Examination of Witnesses
Mr Jonathan Smith, Mr Ian Livingstone,
Mr Michael Rawlinson, Mr Richard Wilson and Mr Simon Gardner
Q962 Chairman: Welcome.
I think you know perfectly well what we are doing. We are trying
to make some assessment of the importance of this area, including
very much your own, as far as the UK is concerned, as far as the
economic contribution it makes, the cultural contribution, and
really to see what else, if anything, can be done or you would
like to see done by government and policy makers. That is really
the area that we are in. Perhaps the most useful thing is if you
could all just say literally a word or two about where you come
from and the kinds of things that your companies are doing, starting
from Mr Gardner.
Mr Gardner: My name is Simon Gardner.
I am the CEO of Climax Studios. We are a small to medium sized
independent developer, privately owned. We make computer games
for American publishers, European publishers and Japanese publishers,
so we bring foreign currency into the country directly from abroad.
Mr Wilson: I am Richard Wilson,
the CEO of Tiga, the trade association that represents video game
developers. We have approximately 150 member companies and organisations
that include game developers, publisher owned studios, universities
and some training providers. We work to lobby government on behalf
of our sector and we develop benefits and services for our members
to make them even more competitive.
Q963 Chairman: How old
are you as an association?
Mr Wilson: We were established
back in 2001. I took over in March 2008.
Mr Rawlinson: I am Michael Rawlinson.
I am director general of ELSPA, which is the trade association
representing publishers of video games. We were established 20
years ago. In fact, we were the world's first trade association
for our sector. I took over as director general in March this
Q964 Chairman: Does
that mean we have two trade associations sitting side by side?
Mr Rawlinson: We have.
Q965 Chairman: Is that
a good idea? You have distinct roles, do you not?
Mr Rawlinson: We do, which we might
explain later as we go through the inquiry.
Mr Livingstone: I am Ian Livingstone.
I am the life president of Eidos, until recently a public company
and the largest independent UK developer and publisher of games.
We were bought in May by Square Enix of Japan. We are most famous
for Tomb Raider, Lara Croft. Before Eidos, I started a company
called Games Workshop and launched Dungeons and Dragons, so we
have been part of the interactive entertainment industry for 30
Q966 Chairman: Why did
you sell to the Japanese company?
Mr Livingstone: That is one of
the issues we might have to address today. Clearly it is good
for our balance sheet and the future of the company and its employees,
but there are other issues about foreign companies seeing greater
value in our industry's intellectual property and our skills than
we do in our own country.
Mr Smith: Jonathan Smith. I am
head of production at TT Games, which is a UK company incorporating
developer Travellers' Tales and publisher TT Games. We were an
independent group until we were acquired by Warner Brothers at
the end of 2007. We employ 300 people in the UK and we are most
famous for our range of Lego games which are focused at families
and young children. We have sold about 30 million of those over
the last five years.
Q967 Chairman: Your
company has been sold as well?
Mr Smith: That is correct.
Q968 Chairman: Give
me some idea of the size of the UK video game sector in terms
of the revenue, number of firms and things of that sort.
Mr Rawlinson: Thank you for inviting
us here today. We believe that our industry is sometimes overlooked
against more established forms of media in the cultural sector
of this country. We have in the UK a retail market for video games
worth £1.9 billion last year. When you add in games-specific
hardware and peripherals, that rises to over £4 billion.
Richard will tell you in a moment about the development sector
and how much we create of that content here in the UK.
Q969 Chairman: That
is the total UK market?
Mr Rawlinson: The total UK market
as sold through retail shops. In addition to that, people are
consuming games online and paying subscriptions.
Q970 Chairman: That
is the market in which everybody from all over the world can be
Mr Rawlinson: Yes indeed. We are
the third largest market in the world and the largest market in
Europe. The American market is the largest at just over £11
billion followed by Japan at just under £4 billion, software
only. We are approximately a quarter of the size of the Japanese
market. In terms of our consumer, our consumer is aged from three
to 93. The average age of a gamer in this country is over 30-33so
it is no longer the preserve of young children and boys, particularly
teenage boys, but we do cater for the total market.
Q971 Chairman: What
about the UK industry itself? We have this £4 billion UK
market. We have other markets overseas. What is the revenue that
the UK industry generates?
Mr Wilson: Our figures show that
we generate about £2 billion per annum into global sales.
To give a little more detail on the firm size of the games development
community, we have about 213 studios in the UK. Of those, 166
will be classified as independent game developers. Another 47
are publisher-owned studios and about another 73 are service companies
that provide technological support, servicing activities to help
games businesses. In terms of firm size, the overwhelming majority
would be classified as small or medium sized enterprises. Our
research shows that only about two per cent will be classified
as large businesses. We estimate that about 48 per cent of our
businesses have been in existence for at least six years and they
are very export orientated. A typical games development business
in the UK earns about 46 per cent of its turnover from the export
of its product.
Q972 Chairman: If you
have two billion revenue, roughly a billion comes from UK sales
and a billion comes from export. Would that be right?
Mr Wilson: I do not know the breakdown
of figures. My research shows that we have £2 billion in
terms of global sales.
Q973 Chairman: Global
meaning the UK and the rest of the world?
Mr Wilson: Yes.
