What the video games industry thinks about Brexit

By April 13, 2017TIGA News

By: Dr Matthew Partridge10/04/2017

http://moneyweek.com/what-the-video-games-industry-thinks-about-brexit/

You might not realise it, but the video games industry is an important part of the British economy. According to the trade association TIGA it adds £1.12bn to the UK economy, pays £471m in tax to the UK Treasury and employs 31,000 people.

To get an idea of the costs and benefits of Brexit for this sub-sector we spoke to two people who have a key perspective on what is happening: Jason Kingsley and Richard Wilson. Kingsley is the CEO of Rebellion Software, an Oxford-based video games company with a turnover of £25m, and is chair of TIGA.

Kingsley thinks that his company has been affected in a “number of ways”. On the plus side, because 95% of Rebellion’s sales come from outside the UK and 75% of its revenue is in dollars, the company has benefited from the post-referendum fall in sterling. However, he admits that many of his European staff are worried about whether they will be allowed to stay in the UK. Although he has spoken to ministers, who are aware that the technology sector suffers from labour shortages, he admits that “nobody knows what the outcome will be” and that “change will be difficult”.

However, Kingsley is still relatively bullish. At the moment, around 30% of Rebellion’s sales come from Europe. While he “hates to think of the possibility of trade barriers” on those sales, he is “more concerned about the rest of the world”. Indeed, while sales to the EU and US have been relatively stable in recent years, the company’s growth has been powered by the large surge in revenue from the rest of the world, especially Brazil, Russia, India and China – these non-traditional countries no accounts for 40% of revenue.

The shift from physical to digital sales will also reduce the effect of any post-Brexit trade barriers, in the event of negotiations breaking down completely. Kingsley notes that, at the moment, sales are split 50-50 between downloads and hard copies, a figure that he expects to be 80-20 within a decade (though he expects that some consumers will always want to have a physical copy). This matters because, while it is possible for countries to impose tariffs on imported DVDs, it’s much harder to slap tariffs on electronic downloads.

Kingsley also points that, while single market membership does bring some benefits, the EU isn’t as seamless as people think. For example there has been a long-standing case against Italy for charging a withholding tax on the dividends paid to overseas companies. Rebellion also has to comply with strict German censorship laws, a particular problem for a company that sells mainly military themed games, some of which are set in World War Two. Both cases seemingly violate two main principles of the EU, free movement of capital and mutual recognition of standards.

Kingsley would like to see free movement continue, at least in terms of workers. However, he would also like to see changes to the rules that allow him to hire “the best staff from around the world”, including “Africa and South America” as well as just from Europe. He also hopes that the government will expand the number of tax breaks on offer. This might be easier once we leave the EU and don’t have to seek approval from Brussels for anything that could be considered state aid (although Italy and Poland have managed to bring in a games-related tax credit).

Kingsley admits that “every few weeks” he gets invitations from various chambers of commerce, who are interested in luring Rebellion away to other countries. He also accepts that he can’t completely rule out such a move, especially if post-Brexit visa rules put his company at a serious disadvantage. However, he won’t leave the UK “without a fight”. He also thinks that approaches from foreign cities are usually part of a long-term strategy from areas “looking to build up their creative industries”, rather than a specific response to Brexit. Indeed, he “hasn’t noticed any major increase in the number of invitations since last June”. Similarly, none of Rebellion’s peers have considered moving.

Dr Richard Williams, who is TIGA’s CEO, has a similar perspective. Like Kingsley, he hasn’t seen any evidence of investment being affected, or many of TIGA’s 250 member firm considering moving staff abroad. However, he concedes that, “it is too early in the process to say for sure whether this will continue to be the case”. He also thinks that the main priority for the industry will be maintaining access to highly skilled European workers, who currently account for around 15% of the workforce.

However, one additional worry that he has is in terms of access to investment. The EU currently runs a number of schemes, such as Horizon and Creative Europe that provide various forms of support, including grants, and are especially useful for smaller firms, or those that are just starting out. Access to these programes is likely to be lost once Britain leaves the EU. If British firms are barred from receiving funding, Wilson hopes that the UK government will either replicate them or put something else in place.