The digital gaming industry is defying the downturn with the £2.2bn UK software market holding steady and gaming consoles showing sales 15% up in the third quarter of 2008 with even better figures expected for the fourth quarter. Can it last?
The problem for this industry is one of supply of the best titles. The demand is there but they simply can’t get enough. Expected sales are expected to be 30% up on 2007 by the end of the month with over 75 million units of console software sold.
The recession has come at the right time for the gaming industry, not because the recession translates into more people playing computer games instead of going out for a meal, but rather because the industry is cyclical.
The hardware that plays the games has a limited lifecycle as newer consoles come on stream and the boom times are in the middle of the that life-cycle when there is an element of stability and the optimum number of hardware units are already sitting in people’s living rooms or, probably more accurately, bedrooms.
Developments like the Nintendo Wii have seen strong sales since their launch and they have sold sufficient numbers (3.5 million in the UK) to have a critical mass. This would suggest that the gaming hardware cycle has perhaps 18 months to 2 years to run before it hits hard times.
A report by the National Endowment for Science, Technology & the Arts (NESTA) has warned that the UK is losing its competitive edge in digital games development to places like Tokyo and Montreal where the sector is subsidised through generous tax breaks.
The 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 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 constraints above.
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. 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 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.
But 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.
Brighton already hosts branches of international games development companies like Pulled Pin, Disney, Kuju and Relentless and the sector is an important element of our overall strategy to raise the value of jobs in the city and broaden our economic base.
If the recession is short this sector may sail out of the other side largely unaffected and kept afloat by their back-order book. If it is longer even the gaming industry may start to wilt under the pressure and it will still have to address the issue of competition from other countries.
Click below to link to the full NESTA report
Raise the Game report
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