Q974 Chairman: Is this
industry going up in terms of revenue if you compare it to the
position five years ago?
Mr Rawlinson: In terms of retail
sales and people buying the product globally, yes. We are a growing
market. Clearly we are in difficult economic times at the moment
but against other entertainment forms we are holding up well.
Q975 Chairman: If we
took it five years ago, the revenue being earned by the industry
would be less than it is now?
Mr Rawlinson: Yes.
Q976 Chairman: If the
UK is doing well in this respect, why is it that UK companies
are being bought by companies from overseas? Why are we not just
developing our own industry?
Mr Livingstone: Foreign countries'
publishers and investors see greater value in what we do than
we do ourselves. It has always been difficult for creative industries
to raise capital and finance in the UK and yet we are the most
creative nation in the world. Look at the success of music, fashion,
film, advertising, TV and, more latterly, computer games. We are
perceived as an industry that does not have as great a value as
traditional industries. All that is changing because we are the
future. We are the marriage of art and technology. The problem
that we are experiencing is particularly with skills. We have
a skills problem. You were mentioning the film industry earlier
and I would like to talk in great detail about the skills problems
that we have, but we also compete on an uneven basis. We do not
have a level economic playing field. A country like Canada is
offering a 37.5 per cent production tax credit. France is offering
a 20 per cent production tax credit. We do not have those benefits
here at all. The film industry does. Whereas somebody working
in film only generates £50,000 to UK GDP, someone in games
Q977 Chairman: When
you were independent, did you find this a matter of frustration
Mr Livingstone: Because of various
factors, we have moved a lot of our production overseas. Tomb
Raider was developed in California. We have a studio in Montreal
developing two games. As publishers, we are country agnostic.
We go where the skills are high and the production costs are low.
Unfortunately, the UK is one of the most expensive countries in
which to develop computer games and also the universities are
doing a great disservice in not supplying the skill graduates
that we need.
Q978 Chairman: Presumably,
when the company was sold, the shareholders of the company got
a reasonable profit from the deal, did they?
Mr Livingstone: Absolutely not.
Some did in the early days of the company. We had a market capitalisation
in 1999 of over £1 billion but we were sold for £84
million in 2009. You could say in some respects that the markets
have not really understood the changing nature of the business,
the fact that it is an ethereal process. It is not two blokes
in a garage making games any more for £20,000; it is teams
of 150 people, highly skilled computer scientists, artists and
animators working hard for two years to budgets of £15 million
to £20 million to make a blockbuster title. If you look at
a game like Grand Theft Auto 4, which was released last year,
it has been vilified in the press but it sold six million units
in its first week of sales. That generated half a billion dollars
in revenue at retail. That is bigger than any entertainment release
in any other medium. It was developed in Scotland, again by a
company that is owned by a US publisher, and yet, rather than
praise that achievement, it was largely criticised in the press.
We feel the government has not helped us to change the perception
of games. They are not all about violence. Brain training, online
games, casual games, puzzle games, sport simulations, pony games
for children. There is something for everybody now. It is a broad
church of content on broad, diverse platforms. 75 per cent of
the population now plays games.
Q979 Chairman: The Japanese
company that bought your company has a bargain, basically?
Mr Livingstone: Yes. It is great
for our company's balance sheet but again it points to the UK
not recognising the value of its intellectual property. We are
very good at creating IP in this country; we are not very good
at hanging on to it. The real value of any kind of digital company
comes from its ownership of IP. If it is sold off, we are in danger
of becoming a work-for-hire nation.
Q980 Chairman: We have
the creative talent but we do not seem to be able to develop it
properly. Mr Smith?
Mr Smith: We have extreme creative
talent here, based in the UK, which we have been able to foster
over 18 years of development at Travellers' Tales. The reason
we sold to a North American publishing organisation was about
preserving the value here, the question of the entertainment business
being able to fund the degree of investment required to make modern
games and to take the risk in the creative environment that is
necessary. We felt that Warner Brothers were able to give us the
global reach, the global impact at an entertainment level and
were willing to take the risks that were necessary to fund us
to be competitive and relevant.
Q981 Chairman: Any reservations?
Mr Smith: Apart from the fact that
they are not UK? We were for a long time one of the UK's strongest,
independent developers. At least we are still employing great
people here and bringing on their talent, trying to keep them
working here in the UK.
Q982 Chairman: The corporate
profits go elsewhere?
Mr Smith: They do.
Q983 Lord Inglewood:
Could you explain the process of developing a game?
Mr Smith: It will vary from company
to company depending on culture and history and, crucially, depending
on the investment that they have been able to make over many years
in their own in-house technology processes and people. For instance,
our company can make certain types of games much more easily than
other people can because of the investments that we have made
over many, many years. In very broad outline, the idea for a game
tends to come from the publisher, when we are talking about external
IP, often tied to a licence, a movie property or a relevant toy
property for children or families. That will be briefed to a creative
team who will start to work, who will flesh out their ideas for
how the game can be made within a timescale and a budget, which
is then negotiated and usually driven down. Then a period of time
will be taken to develop the game. It is quite complicated. In
general terms there will be conventionally a pre-production process,
a production process, where the team grows to its largest size,
and then a post-production process where all the errors in the
games are found and fixed.
