Support for the creative economy

Written evidence submitted by Activision Blizzard UK Ltd [SCE 079]

Activision welcomes the Culture, Media and Sport Select Committee inquiry into support for the creative economy and is grateful for the opportunity to submit written evidence.

Activision

Activision Blizzard is the largest entertainment software publisher in the world with leading positions across every major category of the rapidly growing interactive entertainment software industry and more than 7,000 employees worldwide.

In the UK, Activision has its European headquarters at Stockley Park, a studio in Leamington Spa (FreeStyle), a mobile studio in Leeds (the Blast Furnace), and distribution facilities in the West Midlands. In total, Activision currently employs over 400 people in the UK, predominantly in high-skill, high-value roles, in addition to working with an extended network of seven independent studios development across a variety of projects and remits.

Activision's portfolio includes Call of Duty, recognised globally as one of the world's largest entertainment properties across all genres, as well as Skylanders, Spider-Man, X-Men, James Bond and Transformers, and Blizzard Entertainment's StarCraft, Diablo, and Warcraft franchises including the top subscription-based multi-player online role-playing game, World of Warcraft.

Activision serves a UK video game market which in Q2 of 2012 was valued at £235m with 40m games sold and total gamer time of 160m hours each week. The total boxed and digital UK video game retail market was worth close to £3bn in 2011.

Activision is a member of UKIE and we support and endorse their submission to the inquiry. Activision is keen to work with other industry members, the government and other partners, to allow the UK's games and interactive entertainment sector to continue to thrive and make Britain a global hub for technology growth and digital creativity.

This is a significant challenge in an extremely competitive global market. The Government's Video Games Tax Relief proposals are extremely welcome but it really is only the start if the UK is to retain its competitive edge. Activision would like to see the Government and the sector collaborate on developing a long-term strategy to keep the UK competitive against the best that California, Canada and China can offer. This would need to include skills, home grown and imported talent, fiscal incentives and ways to stimulate creative hubs and clusters in the UK. There is also a need for greater public recognition of the importance of the sector to the UK. What senior ministers say makes a real difference to global sector sentiment and this needs to be prioritised by Government as a quick win.

We wish to respond specifically to four of your seven areas of inquiry, as follows:

Q: Barriers to growth in the creative industries-such as difficulties in accessing private finance-and the ways in which Government policy should address them. Whether lack of co-ordination between government departments inhibits this sector

In common with other sectors the fast-moving, extremely globalised games sector needs a range of attractive sources of finance to thrive. This is particularly important for the games sector because of the large number of SMEs involved, with numerous small studies and even individuals playing key roles. Competitor countries such as Canada are developing innovative ways of ensuring access to finance for games companies and the UK Government must learn from global best practice in this regard.

As an example, and as noted in UKIE's submission to this inquiry, there is an opportunity for crowdfunding to play a greater role either along the donations, debt or equity model. We endorse UKIE's call for greater coordination between Government departments to create the right regulatory framework to allow crowdfunding to flourish.

Q. The extent to which taxation supports the growth of the creative economy, including whether it would be desirable to extend the tax reliefs targeted at certain sectors in the 2012 Budget

Activision has served on the HM Treasury Video games tax relief (VGTR) working group and fully support efforts by HM Treasury to encourage investment in the UK video game sector through the introduction of targeted corporation tax reliefs. We welcome the Budget 2012 measures on tax relief for the games industry, and wider moves on overall corporation tax levels. Activision recently opened the Blast Furnace, in Leeds, with an initial headcount of 35, partly because of the incentives offered under this programme although largely because of the great talent pool that exists within the UK.

Activision is keen to continue to grow its business in the UK, and would strongly encourage the government to continue to offer and improve this relief. In particular, we urge them to remember that the creative industries are fast-moving, so legislation should be drafted sufficiently widely to take into account both iteration and innovation. In particular mobile gaming is almost certainly one of the key areas for future sector growth, and is a key area of strength for Activision. Mobile has lower barriers to entry, plays to the UK's creative strengths, and should allow the UK sector growth to grow at all levels. There is therefore a golden opportunity to make the UK a centre of excellence for mobile gaming but only if care is taken to future-proof regulatory and fiscal measures. We would also urge the government to consider introducing further incentives to improve skills and training in the sector, for example by offering extra relief for businesses which offer structured internships and/or apprenticeships.

Additionally we would encourage the government to understand that as a global industry, the tax incentives need to be understood, available and appealing across a broad range of organisations, from the small independent developer to the large global publisher. Each will need to understand the incentives available and be able to access them readily. In the case of the global publisher, they will be benchmarking those incentives against those available in other territories with competing schemes and talent pools. Complexity in understanding what and where funding is available and how readily such funds can be accessed or what tax scheme will apply will be a barrier to entry and act as a disincentive for that publisher. The current schemes in the UK are not clear or readily accessible and it fails to local trade bodies, such as UKIE or TIGA to act as the interpreter and provide the pathway to funding.

Q. Ways to establish a strong skills base to support the creative economy, including the role of further and higher education in this

For games development to continue to thrive in the UK, it needs people with the right skills: technical, artistic, business and creative. Activision is very supportive of the government's recent efforts to improve computer science and ICT teaching in schools but this now needs to go further to focus on ensuring that there are more qualified teachers and that the qualifications gained are widely recognised as valid and rigorous. In addition, we are keen that as well as pure technical skills, creativity is taught and nurtured in the curriculum. Breadth is as important as depth in this area.

Once the upcoming changes in the curriculum and qualifications regime are complete, we urge the government to keep both under close review; this is a fast-changing and highly innovative sector and what works for 2015 may no longer be suitable by 2020.

Activision is also exploring collaboration with higher education institutions with a view to ensuring that the increasing range of games courses involve the right mix of theory and practical skills. Government encouragement of such partnerships would be welcome. We discuss the role of universities in developing clusters below.

Q. The importance of "clusters" and "hubs" in facilitating innovation and growth in the creative sector.

In our experience, and certainly for our business, the video games industry is not as London-centric as many other tech sectors; indeed, our studios are all outside London. However, tradition and the government's recent efforts to promote Tech City in London inevitably mean that much creative and technical talent gravitates towards London.

There are already some key hubs around the UK where video games development is healthy and where good university courses reinforce this, for example Dundee and Liverpool. Nonetheless, because of the particularly agile nature of games development and developers (with the developments in technology the games industry has expanded to a wider audience allowing better access to a wider group of individuals essentially becoming a modern day cottage industry), regional bodies and local authorities could do much more to attract mini-hubs and small start-ups in particular, for example by offering flexible and affordable workspace, partnering with existing developers to offer incentives on business rates or in other ways to expand, and enabling better connectivity and communications infrastructure. Local Enterprise Partnerships should collaborate with the sector and with higher education institutions to create the right strategies to allow clusters to develop.

Conclusion

Activision welcomes important Government initiatives such as the VGTR, and we are encouraged by recent contact with DCMS and with UKTI that suggests the importance of the sector to UK plc is recognised.

However, we are concerned that beyond the VGTR there is no strategy for the UK to maintain and improve its edge in a fiercely competitive global market. In short, the UK's strengths in creativity and innovation must be matched with the right regulatory, fiscal and commercial environment if Britain is to remain a global centre for the games sector.

November 2012

Prepared 21st November 2012