'Video game tax breaks: what does it mean and what happens now?' diff viewer (1/2)

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Video game tax breaks: what does it mean and what happens now?	Video game tax breaks: what does it mean and what happens now?
2012-10-30 02:50:10 UTC	2012-10-30 19:25:13 UTC (about 17 hours later)
After many years of lobbying, a couple of close calls and one almighty let-down in 2010, the UK games industry has finally done it – it has secured a commitment to tax breaks from the government. Although positive murmurs could be heard in the run up to the budget announcement, it seems few insiders allowed themselves to believe that chancellor George Osborne would deliver a full tax credits proposal.	After many years of lobbying, a couple of close calls and one almighty let-down in 2010, the UK games industry has finally done it – it has secured a commitment to tax breaks from the government. Although positive murmurs could be heard in the run up to the budget announcement, it seems few insiders allowed themselves to believe that chancellor George Osborne would deliver a full tax credits proposal.
As late as last week, Richard Wilson, the chief executive of developers' trade body Tiga and the spearhead of the industry's fight for tax credits, was speaking in terms of potential compromise: perhaps the treasury would consider extensions to the more restrictive R&D tax credits; maybe there would be a promise to look into the notion of wider tax initiatives at some point? All that is in the past now.	As late as last week, Richard Wilson, the chief executive of developers' trade body Tiga and the spearhead of the industry's fight for tax credits, was speaking in terms of potential compromise: perhaps the treasury would consider extensions to the more restrictive R&D tax credits; maybe there would be a promise to look into the notion of wider tax initiatives at some point? All that is in the past now.
On Wednesday, the chancellor committed to providing tax credits for the video games, animation and high-end television industries, "subject to state aid approval and following consultation". He also claimed that his ambition was to turn Britain into the technology hub of Europe. A fairly unambiguous proposition.	On Wednesday, the chancellor committed to providing tax credits for the video games, animation and high-end television industries, "subject to state aid approval and following consultation". He also claimed that his ambition was to turn Britain into the technology hub of Europe. A fairly unambiguous proposition.
Watching the Commons speech live on Wednesday, Wilson was understandably ecstatic when the chancellor reached the part about games. "I almost leapt out of my seat," he says. "By making this announcement, the government has recognised that games are culturally as important as films – that is huge, that's an awesome achievement.	Watching the Commons speech live on Wednesday, Wilson was understandably ecstatic when the chancellor reached the part about games. "I almost leapt out of my seat," he says. "By making this announcement, the government has recognised that games are culturally as important as films – that is huge, that's an awesome achievement.
"The second thing is, it will mean a massive financial boost to the games sector – we should see £188m of investment expenditure because of this proposal. It's fantastic news for games and it's fantastic news for the UK economy."	"The second thing is, it will mean a massive financial boost to the games sector – we should see £188m of investment expenditure because of this proposal. It's fantastic news for games and it's fantastic news for the UK economy."
Positive reaction	Positive reaction
Reactions have mostly been positive and enthusiastic within the industry. Bobby Kotick, the chief executive of US-based publishing giant Activision released an immediate statement: "This is a great first step and should put the UK in a stronger position to compete with other countries offering incentives for video games production. The UK is an important centre for development talent, employing 9,000 people in the video games sector, and anything that promotes further investment should be welcomed."	Reactions have mostly been positive and enthusiastic within the industry. Bobby Kotick, the chief executive of US-based publishing giant Activision released an immediate statement: "This is a great first step and should put the UK in a stronger position to compete with other countries offering incentives for video games production. The UK is an important centre for development talent, employing 9,000 people in the video games sector, and anything that promotes further investment should be welcomed."
It was a sentiment echoed by other major publishers such as Electronic Arts and Ubisoft, who also issued supportive missives. Which brings us to an important point surrounding the tax credits issue: most major publishers have closed UK studios in the last two years.	It was a sentiment echoed by other major publishers such as Electronic Arts and Ubisoft, who also issued supportive missives. Which brings us to an important point surrounding the tax credits issue: most major publishers have closed UK studios in the last two years.
Activision shut down the Liverpool-based Bizarre Creations in February 2011, Disney closed Black Rock, a veteran Brighton developer, in July, while Electronic Arts shuttered its Guildford studio, Bright Light, in January of this year	Activision shut down the Liverpool-based Bizarre Creations in February 2011, Disney closed Black Rock, a veteran Brighton developer, in July, while Electronic Arts shuttered its Guildford studio, Bright Light, in January of this year
"The UK is a vital centre of game development and we intend to maintain a strong presence here," said an EA statement. But nowadays the publisher has just one developer, Criterion, in the UK.	"The UK is a vital centre of game development and we intend to maintain a strong presence here," said an EA statement. But nowadays the publisher has just one developer, Criterion, in the UK.