Mr Livingstone: The difference
between making a movie and a game is that a movie is a linear
experience where the director controls the actors and there is
no variance on that. Making a game is an interactive experience
where the consumer controls the action. Therefore, the skills
required to make a game are a lot more demanding, in my opinion,
than making a movie. There are movie sequences within games, usually
cut and created through CGI, computer generated imagery, but the
core of a game is creating a 3D engine which creates an experience
in real time. That is the real skill. Frankly, we are losing our
skill at doing that. We have dropped from third to fourth in world
Q984 Lord Macdonald
of Tradeston: In terms of the origin of the successful game, is
there a particular affinity with the film industry or is it more
to do with magazine publishing? Are you really stand alone and
you do not need a particular strong partner from a larger industry?
Mr Livingstone: Historically, some
games were made on licences like film licences, sports licences
and some on books, but the real values have been created by creating
our own intellectual property like Tomb Raider, Lara Croft, for
example. That is an original IP that started as a game and then
we can leverage that IP through a merchandising and licencing
to create additional, incremental revenues. We licensed the movie
to Paramount Studios and they made two blockbuster movies generating
$450 million at box office. Therefore, Hollywood have seen the
value of the IP that we have created and more and more films are
being made based on computer characters because we have taken
over from comic books and novels as being an important source
of well known, recognised, global characters.
Q985 Lord Macdonald
of Tradeston: You have obviously changed the aesthetic nature
of watching screens for a lot of peoplein particular, the
younger generationand we hear that a lot of films now begin
to look like video games. Does that mean that your future lies
at the top end with the marketing power of the big film companies
and their global reach?
Mr Livingstone: A lot of media
and film companies are getting into our space because they recognise
that the compelling nature of interactivity is much more fun for
children in particular. If you look for example at Disney, they
recently acquired Club Penguin, which is a massively multiplayer
online for children, five years and older. They bought it for
approximately $500 million and the reason they did that is, through
their own research, they realised when people went to the Disney
website what they were doing was playing the games rather than
looking at the usual content, so they wanted to acquire an MMO,
a massively multiplayer online game, which had a large audience
of children enjoying the interactivity of gaming. Not all games
are violent. This is for a five year old with Avatar penguins,
enjoying life in a community.
Q986 Lord Macdonald
of Tradeston: You obviously suffer from a cultural lag in that
the opinion forming classes have not quite caught up with video
gaming. I remember ten years ago, when I was on the Scottish Enterprise
Board in Scotland, we were very enthusiastic and the politicians
were very enthusiastic to grow your industry. We were not hostile
to it. I suspect that the problem of sustaining and growing the
industry in Britain is something more fundamental than just general
Mr Livingstone: You make a great
point about Scotland. They have been very supportive. Scottish
Enterprise and the Scottish Government have been great. The University
of Abertay is perhaps the best university in the UK for providing
graduates both in programming and in art and animation. It is
no coincidence that companies like Rock Star North that develops
Grand Theft Auto and Real Time Worlds that has built a huge MMO
exist in Scotland. They have created a culture where businesses
work with academia and government to create a great initiative
to go forward, but that has not been reflected in the rest of
the UK unfortunately. I would like to talk in some detail about
the skills crisis that we are now encountering.
Q987 Chairman: Mr Gardner,
do you share all these concerns which are being expressed?
Mr Gardner: Yes, I do, on the whole.
We are obviously in a different situation. We sold one of our
studios to Disney a couple of years ago, so that kind of backs
up your premise that there is a convergence of the industries.
Q988 Chairman: You are
not UK owned either?
Mr Gardner: We are now. We sold
one of our studios. Five years ago when I joined the company we
had seven studios employing about 450 people. One of the biggest
problems that hit us was the currency exchange rate and the UK
became one of the most expensive places to develop in the world.
That affected our business. We had to downsize our business down
to what it is today, which is one studio and about 110 people.
At one point we were down to 50 people. With the weakness of the
pound against the dollar, we have been able to become more competitive
but obviously the dollar is going back up the other way, so that
has concerns for us at the moment. The other thing as a studio
that we had to do was to focus on quality because the other development
places in the world like China and India are able to compete on
a work-for-hire basis. We have had to realign our business and
head exclusively for quality, which is paying dividends, but that
obviously costs a lot more, so our costs are rising.
Q989 Lord King of Bridgwater:
The pound was overvalued at two dollars. It was undervalued probably
at 1.35. I got the impression from you that if it stops around
1.60 or 1.65 that raises problems for you. Does it?
Mr Gardner: It is okay at the moment.
Q990 Lord King of Bridgwater:
Some people take the view that 1.60 or 1.65 might be a more normal
rate. If that is the case, what are the prospects for the industry
at that level?
Mr Gardner: Better than they were
at 2.10. It peaked at 2.10 which made us totally uncompetitive.
At the current exchange rate, it is probably doable.
Q991 Lord Maxton: Is
not one of your problems that you are an international industry
in a way that the film industry and certainly the television industry
is not? The television industry makes programmes for a British
audience. The film industry makes films at least with British
content, very largely. You are international.
Mr Gardner: That is our great strength.
Q992 Lord Maxton: It
is, but it does make it more difficult for the government to understand
why it should make you a special case.
Mr Gardner: The interesting thing
is that we bring in hard, foreign currency into this country.
