Surviving the big thaw

The UK’s games sector is growing again. After years of declining headcount, lots of new studios are appearing, a tax credit is in the air and multinational companies are returning to these shores. Has spring finally sprung for the British games industry?

This month I’ll look at Games Investor Consulting’s latest survey for TIGA, and consider the future of British development.

The headline – developer headcount finally returning to growth after four years of decline – reads well, even if it’s a modest increase of four per cent. We noted this bottoming out last year, but what’s driving this growth?

There aren’t many green shoots among console studios, instead a fair amount of contraction, lots of re-structuring and some closures of companies that until very recently were the industry’s backbone.

Growth is coming from the independent sector via mid-sized studios and from a swarm of tiny start-ups, but perhaps more important are the seeds of big studios newly sown by international companies like Gree, Activision Blizzard, Konami and Microsoft.

TO BOLDLY GROW

More headline-grabbing is the unprecedented rate of new studios forming across the UK. Like the frantic star formation triggered by the death of massive heavenly bodies, the supernovae of big studios like Bright Light, Eurocom and Realtime Worlds have clearly triggered a welter of local start-ups, as well as the traditional cherry picking by established players for jobs further afield. Downsizing and a dearth of jobs for graduates emerging from games degrees also contribute.

Many of these studios have great potential, but most are highly fluid companies, some of them run part-time by those with full-time jobs elsewhere, many with virtual, outsourced teams, some growing strongly, others barely viable, and some are mothballed soon after their first press release.

It’s likely that ‘ghost’ studios – many with little or no commercial momentum – form a substantial proportion of these start-ups. In many ways, it’s optimism that’s driving headcount growth and company formation. What has now become the industry orthodoxy about faster, lighter, cheaper games is confirmed in the numbers. A large proportion of British studios self-publish, mobile is hugely popular, and a declining minority of British studios now primarily produce games for console.

Whether these new network games markets can justify this optimism and sustain this growth is the subject of many a column, but what is clear is that the risks and concomitant company mortality rates are still high.

BACK IN THE DAY

We have seen similarly massive studio proliferation before, in the PlayStation boom years of the early 2000s. The UK had two-to-three years of rapid headcount growth and prolific start-ups before a sudden extinction of scores of studios from over-supply.

Back then, the surviving studios grew to peak size by picking up whole teams and studios, and acquisitions by global players started to rise. Would a similar level of collapse be supported by growing studios today?

This seems unlikely, as few studios can snap up entire teams anymore, today’s development market is more globalised and international companies are more cautious.

What about organic growth, or, should I say, the inorganic growth of companies raising their own money to grow? With SEIS tax relief, crowdfunding, Abertay’s Prototype Fund and the (delayed) games tax credit, access to finance has eased, albeit only slightly, but a funding gap still exists. Those attempting to raise funds for expansion, even after a promising start, are finding finance hard to come by.

So this tipping point is finely balanced. The same factors as ever govern the UK industry’s prospects – global competition, access to finance and skills, a fast-changing market, another console generation coming – and the same old balance maintained between what used to be called publishers and independents.

The next console generation and the tax credit will trigger new investment in the UK and we expect growth to continue. But despite these encouraging signs of growth, many fledgling studios will be susceptible to a shock, particularly, say, a hard frost in the mobile market.

The real question remains, just how many of these new start-ups will still be around in three years’ time?