We F Games Tax Credits Nordicity Presentation (2010 01 21)
Produc/on Tax Credits for the UK Video Games Industry: Lessons from the Canadian Experience 21 January 2010 Delivered to Prepared byWestminster eForum Nordicity
To begin: Expenditure tax incen/ves have supported the con/nued development of the UK’s ﬁlm sector Some Canadian jurisdic/ons have tax credits that support the video games industry The Canadian video games industry is growing (28% year‐over ‐year job growth*) Seems simple enough? * Hickling Arthurs Low, Canada’s Entertainment So0ware Industry: The Opportuni:es and Challenges of a Growing Industry, prepared for the Entertainment SoWware Associa/on of Canada, March 2009.
Perhaps a tax credit is just one piece of a larger puzzle
Let us take a closer look at video games support in three very diﬀerent Canadian jurisdic/ons: Quebec (Montreal) Ontario (Toronto) Bri/sh Columbia (Vancouver) Long history of excellence in 3D Up to 40% produc/on tax No produc/on‐based tax credit design and anima/on credit that had been recently But, a long‐standing major Up to 37.5% produc/on tax expanded publisher (Electronic Arts ‐ credit (est. 1996) Numerous suppor/ng 1991) Lured UbisoW in 1997 (and programs Close connec/on to California others aWer) Recently lured a UbisoW studio 44% of Canada’s games 37% of Canada’s games 14% of Canada’s games development industry jobs development industry jobs development industry jobs
Ontario’s mul/‐pillar approach: Produc/on Tax Credit Interac/ve Digital Media Fund – small investments in smaller games IP Fund – early‐stage investment in prototyping Directed investment to ajract a top‐level publisher Various training and professional development programs This approach could also address the UK’s situa/on
Traditional games development vs. emerging development process High-cost Games Development Process Launch of Game + Sales B Cash Flow Development A Costs - Emerging (Social/Casual) Games Development Process Early Signs of More new content traction, revenue + launched model established Cash Flow Launch of new content, B D spike in revenue Building new features A C (new characters, areas, E game modes, etc.) More investment in - new content for the Initial Dev’t Cost (few game game elements)
There are also very diﬀerent production cycles Traditional Games (and F/TV) Slates Game 1 Game 2 Game 3 Cost Time Downtime, waste due to overhead Emerging (Social/Casual) Games Development Cycle Game 1 (continued Game 2 investment) (no traction) Game 3 (slow rev. Cost growth) Time
Diverse business models require a diversity of incen/ves
Tax credits: Why should they be part of the support regime?
Tax credits oﬀer a market‐driven tool for support Alloca/on driven by entrepreneurs rather than ﬁnanciers More likely to lead to market outcomes: the crea/on of marketable IP Predictable; not subject to ra/oning Are ﬂexible enough to underpin rights‐op/miza/on strategies
Summary of Key Conclusion The Canadian experience demonstrates that growth of the video games industry is driven by a number of factors, including interven;on Consider Ontario’s mul;‐pillar approach: a diversity of incen;ves for a diversity of business models Consider the market‐driven approach oﬀered by a tax credit, to promote the crea;on of marketable IP Underline ﬁnancial performance and encourage op;mal management of rights