Although still a major player in the global games industry, Britain has dropped from third to sixth in the development rankings over the past five years. While countries such as Canada and France have seen an influx of investment by offering tax breaks to games companies (In Quebec, government subsidies meet 37.5% of games industry payrolls) Britain has been subject to a brain drain as talented development staff have moved abroad for better salaries. Is there a chance tax credits could reverse that trend?	Although still a major player in the global games industry, Britain has dropped from third to sixth in the development rankings over the past five years. While countries such as Canada and France have seen an influx of investment by offering tax breaks to games companies (In Quebec, government subsidies meet 37.5% of games industry payrolls) Britain has been subject to a brain drain as talented development staff have moved abroad for better salaries. Is there a chance tax credits could reverse that trend?
"Well, tax credits send out a strong message that the UK is the best place in the world to develop games. That in itself will attract inward investment," says Ian Livingstone, life president of publisher Square Enix and chair of the Creative Industries Council's Access to Finance Group.	"Well, tax credits send out a strong message that the UK is the best place in the world to develop games. That in itself will attract inward investment," says Ian Livingstone, life president of publisher Square Enix and chair of the Creative Industries Council's Access to Finance Group.
"We've certainly got the talent here – we're the most creative nation in the world – we just have to make sure those creatives are empowered with a skilled labour force, access to finance, and tax credits that level the playing field internationally."	"We've certainly got the talent here – we're the most creative nation in the world – we just have to make sure those creatives are empowered with a skilled labour force, access to finance, and tax credits that level the playing field internationally."
Games are a serious business	Games are a serious business
Perception seems to be a key element here. While Britain is still producing some of the best games in the world (Grand Theft Auto, Batman, LittleBigPlanet), smaller studios are suffering partly because of a lack of support from venture capitalists and business angels. If nothing else, a nod from Osborne is an indication that this is a business to take seriously.	Perception seems to be a key element here. While Britain is still producing some of the best games in the world (Grand Theft Auto, Batman, LittleBigPlanet), smaller studios are suffering partly because of a lack of support from venture capitalists and business angels. If nothing else, a nod from Osborne is an indication that this is a business to take seriously.
"It's an important first step in raising the profile of the sector," agrees Colin Anderson, the managing director of Dundee studio Denki. "It's saying that the games industry is open for business. Not nearly enough has been made of this - lots of people are saying, well, what are tax breaks going to do for MY business, but that's missing the point.	"It's an important first step in raising the profile of the sector," agrees Colin Anderson, the managing director of Dundee studio Denki. "It's saying that the games industry is open for business. Not nearly enough has been made of this - lots of people are saying, well, what are tax breaks going to do for MY business, but that's missing the point.
"There's a bigger picture here. We tend to have a very insular view, we think games are mainstream because we're all into them, but I can't stress enough how un-mainstream the games industry is when you go and talk to investors - it's still the black sheep of the creative industries, let alone the wider business community.	"There's a bigger picture here. We tend to have a very insular view, we think games are mainstream because we're all into them, but I can't stress enough how un-mainstream the games industry is when you go and talk to investors - it's still the black sheep of the creative industries, let alone the wider business community.
"But now the government is saying, 'we recognise that you guys are as important as film and television'. That's a great benchmark. At the moment there aren't enough investors savvy enough to be investing in the games sector, so anything we can do to incentivise them to take a chance on games is good."	"But now the government is saying, 'we recognise that you guys are as important as film and television'. That's a great benchmark. At the moment there aren't enough investors savvy enough to be investing in the games sector, so anything we can do to incentivise them to take a chance on games is good."
Of course, the details of the credits have yet to be bashed out, but we have a good clue in the structure Tiga has requested in its report A Video Games Tax Relief: An Incentive to Build a Sustainable Video Games Development Sector, which exactly echoes the tax credits being provided to the film industry. This equates to 20% tax relief on production costs for games costing more than £3m to produce and 25% on games costing between £50,000 and £3m. But this will based on UK expenditure, using British staff.	Of course, the details of the credits have yet to be bashed out, but we have a good clue in the structure Tiga has requested in its report A Video Games Tax Relief: An Incentive to Build a Sustainable Video Games Development Sector, which exactly echoes the tax credits being provided to the film industry. This equates to 20% tax relief on production costs for games costing more than £3m to produce and 25% on games costing between £50,000 and £3m. But this will based on UK expenditure, using British staff.
Will tax breaks hurt the indies?	Will tax breaks hurt the indies?