Q993 Lord Maxton: I
am on your side.
Mr Gardner: In effect, we build
things that we sell abroad. We are not limited by our location
to the types of product that we can build. We can build a game
based in New York or Los Angeles as well as anybody else. Okay,
so can other people, so we have to compete on creativity and ability,
but I see that as a great strength, not a weakness.
Q994 Lord Maxton: The
only ones I can think of, to be honest, are golf games based on
British courses and British golfers but outside of that are there
any games which have basically a British content?
Mr Gardner: We have made games
in the past like Robot Wars, things like that, which are based
on British IP that was created by the BBC.
Mr Livingstone: We made one called
Championship Manager, a soccer management game which was developed
in our studio in London and it is largely for a UK market. It
is not an action game. It simulates management of a soccer team.
Q995 Lord Maxton: I
notice that the latest Microsoft game, the activity game you play
in front of the television set without a machine at all, was developed
by a British company. Is that right?
Mr Gardner: Some of the software
concepts they are going to use with it were definitely developed
Mr Livingstone: It is Israeli technology.
Mr Smith: That British company
is owned by Microsoft.
Q996 Chairman: In passing
almost, you said at the beginningperhaps this is to the
two trade associationsthat you rather resented the feeling
that video games were all about violence and having this impression.
How do you rebut that argument?
Mr Rawlinson: The facts, actually.
Q997 Chairman: That
is the best way.
Mr Rawlinson: In the last five
years, over 6,000 video games have been classified for the nature
of their content under the Pan-European Games Information rating
system called PEGI. Of those 6,200 games, 84 per cent were rated
as being suitable for players aged 12 and under and only six per
cent of them were for adults only. In terms of the actual quantity
of product, the numbers are quite low for adults. The sales of
the adult product are higher but, on the basis that the average
of a gamer is 33, that is not unreasonable. If we look at our
comparative media markets such as film, the film industry is not
characterised by one or two highly violent films such as Saw
or Hostel, but unfortunately our industry is totally characterised
by one or two violent video games such as Grand Theft Auto. This
really is a total distortion of the facts.
Q998 Chairman: Is it
also a distortion, the charge that your content is based on United
States or Japanese values?
Mr Rawlinson: There are two distinct
markets. There is a definite Japanese market, Japanese content,
some of which travels into this UK market, some of which does
not and stays very much locally based. Certain products that received
some notoriety quite recently such as Rayplay, an online video
game that really has no market in this country and, even if it
were available to the market, it would not have been given a classification
here. The rest of the market is a broad entertainment market.
I would say a product that sells in the US sells in the UK and
vice versa. Our products, our intellectual property, travel across
to the United States as characterised by the sales that Richard
has outlined for our inward trade.
Q999 Chairman: You sound
as though you feel more strongly about the violent products having
an impact upon the whole of the business than most people.
Mr Rawlinson: A negative impact?
Q1000 Chairman: Yes.
Mr Rawlinson: Only in perception.
Q1001 Chairman: You
are fighting against that negative impact.
Mr Rawlinson: What we are trying
to do is to be positive and promote the new games, the new styles
of game play that allow interactivity, easy access. The Wii product
hardware particularly allows anybody in this room who has never
played a video game before to pick up a controller and play with
games instantly. That is what we are promoting.
Mr Wilson: I do feel the public
perception of video games is improving, despite some of the comments
we have expressed this morning. For example, when Grand Theft
Auto was released last year, it was interesting to see that The
Times ran an editorial, on page two I think it is now, praising
the product. A few years ago that would not have happened. To
have a mainstream, what was a broadsheet paper, praising the product
was a major breakthrough. I think public perceptions are changing.
They are changing in most parts of the media. As far as our trade
association is concernedit is probably true of Mike and
ELSPA's position as wellwe are more concerned about government
policy and the relative indifference of government policy, towards
helping the industry, rather than government ministers not being
familiar with the sector or painting the industry in dark colours.
We are much more concerned about the fact that we could provide
a much more favourable tax environment for the games industry
and we do want to improve skills and training within the sector.
Q1002 Baroness Eccles
of Moulton: You have described how the market has moved up the
age range. I wonder whether there is a future potential market
for the retired, for the elderly, on three counts. First of all,
they have the time. Secondly, pretty well everybody now understands
how to operate a video game or whatever. Thirdly, there is a great
emphasis on the elderly keeping their brains active so you might
have a wonderful market there. Is there any emphasis on that?
Mr Rawlinson: We do already have
that market and it is wonderful for you to recognise exactly those
three points. Many properties are used in old people's homes.
Fitness games and brain training games are used in exactly the
way that you have outlined. We are seeing a growing market there.
If you characterise the market for video games as being the old,
traditional, core market of young people, hard core games playing
long hours, that market has not changed significantly but our
growth has come from this massive expansion up the age range,
particularly into seniors.
Q1003 Baroness Howe
of Idlicote: You obviously feel pretty upset about the way in
which the whole of the industry has been labelled as violent.
I think one understands that. Equally, I have seen some of these
very violent and pornographic films, so I do know they exist.
Thinking about something that might help the image, PEGI is a
little bit, shall we say, owned by the industry itself. Might
it not be rather more accepted certainly by the UK if you also
had the other, more recognised standard, the British Film Institute
standard, on these films, because I think there has been disagreement
about what came within the appropriate age range. Why not have
Mr Rawlinson: We have submitted
evidence to the government on their consultation on this issue.
