UK


The UK games industry has been vocal throughout the year protesting the inaction of government amid declining domestic production and developers in Canada receiving generous tax incentives.

Yet is it accurate to blame government inaction for the industry’s decline? Some industry participants survey in politics.co.uk article UK games industry ‘dead man walking’ believe it is.

Richard Wilson, Chief executive of Tiga, said: “Without real measures to turn the tide, we’ll see our best people follow the money overseas to where governments are more willing to invest in the future. A great British industry could become a dead man walking, just like the British film industry the before government gave it a tax credit.

Something that is not often mentioned in lobbying for government assistance is the difference in cost of living (and therefore labour costs) between London and several Canadian cities where major game developers have established studios. Regardless of tax concessions and wage subsidies, low living expenses make locations attractive to multinationals, and may also make it easier for employees to setup their own companies.

Tax-based incentives that are based on cultural production are also a highly inefficient instrument for industry to rely on. Assessing the cultural component of any one game to qualify for assistance could well be an arbitrary endeavour, and the stipulation for games to contain cultural content is bound to distort production decisions away from market preferences.

Production-based tax incentives and subsidies tend to appeal to small, independent developers, whereas larger studios particularly first-party studios linked to publishers are far more concerned about the supply of skilled talent.

Are appealing for tax incentives for local producers really the best way to enhance the international competitiveness of the industry?

The UK Government has ruled out tax breaks for the games industry, although commended the industry on its progress.

An MCV article reports Minister for Culture Media and Sports Margaret Hodge let the industry know that the government sees them as leading the creative industries pack financially but that they would not be seeing and development assistance in the way of tax concessions.

The Minister’s comments illustrate the reluctance of governments to give funding to an industry that may be perceived negatively by certain interest groups, and in particular, vocal voters.

Games in the UK arguably face the same issues that the games industry in Australia faces (see previous posts ‘could triple‘ and ‘Aus govt turns down games‘). There is no ‘threat’. Games lack the unique ‘cultural’ identity, and as they are a fast growing industry, they do not display any ‘infant industry’ characteristics.

The obvious critique of such a policy stance is that it is conservative and reactive. Shouldn’t governments be looking for new, high growth, high skills industries to develop rather than propping up old and inefficient ones?

While the answer would seem a clear “yes”, one question in response could be “should governments promote any industries at all?”

Industries that can anchor themselves in a rhetoric of culture and national identity arm themselves with an effective shield, based on the premise that economics (and ‘globalisation’) does not discriminate between qualitative differences in cultural goods. (This is not necessarily the case of course). There are still (if I remember correctly) exceptions in WTO articles for cultural goods, which eases international pressure on states from protecting them.

A second question, is whether governments intent on supporting industries should be looking to unlock the institutional barriers to investment by clarifying IP, tax, and inward foreign investment legislation, and aim their spending efforts at capacity building by investing in human capital formation and infrastructure development rather that giving financial incentives to any one industry.

The social impact of video and computer games, and in particular its potential negative effect on children exposed to adult content is major concern for some stakeholders. In previous entries on DISCONTENTS (see October 8 entry), this issue can dramatically influence public policy, manifested in both policies to restrict the distribution of particular games, and a reluctance to give the industry public support such as investment incentives.

In the UK, a review of the influence violent and graphic R-rated games have on children has sparked a vocal response from the games industry. Some support the need for a review but criticise its focus and its singling out of games as separate from films. Industry players are pushing for better education of parents (e.g. “these games are not for kids”). See BBC News for reactions from various industry stakeholders.

We are a very important British industry and we are very responsible keen to ensure that our products are only played by those who they are designed for.
PAUL JACKSON, CHAIRMAN OF ELSPA

Historically there has always been in government a Luddite sentiment – whatever the new industry trends to take the blame of the latest ailment of society. This is an industry which often does not answer back.
DAVID BRABEN, FOUNDER FRONTIER GAMES

We need to educate parents – and if that is what this government review does, then I am very happy about that.
PHILIP OLIVER, CHIEF EXECUTIVE BLITZ GAMES

The games industry is holding itself to higher standards than the film industry.
MARGARET ROBERTSON, FORMER EDITOR OF EDGE MAGAZINE

In Australia, R18+ games are not able to be sold, which the Australian games industry is appealing to the government on, considering that the main demographic of core gamers is 18-35 year olds.

