1

UUUUK Interactive EntertainmentK Interactive EntertainmentK Interactive EntertainmentK Interactive Entertainment submission to European Commission regarding their submission to European Commission regarding their submission to European Commission regarding their submission to European Commission regarding their investigation into UK Games Tax Relief proposalinvestigation into UK Games Tax Relief proposalinvestigation into UK Games Tax Relief proposalinvestigation into UK Games Tax Relief proposal

IntroductionIntroductionIntroductionIntroduction UK Interactive Entertainment (Ukie) is the trade body that represents a wide range of businesses and organisations involved in the games and interactive entertainment industry in the UK. Ukie exists to make the UK the best place in the world to develop and publish games and interactive entertainment. Ukie’s membership includes games publishers, developers, console manufacturers and the academic institutions that support the industry. We represent the majority of the UK video games industry; in 2011 Ukie members were responsible for 97% of the games sold as physical products in the UK. Ukie’s membership list is set out as an annex to this document. Executive SummaryExecutive SummaryExecutive SummaryExecutive Summary We believe that there is a clear and evident market failure relating to the production of culturally British or European games which the UK Government’s proposed games tax relief scheme would address. The European games industry is failing to keep up with the growth of its global competitors, resulting in a lack of culturally European games in all parts of the market. Measures such as that proposed by the UK government are vital if we are to ensure that games with British and European cultural themes continue to be made and to prevent Europe from falling further behind its competitors, both economically and culturally, in this important, innovative and highly influential industry. The below submission sets out why we believe the Commission’s doubts, as stated in its letter of 16 April 2013 to the UK Government, are misplaced and thus why the aid should be approved. Our views can be summarised as follows:

• Games play an increasingly important role in the lives of many consumers across the world and as the Commission itself has previously recognised, games can play an important role in promoting European culture.

• In the past, games were often regarded as spin-offs from other cultural outputs such as films and music. Increasingly, successful games are now driving other outputs such as films and television series with the consequence that a lack of European cultural representation in the global games market may in time also reduce Europe's influence in other culturally important areas.

• Games are one of the most important ways in which children engage with and learn about the world, yet currently little is done to ensure that they are presented with European culture in these experiences.

2

• Games operate in an intensively competitive global marketplace where non-European culture is the dominant, driving force dictating which games are developed.

• Fewer people are making games in the UK, which means that fewer games are being made here. Because of the UK’s status as a major European hub for games development, this means that there is less culturally European content being created than should be the case.

• A significant proportion of games developers who may be eligible for the proposed tax relief currently spend the majority of their time “working for hire” for non-European companies or brands, i.e. developing games based on non-European cultural references for the global market. As a result, there is an existing and tangible market failure which has resulted in a lack of culturally European games being created

• This market failure is being exacerbated year on year, creating a vicious circle: as fewer culturally European games become available, it becomes harder to persuade investors and the marketplace that such games are relevant and can be successful.

• Ukie considers that the UK’s proposed measure offers the opportunity to reverse that market failure. In particular it is expected that EU-based companies which currently produce culturally non-European games would be able to devote more time to developing European culturally focused games and, just as importantly, are keen to do so.

• The more such European culturally focused games become successful as a result of the proposed aid, the greater the likelihood that the global industry will in time be prepared to invest in such products, thus removing the need for state intervention in the longer term.

• Ukie would also note that, particularly in the case of its smaller members and contrary to the Commission’s suggestion, most games are developed solely by UK-based teams.

• Ukie is strongly of the view that the UK’s proposed tax relief is a targeted, proportionate solution which represents the minimum intervention necessary to address the relevant market failures as the aid is likely to be available to less than 5% of the games released in the domestic market. Ukie further considers that if the aid is significantly delayed, any subsequent intervention is likely to require far greater resources to achieve similar ends.

3

ContentsContentsContentsContents 1) The Cultural Importance of Games Page 4 2) Whether the Aid is Necessary – Evidence of Market Failure Page 13 3) Design of the Relief and Commission Fear of a ‘Subsidy Race’ Page 23 4) Strength of the Cultural Test Page 26 5) Used or Consumed in the UK Page 26

4

1) The Cultural Importance of Games1) The Cultural Importance of Games1) The Cultural Importance of Games1) The Cultural Importance of Games Before addressing the direct concerns stated by the Commission, it is necessary to confront an assumption that appears to underline them all – a doubt that games represent a culturally important medium in their own right. This is revealed in different comments in the Commission’s letter – the suggestion in paragraph 32 that “the cultural quality/aspects of games is less evident than for films”, or the statement in paragraph 20 that “games can (and often are) developed by people working on computers in different countries”, which gives a strong implication that such activity is not culturally relevant. Ukie is strongly of the view that games are culturally relevant and indeed as explained further below are of growing cultural influence. Ukie is also pleased to note that in its decision in 2007 approving the French tax credit for games the Commission said the following:

‘...64) It transpires that the main objective of video games is to provide interactive entertainment ... However, this does not prevent certain video games from also having a cultural dimension... Similarly, the fact that video games can be regarded as software rather than as audiovisual products in no way affects the fact that some of them can also be regarded as cultural products within the meaning of Article 87(3)(d) of the Treaty.’1

Video games are indeed software based and many are cultural products constituting a unique and highly innovative form of cultural expression standing clearly apart from films or television. Although many parts of the creative process can be similar – story writing, character creation, world design, artistic look and feel – there are far more elements within games which make them culturally distinct and separate. For example, design of the interactive experience – a consideration of the player’s journey through the game and how challenges must be met – all have a cultural context which is unseen in any other creative medium. Creative content is developed and based on specialised software to bring other essential parts of the game to life, bringing the interactive experience into existence. In this way, games bring together artistic creativity and technological innovation like no other medium. Crucially, how this creative process takes place is strongly determined by the people making the game, and the place where they make it, and the potential audiences they want to reach. These factors powerfully influence the nature of the game in all its aspects. Just as there can be an indefinable British or French style to a novel, a film or a song, so there can also be to a game. The cultural influences creators bring to their work – their inspirations, their life experiences, and the cultural context in which they develop – inevitably colour the work they produce. The suggestion that games can be made by people “working on computers in different countries” completely fails to recognise this. A culturally European or culturally British game simply will not be conceived by a team working in the same genre in Canada, South Korea or America. 1 Commission Decision of 11 December 2007 on State Aid C 47/06 (ex N 648/05) Tax credit introduced by France for the creation of video games (notified under document number C(2007) 6070) and as extended on 25 April 2012

5

This view also fails to recognise the importance of a cohesive team working together in the creative process. This is a powerful incentive to keep the main creative teams working on a game in the same location, and making sure they are working on a game in which they have a shared cultural understanding. Ed Bainbridge, a former Vice President of Disney Interactive Studios, was responsible for managing a major development house in the UK that created a series of high-budget racing games. He explained this to us clearly:

“Putting together a set of binary parts (as in a factory) is one thing, but the creative power and strength of synchronised partnerships or teams is something entirely different. Simply put, you have to understand how to think and collaborate at a high creative level. This is extremely difficult and culture sits at the heart of the understanding. Two examples from my perspective - in a studio that I was ultimately responsible for, we did finally manage to integrate a small team from Austria (for outsourcing) into the workflow of the UK studio, but this took work over two projects (approximately three years) and involved the Austrian artists spending a considerable amount of time in the UK; the second example is where we looked at sharing resource between studios both here and in the US, particularly at times of resource shortages. This was always discussed at the highest studio management levels, and we always got to the same answer - it just doesn't work. Culturally speaking, sitting beneath this is the innate understanding. If you ask a Chinese artist to draw a house and then an English artist to draw a house, they will draw different things. One of the issues in the second example above is that the success of racing studios in the UK was down to a developed sense of racing pedigree and the way that experience works. This has made them globally successful. The incompatibility between the UK and the US in this case, however, is largely because F1 is not NASCAR - they are culturally different.”