Assuming these rates are adopted, will the system really start attracting those big publishers back into the county? Livingstone is convinced it will. "Look at the effect of film tax credits in the UK," he says. "We know for a fact that Warner Bros and Disney have produced films in the UK because of both the talent available and the incentive of 20% tax credits. Those films could easily have been made elsewhere, but they weren't. We hope that similar attitudes will exist with games."	Assuming these rates are adopted, will the system really start attracting those big publishers back into the county? Livingstone is convinced it will. "Look at the effect of film tax credits in the UK," he says. "We know for a fact that Warner Bros and Disney have produced films in the UK because of both the talent available and the incentive of 20% tax credits. Those films could easily have been made elsewhere, but they weren't. We hope that similar attitudes will exist with games."
This may well bring its own problems however. Lol Scragg, chief executive of games business consultancy Gamify, worries about the eco-system of development in the UK. "Whilst I have no knowledge of the detail of what is being offered, I do have a concern that any benefits could be to the detriment of the independent game developers we currently have in the UK.	This may well bring its own problems however. Lol Scragg, chief executive of games business consultancy Gamify, worries about the eco-system of development in the UK. "Whilst I have no knowledge of the detail of what is being offered, I do have a concern that any benefits could be to the detriment of the independent game developers we currently have in the UK.
"I fear that the large international companies could set up their megastudios here whilst hoovering up the talent currently in the independent sector, purely for the reduced costs of labour. I hope that Tiga are involved in any tax credits consultation to ensure that the greater benefit comes to indigenous UK owned and based companies, rather than just being cheap labour for our French and American colleagues."	"I fear that the large international companies could set up their megastudios here whilst hoovering up the talent currently in the independent sector, purely for the reduced costs of labour. I hope that Tiga are involved in any tax credits consultation to ensure that the greater benefit comes to indigenous UK owned and based companies, rather than just being cheap labour for our French and American colleagues."
It's a legitimate concern, but there are plenty of insiders who feel the effect will be the reverse: that tax breaks will help to support small studios, working on original development. On Thursday, I spoke to Dave Bailey, CEO of Mediatonic – a UK studio specialising in mobile games.	It's a legitimate concern, but there are plenty of insiders who feel the effect will be the reverse: that tax breaks will help to support small studios, working on original development. On Thursday, I spoke to Dave Bailey, CEO of Mediatonic – a UK studio specialising in mobile games.
Although the company currently does a lot of work with publishers in the US, Bailey believes the availability of tax breaks would make it more rewarding for his team to produce original titles. "Well, it's going to be 20% cheaper for us to make games," he says, bluntly. "We do make our own original titles but this means we can potentially put more money into them, with tax credits mitigating some of the risks."	Although the company currently does a lot of work with publishers in the US, Bailey believes the availability of tax breaks would make it more rewarding for his team to produce original titles. "Well, it's going to be 20% cheaper for us to make games," he says, bluntly. "We do make our own original titles but this means we can potentially put more money into them, with tax credits mitigating some of the risks."
He isn't alone. "We are all about innovation," says Roberta Lucca of Bossa Studios, a Shoreditch start-up that just won a Bafta award for its social game, Monstermind. "We started with four founders using our life savings to do something creative. For us this announcement is a great incentive: in order to innovate you have to take risks, but this lessens them."	He isn't alone. "We are all about innovation," says Roberta Lucca of Bossa Studios, a Shoreditch start-up that just won a Bafta award for its social game, Monstermind. "We started with four founders using our life savings to do something creative. For us this announcement is a great incentive: in order to innovate you have to take risks, but this lessens them."
"I went to GDC last week and a lot of British companies were doing work-for hire," adds Oli Christie of Neon Play. "But there's a real desire among developers to make their own games. Working on original IP is much more fun and rewarding, and you're driving up the value of your own studio. There are so many talented young companies and I think that's where the drive for growth is going to come from in this country. Zynga should be buying UK studios, not OMGPOP."	"I went to GDC last week and a lot of British companies were doing work-for hire," adds Oli Christie of Neon Play. "But there's a real desire among developers to make their own games. Working on original IP is much more fun and rewarding, and you're driving up the value of your own studio. There are so many talented young companies and I think that's where the drive for growth is going to come from in this country. Zynga should be buying UK studios, not OMGPOP."
What's the next move?	What's the next move?
The big question is, what happens now? Osborne has provided no further information on his tax break plans beyond the brief mention on Wednesday. The whole substance of the proposal remains undecided.	The big question is, what happens now? Osborne has provided no further information on his tax break plans beyond the brief mention on Wednesday. The whole substance of the proposal remains undecided.
The next step will be a period of consultation. "It has to go through the government and the treasury," says Livingstone. "They have to decide how it's going to work, who will be able to qualify, the limitations. Like the film industry, there may be a cultural test – that doesn't mean you'll need to have red telephone boxes throughout your game, it's about having a certain amount of British production talent working on the game.	The next step will be a period of consultation. "It has to go through the government and the treasury," says Livingstone. "They have to decide how it's going to work, who will be able to qualify, the limitations. Like the film industry, there may be a cultural test – that doesn't mean you'll need to have red telephone boxes throughout your game, it's about having a certain amount of British production talent working on the game.
