Games Impact – Part 3

Multipliers and linkages with UK industries

As well as the direct contribution of the UK Games Development industry to the economy, there are indirect impacts on employment and output through the supply chain of the Games Development industry and induced impacts from those directly and indirectly employed in UK Games Development industry spending their earnings on other goods and services in the UK. The indirect and induced impacts are termed knock-on or ‘multiplier’ impacts. This chapter describes these different multiplier effects.

Key Points
• The UK Games Development industry helps to support 28,000 jobs. This accounts for those directly employed as games developers, those indirectly employed in industries supplying the Games Development industry, and for the induced jobs dependent on the spending of the direct and indirect workers.

• In total, the UK Games Development industry contributes over a £1 billion a year to UK GDP, taking into account direct, indirect and induced impacts.

• Every job in the UK Games Development industry supports an additional 1.8 jobs in the UK economy. 0.6 are indirect jobs through supply chain purchases by the Games Development industry, 1.2 are induced jobs from consumer spending by direct and indirect workers.

• The UK Games Development industry contributed £420 million to UK tax revenues in 2008 allowing for direct and multiplier effects from the industry.

Indirect effects of the UK Games Development industry
The indirect multiplier for the UK Games Development industry is estimated to be around 1.54. This means that for every £1 million of output generated by the UK Games Development, another £0.54 million of output is generated indirectly in the UK supply chain. On this basis, the total indirect effect on GDP of the Games Development industry is £209 million in 2008, which supports indirect employment of 6,031 people. This is the boost the Games Development industry gives to the rest of the economy by buying products and services from other UK based industries. These suppliers in turn purchase inputs from other industries necessary for them to produce their own products, and so on. In this way the Games Development industry supports output and employment in the wider economy through supply chain effects.

UK input-output tables published by the ONS form the basis for the indirect multiplier estimates. Input-output tables report the value of purchases made by each industry from every other industry in the economy (including own-industry purchases). Given a definition of the Games Development industry it is possible to trace the impact of its purchases throughout the supply chain. The input-output tables were refined using supply chain data provided by Games Investor Consulting to better reflect the actual purchases made by the Games Development industry.

[img :384]This diagram details the key UK based sectors that supply the UK Games Development industry. The largest category of purchases is property/rent which makes up 44% of all purchases. Legal services and recruitment both account for 13% of purchases, while 9% of expenditure is on accountancy services.

Induced effects of the UK games development industry
The induced impact on GDP reflects the purchases of the direct employees in the Games Development industry and employees whose jobs are indirectly linked to the industry through the supply chain. Therefore, the size of the induced impact will be directly related to employment in the wider industry and the wages earned by these workers. The effect on GDP will be less than overall spending because some of the purchases will be on imports from outside the UK. The estimated contribution to GDP arising from the induced impact is £421 million which in turn supports a further 12,173 jobs. Direct employment in Games Development is about 9,900 in 2008 which means each person directly employed in Games Development supports roughly 1.2 more jobs in the wider economy through induced spending effects.

The induced employment impact from the Games Development industry (12,173 jobs) is more than twice the size of the indirect impact (6,031). The induced impacts are large in employment terms for two main reasons:

– industries which consumers spend money on and support are generally more labour intensive; and

– the high wages earned by game developers.

Total direct and multiplier effects of the UK games development industry
[img :385]This diagram (‘Chart 4-2: The total direct, indirect and induced impact of the Games Development industry’) summarises the total effect of the Games Development industry on GDP and employment accounting for direct, indirect and induced economic impacts. In total, the Games Development industry is estimated to have made a value added contribution to UK GDP in 2008 of over £1 billion and to have supporting more than 28,000 UK jobs.

Direct and multiplier tax contributions
[img :386]To the extent that the Games Development industry supports the employment and value added activities of other firms in its supply chain and from induced spending, it will also support tax contributions from these firms and their employees. In calculating the contribution through payments of corporation tax, we have used data on the profitability of typical companies in the UK Games Development industry’s supply chain along with current thresholds and tax rates. A similar approach to that used for the direct employee tax payments has been used to calculate the tax payments of the non direct employees supported by the Games Development industry. (The above diagram shows the total direct, indirect and induced contribution of the Games Development industry to the Exchequer.)

In total, the UK Games Development industry contributes – directly, indirectly and through induced spending – £421 million to the Exchequer (Chart 4-3). This is comprised of:

• Tax payments by the direct UK Games Development industry – estimated to be around £131 million with income and indirect tax payments being the largest component.

• Tax payments by companies and employees engaged in the supply chain of the UK Games Development industry – indirect taxes, corporation tax and income tax make up the most significant components of the overall total of £95 million.

• Tax payments by companies or employees that are supported by the spending of employees employed in UK Games Development and its supply chain. This forms the largest component of the direct and multiplier tax revenue. Within this, indirect taxes are the largest contributor, followed by corporation tax and income tax.

Downstream Impacts
Downstream impacts from the Games Development industry are the effects on those industries or parts of the economy dependent on the supply of products (i.e. games) from the Games Development industry. Downstream impacts may be significant to the extent that if the Games Development industry did not exist or was in decline, then this would reduce or restrict the activities of those industries requiring UK games as an input. For instance, international publishers have traditionally based their European Headquarters in the UK because of their development ties to the UK – being the UK the largest development market in Europe. If the development activity would decrease in the UK, it is likely that these activities would decline too, as the publishers would likely be based in other development territories, or in the largest consumer markets.

[img :387]This diagram summarises the downstream impacts that are likely to occur in the event of a decline in the UK Games Development industry. In the event of a decline in the UK Games Development industry, we expect there to be significant impact on Video Games Publishing (Marketing, PR and Advertising) as these activities move abroad. However, there should be a limited impact on the distribution and retail as it is likely that most of the lost UK made games would be replaced by foreign made games.