Turning the Corner

Games Investor Consulting’s latest census of British games development companies for TIGA is now out.

Its headlines: The decline in UK games development headcount is continuing, albeit at a slower rate; brain drain took 40 per cent of jobs lost in recent years; and almost as many companies have failed as have started up over the last four years.

This month I’ll look at what’s happened to UK games development and what to do about it.

A CLOSE CALL

Despite optimism about job growth amongst studios, the UK’s games cluster overall is still contracting, albeit more slowly than in recent years.

High profile big studio closures are well publicised, but many more tiny to mid-sized independents have failed, and companies of all kinds have downsized.

The closure of large studios has largely been driven by high costs versus other locations and, in some cases, exacerbated by under-performance of specific titles, mostly at retail.

Other studios have closed or downsized for many and various reasons, including cost and performance, but also declining demand for work-for-hire contracts and failed attempts at self-publishing.

The UK’s overall fall is far from catastrophic, and it still retains a strong foundation of triple-A studios, both independent and publisher-owned, creating world class retail product.

With roughly ten per cent of development headcount lost in four years, this is nowhere near the 60 per cent decline experienced by France in the early 2000s.

France’s lost games developers didn’t stay in the country; they emigrated to build Canada’s games industry.

When Ubisoft began building its giant Quebec studio in the late 1990s, its staff relocated en masse, triggering a near-collapse in French developers reliant upon Ubisoft for 60 per cent of their financing.

The UK is nowhere near as dependent on one finance source, but we can now conclusively say Britain is experiencing significant brain drain.

The census includes new data on staff numbers lost to it: Over 40 per cent of jobs lost between 2009 and 2010 went overseas, mostly to Canada.

Meanwhile, a map of Bizarre Creations’ ex-staff shows that 35 per cent of contributors are now overseas, and that three times as many senior Bizarre staff left the UK as stayed.

HEADHUNTING HIGH AND LOW

Finally, a new survey of British staff overseas (Canada and US) shows that a disproportionate number of senior staff are leaving the UK, taking under a month to be headhunted or find and accept a new job.

If this new data does not put down the Treasury’s astonishingly misguided mantra that British games staff do not leave the UK, nothing will.

Significant levels of new company formation combined with a few publishers still growing their UK studios have slowed the decline. 216 start-ups have launched since 2008, mostly focused on network gaming in its many forms.

This is steadily changing the British games development landscape, where only 33 per cent of companies now work exclusively on retail product.

The start-up rate is encouraging, but is balanced by almost as many companies going bust. About ten per cent of 2010’s start-ups didn’t make it to 2011. Games companies fail for many reasons, but since many were focused on the supposedly booming market of network games, why did they fail?

There’s no deficit in creativity, design and technical skills – the UK has always excelled in these. Arguably the problem is access to finance and a deficit in suitable commercial skills.

Time and again I hear ex-founders blame platform choice, failure to find a market, and inadequate monetisation.

The silent killer is that studios have almost no access to finance in the period between coming up with an idea and taking it to market.

While they may bootstrap the development or get prototype financing from Abertay University’s fund, it is inadequate bank lending, sparse VC interest and inexperience in raising money that combine to create a finance gap for small studios, leaving no money to build an audience after burning through cash on production.

THE BRAIN DRAIN

So we have a picture of a UK industry with global quality console studios that is finally restructuring towards network gaming but still facing challenges.

We have significant brain drain of disproportionately senior console staff to subsidised territories, and healthy start-up levels, but in conditions hardly conducive to staying afloat.

To slow brain drain, you need a measure to keep global companies’ studios in the UK. To trigger a market for financing games (that will inevitably favour more sustainable network games), you need a measure around which new financial instruments can cluster.

To stop more companies falling into the finance gap, you need a significant fiscal intervention that doesn’t tinker at the edges. France has added 500 new development staff since 2008.

Ubisoft has been hiring in the country again, and it has also been experiencing a burst of start-ups, 20 per quarter at the last count.

At the same time the UK has lost 1,000 development staff. The only major differentiation is France’s 2008 tax credit. Can the UK government join the dots?