Here is a story from the Business Guardian about the music industry’s reaction to ‘the artist formerly known as’ ‘Prince’ “giving away” in a bundling deal with the Mail on Sunday newspaper in the UK.

The Entertainment Retailers Association said the giveaway “beggars belief”.

In an appalling and misguided attempt at sabre-rattling, ERA co-chairman Paul Quirk has come out, first appealing to his ‘integrity’ to ‘return the favour’ to those who have supported him:

“It would be an insult to all those record stores who have supported Prince throughout his career,”

…before moving on to bemoan the lack of integrity society at large shows in its treatment of the music industry as an artform:

“It would be yet another example of the damaging covermount culture which is destroying any perception of value around recorded music.

…before finally turning to threaten Prince (but more pointedly other artists) that they would be out of a day job without the retailers:

“The Artist Formerly Known as Prince should know that with behaviour like this he will soon be the Artist Formerly Available in Record Stores. And I say that to all the other artists who may be tempted to dally with the Mail on Sunday.”

A three-pronged attack but with very little substance.

The words smack of a music industry (or retailers in particular) who have seen the huge spike in online sales of music through retail platforms such as i-tunes. Distributors and retailers rightly fear online distribution of music, as it gives artists unprecedented access to markets, and provides users with a way of unbundling or disaggregating what we know as an album: what fans may call a coherent collection of music that mark where the band are at a point in time, while others may see it as a way of up-selling a few good songs by bundling it with a bunch of less-than-stellar tracks, a la the block-selling of films by distributors prior to the Paramount Act.

Take a look at some of the figures Chris Anderson gives in his book The Long Tail. Take a look then not at record sales (which the industry explains are taking a dive due to piracy) but at total earnings from copyright bodies. In Japan, JASRAC has posted annual increases in revenue despite drops in CD retail sales.

It makes me question at first whether such executives realise both the creative industry features and digital content characteristics of the goods they are talking about. But surely they know all too well that with the advent of iTunes and the like, artists can make a living out of being ‘artists formerly [or never] available in record stores’.

On a related note, it was reassuring to see an instance of an artist who uses CDs as a way to promote his music and to focus on earning revenue from concerts. Naturally, not all artists make performance-driven music, but for those who do it makes the digital distribution of music (in both its legal and illegal forms) a positive for the performer who can expect to attract more patrons to their concerts, gigs, raves….

The UK Government is often held up by creative industries proponents around the world as one of leaders in creative industries policy, having been the first to assemble a Creative Industries Taskforce, and now has a Minister of Creative Industries.

Yet in a report by independent think-tank Demos, the government has been labeled as “confused” for not understanding how the creative industries work, which has created “confusion, indifference, and irritation”.

An article in mad.co.uk by Branwell Johnson reports on Demos’ report:

Demos argues that the standard approaches designed for traditional industries will not work with the creative sector. It points out that firms in this sector typically have less than 10 workers and rely on freelance activity.

…success in these companies is based on quality rather than volume and that they produce “highly specialised products and services.”

Quality is of course a relative term. And quite possibly misunderstood and paid too much lipservice.

What strikes me about many sectors of creative industries, particularly those that face strict deadlines imposed by broadcasters or other large ‘gate-keepers’ that distribute audiovisual content in particular, is that quality often takes a backseat to completion.

I have been quite surprised to find this even in the animation sector in Japan, which is often looked on by outsiders as the world leader on animated entertainment. It would appear that there is a vast amount of fairly low quality content that exists due to demands from broadcasters and publishers. A large number of these animators themselves, having ‘sacrificed’ a better paying job (or a job at McDonalds) for something that they ‘love’, no doubt feel frustrated that their efforts become more about deadlines than about a ‘work of art’ they can take pride in.

