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Contents
| Executive Summary |
4 |
| Introduction |
7 |
 Chapter overview |
7 |
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| Chapter 1: Assessment of the UK versus its competitors |
8 |
| United Kingdom |
8 |
| Sector snapshot |
8 |
| Scale of UK games development sector |
9 |
| Talent pool |
10 |
| Creativity |
11 |
| Strength of UK-owned companies |
12 |
| Access to finance |
13 |
| Canada |
14 |
| Historical outlook |
14 |
| Scale of Canada games development sector |
15 |
| Talent pool |
16 |
| Creativity |
16 |
| Strength of Canadian-owned companies |
17 |
| Access to finance |
18 |
| Availability of government support |
18 |
| France |
19 |
| Historical Outlook |
19 |
| Scale of the French games development sector |
19 |
| Talent pool |
20 |
| Creativity |
21 |
| Strength of French-owned companies |
22 |
| Access to finance |
22 |
| Availability of government support |
22 |
| Germany |
23 |
| Sector snapshot |
23 |
| Scale of German games development sector |
23 |
| Talent pool |
24 |
| Creativity |
25 |
| Strength of German companies |
26 |
| Access to finance |
27 |
| Availability of government support |
27 |
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| Chapter 2: Update on policy measures |
29 |
| Target territories |
29 |
| Other territories |
31 |
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| Chapter 3: Impact of policy measures |
33 |
| UK |
33 |
| Impact of government support on UK games development industry |
33 |
| Evidence of impact of government support |
33 |
| Canada |
34 |
| Impact of government support on Canadian games development industry |
34 |
| Evidence of impact of government support |
35 |
| France |
36 |
| Impact of government support on French games development industry |
36 |
| Evidence of impact of government support |
36 |
| Germany |
37 |
| Impact of government support on German games development industry |
37 |
| Evidence of impact of government support |
37 |
| Global sales rankings |
39 |
| Commentary |
39 |
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| Chapter 4: Future competitive indicators |
41 |
| Changing market conditions |
41 |
| Opportunities |
41 |
| Threats |
41 |
| Features of successful studio sectors in 2013 |
42 |
| Gap analysis for the UK |
46 |
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| Chapter 5: Conclusions |
50 |
| Key challenges for UK games studios |
50 |
| Balancing original game creation with third party licence work |
50 |
| Managing rising development costs |
50 |
| Increasing access to finance |
50 |
| Maintaining a flow of new company start-ups to refresh the sector |
50 |
| Generally low quality of graduates |
50 |
| Stopping brain drain weakening the sector in the long term |
50 |
| Accessing new markets and demographics |
51 |
| Lack of governmental support |
51 |
| Rising to the challenge |
51 |
| Increasing the flow of original new games |
51 |
| Exploiting the massive potential of online gaming |
51 |
| Growing the online games services sector |
51 |
| Exploiting synergies between converging media |
52 |
| Increasing the calibre of graduates |
52 |
| Protecting UK creative jobs while exploiting globalisation |
52 |
| Increasing the availability of more substantial support from public
funds |
52 |
Executive Summary
This report, commissioned by NESTA from Games Investor Consulting, assesses
the competitiveness of the UK’s games studio sector in an international context.
The report profiles the games development sectors of the UK, Canada, France and
Germany, with a particular focus on policy measures from national and regional
governments, identifying challenges and opportunities that have emerged as a
consequence of the evolution of video game markets and technology.
Key findings
This report shows that in spite of its high levels of technical and creative
skills and its continued production of world-class games, the UK games studio
sector faces important structural weaknesses. They include a lack of global
scale publishers, limited access to finance and skill shortages. These factors
constrain the UK’s capacity to generate new games ideas and innovative genres.
UK developers are very talented and at the technological cutting edge, but many
independent studios have to rely on third party licenses to survive. The revenue
flows generated with this business model are insufficient to develop original
ideas.
This situation will be difficult to sustain as the industry becomes more
globalised. Creativity and innovation are where UK studios have always excelled,
but these two sources of competitive advantage are being severely tested by the
aforementioned constraints. It is unclear how well UK studios will be able to
compete with cheaper overseas developers who are improving the quality of their
output.
The situation is worsened by international competition from countries, such
as Canada, where developers receive government support. Generous subsidies make
it increasingly tempting for studios (particularly those owned by publishers)
and developers to relocate there. This has initiated a process of decline in the
UK’s studio sector that is projected to intensify in the coming years, unless
the sector receives more support from government.