The PEGI system, although established by the industry, as was
the film ratings system back in the beginning of the 20th century,
is independently administered totally separately from the industry.
The research that we conducted of ratings carried out in 2008,
where the British Board of Film Classification rated a number
of products, the same products as PEGI, found in 50 cases that
they rated at a lower classification age than the PEGI system.
We believe that PEGI is more stringent than the British Board
of Film Classification. More importantly, as our products are
interactive and our players are playing across borders, across
boundaries into Europe, the PEGI system provides the correct solution
for products sold both in retail stores in the high street but
also sold and played online and works for gaming today and into
the future. We do believe that it is the right solution and we
are hopeful that in the Digital Britain report the government
will make some pronouncement on this next week. If that pronouncement
is favourable to PEGI, the industry is ready to invest heavily
in marketing and education of the system to ensure that consumers
are fully au fait with all that it stands for.
Q1004 Baroness Howe
of Idlicote: Having said all that, I still do not see why you
could not have both.
Mr Rawlinson: The issue there is
confusion. To have two logos on the packagethis fact was
recognised by Tania Byron in her reportcauses consumer
confusion. What we need to do is differentiate linear film and
TV products from interactive products. Starting with a different
age classification symbol that immediately can enable the consumer
to identify that this is an interactive product is a great place
to start. Then we can go on and further explain the age classification
and the content descriptors so that they full understand the nature
of the content, which is not just about content but is also about
the conduct and the contact between players because we have an
Q1005 Baroness Bonham-Carter
of Yarnbury: Mr Livingstone and Mr Smith, should you perhaps be
focusing more on UK content in your games?
Mr Livingstone: The investment
to make a game is between £15 million and £20 million
and we are a global company with global distribution and we have
to address a global market. Whilst it is great to have a UK-centric
game like Championship Manager, if we are going to recoup our
investment we need to sell probably in the region of 1.5 million
units of a game to get our money back before making any major
contribution. We need to have a global market. The US market is
as big as the European market, so we cannot afford to dismiss
Q1006 Baroness Bonham-Carter
of Yarnbury: Does that mean you are targeting the US market rather
than the UK market?
Mr Livingstone: No. We are looking
for intellectual property that will address the whole market.
Lara Croft, Tomb Raider is sold in every country just about on
the planet because she has global appeal.
Q1007 Baroness Bonham-Carter
of Yarnbury: I thought she was American.
Mr Livingstone: No, she is British.
You probably thought that because of Angelina Jolie.
Q1008 Lord Macdonald
of Tradeston: Can I come back to this question of what would appear
to be the biggest problem of your business model as an industry?
You suffer from the same threats as the film industry in trying
to develop portfolios. As Mr Livingstone says, this is a 20 million
development. I do not know what your success rate is for those
developments that you start, how many are in your portfolio and
how many are successful, but it looks to me as though you are
clearly not capitalised well enough. The British film industry
never has been, so almost from the start it is very difficult
to see a future for your industry based on that business model,
unless something is going to change.
Mr Livingstone: There is certainly
a future for the industry because we happen to be very good at
Q1009 Lord Macdonald
of Tradeston: Can an indigenous, British industry become the global
Mr Livingstone: We have not been
able to get the backing from the financial markets in the UK to
capitalise on our intuitive creativity. Our own company, Eidos,
has been acquired by foreign publishers because they have seen
Q1010 Lord Macdonald
of Tradeston: That is understandable if you have to put £20
million at risk and the game might not be a success. I am still
not clear whether your portfolio success is one in five or one
in ten. How much do you have to put at risk until you get the
breakout and get the money back? The business model is a very
risky one and that is probably why Britain has never been able
to find that capital to give you the product line flowing forward
that you would need.
Mr Livingstone: We are more risk
averse in this country, especially in the creative industries.
In the US you get Ebay, Google, Facebook, etc., coming out. You
do not have that happening in this country. It is the same mindset
for approaching video games which are seen predominantly as a
negative thing and I do not think the government has done anything
to put its arm around us in the 20-odd years that we have been
going. They have kept us at arm's length because of the negative
press and they have not understood the costs involved. They thought
everything was bad about games. They did not think about the fact
that you learn about how to solve puzzles and problems, choice
and consequence, intuitive learning, community online, learning
about just how to operate a computer. These are all positive things,
to my mind.
Q1011 Lord Macdonald
of Tradeston: The capital markets are risk averse about film because
they have lost a lot of money in making films. You seem to have
the same flaw, perhaps more so, in your basic business model.
Mr Livingstone: We are certainly
a long term business. Whilst the Americans are more likely to
take a few hits in the short term, they know they will win in
the long term as consolidation takes place which inevitably happens
like it did in the music and the film industry. All these independents
will in turn be either bought or merged together to create bigger
entities with more capital behind them.
Q1012 Lord Macdonald
of Tradeston: I am very sympathetic to your dilemma. I am just
trying to put it in an international, economic context.
Mr Livingstone: Our case, having
said that, is not helped by the skills problem which I would like
to address later on and also our inability to convince the government
that we are the future and we should be backed financially.
