More bytes for the buck

More bytes for the buck

By Owain Bennallack

December 23rd 2008 at 2:54PM

SPECIAL REPORT: How the low exchange rate is actually helping UK studios

The pound’s plunge against the dollar has boosted the international attractiveness of UK developers, industry execs have told Develop.

In an about turn, it means what’s bad for Brits shopping in New York is good for your local indie games studio.

Previously, the £1 to $2 exchange rate that made iPods in the Big Apple cheap also made hiring UK studios more expensive for US publishers.

But after two years hovering around the $2 mark, however, the pound has fallen sharply since the end of July, and is still below $1.50 as of December 23rd.

If you’re a UK company, that means you’ve gotten 25% cheaper for your US customers, at no cost to you. And if you’re a US publisher, you can reconsider British studios without baulking at the sticker price.

“I believe it has been enormously helpful,” says analyst Nick Gibson of Games Investor Consulting, adding he’s spoken to developers who’ve won contracts due to the weakening pound.

“US publishers are very price conscious and understandably so. A 10 per cent exchange rate movement for a $10m title has substantial cost implications. Multiply this by the number of titles being developed outside of the US and you have a potential budgeting nightmare.”

From the perspective of a UK citizen, the sudden drop in the pound is a cause for concern, even if economists agree sterling was overvalued. With the national debt rising and the country headed into a recession, the markets are taking a much dimmer prospect of the UK economy than before.

“But every cloud has a silver lining,” says Philip Oliver, CEO of Blitz, “and in this instance it's the reverting of the dollar to pound exchange rate that has been hurting UK developers for the past few years.”

Rebellion’s Jason Kingsley agrees. “We’ve been absorbing the ‘bad’ rate for some time now when compared to rates we were using in the past,” he says. “It’s a great relief to have this change in fortunes.”

MORE THAN MONEY
Development is now a globalised industry, and the falling pound has a downside for studios that now aggressively outsource: Their costs going up, offsetting some of the competitiveness gains.

Eutechnyx’s Darren Jobling says that outsourcing arrangements are typically made with companies with local currencies linked to the dollar. “For example, both of Eutechnyx’s studios in Asia are now 20 per cent more expensive than 12 months ago, as both the Chinese RMB and the Hong Kong Dollar are linked to the US Dollar,” he explains. “However, for those existing contracts budgeted at the $2 per £1 exchange rate, things are looking pretty good.”

The currency gyrations cannot be divorced from the financial crisis behind them, either. “The bigger deal is a lot of publishers are having difficulty financially due to the global financial crisis and the effect on share prices,” Philip Oliver notes. “As a result, publishers are booking less games rather than cheaper games.”

Most publishers realise that pricing is only part of the equation, with quality and reliability at least as important – something echoed by all the developers we spoke to. As Darren Jobling says, if price were the only factor, the games industry would have decamped to China years ago.

Another factor is that UK independents that’ve survived the past few years are consequently pretty resilient. “We’ve noticed a movement of projects to the bigger studios, where we have professional processes and systems in place to help support creativity and de-risk, as well as having back-up resources for when unforeseen opportunities arise,” says Jason Kingsley.

TAXING MATTERS
The bottom line is that with US publishers funding most third-party games, a weaker pound is a boon, but it’s not the whole story.

The shortage of skilled graduates remains a huge issue, but it’s the ongoing lack of government support that really grates. The weakening pound may have somewhat levelled the international playing field, but while foreign studios receive direct and indirect assistance from their taxpayers, the game remains weighted against our talented and newly competitive developers.