Video games tax credit

EMBARGOED UNTIL 00:01HRS ON THURSDAY 27 AUGUST 2009

Intellectual Property (IP) development in the games industry has slowed over the past five years, and there are fears that this trend will continue over the foreseeable future according to new research published today.

The independent research, commissioned by NESTA (National Endowment for Science, Technology and the Arts), surveyed thirty leading representatives from the industry, as well as potential investors ahead of the Government’s consultation on the cultural tax credit due to end this Friday. Nearly threequarters expressed fears that original IP development is grinding to a halt.

Until recently, Britain was the third most successful video games industry in the world, behind the United States and Japan but is expected to fall to fifth place in 2009 and sixth place in 2010.

Executives claim that the UK has been punching above its weight because of the creativity and talent of its developers who are moving to countries where the games industry receives generous subsidies.

Almost all of those surveyed saw the tax credit as a way to turn the tide for the industry.

In particular, they felt that it would bring new investment to the sector, create jobs and trigger innovation. Investment in privately held games companies has dropped by 60% since 2008.

Commenting on the report, NESTA’s Chief Executive Jonathan Kestenbaum says: ‘This report is significant because it captures for the first time a range of industry views that will inform the current debate. The video games sector is one of the UK’s great success stories of recent years and we shouldn’t walk away now. The Government should consider any action that it takes as an investment, not a handout’.

Other key findings are:

· Two thirds of studios questioned believed that tax credits would help original IP development and 75% of independent video games developers said it would help them retain IP they create.

· All the independent developers interviewed claimed that a tax credit would help them adopt innovative business models using online and mobile platforms, two booming markets where the UK is lagging behind its competitors in South Korea, Germany and the Scandinavian countries

· Over half of studios expected headcount growth as a consequence of a cultural tax credit.

· Investors unanimously thought that the tax credit would boost the scale or number of investments in UK games projects.

· Third party development funding by publishers would also be boosted, with all managers in charge of external contracting saying that a tax credit could well make the difference between investing in, or passing over UK games development opportunities.

Ian Livingstone OBE, Life President of Eidos , creators of Lara Croft:Tomb Raider says: ‘In the past we were able to develop a world class video games sector in the UK even as development costs increased and without any form of Government support.

But it is becoming increasingly difficult to compete with countries offering production tax credits of up to 37.5% to development studios, and offering income tax holidays and other financial incentives to the UK talent that we have nurtured. It is time for the Government to invest in the digital future of video games.’

The video games industry claim that any cultural tax credit would cost a fraction of the £104 million cost of the tax relief scheme in place for the UK film sector (between January 2007 and March 2008), which contributes less to the economy. The creative and digital content industries will be a vital future source of economic growth for the UK.

The video games sector in the UK contributes £1 billion to GDP – with the global games market projected to grow at a compound annual rate of 10.3 per cent between 2008 and 2012.

-End-

Notes to Editors

For further information please contact Chani Hirsch in NESTA’s Press Office on 020 7438 2601 or Chani.Hirsch@nesta.org.uk or Jan Singleton on 020 7438 2606 or Jan.Singleton@nesta.org.uk

About NESTA

NESTA is the largest independent endowment in the UK. Its mission is to support innovation to drive economic recovery and solve some of the UK’s major social challenges.

NESTA is a world leader in its field and is in a unique position to support and promote innovation through a blend of practical programmes, policy and research and investment in early-stage companies.

About the report

The independent study was commissioned by NESTA and carried out by Games Investor Consulting. Thirty leading UK companies involved in games development, publishing and financing were surveyed.

It follows the publication of the Digital Britain report which called for evidence on how to support the activities of the UK games sector, and in particular, at the potential impact of a cultural tax credit.

The video games sector in the UK contributes £1 billion to GDP. The video games market worldwide is projected to grow at a compound annual rate of 10.3 per cent between 2008 and 2012, compared to an average of 6.6 per cent for all media and entertainment markets. Until recently, the UK video game developers ranked third in global sales after the USA and Japan, but we are now slipping to fifth place. However, to ensure that the UK is well positioned to benefit from the rapid expansion in video games markets, the industry is lobbying Government for a ‘cultural tax credit’ to support their activities which they estimate would cost £28-32 million per year.

About Games Investor Consulting

Games Investor Consulting provides research and strategy consulting and corporate finance services to the games, media and finance industries. Since it was founded in 2003, Games Investor Consulting has established itself as a unique provider of business intelligence and advisory services relating to all facets of the rapidly growing global games industry.

For further information, please contact Nick Gibson on 020 7602 4858 or nick@gamesinvestor.com