Q1013 Lord King of Bridgwater:
Can we get an answer to the question about the success ratio?
Can you give any sort of figure for that? Is it one in five? How
Mr Livingstone: It is a case of
roast duck or no dinner in most respects. In the charts, the top
ten will be making quite a lot of money for the publishers. Anything
below probably 10 to 20 you will get your money back. It is like
a share portfolio. The ones that really hit big more than pay
for your flops.
Q1014 Lord King of Bridgwater:
How many fail in relation to the number?
Mr Rawlinson: A lot. We can find
that figure for you. It is complicated because for every title
that comes out it may appear on a number of different platforms.
Chairman: That would be a very
useful figure to have. Let us get on to what the government can
do for you or what you would like to see them do for you.
Q1015 Lord Gordon of
Strathblane: Mr Wilson, in your report you were lamenting the
fact that Britain has been slipping in the world rankings in terms
of revenue from third to fourth and I think you said this year
to fifth. Are you saying that the UK games development industry
is competing with one hand tied behind its back? Would you like
to expand on that?
Mr Wilson: The principal point
here is that some of our key competitorsfor example in
many states in the United States, in Canada, especially Quebec,
in France and other jurisdictions, for example in Singapore and
Australiaoffer tax breaks for going into production or
very generous research and development tax credits or grants.
The most egregious example from a UK perspective would be Quebec,
where it is quite extraordinary. Whereas the UK games industry
has grown in terms of employees by about eight per cent over the
last two years, in Quebec the workforce has grown by about 52
per cent because of the very generous tax breaks. At a federal
level, there is a tax break for going into production that amounts
to about 37 per cent. In Quebec itself the government, incredibly,
will pay the salaries of game developers to the tune of 37.5 per
cent of their wage costs. These are extraordinary benefits. Additionally,
to help attract key personnel from other countries to locate in
Quebec, the government offers income tax holidays. There are very
powerful incentives for game developers and individual workers
to locate to Quebec. It is very hard therefore for the UK games
industry to attract international investment when some of the
competitor countries offer such generous support.
Q1016 Lord Gordon of
Strathblane: One of the points you mention in a recent statement
is that the Canadian Government generates much more than that
in inward investment. In other words, it is not simply a tax break;
it is something that comes back with jam on it.
Mr Livingstone: Quebec have invested
$500 million in attracting companies to invest in Canada. They
do not see that as a handout; they clearly see that as an investment
because publishers like Eidos have invested $1.5 billion by way
of inward investment into setting up shop there.
Q1017 Lord Gordon of
Strathblane: Specifically, what would you like the British Government
to be doing? I imagine you would like to be treated like the film
industry rather than differently in terms of regulation.
Mr Wilson: It would be fantastic
to have the very generous tax breaks for going into production
that our compatriots overseas receive for example in Quebec, but
at a bare minimum we would like the UK Government to adopt a tax
break of 20 per cent for going into production.
Q1018 Lord Gordon of
Strathblane: How would the tax break apply?
Mr Wilson: It would be set against
Q1019 Lord Gordon of
Strathblane: That would only help games that are successful and
paying tax on profits?
Mr Wilson: That is correct. There
is a scheme in operation in FranceI think it has been in
operation since 2007which we would very much like the UK
Government to adopt. That provides a 20 per cent production tax
break for games production. The first results of the production
tax break have been announced. About 120 French companies put
in a claim for the tax break. About 40-odd benefited from it.
The French Government decided to support their sector. At the
very least, we would like the UK Government to support the UK
games development sector.
Q1020 Lord Gordon of
Strathblane: I understand you have been lobbying DCMS to that
effect. Any success?
Mr Wilson: My impression is that
DCMS ministers and civil servants are very sympathetic to the
video games industry. The overwhelming impression I get is that
the problem really lies with the Treasury. The Treasury clearly
does not want to introduce that tax break.
Q1021 Chairman: The
Treasury saidI am grateful to The Guardian for thisFollowing
approval of a cultural tax relief for games in France, the government
is now working with the UK gaming industry to collect and review
the evidence for introducing such a credit in the UK." Why
is it working with the gaming industry?
Mr Rawlinson: I think they mean
Q1022 Chairman: Are
you part of the gaming industry?
Mr Livingstone: It is a problem
Q1023 Chairman: Are
you bracketed with the gaming industry?
Mr Rawlinson: We are totally separate
and have nothing to do with that industry, but sometimes video
games are confused with gaming.
Q1024 Lord Inglewood:
Going back to the question of the various forms of public sector
support available elsewhere in the world, what does the WTO have
to say about all this?
Mr Wilson: The government did say
that it would address this issue by going to the WTO to see whether
the Canadian subsidies for example violated WTO rules. They found
out there were no grounds for criticising Canada on that particular
Q1025 Lord Inglewood:
Is that because they were promoting domestic, cultural considerations
or it just happened to be outside the rules?
Mr Wilson: It is outside the rules.
Q1026 Lord Gordon of
Strathblane: Obviously, nobody will give you a tax break without
some strings attached. What strings do you think would be appropriate?
Would it be simply made in Britain or British culture or both?