This cultural impact is self-evident for many parts of the creative process. Art, animation, scripting, music and design of the world and the experience are all clearly acts of cultural creation. They are all also central to the process of creating a game. And crucially, the way that people undertake them will be determined in large part by their location and background – they can all be distinctly European. Game design documents that scope out what form a game takes, clearly show this creative process at work, and often portray the cultural background of those involved. For example, Swallowtail Games, a young UK developer, shared with us these images from a design document for their game Tick Tock Toys:

6

This document gives a snapshot of, amongst other things, the consideration given to player experience in the design of a level; the planning of the interface the player sees when starting the game; the characters and other assets in the game; and colour schemes to be used. In this case, the game is set in a toy box and very clearly shows the influence of growing up in Britain due to the toys displayed: wooden xylophones, cartoon animals, toy robots, Russian dolls, and many other examples. Another example is this ‘moodboard’ provided to us by Preloaded, from the development of their game 1066:

7

This shows the consideration of different stylistic options for allowing players to control different stages of the game, experimentation with different colour schemes, and an exploration of the historical British context in which the game was set. As we explain in more detail in section two below, 1066 is an excellent example of a very culturally European game which, despite being successful when released, was only funded through a public service education strategy and would have struggled to find commercial backing. These points were well summarised in evidence we received from Richard Lemarchand, a celebrated British game designer and producer (formerly the Lead Game Designer at Naughty Dog Studios on the hugely successful ‘Uncharted’ series) and Associate Professor in the

8

Interactive Media and Games Division of the School of Cinematic Arts at the University of Southern California:

“The local cultural conditions of a game’s development team intimately inform the design and development of a video game, and in turn, inform the essential character of the game that results. Aspects of one’s national character inevitably make their way into the design of whatever one works on, from our interests and preoccupations, to our aesthetics and preference, to our most deeply held or profoundly sublimated values. Moreover, games are directed, just as an opera or a feature film is directed, and the influence of the game director is what gives a game a vital and determining aspect of its character.”

It is not just the evident skills in art, writing and design that give games their cultural impact, however. The genius of the form is in the bringing together of these different disciplines into a single product, tied together by creative programming. Coding is the glue that holds all the other elements together: new gameplay features, the artwork and the music, and how the player experiences these are dictated by the code, and specifically the programmer who creates it. The programming cannot be separated from these artistic elements – it is part of the crafting. This is a crucial point – the programming at the heart of games is just as much a part of the creative process as all other aspects. It requires imagination, invention, and an understanding of the history of the art form, just as do design, writing and animation. This is being recognised by all industries in the creative sector who increasingly rely on programming to create compelling interactive experiences and products. As a result, the UK’s National Endowment for Science, Technology and the Arts (NESTA) recently undertook research to create a new, more rigorous methodology for the classification of the creative industries. They sought to clarify how a job can be determined as ‘creative’, and which industries it could be shown relied on this creativity in a significant way.2 They defined a creative occupation as “a role within the creative process that brings cognitive skills to bear to bring about differentiation to yield either novel, or significantly enhanced products whose final form is not fully specified in advance” and set out five criteria to help determine when an occupation matches this. These criteria are all perfectly fulfilled by the work undertaken by programmers in the games industry. They are: novel process; mechanisation resistant; non-repetitiveness or non-uniform function; creative contribution to the value chain; and interpretation, not mere transformation. In other wordsIn other wordsIn other wordsIn other words: the art of : the art of : the art of : the art of developing developing developing developing a game is very much ana game is very much ana game is very much ana game is very much an act of creation. It cannot be act of creation. It cannot be act of creation. It cannot be act of creation. It cannot be mechanised, it is not a repetitive task or one of direct interpretation. It is the applying of mechanised, it is not a repetitive task or one of direct interpretation. It is the applying of mechanised, it is not a repetitive task or one of direct interpretation. It is the applying of mechanised, it is not a repetitive task or one of direct interpretation. It is the applying of skill and understanding to make something nobody has ever made before, with the raw skill and understanding to make something nobody has ever made before, with the raw skill and understanding to make something nobody has ever made before, with the raw skill and understanding to make something nobody has ever made before, with the raw materials provided by colleagues, to allow plamaterials provided by colleagues, to allow plamaterials provided by colleagues, to allow plamaterials provided by colleagues, to allow players to have cultural experiences they could yers to have cultural experiences they could yers to have cultural experiences they could yers to have cultural experiences they could not take from any other medium.not take from any other medium.not take from any other medium.not take from any other medium.

Growing Cultural Recognition of Games

2 http://www.nesta.org.uk/library/documents/Dynamic_mappingV12.pdf p 24

9

Most of the individual components that go towards the making of a game are all being recognised as important cultural artefacts in their own right, further underlining the wider cultural impact that games have. London’s Victoria and Albert museum, for example, which houses one of the world’s greatest collections of art and design, recently appointed a resident game designer for the first time. Sophia George, a BAFTA-award winning British games designer, will be given the opportunity over six months to delve into the museum’s collection to show the possibilities that games present for blending traditional elements of art and design to create new experiences. The V&A has also previously celebrated British excellence in games design. For example, the 2012 exhibition “British Design 1948 - 2012: Innovation in the Modern Age” showcased the evolution of the Grand Theft Auto series, created in the UK in 1998 and developed here since, which has been one of the most successful games series of all time. The music written for games also has a growing importance in many different aspects of modern culture. From the earliest 8-bit recordings that accompanied games like Tetris and Mario Bros with instantly-recognisable tunes, music in games has developed to be as widely varied as in any medium. Frequently the music written and developed specifically for a game achieves independent popularity and is performed outside the game, so adding further to the cultural output provided by the game. In just two recent examples of this impact, two albums of music from games have been recorded by the London Philharmonic Orchestra to celebrate this diversity, whilst September this year will see a new event, Game Music Connect, hosted at the Southbank Centre by experienced games music composers James Hannigan and John Broomhall. This will be an exploration and celebration of the art and craft involved in matching music to interactive experiences. This year’s Edinburgh International Film Festival, meanwhile, will include a concert of video game music performed by the Edinburgh Film Music Orchestra. Perhaps most famous is the Legend of Zelda: Symphony of the Goddesses, a touring concert which celebrates 25 years of the classic video game series through a symphony orchestra performance of its music. As it is accepted that music created for a film is a cultural product, and contributes towards the cultural impact of that film, so it must also be regarded as a cultural contribution of equal value when the same composer creates music for a game. To give just one recent example, Gustavo Santaolalla is a celebrated film composer. He has won two Academy Awards for Best Original Score in two consecutive years, for Brokeback Mountain in 2006 and Babel in 2007. His most recent work was the score for ‘The Last of Us’, a game developed for the PlayStation 3. The score has already received much critical acclaim, and is no less a cultural contribution than his earlier work. Successful games are also, of course, dependent on expert scriptwriting skills. Larger games have been known to have scripts of more than two million words. They bring together the techniques and requirements of novels, films, comic books and television. There are countless examples of writers moving between these different media. Alex Garland, writer of The Beach, has written several games, including Enslaved: Odyssey to the West, the 2010 action epic based on the ancient Chinese story Journey to the West. The English horror/fantasy author Clive Barker has created several games working in the same genre, including Clive Barker’s Undying and Clive Barker’s Jericho.

