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21 January 2010 Produc/on Tax Credits for the UK Video Games Industry: Lessons from the Canadian Experience Delivered to Prepared by Westminster eForum Nordicity
21January2010
Produc/onTaxCreditsfortheUKVideoGamesIndustry:LessonsfromtheCanadianExperience
Delivered to Prepared by
Westminster eForum Nordicity
Tobegin:
Expendituretaxincen/veshavesupportedthecon/nueddevelopmentoftheUK’sfilmsector
SomeCanadianjurisdic/onshavetaxcreditsthatsupportthevideogamesindustry
TheCanadianvideogamesindustryisgrowing(28%year‐over‐yearjobgrowth*)
Seemssimpleenough?
*HicklingArthursLow,Canada’sEntertainmentSo0wareIndustry:TheOpportuni:esandChallengesofaGrowingIndustry,preparedfortheEntertainmentSoWwareAssocia/onofCanada,March2009.
Butthingsareseldomassimpleastheyseem
Perhapsataxcreditisjustonepieceofalargerpuzzle
LetustakeacloserlookatvideogamessupportinthreeverydifferentCanadianjurisdic/ons:
Quebec(Montreal)
Longhistoryofexcellencein3Ddesignandanima/on
Upto37.5%produc/ontaxcredit(est.1996)
LuredUbisoWin1997(andothersaWer)
37%ofCanada’sgamesdevelopmentindustryjobs
Ontario(Toronto)
Upto40%produc/ontaxcreditthathadbeenrecentlyexpanded
Numeroussuppor/ngprograms
RecentlyluredaUbisoWstudio 14%ofCanada’sgamesdevelopmentindustryjobs
Bri/shColumbia(Vancouver)
Noproduc/on‐basedtaxcredit But,along‐standingmajorpublisher(ElectronicArts‐1991)
Closeconnec/ontoCalifornia 44%ofCanada’sgamesdevelopmentindustryjobs
Ontario’smul/‐pillarapproach: Produc/onTaxCredit Interac/veDigitalMediaFund–smallinvestmentsinsmallergames
IPFund–early‐stageinvestmentinprototyping
Directedinvestmenttoajractatop‐levelpublisher
Varioustrainingandprofessionaldevelopmentprograms
ThisapproachcouldalsoaddresstheUK’ssitua/on
Traditional games development vs. emerging development process
High-cost Games Development Process
A
B
Development Costs
Sales
-
Cash
Flo
w
+ Launch of Game
-
Cash
Flo
w
+
Emerging (Social/Casual) Games Development Process
A
Initial Dev’t Cost (few game elements)
B
Early Signs of traction, revenue
model established
C Building new features (new characters, areas,
game modes, etc.)
D Launch of new content, spike in revenue
More new content launched
More investment in new content for the
game
E
There are also very different production cycles
Traditional Games (and F/TV) Slates
Time
Cost
Game 1 Game 2 Game 3
Downtime, waste due to overhead
Time
Cost
Emerging (Social/Casual) Games Development Cycle Game 1
(continued investment)
Game 2 (no
traction) Game 3 (slow rev. growth)
Diversebusinessmodelsrequireadiversityofincen/ves
Taxcredits:Whyshouldtheybepartofthesupportregime?
Taxcreditsofferamarket‐driventoolforsupport
Alloca/ondrivenbyentrepreneursratherthanfinanciers
Morelikelytoleadtomarketoutcomes:thecrea/onofmarketableIP
Predictable;notsubjecttora/oning
Areflexibleenoughtounderpinrights‐op/miza/onstrategies
Wheretogofromhere?
SummaryofKeyConclusion
TheCanadianexperiencedemonstratesthatgrowthofthevideogamesindustryisdrivenbyanumberoffactors,includinginterven;on
ConsiderOntario’smul;‐pillarapproach:adiversityofincen;vesforadiversityofbusinessmodels
Considerthemarket‐drivenapproachofferedbyataxcredit,topromotethecrea;onofmarketableIP
Underlinefinancialperformanceandencourageop;malmanagementofrights
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