But support needs to be properly targeted. Our analysis of those countries
that have implemented policies to support the video game sector shows variable
results. Some Canadian provinces have implemented generous support policies that
have accelerated its studios to world-class status in a very short time. However,
France found that some initiatives exacerbated problems around the French studio
sector’s inability to create commercially viable products. While tax incentives
have been very effective in encouraging investment into Quebec, they have not
been targeted at the creation of new intellectual property by Canadian-owned
studios, whose original ideas remain weak. All these questions need to be taken
into consideration when assessing which potential policy initiatives should be
adopted to support UK studios.
Yet immediate action is needed. Video games have achieved a mass medium
status, with new genres, hardware and modes of playing contributing to a rapidly
expanding global market. At the same time, globalisation has created a uniquely
competitive and uneven commercial landscape for video games where UK developers
face serious challenges. Studios, government support agencies and universities
all have a role to play in helping overcome these barriers, so that the UK
sector remains at the forefront of creativity, innovation and growth in video
game development.
Country profiles and policy support
There has been an 8% growth in staff working in the UK’s studio sector since
2006. But numbers are now falling from a peak of 9,860 following studio closures,
relocation and downsizing. This trend is expected to accelerate.
UK studios are projected to spend £450m in development in 2008, retaking
third position in the global sales rankings on account of the success of one
blockbuster video game, after having been overtaken by Canada in 2006 However,
the UK development sector will fall to 5th position in 2009, overtaken
development, lack of access to finance, limited capabilities in online
development and limited government support.
In spite of this, the UK has developed a world-class games development sector
which has survived consolidation and industry down-cycles. Yet even at the peak
of the current cycle, the UK’s studio sector started to shed jobs and faces
barriers to the creation of new ideas – Intellectual Property - the engine of
the industry.
Meanwhile, Canada’s development headcount has grown by 42% since 2006 to
10,500 employees, with Canadian studios spending £400m in 2008, and the country
set to reach fourth place in global sales rankings, before being overtaken by
South Korea and China. Regional government support for games is strong, and has
encouraged major relocation of studios in Canada, particularly from France but
also from the UK.
France’s employee headcount has grown 14% to 2,500, largely driven by online
games companies. French studios will spend £111m on development in 2008, and
remain in seventh place in terms of sales. Government support for games
development is widespread and increasing, but its impact on studio location is
expected to be small. Following an exodus of studios to Quebec, France’s studio
sector has remained stagnant, despite such large-scale injections of capital. It
is too early to assess the impact of a new national games development tax credit,
but it seems unlikely that the French development sector will become a global
leader in the near future.
Germany has 2,900 developers, and spends £107m in development. German studios
will grow healthily to 2013 as a result of a booming online games sector, but
its eighth position in global sales rankings will not change. The German studio
sector has grown organically with no public support, but is imbalanced towards
the single platform of PC gaming.
An assessment of policy initiatives in other countries shows significant
government support for the games development sector in Australia, China,
Singapore, Korea and five US states.
Future competitive environments
Video games are now a global mass-market medium. This creates opportunities
for UK developers willing to target new demographics, platforms and regions.
Online gaming and cross media ventures constitute particularly promising areas.
Threats to the UK studio sector come from the diversion of development
resources into cheaper or subsidised territories, as well as the sector’s slow
response to online gaming, falling levels of new IP and rising labour costs. In
this context, government support can become a defining factor, as large
publishers relocate to subsidised territories, and qualified labour migrates
with them.
Globally, the industry will be defined in the future by
- the degree of balance between independents and publisher-owned studios;
- the sector’s capabilities to create strong original new ideas;
- resilience to console cycles;
- strong skills in traditional and online games production;
- creative and technical expertise;
- the availability of a skilled labour pool;
- improvements in efficiency through outsourcing and other development
strategies; and
- the level of support from national or regional governments.
By 2012, the UK’s studio sector will be smaller and more consolidated but
will have begun to exploit opportunities for profitability, stability and IP
creation in online gaming.
Key challenges for UK studios will be:
- Balancing original ideas with third party licence work
- Managing rising development costs
- Increasing access to finance
- Maintaining a flow of new company start-ups to revitalise the sector
- Improving the quality of graduates
- Accessing new markets and demographics
- Promoting a supportive policy environment
To respond to these challenges, key strategic goals for the UK studio sector
should be:
- Increasing the flow of original new ideas
- Exploiting the massive potential of online gaming
- Exploiting synergies between converging media
- Protecting UK creative jobs while exploiting international development
capabilities through outsourcing
- Increasing the calibre of graduates
- Increasing diversity in development teams
- Increasing support from public funds
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