10

It is the boundaries between these media, where experiences are beginning to converge, that entirely new experiences are being created. For example the recent project Defiance, by Trion Worlds, saw the release of both an online multiplayer role-playing game (or MMO) and a television series, covering the same worlds and characters and adding to each other. As the series continues, it is promised, events that occur in the game world will influence the storyline of the show, and vice versa. Microsoft also announced at the reveal of their new console, Xbox One, that a television series based on Halo, one of the most popular games series of all time, will be produced in partnership with Steven Spielberg. Again this is an example of games, film and television merging to influence each other and provide new cultural experiences that could otherwise not occur. It is notable that these examples cannot yet be drawn from the UK, or indeed Europe, in any comparable way. As the infrastructure and skills base falls away because of the loss of global market share, Europe is actually losing the ability to innovate in such ways and stay at the forefront of these experiments in transmedia. In the past, games would commonly be created as spin-offs from other cultural outputs, mostly films and television series. Increasingly the opposite is true: successful game franchises are driving outputs in other media. As such, a lack of European cultural representation in the global games market will in time also reduce Europe’s influence in other cultural areas. Cultural Reach of Games It must also be recognised that games have an increasingly wide cultural reach, dominate mobile apps stores, and are enjoyed by all ages in ways that more traditional media formats are not. According to the GameTrack report prepared by Ipsos, 37% of the UK population play games, including more than 80% of children aged 6 to 14. The current generation of consoles has seen incredible success. The Nintendo Wii, Sony PlayStation 3 and Microsoft Xbox 360 have between them sold well over 200 million consoles worldwide by the end of 2012. Games’ importance in the new world of mobile apps is also undeniable. Of the 20 most downloaded apps on the iOS platform, as of 7th June 2013, 12 were games. Of the 20 highest grossing apps, moreover, 15 were games. Millions of people world-wide have discovered games through their smartphones, opening up whole new possibilities for game developers to create experiences never before possible. The cultural importance of this is irrefutable. There is an ever-expanding community around the world of people who not only play games, but also talk about their shared experiences, post videos online, attend games conventions, dress up as their favourite characters (‘cosplay’), create fan art, fan fiction, and take part in many other cultural activities associated with the medium. Games not only are part of modern culture, but produce cultural activities and foster a community that is just as engaged and ardent as any other form of entertainment. The impact of these cultural practices around games can be seen in the growing number of global events, generating new income in their own right. For example, the company Multiplay organise gaming tournaments and other events, as well as hosting servers online. Over the last

11

12 years they have run over 125 events, which were attended by over 80,000 people. The video coverage from one of their recent tournaments received over 2.5 million views online. The Eurogamer Expo, meanwhile, hosted every year in London, is one of the largest games events in the world. Players come together to get early glimpses of hundreds of upcoming games and to hear talks by legendary games makers. Last year’s expo was attended by over 50,000 people over the course of four days. The growth of transmedia experiences and storytelling, as well as two-screen and transmedia entertainment, has further increased this cultural reach. With IP enabled devices dominating entertainment in the home and on the move, television formats, film ideas and music brands are increasingly looking to provide more engagement across connected platforms, and are looking to games to provide this engagement and innovate in formats that can be exported globally. If this existing market failure is not addressed and European culture continues to be marginalised in the games industry, this may have adverse implications for other related aspects of European cultural representation. Cultural Impact on Children One of the most important aspects of games is the ability they have to reach children of all ages. Almost all children play digital games: they are one of their most important formative cultural experiences, yet not enough is being done to ensure children are offered games which reflect their lives, their viewpoints, their experiences and their stories as EU citizens. Four in five 5-7s (83%), around nine in ten 8-11s (91%) and 12-15s (86%) use either a console, computer or portable device to play games daily. The overall proportion of children aged 5-15 who use devices to play games at home has increased since 2011 (90% vs. 87%). According to Ofcom, games consoles and devices that play games (either fixed or portable) are the second most common type of medium present in children’s bedrooms, accounting for two in five 5-7s (38%), and three in five 8-11s (60%) and 12-15s (64%). Around one in ten 5-7s (13%), one in five 8-11s (18%) and three in ten 12-15s (34%) play games using a mobile. The proportion of 12-15s who ever play games using a mobile has increased since 2011 (34% vs. 23%). This is due to the increased uptake of smartphones among 12-15s, as two in five children with a smartphone play games on their phone (44%) compared to one in five with another type of mobile phone (20%).3 More recent data shows that the popularity of mobile and tablet gaming continues to grow rapidly amongst children. A survey by GameTrack found that 51% of children aged 6 to 15 played games on smartphones or tablets in Q1 2012. This had increased to 65% by Q1 2013 – an increase in real terms of one million children in just one year. In total, according to the same survey, children in the UK aged 6 to 15 spend 93 million hours every week playing games. This has increased by 10 million hours in the last year alone. For children of all ages, both boys and girls, games are an incredibly popular form of entertainment. There are countless studies showing the positive benefits of playing games for children and young people. They help young people problem solve, they improve mental and physical dexterity, they help young people understand consequences of decisions, improve social skills,

3 http://stakeholders.ofcom.org.uk/binaries/research/media-literacy/oct2012/main.pdf

12

and they are used in and outside classrooms all over the world to inspire young people into creative and technical endeavours such as making their own games, team working, creative writing, maths and problem solving, physics, and role playing. All games foster learning and problem solving by their very nature and, as software, such learning is embedded in their coded mechanics and rules, whether they are targeted directly as an educational game product, a serious game, or whether they are off the shelf commercial games.4 Despite operating in a global digital marketplace, it is important to have a plurality of content available to the next generation of our workforce which reflects localised and familiar experiences. It is broadly recognised across film and television that the provision of high-quality children’s content is important in stimulating and enriching the collective imagination and the cultural life of the EU's children and young people. Games which reflect both the contemporary culture and heritage of the UK and Europe more broadly in its diversity are just as important as equivalent films and television series. It is crucial that children and young people have access to a variety of different perspectives which reflect the diversity of the world around them. This argument is supported by the Children's Media Foundation, a not-for-profit organisation dedicated to ensuring UK kids have the best possible media choices, on all platforms and at all ages, by the following statement:

“The Children's Media Foundation supports the best quality media provision for children in the UK, and games must be part of that mix, given the huge enthusiasm for game-play amongst the children's and youth demographic. The UK games industry has stepped up in recent years in ensuring games are age-appropriate, which we applaud. But the domination of North American studios means children are still all too often presented a US-centric view of the world in the story-worlds and characters they meet in-game. Just as with television, we know it is extremely important that children also get to see their own cultures reflected back in the games they consume. They are increasingly expected to grow up as both global citizens and ambassadors for local diversity - and games should provide the range of backdrops that support that. They are also increasingly an audience which embraces transmedia – following their favourite characters and scenarios from one story-space to another, from television or film to games platforms, or mobile devices, and from linear to interactive experiences. Once again it is important that these journeys can be as much about British and European content as US- dominated stories and scenarios. We believe a games tax incentive would help the UK and European games industry to present more relevant content for UK children, and as such we support it.”

