Games industry chases tax deals to halt exodus

Games industry chases tax deals to halt exodus

By Maija Palmer

Published: March 27 2008 01:21 | Last updated: March 27 2008 01:21

Britain’s games industry is intensifying calls for the government to grant tax breaks to help prevent a brain drain to Canada after SCi, the UK’s largest games publisher, became the latest company to shift production across the Atlantic.

Earlier this month SCi, owner of the Lara Croft Tomb Raider franchise, announced plans to cut 25 per cent of staff, mostly in the UK, while increasing investment in Canada.

“The UK has become a very expensive place to develop games,” said Ian Livingstone, creative director at SCi. “ Look at the top 20 best-selling games – not one of them is being developed in the UK.”

Unhappiness over the country’s games environment comes as the sector braces itself for potential criticism in a government report out on Thursday on the effect of computer games and the internet on children.

The games sector often comes under fire for the violent content of some of its output and for encouraging children to adopt a sedentary lifestyle, adding to a sense that the government does not value the industry.

Why Canada is so popular

Little more than a year ago, Stéphane D’Astous was plotting Eidos’s Canada strategy from the basement of his Montreal home. He now oversees a video games studio employing 110 people and expects that number to treble by the end of 2009, writes Bernard Simon in Toronto.

Among the projects that the UK-based games publisher has entrusted to its fast-growing Canadian unit is the third edition of Deus Ex, the popular anti-terror game. But generous financial incentives only partly explain why video companies are flocking to Canada – executives say they come for the money but stay for the talent. Skills required to make video games have been plentiful for years in Montreal, Toronto and Vancouver. “Every year we can provide the industry with 1,500 newly graduated employees,” says Jacques Daoust, chief executive of Quebec’s economic development agency.

Even so, the financial incentives are a big attraction. “Contrary to other jurisdictions, we sign real cheques,” says Mr Daoust.

Quebec’s juiciest carrot is a 30 per cent wage subsidy for games developers. Ontario offers tax credits of 20-30 per cent.

Mr Daoust shrugs off talk that the perks may violate World Trade Organisation rules. “If they’re complaining, it’s because it’s working,” he says.

“We make the UK economy a small fortune but are still treated as pariahs,” said Ian Baverstock, chief executive of Kuju, one of the UK’s larger developers. “Why they go on giving tax breaks to the film industry but not to us, I don’t understand.”

SCi is the latest company to join the UK exodus, which has seen US publishers Electronic Arts and Take Two move their European headquarters out of the country. Only one of SCi’s four key games franchises – Championship Manager – is still developed in the UK.

Championship Manager employs about 50 people in Britain, compared with new development studios re-cently opened in Montreal, which are expected to have staff of 350.

EA recently consolidated its remaining studios in the UK into a single building, and has about 450 development staff in the country, compared with more than 1,000 in Canada.

Many companies have been rushing to locate new projects in Canada, where regional governments are offering games companies lucrative tax deals. Companies can get about 30 to 40 per cent of their wage bill refunded if they move there – one of their most substantial costs – while employees are offered income tax holidays for up to five years.

The moves helped Canada overtake the UK in 2006 to become the third largest region for games development in the world.

Canadian subsidies have already substantially shrunk the French games industry, where, since 2000, 45 per cent of development studios have gone out of business and an estimated 1,500 development staff have moved to Canada. The UK industry, which employs about 21,000 people and generates £2bn ($4bn) in revenues, is worried it could suffer the same fate.

“The Canadians have driven a tank over the French Citroën and have now parked on our lawn,” said Peter Jackson, director-general of Elspa, the trade body for the UK’s games publishers. “It is becoming very challenging to keep core development studios here.”

Ministers have been reluctant to consider subsidies, however, saying they planned instead to challenge Canada’s tax breaks through the WTO. The Department for Culture, Media and Sport said it was taking steps to ask the European Commission to investigate the issue as a matter of priority.

But the games industry fears this process could take too long to be of help.

“In 10 years’ time we might have a ruling. At that time we will be on the fifth version of the PlayStation, and whether we will still have a games development sector in the UK will be a moot point,” said Jason Kingsley, chief executive and co-founder of Rebellion, one of the UK’s largest games developers.