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UK vs. Canada: Do Tax Breaks Build An Industry?
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UK vs. Canada: Do Tax Breaks Build An Industry?

September 7, 2010 Article Start Previous Page 3 of 3

Indeed, just two weeks ago, it was announced that Realtime Worlds, the largest independent studio in Scotland with over 200 employees, had entered administration. In a prepared statement, TIGA immediately called for the implementation of an action plan to strengthen the Scottish games sector.

According to Wilson, "if the Scottish video games industry in particular and the UK games sector in general are to come through the current crisis, we must take decisive action." He listed five action items, including the introduction of games tax relief at the earliest opportunity, retaining and enhancing research and development tax credits, and establishing business incubators to help the formation of a new wave of game companies.

"Small, start-up games businesses should receive business mentoring and advice on how to create and retain IP and how to develop relatively sustainable business models," he said.

In addition, he added, games clusters which can encourage knowledge transfer and business efficiencies should be consciously supported. And higher education must be adequately funded in order to ensure that the games industry has access to a well-qualified and skilled workforce.

In Canada, the ESA of Canada's Parr confirms that her country is, indeed, taking some of the actions that Wilson proposes.

"We have very exceptional government support of post-secondary education at various institutions, universities, and colleges in computer engineering, game design, animation, a whole variety of disciplines that are important to the industry," she says.

"And there are other policies -- having to do with labor mobility, for instance -- that work to the advantage of the games industry here in Canada. That makes it easier to bring in foreign talent to, as an example, be the project lead on something. Combine that with the multicultural nature of our country, as well as the linguistic duality, and you see why Canada has become good at making games for a global audience."

But Parr strongly denies "that Canada is using its tax credits to steal jobs and investments from other countries. You can have a jurisdiction that has really good tax credits," she explains. "But without the other pieces of the puzzle -- without the talent and the other conditions that make it a good place to do business -- you're not going to be able to attract investors. It is not a simple 'tax credits equal video games' situation."

Meanwhile, Rebellion's Kingsley sees opportunities for indie developers emerging from the current difficult situation. Because many AAA games have become so expensive to produce, there is renewed interest in less-expensive games that are the bailiwick of the small developer.

"That's where much of the competition is these days," he says. "I know how difficult it is to hear about studios like Realtime Worlds going bust. You think, 'Crikey, poor bastards.' But, in some ways, the upside is there's one less big studio left to compete against. As horrible as it is to say, it puts everyone else in a stronger place."

TIGA's Wilson says it's difficult if not impossible to put a number on the number of investments the UK has lost recently. But, he adds, the actions of publishers speak for themselves.

"THQ and Warner Brothers both announced studios in Montreal while Ubisoft expanded into a new studio in Toronto," he says. "There have been others, but I can't speak as to whether they considered the UK or not before making their decision. That's not the sort of thing publishers say; they just write the checks and set up the studios.

"All we can do is continue to make our arguments... and to point out to our government that all of these wonderful investments, all this wonderful creativity that's taking place in other countries, that we're not getting as much of a share as we could be. That's the real tragedy. But I want to emphasize that I do believe we will get games tax relief eventually. It will take a battle but that's a battle we intend to win."

Article Start Previous Page 3 of 3

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Tyler Sigman
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Tax breaks absolutely build an industry. Our studio is in Vancouver, and we've had to watch incredible amounts of contracts and talent shift to Quebec and Toronto because of the enormous tax breaks. BC has just added 17.5% labor credits which will help. But it's all simple math: pick any business--be it car repair or selling widgets--if you could reduce your costs 40%, do you think you could run a successful business? I do! Considering most businesses (in any industry) operate on a 20% or less profit margin, imagine getting a free 40%. Now you can reduce price (undercut competition) and it's off to the races. Conversely, it can be tough to compete with that. You have to compete on something other than price (quality, innovation, etc.) That's certainly our strategy.

Tadhg Kelly
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But it's only a part of the picture. There are many other countries and states that have no tax breaks at all, and are doing just fine. The UK's problems are deeply endemic.

I have worked in the UK industry for nearly ten years and it has been one long slow story of struggle. Studio after studio shutting down, misery all around and tales of woe abound. Why? Because most UK studios are run like petty feudal fiefdoms in a world that demands more co-ordinated thinking. Because UK development salaries have been uncompetitive for 20 years and so all the best talent eventually leaves. Because the prevalent culture of dev houses sees them set up in barnyard locations in the middle of nowhere and then expects staff to uproot their lives and go work there. Because there is no culture of patronage: People who make it big in games here do not invest in developing new talent and have no sense of giving back. Because many a studio wilfully deceives its staff and acts as nothing more than a cash-filleting operation. Because working conditions are poor but also have zero sense of camaraderie. Because the whole industry is trying to behave as a development outsourcer for California. Because the pound is a hugely valuable currency that makes UK studios inherently more expensive. Because because because...

Tax breaks are both supported and opposed in the UK for many reasons. On the one hand they might

stabilise the employment situation, but on the other hand they would prevent all of the real reasons it's not working out from resolving. And, like with UK Film, make the industry dependent on them (as is arguably the case in Canada now).

On the whole, I think the biggest problem is that UK development is very tribal and inward looking. Without big names encouraging patronage through investment in small studios and determined rejuvenation within the industry itself, cap-in-hand tax breaks would only make a bad situation linger. It's up to us to overcome the old insular feuds and build a new industry.

Tadhg Kelly
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That only lasts for as long as those breaks exist though. The Irish economy is struggling with much the same issue: companies leave when the honeymoon is over.

As for "taxes are too high", that sentiment isn't really true. Britain has relatively normal rates of business taxes, as is reducing corporate tax by 4% in the upcoming budget.

Mathieu MarquisBolduc
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But if you manage to develop a hub, talent will come because there is a large choice of studios, and studios will come because there is a large pool of talent.

dwayne hammond
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I believe Ontario is currently the fastest growing region for game development, and certainly the tax incentives play a significant role in this. While Ontario has (to my knowledge) the best tax incentives for game developers, companies interested in locating in Northern Ontario can actually enjoy benefits in excess of the 40% offered across the province. I work at Algoma University in Sault Ste. Marie, and run a game studio there as well. If anyone is interested in learning more about the benefits of locating a studio in Sault Ste. Marie, I would be more than happy to provide information on this. I can be reached at...

Christopher Enderle
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How about The World vs. Canada. I remember reading in gamedeveloper or here that while more jobs were created than lost in the industry last year (or was it 2008?), a large percentage of that growth was in Canada. Anecdotally, I relocated to Canada myself, as did an AP from my former company.

Tadhg Kelly
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How have people found the relocation from the UK to Canada, in terms of visas, climate, culture, super-cold winters and etc?

Russell Watson
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Somewhere along the way Tiga's Richard Wilson became Tiga's Richard Watson?

As much as I would like to upsticks and move to Vancouver, I am convinced that the Canadian Tax Relief bubble will burst at some point. And when it does it will be brutal out there.

nathan vella
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very interesting companion read to this via Jason Della Rocca