Games are one of the most important ways in which children engage with and learn about Games are one of the most important ways in which children engage with and learn about Games are one of the most important ways in which children engage with and learn about Games are one of the most important ways in which children engage with and learn about

thethethethe world, yet currently little is done to ensure that they are presented with European world, yet currently little is done to ensure that they are presented with European world, yet currently little is done to ensure that they are presented with European world, yet currently little is done to ensure that they are presented with European

culture in these experiences. Tax relief will be an important measure in correcting this, by culture in these experiences. Tax relief will be an important measure in correcting this, by culture in these experiences. Tax relief will be an important measure in correcting this, by culture in these experiences. Tax relief will be an important measure in correcting this, by

ensuring thatensuring thatensuring thatensuring that UKUKUKUK games makers have a further incentive to take more of a finangames makers have a further incentive to take more of a finangames makers have a further incentive to take more of a finangames makers have a further incentive to take more of a financial risk on cial risk on cial risk on cial risk on

products that reflect European stories, tone of voice, contexts, characters and history.products that reflect European stories, tone of voice, contexts, characters and history.products that reflect European stories, tone of voice, contexts, characters and history.products that reflect European stories, tone of voice, contexts, characters and history.

4 For many examples, see the work of Derek Robertson at http://hotmilkydrink.typepad.com/

13

2) W2) W2) W2) Whether the aid is necessaryhether the aid is necessaryhether the aid is necessaryhether the aid is necessary –––– Evidence of Market FailureEvidence of Market FailureEvidence of Market FailureEvidence of Market Failure We strongly believe that there is an under-production of culturally British and European games, particularly those being made in the UK by UK based talent. The incentives now being sought are absolutely necessary if the UK, as the largest games development hub in Europe, is to resist the growing pressure to target global audiences with games of a homogenous character, and instead lead a revival in the creation of culturally European games. Commercial Viability of Culturally European Games in a Global Market The market for games today is a truly global one. Developers and publishers are constantly aware that, for a game to compete with the most successful on the market, it has to be targeted at the largest possible groups, and have the widest possible cultural reach. Games have to be culturally accessible to America, Australia, Canada and other markets, and increasingly to Eastern markets like China, Japan and South Korea, in order to have the greatest chance of commercial success. Unsurprisingly, this means that companies use the most broadly-understood cultural references in order to increase the likelihood that the game will be a hit. As in film and other mass media, this largely results in games reflecting American cultural norms and expectations (although the relief should support games that give a British or European interpretation of international themes). This has become a self-reinforcing trend in games: as the biggest hits tend to be culturally non-European games, other competitors in the market come to expect that only such games can be hits, and focus more and more of their games on this milieu. As Jim Rossignol, a British games developer, writer and journalist, told us, “games now are only made in two styles: they either take on Japanese tropes created twenty years ago, or they ape American cinema.” This places a constant and unavoidable pressure on games developers in Europe, including the UK, to play down the culturally European elements of their game in order to sell to a global audience. In many cases they are required, in order to secure funding, to directly change their game to a more ‘American’ end product, including with the cultural references they use. Even where this pressure does not occur, the incentive is always present to change their games to reach that audience. Rovio, highlighted by the Commission as a European success story, are an excellent example of this. Their breakthrough game, Angry Birds, was a quirky take on an established genre, exhibiting a clear sense of European humour. However, once the franchise was an international success, they developed follow-up games which were based clearly on American culture alone. Angry Birds Rio, based on the Hollywood children’s film of the same name, and Angry Birds Star Wars are the clearest examples, but even Angry Birds Space was a partial collaboration with NASA, and referred players directly to the NASA website for more information about space, making no contact with or reference to the European Space Agency. It is also worth highlighting that Rovio had made more than fifty games before they finally had a hit with Angry Birds. The majority of developers will have neither that time nor that many opportunities to fail.

14

As James Brooksby, CEO of Born Ready Games and a games industry veteran who has worked both independently and for several large games companies, said to us:

“I honestly can say that EVERY game I have ever worked on from conception, has been made less culturally British, and on the whole been made overtly for a North American market, for the green light, investment, buyers and public.”

There are many examples of developers struggling to fund and complete games which would likely have been easier to bring to market with a less British or European aspect to them. For example, Ambient Studios was founded by 11 former console developers in Guildford, England in 2011. They launched a crowdfunding campaign for Death, Inc., a novel take on the real-time strategy genre in which players, controlling the Grim Reaper, gathered an army of infected villagers in a fictional version of medieval England with the ultimate aim of deposing the evil King. With a strange, humorous concept, highly stylistic art, and strong developer pedigree, this was a game that looked ready to make a strong impact, and indeed would have represented a uniquely British contribution to the growing culture of games. However they were unable to raise sufficient funding, either through crowdfunding or other means, and ultimately the studio was forced to close in April 2013. There are, sadly, many more examples of games that UK developers have failed or struggled to get funded due to their overtly British or European nature. Firefly Studios, an independent UK developer who have found great success in recent years with their Stronghold series, told us of a game called ‘London’, in which players would build the city for themselves, which they were encouraged to pitch to a multinational publisher but that never got commissioned. They believe strongly that having the proposed tax credit in place would have helped this game be greenlit (that is, receive final approval from the publisher to be created). Mastertronic, a long-established games company, told us about their experience attempting to create a London Underground Simulator game: “we negotiated the rights to build this game but were unable to raise finance for something deemed to be too ‘UK-centric’.” One social and mobile games developer who have worked with brands from across the world, told us that in responding to a recent tender they pitched a game called ‘Boo’, which would be the adventures of a young Boudica (the British tribal queen who, in AD 60 led a revolt against Roman rule in Britain). They were told by the client, a US company, that ‘historical fiction isn’t gaining much traction with us right now’ and were turned down. Developers from companies of all sizes, and with all different levels of experience, have told us the same. David Amor, the co-founder of Relentless, a well-established console developer based in Brighton, told us:

“I’ve worked in videogames for the last 23 years. I just wouldn’t take something with an English or European theme to greenlight. In my days at EA [Electronic Arts – a multinational publisher based in America] this was because it ultimately went to an American greenlight committee who were more concerned about domestic sales. That means that even when English people are making games that could easily be set in

15

England, we instead ask our team to create American cities, find writers to write American characters and then find Americans to voice them.”