Mr Wilson: The simplest thing for
the UK Government to do would be to adopt the French criteria
for allowing a games company to benefit from a production tax
break. The French criteria include things such as originality,
technological advancement in the way the game is developed, original
IP and also a cultural element as well. For example, if such a
tax break was introduced in the UK, if there were some points
in the criteria whereby a UK games business might make a historically
based video game, if it was using some new form of technology
to create the game, they should receive points for that. In terms
of some of the strings attached or some of the benefits that could
float back, industry research shows that if we introduce a tax
break of 20 per cent on games production in the UK over a five
year period we would anticipate another 1,600 graduate level jobs
being created and an additional £220 million in investment.
We believe that a tax break for games production would create
dividends for the UK games industry and help the UK economy.
Q1027 Lord Inglewood:
In terms of the product you produce, how much damage is done to
you by thefti.e., piracyof the products that you
make? Secondly, in terms of the value of the businesses in this
country making video games, how much of that is based on intellectual
property they own? Is there a threat of leakage there? We heard
about the visual effects industry earlier. Although people develop
software, it soon becomes public knowledge.
Mr Rawlinson: The level of piracy
and its effect will be determined by the hardware platform that
the game is operating on. A platform such as Play Station 3 has
not been cracked yet and therefore there is no piracy on that
platform. If you take a platform such as the Nintendo DS where
there is a device that can plug into the DS, into the memory slot,
this can circumvent the copy protection that exists and a game
such as the latest instalment of Grand Theft Auto for the DS was
widely pirated. The commercial success of that product was completely
decimated. It is dependent upon the hardware platform as to the
effects and it is dependent on the title. I guess a My Little
Pony type of title will suffer less from piracy than one of the
hard core gaming products that is probably selling to technically
savvy players. Piracy is a big issue. I would characterise it
in this way: in the past, piracy was affected by criminals selling
our product from tables at car boot sales and markets, one person
selling a lot in a criminal way. Now we have millions of people
sharing one or two files in a free way. The effect is exactly
the same. The characterisation of it is quite different. The difficulty
we have is that no one wants to say that the pseudo consumer is
a criminal. However, that unauthorised sharing of intellectual
property is hugely damaging to the industry. We do have the advantage
of technical measures to slow that down in certain cases, but
once that is cracked that is a big problem.
Q1028 Lord Maxton: Does
that need a change in the copyright laws? If you look at copyright,
to allow someone to copy something for their own personal use
is allowable but to copy it for sale is not. A lot of the copying
that goes onthe piracy you are talking aboutis for
personal use. It is lending to friends, your brother or whoever
it might be, is it not?
Mr Rawlinson: There is certainly
some updating required to the copyright law that picks up that
very point that you make. Also, the penalties accruing to online
infringements do not match the penalties accruing to offline infringements.
We have issues there. Detecting and bringing to book criminal
behaviour on the internet is incredibly difficult. Unfortunately,
the very people who provide the conduit, the ISPs, hide behind
their conduit status and fail to get involved in helping to provide
the solution. In fact, the very traffic that harms our industry
benefits them because it becomes a sales benefit for people to
sign up for internet access. In the earlier days of broadband,
companies such as BT were using the very fact of downloading films,
television programmes and games as a sales benefit for signing
up when they did not own the rights to that content. They were
Q1029 Baroness McIntosh
of Hudnall: This is your moment, Mr Livingstone. I did not see
anybody dissenting from your view that there is a serious issue
about skills training for this industry. We have heard this also
in relation to some of the types of technology skills that are
required for the film industry as well. We have heard it from
one of our witnesses earlier. Whose responsibility is it to up
the ante when it comes to creating the skills that are necessary
for this industry? You have said in your evidenceand indeed,
Mr Livingstone, you mentioned it earlierthat the universities
are in some way failing to step up to the plate as far as this
goes. It is quite clear that the kinds of skills that you need
for your industry are in very short supply anyway because they
are mathematical and computer science skills. We know that the
whole education system is failing to generate enough people who
can then, having acquired skills, come back into the education
system to teach them. How do you see the relationship between
the industry itself and the basic educational skills that you
are looking for working together to address the issue that you
are so concerned about?
Mr Livingstone: I do not think
we can just expect the universities to churn out graduates that
we require without any help. If you step back a bit, there are
81 courses in the UK offering computer games studies. Only five
of those courses have been accredited as fit for purpose. The
remainder have not passed or tried to pass the accreditation scheme
offered by Skillset. Because universities are funded via a quota
system, bums on seats, if they can cut out the tough part of the
subject matter and relabel media studies courses as computer games
studies, they are going to get a lot more applicants. All these
students learn about is the social relevance of games and games
design. Of course we need designers but we need the technologists
much more in number. They are doing these students a great disservice
because they are coming out thinking they are going to get a job
and quite clearly they are not. What we need is computer scientists,
digital artists and animators. It is better for us to go to somewhere
like Imperial College where they do not even have a computer games
course and hire straight out of there because they have learned
C++ programming language. They can start work tomorrow. The fact
that these courses have the word games" in them should
be investigated by the trades description people because they
are clearly not giving the games students the skills they need.
