Games developers demand tax breaks
Or UK videogames biz will slump, says Tiga
Direct tax breaks for the UK videogame development sector are crucial if the industry is to grow, industry trade body Tiga has claimed.
Tiga’s own research has revealed that if the government fails to introduce a “Games Tax Relief” (GTR), the sector’s employment figure – currently estimated at just over 9000 people - will decline by five per cent each year for the next five years.
Over five years, a GTR would cost the government £192m ($314m/€211m), Tiga said. However, it claimed the measure would yield £415m ($679m/€457m) in tax receipts over the same period.
Gareth Edmondson, Vice Chairman of Tiga, said: “Because most of our key competitors benefit from a tax break for games production, our industry is at a competitive disadvantage.”
Videogames development and publishing is one of the world's most lucrative media businesses, yielding higher sales globally than both movies and music.
If a GTR were introduced in the UK, the sector would next year cease to shrink and enjoy annual growth of two per cent in 2011 and four per cent in each of the following three years, Tiga forecast.
Edmondson claimed that – with a GTR enacted - some “3550 graduate-level jobs and £457m of investments in the development sector would be created or protected”.
Culture Secretary Ben Bradshaw said in June that the government is “looking at introducing further tax breaks” for the games industry, but little has been announced since. ®
Generally speaking a AAA developer will usually end up with around 10% of the box price for a game. Lower-rated developers will be lucky to see 5%. The retailer will see the most at around 45%. The distributer will take a small cut, say 5-10%, and the rest will go to the publisher. So, for a box sale of $50 the breakdown is something like this:
If you're developing for a console, the hardware manufacturer will additionally demand a platform tax for every box sold. Exactly how much that is depends on the manufacturer and what sort of deal you can negotiate.
It is usually the publisher that covers manufacturing and marketing costs, so the developer seldom has to worry about those.
Traditionally the publisher would provide funding for the development of the game, but these days a lot of development studios obtain funding through private investors. Either way the developer will need to repay this money before they start to see any profit. So if a developer spends $20m developing a game (which is perfectly possible given how badly some people manage money and resources) they will need to shift approximately 4m boxes to break even.
"We have run out of ideas and can only get investment for known franchises most of which we have already raped to death for the money they can generate. Before the well runs completely dry we would like to maximise the amount of money we make from Final Fantasy 2000 (really, is the irony in the naming of this series lost on everyone else?) therefore, please don't expect us to pay taxes before we go bust."
The response should be "Piss off and make some good games you useless shite."
Whereas the actual response will depend on the quality of the wine offered with the aforementioned £100 plate of noodles, the school that the TIGA representative went to, what clubs he was a member of whilst he was there and who daddy is.
Small factual point
@ the first AC.
The UK is slipping down the rankings quite rapidly - because most of the other big gaming nations (Canada, France, Japan and Korea or whatever) give tax breaks to the industry - they don't charge VAT on R&D for example. We wouldn't be the first, we'd just be joining the rest of the world...
What is their reasoning apart from...
"we want to pay less money in tax"
After all does the games industry have any specific limitations that are worthy of tax money to level the playing field?
High capital costs (like building factories) - no
limited access to staff - don't expect so
high costs of meeting legislation (eg H&S, environmental cleanup) - no
A significant proportion of 'AAA' games do not make a profit - the minimum you can expect to spend now on development and marketing is around $35 million, which equates to needing to sell about 1.2 - 1.5 million copies.
Look how many games manage that: http://vgchartz.com/worldtotals.php?console=X360
Of course, there are exceptions, GTA, Call of Duty, but the most games companies are not raking it in.
That said, tax breaks would obviously be nice, but except for competing with other places that give them, I can't see much justification for them.