I won. Parliament won’t sue me for publishing my own work

1. The decision not to introduce games tax relief will prove to have been a great boon for the UK games industry.
2. The games industry, like all media businesses, is undergoing a major transition. The old business models, predicated on the challenges of distributing content in physical formats, is collapsing under pressure from the Internet.
3. We are at the start of a new era of games, similar to the emergence of television in the 1940s and 1950s. There will still be successful, tentpole games with large development budgets and huge marketing spend. But the also-ran games, the equivalent of B-movies, will struggle and ultimately die in the face of competition from games on new digital platforms such as iPhone, Facebook, and download channels on PlayStation, Xbox and Wii.
4. I fear that tax breaks might help the UK in the short-term, but cause substantial long-term pain.
5. It makes the UK compete on a lowest common denominator of price. As countries such as India and China continue to strengthen their gaming expertise, competing on price will only work in the short term:
   1. Tax breaks misalign incentives. Developers are no longer choosing to design games that consumers want to buy or publishers want to commission; they are making games that tick the boxes that government want to fund. The track record of government picking winners is not strong.
   2. Tax breaks will divert the best from creating the games business of the future. Britain has successful games companies developing the games businesses of the future. Examples include Jagex (developer of RuneScape), Playfish (developer of Restaurant City, bought for up to $400 million in November 2009) and Mind Candy (developer of Moshi Monsters). Tax breaks predicated on the games industry of 2009 are unlikely to help the UK stay competitive as the industry goes through dramatic change over the next 5-10 years.
   3. Industry specific tax breaks reward those who play the system. Making the UK a good place to do business (lower corporation tax breaks, less red tape) is a better use of public money than specific-targeted breaks that are expensive to apply for and expensive to implement.
   4. Tax breaks will benefit overseas companies more than British ones. Globally, games publishers are overwhelmingly non-British. Tax incentives might keep jobs in the UK (although, in my view, it would be the wrong jobs), but the majority of the financial benefits would accrue to giant French, Japanese and US publishers..
6. I have written more about my opinions at GAMESbrief.
   1. http://www.gamesbrief.com/2010/07/video-game-tax-breaks-short-term-gain-for-long-term-pain/
   2. http://www.gamesbrief.com/2010/07/are-tax-breaks-dooming-canada-to-second-class-status/
7. Ed Balls has also claimed that the demise of RealTime Worlds is evidence of the need for tax credits for the UK games industry. Nothing could be further from the truth. RealTime Worlds was a mismanaged company that failed to understand how the games industry was changing. It raised over $104 million in investment from professional investors, and was unable to make a success of its ambitious game, APB. RealTime World’s problem was not that it had too little capital; it was that it had too much.[i]
8. The primary needs that the video games industry has are:
   1. For improved education, particularly in the areas of science and technology
   2. For a benign environment for starting up and running a business
   3. I would also be supportive of ensuring that the R&D tax credit regime supports the wide range of original research carried about the games industry. I believe that there could be a role for government in helping different media (games, television, music, publishing, web) to interact, and potentially for some knowledge transfer and training, although my instincts would be to keep this support at a very low level.
9. The parts of the UK games industry that are suffering are suffering because their industry is changing around them. Tax credits would stave off the pain for a while, but it would prevent a much-needed change in structure, attitude, staffing and business models. They would be damaging to the UK’s long-term prospects as a games powerhouse.

About me

Nicholas Lovell is a games industry consultant and analyst. A former investment banker, he writes a blog on the business of games at www.gamesbrief.com and has written a book entitled How to Publish a Game.

He has worked with clients including Atari, Channel 4, Firefly, nDreams, Rebellion and Square Enix, and provides advice on the games industry to financial institutions.

I write here in my capacity as an independent consultant, and do not represent any clients on this topic.

[i] http://www.gamesbrief.com/2010/08/hubris-ambition-and-mismanagement-the-first-post-mortem-of-realtime-worlds/