easier for the ONS and external researchers using government data to track and study new and important sectors of the UK economy, including the creative industries, which are not well served by the current SIC system.

7.7 Ukie has recently welcomed becoming part of a newly formed data group, run by NESTA and proposed by the government’s Creative Industries Council, to look at how accurate and meaningful data can be collected for the creative industries.

7.8 Ukie wants to work with UK and Scottish governments and other bodies jointly to provide access to data sets that can give a better picture of the UK’s games industry.

7.9 Ukie has unique access to the UK boxed product market and is also working on producing data for purely digital games markets-its PC Download Chart is currently operating as a beta and is the only chart that provides actual sales data for digital games products.

November 2012


[1] PWC Global Entertainment and Media Outlook - www.pwc.com/gx/en/global-entertainment-media-outlook/segment-insights/video-games.jhtml

[2] www.education.gov.uk/rsgateway/DB/SFR/s001055/index.shtml

[3] Next Gen Skills is a major new campaign formed from an alliance between the biggest names from the UK digital, creative and hi-tech industries and the UK’s leading skills and educational bodies to improve the computer programming skills needed for the future growth of our economy. The campaign is funded and led by games and interactive entertainment trade body Ukie (including major international companies with UK interests such as Microsoft, Sony, Nintendo, EA, Activision and SEGA, plus leading UK creative development studios such as Blitz Games Studios, PlayGen and The Creative Assembly). Other supporters include Google, TalkTalk, Facebook, the British Screen Advisory Council, Guardian Media Group, the Design Council, Intellect, IPA, British Computer Society, Abertay University, Skillset, GuildHE, E Skills, the Education Foundation, NESTA and UK Screen (representing some of the world’s leading visual effects businesses, including Oscar winners Double Negative and Framestore).

[4] ICT BCS Draft Programme of Study http://academy.bcs.org/content/draft-ict-programme-study

Prepared 17th November 2012