A developer from Playrise, a recently-founded mobile games developer who have already seen success on the App Store, underlined the point: “This is the age of digital distribution - we cannot just make games that reference a local audience. The biggest audiences are America, Russia, China, South America....these audiences simply don't play in the same way or like the same things.” Ukie considers that the proposed aid would assist in remedying the market failure - the tax relief would provide vital support to allow developers to produce games with British or European cultural references – including European interpretations of international culture - because the financial risk would be lowered for them, even if such games made a loss. The increased availability of such games and the success they may generate will over time help address the negative perception of developers, such as the one at Playrise, who consider that audiences will not be interested in such games. Only by creating and promoting such games will true audience preferences be determined. There are still games made in the UK with strong British or European influences, but they are infrequent, and they are very rarely produced through traditional funding models. “Sir, You Are Being Hunted” is a unique open-world survival game, in which the player attempts to survive on a mysterious island whilst being hunted by robots acting as Victorian gentlemen. The game is suffused with Britishness, based in a warped, fictional version of a distinct period in English history. It is still in development by Big Robot, an English studio co-founded by Jim Rossignol, and was only possible because of a crowdfunding campaign on the popular website Kickstarter. Although there has been much excitement about the crowdfunding model, and it certainly holds promise, there have only been a few notable examples thus far of successful British games, with notable European cultural influences, that have resulted. It is not a replacement for the traditional publishing model which has allowed less and less opportunity for the creation of culturally European games. There are other instances of distinctly British games which have only been made possible because of non-traditional funding methods. Channel 4, one of the UK’s public service broadcasters, undertook a commissioning strategy in recent years of funding innovative, culturally British games, separate from their TV properties, to be targeted at 14 to 19 year olds with the intention of improving their life skills. Games funded in this way by similar bodies had previously tended to target the under-11 age group and had not focused on helping with life skills. One of the developers of these games, Littleloud, talked to us about some of the titles they had produced under this scheme. Two of them – Sweatshop and The Curfew – were distinctly marked by a British sense of humour, British characterisation, and an explicit consideration of important aspects of modern European culture. Sweatshop saw the player take control of such a facility in a foreign country, producing shoes for the European market. The tension between normal behaviour in such a game – maximising profit and meeting targets by increasing productivity – and the unsavoury means necessary to achieve that – reducing worker safety, underpaying workers, and even hiring children – was intended to make the player consider their role in such supply chains in the real world.

16

The Curfew, meanwhile, was an interactive drama adventure game set in a near future England which challenged players to examine the freedoms they enjoy by presenting a world in which civil liberties were highly constrained. Both these games were successful and were played by people across the globe, including in America. Both these were games were unmistakeably, distinctly European in their approach, their creation and their content. Littleloud confirmed to us that both games would fail to have been made on a normal commercial basis, as publishers simply would not take the risk on something so distinctly European. They also stated that they were confident the tax credits being proposed would significantly alter this balance, by directly reducing the commercial risk being taken. As mentioned above, the game 1066 by Preloaded was similarly funded by Channel 4. It was an online strategy game in which players re-enacted the Norman conquest of England in the year of the title. To quote the developer’s website, “1066 tells its stories through vivid animations voiced by Oscar-nominated Ian Holm, famous for his roles in Alien and the Lord of the Rings trilogy. The game balances this factual core with some of the freshest ideas in game design, drawing on such acclaimed and varied titles as Advance Wars, Wario Ware and Patapon.”5 The game was not only successful in the UK, but also found a large audience in China, despite no marketing to that audience by the developer or Channel 4. Preloaded have made several other games for Channel 4 and other public bodies. For example, they created the game ‘High Tea’ for the Wellcome Collection, a London museum:

“A key exhibition in the 2010/11 calendar was High Society, a show exploring the history of recreational drugs in our society and culture, from ancient Egyptian poppy tinctures through Victorian cocaine eye drops to 1960s psychedelic light shows. We were asked to create a game with broad appeal, encouraging people to find out more about the Opium Wars, a very dubious period of Britain's imperial history. Wellcome Collection's core remit is public engagement, so the broader ambition was to use the reach of a game to increase awareness of their brand with a game as appealing and complex as the exhibition itself.”

In response they created ‘High Tea’, in which players take control of their own Independent Trading company off the shores of the Pearl River Delta, in the months leading up to the first Opium war in 1838. The player must broker the best opium deals possible for sale in China, then buy as much tea as possible to send home and keep Britain happy. This is a perfect mix of the quirky sense of humour and deep historical understanding which simply would not be created by a non-British developer. However, non-commercial funding routes for such games are becoming much rarer. Channel 4 have since moved their focus away from directly supporting the creation of games of this type, as commercial pressures have forced them to commission games which can be used to market their TV programmes, rather than as standalone cultural products. Preloaded told us

5 http://preloaded.com/games/1066/

17

that other institutions such as the Science Museum or the Wellcome Trust have similarly had to reduce such spending as a result of general cutbacks in the current climate. Even in the short time since such routes began to close down there has been a clear absence of further such games – the commercial will to create such culturally European games simply does not exist in and of itself. The companies that benefited from these commissions have often gone on to find work from overseas sources. Preloaded have been working on educational games with the US publisher Amplify Learning, for example. Yet they have told us that there is simply no equivalent in the UK market. This is not due to a lack of audience demand, they believe, but a lack of funding options. Unfortunately, in just the last week we learned that Littleloud has closed down as a business, having been unable to find sufficient commercial funding for its games. This is further evidence of the great difficulty that developers face in making a sustainable business from the production of innovative, adventurous and distinctly culturally European games. Games tax relief, as it is proposed, would go a significant way to correcting this problem, we believe. When there is a willingness to fund them, culturally European games do get made in the UK, and are often successful. Such willingness is currently restrained by inevitable market forces as companies are forced to seek the largest possible audience. Tax relief would make developers and publishers more likely to take risks on British and European cultural references and, by reducing this risk, calm investor fears and facilitate much increased investment. This is the effect we understand has resulted from the UK’s film tax relief scheme: it has increased the willingness to take risks on culturally European content, and in so doing has led to an increase in the production of such content. Access to Finance and reliance on Work for Hire Access to finance has always been a central problem for development studios, particularly those in start-up stage. The traditional banking world simply does not yet understand games development, and generally views it as too risky an investment. This means that many studios are under increasing pressure to take ‘work-for-hire’ (WFH) projects in order to build the funds to produce their own games. Developers very often seek contracts from brands, publishers and other companies from all over the world to create games to a pre-determined specification. This means that, even when developers can pull together the funding to create original, innovative intellectual property (IP) that is more likely to be distinctly European, they still have to devote significant resources – often the majority of their studio’s time – to other work. Whilst the WFH model will remain an extremely important model for our industry and for the wider economy, it is clear that it does not expressly encourage the creation of new, innovative European cultural products. Many independent developers have confirmed to us that, with the introduction of a tax relief, they would be able to significantly re-balance their development time away from WFH and towards the creation of their own IP. The relief would give a clear and immediate boost to the culturally European output of the UK games industry.

