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Tax relief incentive could signal sea change for UK developers

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Charles Cecil

Founder and Director of UK-based games developer Revolution Software

Charles Cecil, Founder and Director of UK-based games developer Revolution Software, examines what the Government’s recent computer science education and tax relief proposals could mean for the future of the UK games industry.

When, in 2011, Google CEO Eric Schmidt lambasted successive British governments for failing to capitalise on the “fabulous initiative” that home computers had brought to a generation of youngsters in the early 1980s, those of us lucky enough to have been at the forefront of that revolution sensed a real sea change in attitudes towards the computer games industry.
We had been lobbying Government for policy change in two areas: skills and tax relief. Faced with a skills shortage among our recruits – particularly in programming – we recommended that computer science be reinstated into the curriculum. The current offering, Information and Communication Technology, teaches children how to use commercial software rather than how to program. The government listened. Earlier this year, Education Secretary Michael Gove, describing ICT as “demotivating and dull”, promised that computer science would be reinstated in September.
And there was more good news to come; in his recent budget George Osborne described our sector as “brilliant” and promised tax relief from April 2013. These two announcements have created a superb opportunity for us to foster new talent and continue to compete successfully on the world stage.

British inventor-entrepreneurs

Back in 1980, a friend of mine showed me his new Sinclair ZX80. A gift from his parents, they thought it would help with homework. But it actually inspired us to write computer games. Our friends called us nerds. But the allure – the power to harness this extraordinary device with a whole 1K of memory (to put this in context, a 16 Gig iPhone has 16 million times as much memory) – was intoxicating.
Artwork from Broken SwordWe wrote games for fun. One person would create a design, draw graphics, program, compose and synthesise the audio – a true auteur. We found we could sell our games at local ‘microfairs’, community halls with rows of tables over which we met our enthusiastic audience. When we convinced WH Smith to stock our games nationally, the computer games industry exploded. Looking back, it should be no surprise that, as a nation, we were particularly good at creating computer games. The tradition of the British inventor-entrepreneur stretches back to Hogarth and Brunel. We connected with a medium that fused technology with creativity and we pushed it commercially, nimbly adapting to the rapid technical and commercial changes.
But the glory days of the early 1980s were short-lived. As the industry stabilised, well-funded American and Japanese publishers entered the market and soon came to dominate. Many fledgling British publishers folded. But our home-grown development talent remained highly regarded throughout the world – as it still is today. We saw a transition in the industry not dissimilar to the golden age of the Hollywood studios. American publishers consolidated their hold, either buying developers or requiring them to sign up to multi-product deals. They acquired key retail space and controlled access to funding. As publishers tussled with retail for power, developers got squeezed and many stopped creating original games, opting to offer work for hire services instead.
During this time, however, small independent UK developers created some of the world’s best-known computer-game brands, including Tomb Raider, Grand Theft Auto and Broken Sword.

Changing landscape

At this time, a number of countries, most notably Canada, started to aggressively woo developers and publishers through tax credits. Then Australia, a number of American states, France and many others followed suit. The UK did nothing, resulting in large numbers of our most talented developers migrating. And all at a time when young people were not learning the skills the industry needed.
The landscape became bleak, particularly for developers independent of a major publisher. But a few years ago massive, disruptive forces began to shift the tectonic plates of the games industry. The ubiquity of broadband allowed digital media – and games in particular – to be distributed digitally. And without the need for retail, there was no requirement to channel games through a publisher.
iPhonesAnd then, in 2007, Apple launched the iPhone and everything changed. We had one standard, and iTunes made it possible for anyone to publish a game. And instead of getting seven per cent of revenues, as was the case with the publisher/retail model, creators earn 70 per cent – although development and marketing costs have to be factored in, of course. The number of games, which were limited to a few hundred which could physically be displayed in a shop, rocketed – currently there are over 600,000 apps available on the Apple App Store.

Rewarding home-grown talent

This disruption caused problems for those companies which benefitted from the status quo. Last year Nintendo, a beacon for the mainstream games industry, made a loss for the first time in its 120-year history. Game, the UK’s premier retailer of computer games, went into administration recently after failing to respond to the challenges of digital.
This seismic shakedown has ushered in unique opportunities for content creators. And the UK remains an ideal melting pot, historically and culturally, for this new breed of developers to thrive. The emergence of companies like Playfish and Mind Candy, creators of Moshi Monsters, are testament to the new creative climate. And that same entrepreneurial spirit that fuelled the domination of British developers in the 1980s can be glimpsed through the new generation of creators, many self-publishing their smaller apps on Apple, Android and PC. These conditions will stabilise. Once they do, we can be sure that American and Japanese publishers will fight hard to retake lost ground.
It is within this environment that the UK Government has offered its support to the computer games industry through tax relief. This is excellent news. Without it, our industry risked stalling and talent would have continued to move to countries where publishers can develop products for a lower cost. This incentive, together with Michael Gove’s educational reforms, should mean that this time round, our strengths will be consolidated. For UK developers, it’s the chance to regain our dominance of a global industry that is now worth $65 billion.

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Image of Broken Sword courtesy Revolution Software. iPhone image by Yutaka Tsutano on Flickr. Some rights reserved.

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