"It will then have to go through EU approvals to make sure it's not contravening any state aid laws – that will take about a year. The important thing is, the industry has to come together as one to consult with the government to make sure it gets the best deal."	"It will then have to go through EU approvals to make sure it's not contravening any state aid laws – that will take about a year. The important thing is, the industry has to come together as one to consult with the government to make sure it gets the best deal."
Despite the lack of solid information, a few possible figures are circulating the industry, and UK studios have begun working out the ramifications. "From what I understand, the tax break will be worth £15m in the first year and £35m in the second," says Miles Jacobson, studio director of Sports Interactive, creator of the hugely successful Football Manager series.	Despite the lack of solid information, a few possible figures are circulating the industry, and UK studios have begun working out the ramifications. "From what I understand, the tax break will be worth £15m in the first year and £35m in the second," says Miles Jacobson, studio director of Sports Interactive, creator of the hugely successful Football Manager series.
"At first, we thought that didn't sound like much, but then, it's a start. It's something. At Sports Interactive, if we successfully claim tax credits, we'll be looking to re-invest that money into creating new jobs, which in turn will make our games better and more competitive."	"At first, we thought that didn't sound like much, but then, it's a start. It's something. At Sports Interactive, if we successfully claim tax credits, we'll be looking to re-invest that money into creating new jobs, which in turn will make our games better and more competitive."
This is a common theme. "The beauty of it is, when tax credits come online, we'll be able to re-invest even more into jobs." says Imre Jele of Bossa Studios." Over the last year we've created 30 jobs and if we have credits, if we can save 20% on our production, that's 20% we can put toward wages. It's also about making it easier for game developers fresh out of university to start their own companies. It's a very exciting moment."	This is a common theme. "The beauty of it is, when tax credits come online, we'll be able to re-invest even more into jobs." says Imre Jele of Bossa Studios." Over the last year we've created 30 jobs and if we have credits, if we can save 20% on our production, that's 20% we can put toward wages. It's also about making it easier for game developers fresh out of university to start their own companies. It's a very exciting moment."
There are dissenting voices, however, and these are important. When I asked Ricky Haggett, founder of talented studio Honey Slug about the meaning of the budget announcement, he gave a very different answer.	There are dissenting voices, however, and these are important. When I asked Ricky Haggett, founder of talented studio Honey Slug about the meaning of the budget announcement, he gave a very different answer.
"There's a wider issue here, which is whether tax breaks for the UK games industry is even appropriate. And on a personal level, I'd prefer it if the government was taking steps to equalise the huge difference between rich and poor: tax breaks for the games industry come as part of a package which contains some of the most awful things this coalition government is doing to the UK – so I don't feel it's appropriate to celebrate one part which happens to affect my own situation."	"There's a wider issue here, which is whether tax breaks for the UK games industry is even appropriate. And on a personal level, I'd prefer it if the government was taking steps to equalise the huge difference between rich and poor: tax breaks for the games industry come as part of a package which contains some of the most awful things this coalition government is doing to the UK – so I don't feel it's appropriate to celebrate one part which happens to affect my own situation."
There's something in that, of course. But then, with billions of pounds a year to pump into the UK economy, the digital creative industries can at least provide a hint at a more optimistic future. It's hard not to be excited by that. And amid the anger directed at the 50p top-rate tax cut, at the bankers and businessmen growing ever more rich off a defunt fiancial sector, there is the bright potential of brilliant young high-tech studios making a stab at turning around the country's fortunes.	There's something in that, of course. But then, with billions of pounds a year to pump into the UK economy, the digital creative industries can at least provide a hint at a more optimistic future. It's hard not to be excited by that. And amid the anger directed at the 50p top-rate tax cut, at the bankers and businessmen growing ever more rich off a defunt fiancial sector, there is the bright potential of brilliant young high-tech studios making a stab at turning around the country's fortunes.
This is, as Jele put it, all part of a moment – a tipping point. During the process of lobbying for tax breaks, game developers have also joined with the wider technology community to campaign for better computer science education in schools. In January, Michael Gove committed to re-addressing outdated ICT teaching. Within the space of a year, the climate has utterly changed for the high-tech industries in the UK.	This is, as Jele put it, all part of a moment – a tipping point. During the process of lobbying for tax breaks, game developers have also joined with the wider technology community to campaign for better computer science education in schools. In January, Michael Gove committed to re-addressing outdated ICT teaching. Within the space of a year, the climate has utterly changed for the high-tech industries in the UK.