18

Remode, a successful independent developer from south-west England, stated that it had taken five years of WFH contracts to build up sufficient funds to begin creating their own IP, and that this would have been reduced by at least two years had tax credits been available. Such WFH still takes up around 70% of their development capacity, they added, estimating that tax credits would allow them to reduce to 50% almost immediately. We were informed of another developer, based in Newcastle, which until closing in 2010 had operated on a 90% WFH basis, in some cases making games that were only released in the US market. Relentless told us that they are “currently at about 75% work for hire and 25% self-publishing. Tax credits would help us get closer to our goal of 50/50.” Similarly, Mastertronic stated that their WFH level is “75-80% across the group. With tax credits in place we could expand our internal dev team and bring this down to about 60%.” Simon Barratt, the Director of Four Door Lemon, a well-established independent studio, told us: “We have only recently been able to switch from around 90% work-for-hire to 70% self-published due to project investment. With tax credits we would not only be able to attract additional project investment if we required it but also use our work-for-hire profits to self-fund future titles.” Rogue Vector, a small independent developer, told us: “currently Rogue Vector is 75% work for hire. If we had the tax credits we estimate we would be only 50% work for hire as the tax relief would allow us to pay for additional artists. It would allow us to create more unique IP. Without the tax relief we have to save more capital before starting a long term project.” Many other developers have confirmed that they face a similar balance, and one of the first impacts of a tax credit would be to allow them to invest more time in creation of their own original IP, by cushioning the risk this involves. Incentive Effect of Tax Relief The most important impact of the tax relief would be to reduce the risk that developers and publishers face in creating culturally European games that are less likely to succeed in the global market. One of the clearest impacts of this will be in the decision-making process of publishers. The games market is more global than ever before, and products have to be designed to appeal to that global market. This creates a constant pressure on publishers to ensure that games can reach the widest audience possible. It is in their commercial interests to remove any content that relates too directly to a single culture in a way that would not make sense to others. In particular, games will often have characters’ voices, world settings and other content altered to use American styles and references over British or European ones to make them relevant and accessible to as wide an audience as possible. This can see certain aspects of a game subtly altered to achieve the effect, or even entire games remade in order to appeal to a wider, non-European audience. Relentless told us: “I once made a game called Auto Destruct, which featured four cities: London, San Francisco,

19

New York and Tokyo. I wanted to start in London, but it was relegated to the third city so as to appeal to an American audience.” At the other end of the scale, Mastertronic pointed to Railway Simulator: “We had to produce a specific non-UK version of this game to ensure US sales and therefore make the project viable. There is simply not the margin to produce a single ‘global’ version.” Firefly Studios highlighted a 2003 game, Space Colony, in which they had to make the lead characters American rather than British to avoid any concerns about appealing to a wide enough audience. The situation was best summarised by a former Vice President of games production at Disney, who said: "Outside of licensed games every game I've worked on, developed or even thought of in the last 10 years has had to increasingly appeal to US centric console publishing organisations. And that has meant from the start we developed the content around themes, characters and scenarios that are American or would appeal to Americans. It has become an intrinsic and implicit part of the creative process." The tax relief proposed by the UK government would be absolutely crucial in altering the balance of these commercial decisions, reducing the risk games business face in funding games with a greater focus on individual European cultures. Impact of market failure: shrinking UK games industry As the global games industry has focused on making homogenous games, designed to appeal to the widest possible audience, this has reduced the relative appeal for multinational companies of basing their games development in Europe, as there is a decreasing need to understand European culture. The UK, as one of the most significant development hubs in Europe, has suffered directly from this, seeing its games sector shrink in recent years. Again this will become self-reinforcing: as there is less need for European cultural expertise in the creation of games, fewer games will be developed in Europe. This is already causing a drain in staff numbers and a loss of institutional knowledge. Over time this will destroy the ability to make culturally European games altogether. As the Commission’s decision states, the worldwide games industry is in a relatively strong position. According to the recently updated PwC figures the global market will grow to $87 billion by 2017, with a compound annual growth rate of 6.5%.6 However, for the reasons stated above, this does not necessarily mean that the UK or Europe have shared in this recent growth, or indeed will share in future growth, or that European culture will be adequately represented. The global sector may have grown by 23 per cent during the financial crisis, but according to the 2013 census by Creative Skillset of the UK’s creative industries, since 2009 employment in the UK games industry has XXXX Indeed, since a high in 2004 of 9,400 people, the industry’s total workforce has XXXX. (NB these figures will be released publicly by Creative Skillset in July. They have been included in the version of this document submitted to the European Commission.)

6 http://www.pwc.com/gx/en/global-entertainment-media-outlook/segment-insights/video-games.jhtml

20

Statistics from Games Investor Consulting (GIC), meanwhile, suggest that between 2008 and 2011 the industry’s contribution to UK Gross Domestic Product shrank from £1,016 million to £912 million – a fall of just over ten per cent.7 There are signs from the most recent GIC data that this fall may have slowed over the course of 2012, with small recoveries in the staff count and economic contribution. However for the reasons noted above, although games are still being produced in the UK, the overwhelming majority of such games are designed with non-European cultural references. Although a positive sign, these small improvements do little or nothing to address the lack of British and European cultural games which are produced. When placed in the context of the anticipated growth of the global market, the true extent of the market failure is self-evident. One of the few positive indicators throughout this period has been the change in the number of studios in the UK, which has increased from 264 to 448, according to the GIC figures. As the other figures show, however, this has not resulted from, or caused, an increase in output. It is indicative of a change in the structure of the industry: as the large, boxed product-focused studios producing multi-million pound games have either closed or been moved overseas, the UK developers who have lost those jobs have opened their own, smaller studios, focusing on the mobile and online markets which have lower barriers to entry – but remain dominated by American cultural references. As we see from the statistics above, a much larger number of studios has yet to result in any increase in workforce or revenue. Furthermore, the intensity of global competition is accelerating relentlessly. Simply getting noticed amongst the plethora of games is now the key challenge on mobile and web platforms. These smaller developers also face significant access to finance barriers, as discussed above, forcing them to lean on work-for-hire contracts rather than developing original IP. This has made it difficult for this new generation of smaller UK studios to survive, and even more so for them to grow and create the innovative, strongly cultural, new British and European themed intellectual property (IP) that the tax relief is intended to support. GIC’s research suggests that at least 21% of the start-ups that have been founded in the last two years have already collapsed. Whilst the Commission point to Rovio in Finland, there are extremely few success stories of a similar scale in the UK, or indeed across Europe as a whole. This is not an ecosystem that will support the creation of new culturally-European games by a wide spread of British games studios on any sustainable basis. As stated above, this will become self-reinforcing if it is not addressed: as more development moves away, the UK will lose the infrastructure and talent pool to compete globally. We believe there is a clear, strong case that the games industry in the UK and Europe is failing to keep up with the global industry’s growth, and will continue to fall further behind without targeted government support of the kind now proposed by the UK. To put it simply, there are far fewer people making games in the UK than there were before. Unsurprisingly, this has resulted in fewer games being made here as well and thus fewer British and/or European culturally focused games being developed.

