Impact of alternative growth scenarios for the industry
This chapter explores two alternative projections for the Games Development industry and assesses the economic implications the industry following the lower growth path.
• We have assessed two alternative growth paths that the Games Development industry may take. First, a scenario where the industry grows modestly with new IP being created. Second, a scenario where there is continuation of that trend of global publishers downsizing in the UK.
• If the industry were to follow the lower growth path rather than the higher growth, then the total value added contribution to GDP that the Games Development industry would be £350 million lower in 2013 and this would mean that it supported 10,000 fewer jobs. This fall in economic activity would lead to a fall in Exchequer revenues – estimated to be £145 million in 2013.
• Much of this impact may be a permanent loss to the UK economy as the highly skilled and specialised games developers are most likely to be actively recruited by foreign companies as UK based opportunities disappear.
Future growth paths for the industry
Despite the rapid growth of the global retail market, and the rapid expansion of Games Development in other territories, the prospects for the UK are not as bright as could be expected. In conjunction with Games Investor Consulting we have prepared two alternative scenarios for the industry:
• Long term growth scenario: the UK’s games industry is currently near the peak of its game in terms of its global prominence and sales power, its technical and creative ability, and its relationships with major global players. A tax credit implemented in early 2009 would protect the modest levels of growth experienced in past years (4% per annum) during the remaining year in the industry’s up-cycle (2009), allow a lower level of growth during the industry down-cycle (2010-2011) as British studios begin to restructure to take advantage of online games and next generation console opportunities and then a return to the same modest growth levels as the cycle turns up in 2012-2013. Under these conditions, the UK could remain among the Top 5 development territories in the world, despite the meteoric rise of China.
• Long term fall scenario: projections are based on 2 indicators. First is the loss of development jobs from global publisher studios in the current year (400 or 4% of the total workforce to October, of which an estimated 75% have been absorbed into existing studios still facing a recruitment crisis). Second is a continuation of that trend of global publishers downsizing in the UK but some re-absorption of redundant staff into other UK studios, exacerbated by the relocation of the most threatened low level jobs (QA and testing) by global publishers to other territories. This decline is exacerbated by the advent of the console down-cycle from 2010-2011, when global publishers have always reduced headcount, number of projects to focus investment on the next generation of console technology.
[img :396]Some of the key factors driving growth (or decline) of the sector are outlined in this diagram.
Economic impact of the low growth scenario
[img :397]This diagram shows the implications for these two scenarios in terms of how the direct value added contribution to GDP made by the sector will change over the next five years. The key point to note is that in the low growth scenario the value added contribution to GDP is around £130 million lower in 2013
[img :398]This chart show the total impact, including the multiplier impacts, on the value added contribution to GDP and employment. The key points to note are that the value added contribution to GDP of the industry would be £350 million lower. This would mean that, in total, there would be 10,000 fewer workers supported by the Games Development industry in the low growth scenario compared to the growth scenario by 2013. This fall in economic activity would lead to a fall in Exchequer revenues –estimated to be £145 million in 2013.
Much of this impact would be a permanent loss to the UK economy as the highly skilled and specialised games developers are most likely to be actively recruited by foreign companies as UK based opportunities disappear. A number of territories such as Canada and Singapore have been actively and successfully targeting mature companies and individual staff in more expensive countries to relocate.
Games staff are said to be a very dedicated, devoted labour force that have been attracted to the sector following a vocational motivation. This impression can be witnessed by the long working hours engaged by developers, and the start of the UK video games industry as “bedroom coders” that managed to become successful developers.
It is therefore very likely that, being a global industry, should the games development in the UK decline, the most skilled labour force made redundant would rather prefer to relocate to another country and continue working in the sector, rather than remain in the UK and find another occupation. This is a feature distinctive to the creative industries, where there is high vocational component in the path of career choice, and would imply that the UK would lose a pool of highly skilled workers, with a world-class reputation.
Further, many of the catalytic effects, discussed in Section 6, arising from the Games Development industry and potentially the downstream publishing activity, discussed in Section 4.5 would also be lost. The magnitude of these effects can be quite large, so a decline of the industry in the UK would have negative effects in other parts of the economy that are not accounted for in the numbers presented in this section.
Conclusions – summary of overall impact
This report sets out the contribution of the UK Games Development industry to the UK economy. Taking into account the direct, indirect and induced impacts, we estimate that industry in 2008:
• Supported 28,000 UK jobs
• Contributed around £1 billion to GDP in the UK.
• Contributed £419 million to the UK Exchequer. The breakdown of the value added and tax contribution to the UK economy is summarised in the diagram below.
The overall contribution of the UK Games Development industry is far wider through impacts such as:
• Spillover effects of Games Development R&D which improves products, productivity and efficiency in other industries;
• Geographic clustering of Games Development companies further encourages R&D
• Cultural impacts such as helping people to develop particular skills, for example, visual and motor skills, strategic thinking and relationship building, social integration, and some job-specific skills.