Games Impact – Part 2

Direct impact – Employment and GDP

This chapter details the jobs and GDP directly connected with the UK Games Development industry. It also quantifies the direct contribution of Game Development companies and employees to the Exchequer through income and other taxes.

Direct employment
Total direct employment in the UK Games Development industry is estimated to be around 9,900 employees in 2008, based on data from Games Investor Consulting. The data is comprehensive and covers all independent developers as well as those employed by publishing studios. This means that there are about a third as many games developers in the UK as people working in film and video production and about a seventh as many as people working in radio and television activities.

Key Points
• The UK games development industry employs around 10,000 developers in 2008.

• Turnover in the UK Games Development industry in 2008 is estimated to be £625 million, with a direct contribution to UK GDP of around £400 million.

• UK video game developers are highly skilled: 69% are educated to at least degree level compared with 20% of the UK working age population in 2008.

• Games Development therefore forms a part of the UK’s “knowledge economy”. The high skills of games developers are reflected in above average earnings for those employed in the industry – with £30,316 p.a. for Games Development versus a UK average of £25,000 p.a.

• Labour productivity is similar to the economy average which reflects two opposing forces: the highly skilled workforce tending to increase productivity countered by the relatively low capital intensity of the industry.

• The direct contribution of UK Games Development to the Exchequer via income tax, national insurance contributions, corporation tax, council tax and other indirect taxes is an estimated e£130 million in 2008.

Direct contribution to GDP
The standard method for calculating the direct contribution of an industry to GDP is to measure its so-called value added – that is, to calculate the difference between the industry’s total pre-tax revenue and its total bought-in costs (i.e. costs excluding wages and salaries) adjusted for any changes in stocks.

In order to estimate GDP we have taken Games Investor Consulting’s estimates for turnover associated with the games development activity, and subtracted from this the estimated bought-in, or intermediate, costs in the industry. Estimates of intermediate costs were derived from expenditure estimates of UK Games Development companies on various spend categories such as property/rent, recruitment, legal services etc. The publishing activities of vertically integrated companies, where development studios are owned by publishers, are not included in our analysis as we focus on the economic impact of games developers only. In such cases, we have estimated the turnover associated to the development activity by using their development expenditure as a proxy, and adding CAPEX and a profit margin.

Turnover in the UK Games Development industry is an estimated £625 million in 2008, while the direct contribution to UK GDP is expected to be £386 million. The difference between turnover and GDP reflects the costs of products and services purchased by the industry to develop games. The GDP estimate essentially represents the additional value created by the Games Development industry given the inputs purchased from other industries required to develop games.

Skills and productivity
The UK Games Development industry is a highly skilled industry; 69% of UK video game developers are educated to degree level or above according to data from Skillset. This chart shows that by comparison only 20% of the UK working age population5 are educated to degree level. Of people employed in ‘Banking, Finance, Insurance etc.’ – an industry noted for the skills of its workforce – 38% are qualified to degree level or above in 2008. The high level of skills inherent to Games Development makes it a part of the UK’s “knowledge economy”.

Raising skills and productivity is a key component of the Government’s long-term strategy for economic growth. The knowledge economy, representing those industries or parts of industries which employ large numbers of workers qualified to degree level or equivalent, plays a vital part to this strategy. As a highly skilled industry, Games Development helps to fulfill the Government’s objective of increasing skills, productivity and the knowledge economy in the UK.

[img :379]Percentage employed educated to degree level and above in each industry, 2008: The highly skilled nature of the Games Development industry is to some extent reflected in the earnings data. As can be seen in this diagram, games developers earn on average £30,300 a year, compared with around £25,000 for the average UK employee. Financial Intermediation (Banking) has the highest average annual earnings of over £50,000 per employee.

[img :380]Average annual earnings by industry, 20076, current prices: This diagram compares labour productivity in the UK Games Development industry with other industries in the economy. Labour productivity measures GDP per unit of employment. It can be seen that labour productivity in UK Games Development industry is £39,000 in 2008.

[img :381]This is similar to the UK average but lower than, for example, UK manufacturing. However, this is to be expected given the relatively low amount of capital used in the industry (the measure of labour productivity does not account for the amount of capital used in production).

[img :382]This diagram shows that the IT industry uses relatively little capital to produce games. This contributes to lower profitability and GDP than would be found in a similarly skilled but highly capital intensive industry. Since there is no data available for the capital stock in the Games Development industry, we have, for illustrative purposes, used the data for the broader activity group “IT“.

Direct tax revenues
The UK Games Development industry is estimated to contribute around £130 million to the Exchequer in 2008. This is equivalent to around a third of the value added in UK Games Development. About 36% of the tax revenues raised for the Exchequer arise from income taxes with a similar share (37%) from indirect taxes.

[img :383]The direct contribution of the UK Games Development industry to the Exchequer: In order to calculate the contribution of the UK Games Development industry to the Exchequer we have made use of average earnings data, profits estimates and ONS data on average tax payments by individuals in various income bands.