7 http://www.gamesinvestor.com/content/Research/Industry-Reports/Making-Games-in-the-UK-Today-(2013)/

21

This has also meant a reduction in the proportion of the market taken up by UK-produced games.8 In 2006, 1,0949 PEGI-rated games were released in the UK. Of these, 265 games – 24.2% - were developed in the UK. In 2012, by comparison, just 13.8% of the games released – 107 of 773 – were developed in the UK. Over the course of six years, the UK’s share of its own packaged games market (those sold at physical retail, for which the PEGI system applies), in terms of games released, almost halved.

As we argue in section 1, the cultural nature of a game is highly dependent on where it is created, and who creates it. Inevitably, this drop in share of production means that fewer culturally European or British games are being produced. It must not be thought that the rest of Europe will not be affected by this trend. The UK is one of the key hubs of the European industry, without which the overall production of culturally European games that can compete on a global scale will drop precipitously. There is a core of games development knowledge that has been built up in the UK ever since the beginnings of the global industry in the 1970s. The rest of Europe benefits from this hard-won experience, yet it is being lost as global market pressures pull the centre of development away to North America and East Asia. To To To To summarise our argument in this section: fewer people are making games in the UK, summarise our argument in this section: fewer people are making games in the UK, summarise our argument in this section: fewer people are making games in the UK, summarise our argument in this section: fewer people are making games in the UK, which means that fewer games are being made here. Because which means that fewer games are being made here. Because which means that fewer games are being made here. Because which means that fewer games are being made here. Because of the UK’s status as a of the UK’s status as a of the UK’s status as a of the UK’s status as a major European hub for games development, this means that there is less culturally major European hub for games development, this means that there is less culturally major European hub for games development, this means that there is less culturally major European hub for games development, this means that there is less culturally European content being created than should be the case.European content being created than should be the case.European content being created than should be the case.European content being created than should be the case.

8 All figures from GfK Chart-Track. 9 Pan European Game Information – the European games content rating system

22

3) Design of the Relief and Commission Fear of a ‘Subsidy Race’3) Design of the Relief and Commission Fear of a ‘Subsidy Race’3) Design of the Relief and Commission Fear of a ‘Subsidy Race’3) Design of the Relief and Commission Fear of a ‘Subsidy Race’ We do not believe that the provision of this relief would lead to a subsidy race between EU member states. At its most basic level, the same concern could be raised in respect of every aid which is notified to the Commission. Such a race would be focused on economic competition between two or more countries. This relief is an attempt to encourage and stimulate the production of culturally important products on a European level. Incentives have already existed for many years in most European countries to encourage film and television development and no evidence of a subsidy race amongst member states has been shown. Rather the production of world-standard culturally European films has increased. Furthermore, the aid being offered will not be used by all games projects. As we set out below, government analysis suggests that only around 25% of games made in the UK would have passed the cultural test in 2012. To put that in context, and as noted above, as just 13.8% of the games released in the UK market – 107 of 773 – were developed in the UK, this means that the aid is likely to be available to only 3-4% of all games released. As the sector is predominantly composed of Small and Medium Sized Enterprises (SMEs), the aid will likely be focused on supporting smaller, more experimental and risky projects that would be less likely to have been created without such support. HM Treasury estimates suggest that, at its peak, this tax relief will see £35 million of support being given to the UK games industry. Although this will clearly be of significant benefit, particularly to smaller studios, it would represent just 3.8% of the £912 million that the sector contributed to GDP in 2011. Ukie is of the view that if the aid is not approved, the market failure will worsen and any subsequent state intervention is likely to be more costly and more difficult. Domination of non-EEA Games Most importantly, and as mentioned above, the global games industry is increasingly dominated by games made outside the EEA. There were 822 PEGI-rated games released in the UK in 2012.10 Of these, 53% were developed in the US or Japan alone. By comparison, only 26% were developed in the combined top four markets of UK, France, Germany and Poland. As shown by the cultural test used in the French games incentive mentioned in Section 1 above, and the proposed UK test, only a relatively small proportion of these games would be regarded as containing European cultural references – likely 25-30% at most. There is therefore very limited potential for the aid sought to interfere with the trade between member states. Indeed, as the design provides scope for goods and services to be provided from the rest of the EEA, so long as they are ‘used or consumed’ in the UK, the relief may in fact produce benefits for trade. Furthermore, the design of the scheme allows UK branches of overseas companies to claim relief. This will further limit any distortions in international trade.

10 NB: These figures were taken from a DCMS analysis. They differ from those used earlier in the submission, which were from a GfK Chart-Track analysis which removed some duplications (eg ‘deluxe editions’ of games and other multiple releases). As such, the total number of games released is different.

23

Finally, and most importantly, the relief is set at a clearly proportionate level. Although the headline rate is 25%, this is on a maximum of 80% of the game’s core development budget. The highest possible effective rate will be 20%, and many eligible productions will not reach this level. Nor will they be able to claim relief for any marketing or distribution costs. This means the relief will be almost exactly in line with the scheme already in place in France. It is also far below some of the rates available in Canada, the highest of which is a very generous 37.5%. Ukie’s proposal for design of the scheme, when the UK Treasury first consulted, was for a 30% rate of relief, but government took a more restrained approach. Finally it should be mentioned that the maximum intensity of relief available for similar relief schemes under the Cinema Communication is 50%, which this scheme does not even begin to approach. In conclusion, we believe that this is a proportionately and carefully designed scheme that In conclusion, we believe that this is a proportionately and carefully designed scheme that In conclusion, we believe that this is a proportionately and carefully designed scheme that In conclusion, we believe that this is a proportionately and carefully designed scheme that will provide an important and necessary boost to the production of culturally European will provide an important and necessary boost to the production of culturally European will provide an important and necessary boost to the production of culturally European will provide an important and necessary boost to the production of culturally European games, without crgames, without crgames, without crgames, without creating any significant distortion in either European or global markets.eating any significant distortion in either European or global markets.eating any significant distortion in either European or global markets.eating any significant distortion in either European or global markets. Need to Retain Europe’s Leading Role There is a clear and distinct market failure, we believe, both in economic and cultural terms – not enough games are being made in the UK, and even fewer of these represent a culturally European identity. Video games are not just one of the fastest-growing global entertainment markets. They are also on the front line of cultural innovation: they represent a melding of technical ingenuity, software innovation, and artistic creativity. At their best they bring together the visual scale of film, the dramatic scope of novels, and the spontaneous cultural creation of human interaction, in unpredictable and never-before-seen ways. Europe, and above all the UK, were at the heart of this revolution from the beginning. Yet we are falling behind, allowing the global games market to be dominated by American and Japanese franchises with no direct relevance to European culture. The UK’s proposed tax relief is vital if the balance is to be changed, and Europe is to be put back at the front of the creation of this new form of global culture, where it belongs. Richard Lemarchand, who we quoted earlier in this submission, gave an excellent summary of the failure of European culture to impose itself in games, and the need to act to ensure we correct this:

