Tax breaks - panacea or pestilence?

Tax breaks - panacea or pestilence?

By Develop

March 17th 2008 at 8:00AM

With the issue of tax breaks for production still a talking point amongst developers in the West, one exec that opened - and closed - a studio in the subsidy-supported Montreal offers an account of his time there, why Government support matters, but also the problems it createsâ?¦

Mark Greenshields is the CEO of Firebrand Games, the racing game studio based in Glasgow, UK and now with offices in Merritt Island, Florida. Prior to setting up in Florida Mark spent seven years in Montreal after founding DC Studios in 2000.

There has been a lot of talk recently about tax breaks for games development in the UK now that France has allowed them. Having spent seven years running a studio that benefitted from Quebec’s tax credit system I think I’m well placed to offer an opinion.

Firstly, I want the UK to give us all a break. We are a high profile industry that does a lot of good for UK PLC, so why shouldn’t we get support? The UK is an expensive place to do business and, with the current determination by the UK government to put every stupid law from Europe in the way of employers, some help would be appreciated. It would also go a long way to redress the balance with countries such as Canada and enable us to fight back against outsourcing.

OK, on to an obvious point - people are the key to your business and, specifically, their skills, experience and attitude. It doesn’t matter if you get tax breaks if you don’t have the manpower and skills in place. Therefore, irrespective of location, building the right team is the most important thing you can do.

There are many things that are probably not common knowledge about the tax credit system and its implications in Quebec. It has achieved for Quebec what it set out to do – create a large workforce and create a centre of excellence where one did not exist. It does, however, cost Quebec a lot of money and has probably increased the costs to the studios. If you asked me the question 'Was I right to set up in Quebec in 2000?' I would say undoubtedly so. But would I set up there now? Well the fact I am running a studio in Florida rather than Montreal should answer that question...

Montreal is not an efficient place to run a video games development business. Personal taxes are high, and a good number of the available staff do not have the required attitude. There are some commercially successful games coming from Montreal studios, but can you show me one that did not cost many millions and require a huge team? Unless you have big pockets you’ll need to spend a lot of money developing your games using bigger teams than are necessary, a situation created partly by the tax credit system and partly by the speed of growth in Montreal.

Salaries in Montreal have also risen dramatically since 2000. In one year alone the salary base rose 40 per cent, completely wiping out the tax credit advantage. And it’s still rising. What was a cheap location to develop is now no different than anywhere else in North America. Publishers know about the credit system and will often mention it in budget negotiations. Therefore you’ll need to price accordingly, meaning you may get less revenue than you might have because they know your cost base as well as you do. And you will have to pay more for your staff.

Montreal, in my opinion, has too few skilled people for the available development positions. If an employee has worked as a programmer or artist in a developer then he/she will get a job. Often that’s not based on merit or aptitude but rather the willingness to take the job. It is almost impossible to hire senior people, especially good producers in Montreal as there are not enough to fill the available positions. Because of this references are rarely sought, further exacerbating the problem. Staff loyalty in many cases is very low.

I’m not simply 'Montreal bashing'. I spent seven years there and worked with some truly great developers. But look at the whole picture before you listen to your accountant. It’s not just about numbers. Ask yourself what do you get for your money and, perhaps more importantly, what’s the return.

I’d like to leave you with one more thought. Your people make your business work or fail and no amount of government money will change that. I build Firebrand around its teams and depend on profits from the games we deliver rather than Government handouts. We, like everyone else in the UK, want grants and tax credits to help us grow our business but the system in the UK with RSA is counter productive. What is the point in having to show you cannot succeed unless you get government money? A business should be viable based on what it is, with tax credits there to support innovation, help alleviate risk and encourage economic growth. Historically Britain has lost too much innovation due to lack of support.