While most UK studios are dependent on third party funding, many of the options available are not ideal. But there is much that can be done
To a certain extent, the UK game industry could be seen to be a victim of its own success. After many years of effort, the accomplishment and potential of UK made games is globally recognised. Across the globe high-profile releases are seen to pull in towering revenues and there's an assumption that those who make games have no shortage of money to throw at their projects.
Meanwhile, well documented flurries of investor activity around emerging platforms like VR – and a handful of high-profile acquisitions by non-gaming companies – reasonably give the layperson a sense that making games means having money thrown at you.
We are, of course, very lucky in the UK. Our games do well locally and globally, and the industry has emerged as a significant contributor to the national economy. Games truly are one of our most significant cultural exports.
But the reality of creating games is obviously not one of having a queue of VCs at the studio door, and business angels bombarding the office phone lines. Crafting games is a hard graft, and finding funding can be even more challenging. Debt finance is hard to raise as most games developers have little collateral with which to borrow against. Institutional equity finance is also difficult to access: most venture capitalists and many business angels will not invest in games because of high risk levels, low knowledge levels about the industry and high, largely fixed costs of due diligence relative to the amount of equity sought.
That is part of the reason TIGA set out – with Games Investor Consulting – to draw data from UK game developers on how they embraced and view access to finance in the UK. The results of that survey of developer funding sources are now available in our new Sources of Finance for UK Games Companies report, kindly sponsored by KPMG, which also includes a detailed guide to numerous funding options, from equity investment to trade partner commissions.
Looking at the data and available options, I believe much can be done to better serve UK developers when it comes to finance. With the right steps, the growth and global standing of the UK game industry could be significantly bolstered if the financial landscape was less complicated, and more was available specifically tailored to game makers' needs.
For while there are many options out there, many make for an awkward fit with the needs of a modern studio. Developing a game takes a significant investment upfront, with long periods until revenue streams begin to flow, and little guarantee of success or return.
Third party funding is clearly vital to UK developers. Some 73 per cent of the studios we surveyed in 2016 make some use of such an option, and over three years, that figure climbs to 83 per cent. Indeed, some 25 per cent of UK studios are now entirely reliant on third party funding.
But that reliance is not always met with supply. 89 per cent survey of respondents have failed when attempting to access institutional equity funding over the past three years. Almost a third of developers, meanwhile, were unsuccessful in seeking access grant funding. It is encouraging that demand for the likes of the UK Games Fund is high; that is a sign of a healthy industry looking to grow. But the fact that demand apparently outstrips appropriate available funds is troubling.
Games Tax Relief – which TIGA was instrumental in securing – capably relieves the financial burden on many game developers. Its potential is remarkable. An encouraging 66 per cent of UK developers believe access to GTR would allow them to create original game IP. Importantly, without GTR, those same studios believe it would be difficult or impossible to do the same. And 81 per cent of the studios surveyed plan to submit for GTR on at least one project in the following year. R&D tax credits are also crucial to 75 per cent of current UK developers.
The numbers paint a striking picture. While game developers rely heavily on third party funding, few options provide a robust, tailored platform from which to draw funds, beyond GTR. Clearly, the UK game industry needs better access to finance.
I believe that through educating developers as to how funding options work, and continuing to strive for more support from state, banks and private investors, we can propel the UK game industry to new heights. That is part of the reason we are proposing the Games Investment Fund, or GIF. The projected state fund would provide up to £200,000 in grants and loans on a matched funding basis to any UK game company working on new or original IP (i.e. existing UK made original IP could benefit too).
Such a fund could be managed by the proposed British Games Institute. Alternatively, it could be managed by the UK Games Talent and Finance Community Interest Company, the British Film Institute, or one of the British Business Bank’s finance providers. And either the National Lottery or Government Grant-in-Aid could finance the GIF. A detailed proposal is available in our additional report, Reinforcing Success: A Games Investment Fund.
Developer reaction to the proposed TIGA Games Investment Fund has been overwhelming, with 90 per cent of small studios believing the GIF could have a positive impact on their future. Meanwhile, 73 per cent of all UK studios surveyed are convinced the GIF would make it possible for them to deliver original IP that would otherwise be difficult or impossible.
In short, the Video Games Tax Relief has provided a valuable option specifically for game companies, in a financial landscape that can serve to be complex, imprecise and in short supply. With the Games Investment Fund working in tandem with Video Games Tax Relief, as well as the aforementioned educational effort through projects like our Sources of Finance for UK Games Companies report, the UK game industry can only go onto greater things.