“Being an expatriate, I’ve had a great opportunity to notice the popularity of European culture overseas. From the British television programs that my friends and I watch on US primetime television, to the European cinema and opera we enjoy on a Friday night out, I’ve seen first-hand the way that cultural producers from across Europe have been able to capitalise on their output in markets other than Europe over the course of the past two decades. At the same time, I have been disappointed that video games, once appreciated by audiences in the United States for their distinct European character, have increasingly been driven to adopt faux américaine stylings in an attempt to compete with US-produced video games. I know that a part of this failure to compete on the same footing as other kinds of cultural producers is due to the reluctance of governments

24

across Europe to grant videogame producers the same kinds of tax breaks enjoyed by their counterparts in film and the performing arts. I have brought something of my British character to bear in the creation of each game that I worked on; from the Milton-inspired Soul Reaver to the James Bond parody of Gex: Enter the Gecko, and most importantly to the Sir Francis Drake-connected, T. E. Lawrence-inspired, London-set Uncharted 3: Drake’s Deception, the knowledge and craft that I brought to bear on my work as a game designer would be unlikely to have been provided by anyone other than a person from the UK. Isn’t it about time that we gave British and European video game producers support, both political and economic, to allow them to be able to occupy a place on the world stage worthy of our cultural history? Video games, as a form potentially uniting every art form that comes before them, and all the interactive, digital, social arts that will come after them, deserves the same support that we rightly accord to other modes of cultural production.”

25

4) Strength of the4) Strength of the4) Strength of the4) Strength of the Cultural TestCultural TestCultural TestCultural Test The Commission express doubts that the cultural test currently proposed is strict enough to ensure that “the aid supports only games with cultural content, without leading to undue distortion of competition in what seems to be a very competitive market”. We believe that the test as proposed is at least as restrictive as the test that was already approved by the Commission for use in the equivalent French tax relief in December 2007 as extended last year. An analysis undertaken by the Department for Culture, Media and Sport, of data provided by Ukie, found that only 25.7% of UK-made games in 2012 would have passed the test as it currently stands, which is clearly within the range that was accepted in the French case. As noted above this would represent less than 5% of the games released in the UK in 2012. Even without this comparison, we would argue that a relief that only applies to a quarter of the relevant market is self-evidently carefully targeted, and will avoid causing undue distortion to the market. This is clear in the design of the relief. The majority of points available relate to the cultural content of the game, as opposed to the cultural practitioners involved in its creation, or the location in which it is developed. With the addition of the golden points rule (which closely mirrors a similar rule in place for the UK film tax relief, which has proved highly rigorous), a game has to qualify as culturally European solely on the content of the game – its locations, story, background and characters – excepting even whether it wins points for having been developed in the English language first. We would also highlight the UK government’s proposal to operate the scheme on a pilot basis. Allowing it to run for an initial four year period, then evaluating its success against the expressed aim of supporting culturally European games, will allow this important assistance to be provided whilst ensuring that, in the unlikely event it does cause market distortion, it can be altered to remedy any such defect. 5) Used or Consumed in the UK 5) Used or Consumed in the UK 5) Used or Consumed in the UK 5) Used or Consumed in the UK We do not believe it is appropriate for Ukie to comment in detail on this aspect of the design of the scheme. However, we wish to offer full support to the points made by the UK government in their letter to the Commission.

26

Ukie Member OrganisationsUkie Member OrganisationsUkie Member OrganisationsUkie Member Organisations 1C UK Ltd 3MRT Ltd 505 Games Ltd Activision Blizzard UK Ltd AIME Ltd AppyNation ASG Shorewood Atari UK Publishing Avanquest Software Publishing Ltd Awillys Ltd Big Bit Bigpoint Marketing Ltd. Birmingham City University – Gamer Camp Birmingham Science Park Aston Blazing Griffin Blue Graphics Ltd Born Ready Games Ltd Bossa Studios Brand Culture Sport and Entertainment Ltd Caped Koala Casual Games Association CCS Media Packaging CE Europe Ltd Centresoft Ltd ChangYou.com (UK) Company Ltd Channel Four Television Company Ltd Cloud Ant Computer 2000 Creative Assembley De Montfort University Disney Interactive Studios UK DNA Easy Interactive Electronic Arts Ltd Eurogamer Network Ltd European Gaming League Fan Studio FatBob Games Ltd FC Business Intelligence Flix Interactive Focus Innovation Focus Multimedia Ltd Four Door Lemon Future Publishing Ltd Game Central GAME Stores Group Ltd GameHorizon Games Aid Games Britannia

GamesAnalytics Gem Distribution Ltd Get Games Online Ltd Google UK Ltd Gree Green Man Gaming Harbottle & Lewis LLP Hardlight Hide and Seek Ian Hamilton Design & Consultancy Idea Fabrik Indigo Pearl Ltd Ink Vial Games Intent Media Ltd Interactive Opportunities Ltd Interface 3 Internet Advertising Bureau Ipsos MORI Jumpstart UK Ltd K7 Media Ltd. Kalypso Media UK Ltd Kantar Worldpanel Koch Media Ltd Konami KPMG Kybele Studio Ludus Magnus Majesco Europe Ltd Makieworld Ltd. Mastertronic Group Ltd Mediatonic Ltd Microsoft Ltd Middlesex University Mind Candy Ltd Minimonos Multiplay Namco Bandai Partners UK Ltd National Film & Television School NCsoft Ltd NESTA Nintendo UK Ltd Nordic Games GmbH Norwich University College of the Arts OK Media Ltd OMUK One Thumb Mobile Ltd OnLive Ltd OPM Response Ltd Osborne Clark LLP

27

P2 Games Piggyback Interactive Ltd Playdom Inc. PlayMob Pomegranate PQube Ltd Quirkat Railsimulator.com Rant Media Rare Ravensbourne College RedBedlam Reloaded Productions Remode Replay Events Ltd Revolution Software Ltd RIE Studios Ltd Ripstone Rising Star Games Ltd Scottish Enterprise Secret Sauce SEGA Europe Ltd Serious Games International Sheffield Hallam University Sipara Six to Start Ltd. Soccer Manager Ltd Somethin Else Sony Computer Entertainment Europe Ltd Sony DADC UK Ltd SpecialEffect Ltd Splash Damage Sports Interactive Ltd Spotless Interactive Square Enix Ltd Staffordshire University Studio Output Super Icon Ltd. System 3 Take2 Interactive Software Europe Ltd Tandem Events Ltd Target Media Ltd Team Dignitas Tecmo Koei Europe Ltd Teeside University - School of Computing The Games Tribe Ltd The Raspberry Pie Foundation The Stationery Office Ltd The Trailer Farm Thechineseroom Trion Worlds Europe Ltd TT Games Publishing Ubisoft Ltd

Unity Software Ltd University Centre Grimsby, Grimsby Institute of Further & Higher Education University of Abertay Dundee University of Bournemouth University of Glamorgan; Cardiff Sch of Creative & Cultural Industries University of Hull University of the West of Scotland University of Wales, Newport (Skillset Media Academy Wales) Utopian World of Sandwiches Virgin Media Ltd Virtual Piggy Warner Bros Interactive Entertainment Waterfront Entertainment WeRInteractive White Room Games Ltd World Gaming Executives Xiotex Studios YoYo Games Ltd Zenimax Europe Ltd / Bethesda Softworks Europe Ltd