We have to change the perception of games to get people to understand
that at school, if you learn mathematics, you might be able to
make the next Tomb Raider, to have some relevance in their lives
for studying mathematics. That will feed all the way up and then
we can work with universities, with government, to create the
courses that we need. We can help teach the universities. Local
students can work with local companies so they can tell them about
the technology, what is happening in content, what is happening
in the market place and then do some lectures and some mentoring
and give some work experience. This will help the studios to get
the students that they require. If government can work with universities
and the industry, as is happening in Scotland, in Dundee, it will
benefit everybody. You cannot expect it just to happen magically.
We are in a huge crisis at the moment because these poorly trained
students coming out cannot do the job that we require. We have
to retrain them for about two years.
Q1030 Baroness McIntosh
of Hudnall: You refer to it as a huge crisis. That is pretty apocalyptic
language. There is some evidence that you have put forward that
it is having an impact on the industry now. What is your worst
case scenario for the industry as a whole if this issue is not
addressed by government and by the universities?
Mr Livingstone: We will not be
able to make the games that historically we have always been great
Q1031 Baroness McIntosh
of Hudnall: Over what period of time?
Mr Livingstone: We recently opened
a studio in Montreal because of the production tax credits but,
secondly, there is a great skill base there. The government has
worked hard to create universities that create content for students
to learn so that we can hire straight away. It is creating this
ecosystem with academia, with investment, with a positive government
to create the culture
Q1032 Baroness McIntosh
of Hudnall: I am sorry to interrupt you. I do understand what
the ideal would be like and I understand that there are models
for it. What I am asking you is: how near are we to the edge of
the precipice as you anticipate it for the industry if this issue
is not addressed?
Mr Livingstone: I do not think
we can say we are at the edge of a precipice, but we are in decline.
If you talk to these guys about how they find graduates who can
start work tomorrow they are going to say it is not easy.
Q1033 Chairman: There
are 81 courses, which I must say are news to me, offering computer
Mr Livingstone: That is right.
Q1034 Chairman: How
many of those would you regard as fit for purpose?
Mr Livingstone: Five have been
accredited by Skillset. There are probably another dozen that
could be accredited by Skillset once they have met the criteria
and had the graduates come through their system. A lot of them
are just offering these generalist courses to get bums on seats.
These graduates are coming out with no value at all.
Q1035 Chairman: Three
quarters of the courses on offer are pretty useless?
Mr Livingstone: I would say so.
Mr Wilson: I do not think that
is fair. I think we do need to clarify that slightly. There are
some university courses, for example, by Bournemouth University,
which are not accredited by Skillset. We know for a fact that
Sony recruits very heavily from Bournemouth University even though
that particular course is not accredited.
Q1036 Chairman: How
many courses do you think are useless?
Mr Wilson: I genuinely do not know
but I do not think it is fair to say that every single course
that is not accredited by Skillset is rubbish. That is simply
Mr Livingstone: I did not say that.
I said five are. 12 probably could be but the rest are not doing
what they should be doing. It is just generalist media courses
with the name crossed out and computer games studies"
Q1037 Chairman: Do you
agree with that?
Mr Wilson: To be honest, I think
the main issue is not so much the games courses and whether they
have been accredited by Skillset or not. The main issue really
goes back to the question which I think you put, the implicit
one about supply. A lot of games businesses like to recruit computer
science or mathematics graduates and of course, as you know from
figures from the Higher Education Funding Council, the number
of people studying computer science has fallen by about 20 per
cent between 2002 and 2006. That is the bigger issue. So many
other industries like manufacturing, the City up until about 12
months ago, are keen to recruit people with mathematical and computer
science skills but it is the creative shortage. That is the more
fundamental issue facing the industry.
Mr Gardner: There is also the issue
that Skillset say that just under three-quarters of the graduates
that come out of those games courses do not get jobs in our industry.
Q1038 Lord Macdonald
of Tradeston: What do you pay to your graduates that you take
on, because you cannot offer them security and clearly other industries
in short supply for the scientists and mathematicians might pay
more. Is there a lifestyle choice going into the games industry
if you are a very bright graduate or do you pay them well?
Mr Livingstone: It is a lifestyle
of course and we pay well. Obviously we are a lot more fun than
Lord Maxton: And more rewarding.
Q1039 Baroness Howe
of Idlicote: Everything is at the higher education level. Surely
there is a gap too as far as apprenticeships are concerned? What
is your view on that?
Mr Gardner: We have two interns
in our studio, so we bring them in for a year's placement with
us. They are going into their final year. They are both in computing.
They are in further education anyway doing degrees in computer
science. One of the big problems is that people think, if they
play and enjoy games, they can make them and I am afraid they
cannot. Even on designers, where you would think it is all about
fun and all the rest, the two best designers I have ever worked
with both had first class degrees, one in English, one in maths,
from Oxford and Cambridge respectively. There is an issue there.
Mr Rawlinson: There is an apprentice
scheme for games testers that has been piloted down in Brighton,
which is supported by Skillset. There are some apprentice opportunities
within the industry but they are very defined and they are within
that testing area generally. Otherwise, within development, our
skills base is at the higher end.
Chairman: Thank you very much. We define
this as an area of critical importance to you although there is
a slight division between you on the cure for it and we will look
at that further. Could I thank you very much indeed for putting
the case so clearly and so well and with so much experience? Thank
you very much and perhaps if we have any other questions we can
come back to you.
6 -The witness has added the clarification that the
computer games industry needs computer scientists, artists and
animators, not generalists. Back