Demos would like to see support for the creative sector devolved from government and related agencies to where these industries work; access to potential employees, collaborators, mentors, knowledge and finance through online resources and networks and industry brokers and agencies that provide local knowledge and sector-specific expertise and places to share ideas.

In essence, is the report simply asking government to leave business get to the business of business? Or is it suggesting the government should front up with funds and pass it to the industry who ‘know what to do with it’?

Regardless, it raises the key question regarding the limits of government policy in directing and supporting industry in general, and the creative industry in particular. Should governments be doing anymore than providing access to education, robust institutional (including legal) frameworks, and maximising economic and political freedom?

The Demos report entitled So what do you know? is due to be launched on 19 June 2007.

Exports of UK television programming increased 20 percent in 2006 according to the UK trade association PACT.

Data referred to in the PACT press release, as does the reporting in World Screen News, indicates that this has been driven by a dramatic increase in revenue earned from sales of program formats.

The 87 percent leap in format sales is certainly notable, but it’s important also to look at the relatively small proportion of total export sales it accounts for.

Format trade was worth 56 million pounds in 2006 according to the “Sales by Type” disaggregated figures. If you do the math, this is about 9.5 percent of the total – an sizeable increase from 6 percent in the previous year, but can one say that it is driving export growth?

Sales of formats has received considerable attention in recent years and it is being looked at increasingly by producers as a way to increase exports by breaking into markets less receptive to foreign content, or similarly making headway into genres that tend to be locally produced.

“We make great shows that audiences throughout the world are watching and the UK distribution industry has benefited from the fact that, as rights owners, production companies are increasingly conscious of the international marketplace when they are developing ideas.”

Louise Pedersen
(managing director, All3Media International /
chair, PACT Exports Policy Group)

Exporting the intellectual property or idea of content for reproduction overseas also has governments all around the world excited, particularly those nations whose balance of payments are characterised by a significant deficit in trade in services, such as Japan for example.

Focusing on the international market is bound to make domestic industries more competitive, yet as an increasing number of production companies look to export their content via formats, several problems may well be on the horizon. I will leave addressing these issues to another post.

The UK Intellectual Property Office issued a press release on 6 April announcing new powers to help tackle counterfeiting and piracy, effective immediately.

£5 million of government funding will make enforcement of copyright infringement the responsibility of Trading Standards and give officers the power to make test purchases, enter premises and inspect and seize goods and documents.

Malcolm Wicks, MP, the Minister for Science and Innovation, said:

“The UK film, music and game industries are among the most creative and innovative in the world, but peddlers of counterfeits are costing those industries up to £9 billion a year. The taxpayer is also losing out to the tune of £300 million. It’s a serious offence, whether committed by small-scale hawkers or international crime organisations.

While the actual amount that the industries lose due to piracy and counterfeiting is debatable (do they compare to previous sales figures, or use an estimate of piracy activities? And in the latter case, piracy does not always mean a loss of sale: there is undoubtably a significant number of people who would be more discriminate about the goods they consumed if they did indeed have to pay (full price) for them), it could also be said that while piracy costs taxpayers 300 million pounds, they may also be saving the difference between the 9 billion and the amount that they paid for the goods. In sum, the “it is costing you money” argument is less likely to convince users of pirated and conterfeit goods of their “loss” than it is likely to persuade “honest consumers” to see the benefits of the new laws.

What is more striking about the announcement however, is the UK’s clear labelling of piracy and counterfeiting as a source of revenue and money laundering for international crime organisations.

Japan’s Intellectual Property Strategy Headquarters has made the same move in recent years, both to educate consumers about whom the money from their purchases of counterfeit goods is likely to flow to, and at the same time cracking down on IP-related crime including copyright and patent infringements.

The UK announcement also shows that, at least at face value, the new measures are aimed at bolstering the Britain’s creative industries.

The UK Policy shift appears to be acting on recommendations in the Gower Report (here in PDF), which urged the government to “take tough action against those who infringe IP rights at a cost to the UK’s most creative industries”.

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