Joost Van Dreunen is the CEO of SuperData Research. Using the firm's latest data, he predicts why the UK games development scene may soon become the No.1 power for digital games in Europe.
It’s totally confusing. Over the course of just two weeks, first Activision announces that it is closing Blast Furnace Studios in Leeds. This is followed by Sony's announcement of redundancies at several of its offices: Guerilla Cambridge, SCE London and Evolution Studios.
But then just days later the European Commission officially approves tax breaks for game production in the UK. To boot, British gamer spend is up six per cent year-over-year, totaling $4.2 billion in 2013 sales, despite the usual drag we observe at the end of a console cycle. But don’t be distracted by the noise: the UK market might just become the leading European games market.
One: The UK digital games market grows stronger
Like many major games markets, the UK is in the midst of a transition away from the traditional boxed market to digital. Of the $4.2 billion in last year’s game sales, the split is almost even between digital ($1,984 million) and physical ($2,363 million). The shutting down of several retail stores, most notably a number of GAME's stores, is a symptom of the move away from boxed games. The digital games category, on the other hand, is growing, as especially the mobile and tablet category show impressive growth in recent years. In the UK, this game segment grew by 12 per cent, from $650 million in 2012 to $728 million a year later. This also made it the biggest digital game category, surpassing PC digital, which totaled $708 million in 2013.
Okay, so UK digital games are growing. But what does that mean for UK developers? For one, digital development is a more accessible market. Second, what has historically typified the UK game dev scene is its so-called 'bedroom coders': "a generation of self-trained programmers, mostly teenagers still in school, who programmed and ran businesses out of their bedrooms.” (Izushi, 2006) It was enough to kickstart the UK games industry in the '70s and '80s, and it will do the same in 2014. Fueled by the presence of big international firms and a much more robust academic offering, the UK market is well-equipped to capitalise on the opportunity presented by digital distribution.
Two: ze Germans are kaputt
The Germans did well in the pre-Facebook era, and companies like Bigpoint were massively successful. But since Facebook became the number one social network and audiences started to migrate to mobile platforms, only a few German publishing strongholds remain. Wooga and Aeria Games (recently acquired by ProSieben) are exceptions to the overall erosion of the German development market. There is, of course, always Finland, with its impressive list of worldwide hit titles like Angry Birds (Rovio) and Clash of Clans (Supercell). But when an industry arrives at the point where being Finnish is enough to get you venture funding, you’re looking at the makings of an industry bubble. With less competition from traditional rivals, there's an opportunity for UK developers to prove their mettle.
Three: Silicon Roundabout
The shift from a predominantly physical market to one that is characterised by digital distribution, more accessible technical requirements for game development and more diverse audience base, has allowed several relatively young game companies to capture substantial market value. King, originally focused on web-based casual games. The popularization of social and mobile games has allowed King to reach a larger audience, and generate $1.88 billion in revenues on social and mobile platforms in 2013. Further validating the contemporary UK games market is Zynga’s recent acquisition of NaturalMotion, known for its CSR Racing and Clumsy Ninja, for $527 million. And just last month, Trip Hawkins raised $2.5 million for his educational game startup If You Can, stating that England had more to offer than the American West coast. Money flows more freely, and provides the necessary momentum for innovative design.
Four: The tax man cometh, with breaks
Last week's announcement of the European approval of tax breaks for UK game production was the result of a long struggle by the UK games industry. Sure enough, Ireland has seduced its fair share of software and tech firms to set up shop within it borders. It's only befitting that the UK would eventually be able to offer tax breaks up to 25 per cent. UK developers have not one, but two active industry associations like UKIE and TIGA that bring them results.
Take-away: A combination of culturally ingrained and thrifty development scene, a strong consumer market, tax breaks and a healthy investment climate makes the UK look strong and well-positioned to take a leadership role as the European industry transitions digital game development.