The latest TIGA survey of the UK games development industry shows healthy growth, hitting a new high of nearly 12,000 full-time developers.
Our data shows strong, but not record, headcount growth – 7.5 per cent over 12 months – and start-up rates. There’s one big change that’s driven industry growth since 2012 and a fascinating picture of the sector’s ecosystem is emerging.
Many factors could be influencing growth. Most games categories have commercial opportunities but also face significantly rising competition and blockage signs in the online PC and mobile markets most British studios currently focus on. There’s nothing particularly regional driving growth, which has been country-wide, leaving the South East as the largest cluster despite recent studio closures.
We’ve seen a welcome increase in finance availability for smaller productions but not obviously for larger ones. The new console generation is successful and VR is setting pulses racing, but the proportion of studio headcount working on console categories still falls every year, and the new VR studios aren’t yet big employers. The war for skilled and graduate talent appears to be unchanged and Brexit’s uncertainties threaten access both to finance and labour. None of these, alone or combined, explains four sustained years of growth.
The single biggest factor is Games Tax Relief. Repeated surveys have shown that medium-to-large companies, those best-placed to exploit GTR, have been largely driving headcount growth. Some use GTR to de-risk investment by angels and VCs, others to grow publisher studios, while work-for-hire studios are much more attractive to global publishers. The data is conclusive.
Over three years before GTR, growth averaged at minus 3.6 per cent. Over four years since GTR’s announcement, growth averaged plus 7.1 per cent, rising to 8.7 per cent since pay-outs began in 2014. GTR is a stunning success for the industry.
The road ahead is still bumpy. Showing no signs of slowing, company mortality is up again – almost to 2013’s record levels. Some of the 336 new games companies that started up between 2012 and 2014 have already failed. Global companies’ investment criteria continue to shift, but the loss of nearly 500 full-time staff in 130 closed companies since 2014 barely dented headline growth, suggesting that the UK is efficiently recycling talent.
More of the workforce is freelance, but this adds flexibility and resilience to contracting studios. Access to finance is slowly improving but one in four independents – 43 per cent of studio headcount – still rely on publisher funding and there is no country-wide finance scheme in that tricky stage between prototype and soft launch. This problem is particularly acute in London, where nearly 24 per cent of new games companies were founded between 2014 and 2016 but who cannot access Creative England’s production fund.
Between 2008 and 2011, the UK sector had structural flaws. It suffered shocks when internationally-owned studios closed and independents reliant on global publishers collapsed, amplified by high costs and less
self-sufficient business models. New companies started up and medium to big studios grew modestly, but they were undercut by poor access to finance, which reduced the attractiveness of the UK to publishers and investors alike. There were insufficient positions in surviving and new companies to soak up all the staff let go from closing companies, which led to an overall decline in the development workforce.
The UK now has a relatively well-functioning, sustainable ecosystem in which established companies grow healthily, start-ups continuously enter, companies of all sizes exit but experienced and graduate staff continually add to the talent pool. Creative and technical innovation thrives across a broader than ever development sector, and more industries are utilising games techniques and technologies.
A post-Brexit budget ‘reset’ could put this ecosystem at risk. If the government were to review GTR and cancel it, the sector would suffer a severe shock. By our calculations, 3,600 existing and potential jobs could be at risk by 2020. £365m of existing and new investment, £1.2bn in GDP growth and £481m in tax receipts could disappear. So let’s not rest on laurels. The sector must fight again to remind the new government that GTR’s economic benefits more than justify its cost.
Rick Gibson is a director of Games Investor Consulting, which specialises in the business of games. www.gamesinvestor.com