Midlands Engine Video Games 2 great.gov.uk | Midlands Gaming Collateral 2,220

The UK has over 2,220 games companies and the market for games was valued at a record £5.11bn in 2017 great.gov.uk | Midlands Gaming Collateral 3

Contents

The UK Games Sector 4 The Midlands Gaming Story 6 Midlands Games Cluster 7 Case Study – AppyNation 8 Serious Games 9 Skills 10 Tax and Incentives 12 4 great.gov.uk | Midlands Gaming Collateral

The UK Games Sector

The UK has over 2,220 games Boxed physical copies of games companies and the market for games reversed recent trends by increasing was valued at a record £5.11bn in 2017, revenues +3.1% to £790m, driven by representing +12.4% growth on the major franchises and games sales on previous year. the new . As these sales of new games improve across both These results show strong growth digital and physical, data showed that across both the game software and pre-owned games sales declined by hardware markets, with software -15.1% to £101m. revenues up +8.3% to £3.56bn and hardware growing significantly Game developers in the UK are largely by +27.1% to another record of focused on competitive online play to £1.43bn. The analysis also includes build brands and encourage subscription an assessment of the wider spend payments. While some games will be on game-related culture, which was able to offer free downloads followed valued at £117m. by regular season passes, the majority will still need to charge upfront fees. In software, data showed digital and Most gamers are still happier paying online revenues grew by +13.4% to for games upfront and having more a record £1.6bn (incorporating full transparency over costs. While the game downloads, DLC and in-game purchase of additional content is transactions, across both PC and valuable, gamers will not want to pay console) and mobile revenues broke the extra fees for content they consider billion barrier for the first time, growing core to the gaming experience, such as +7.8% to £1.07bn. key characters.

Category 2016 (£m) 2017 (£m) % Growth Digital & Online 1,408.30 1,597.00 13.40% Boxed Software 766.7 790.5 3.10% Mobile Games 995.1 1072.7 7.80% Pre-owned 119 101.1 -15.10% Game Software Total 3,289.20 3,561.20 8.30%

Source: UKIE, UK Games Industry, 2018; Mintel, Video Games and Consoles, August 2018 great.gov.uk | Midlands Gaming Collateral 5

UK mobile games eSports There are 1,483 active games companies In 2016, the UK esports audience grew making mobile games in the UK. to 6.5 million people, with 3.1 million watching more than once a month. The UK has the largest mobile games The audience is expected to grow workforce in the EU, with 5,000 full- 7.5% year-on-year to reach 8 million time employees. This represents nearly people in 2019. a quarter of all 21,000 jobs across the EU. The UK esports market will see a 27.6% CAGR, reaching £8m in consumer Over 70% of UK adults (approx. 40m) ticket sales by 2021. Digital advertising own a and 59% of UK in esports will increase to £12m by households (approx. 15.9m) own a 2021, a CAGR of 46.2% presenting tablet. This represents a massive an interesting opportunity for potential customer base for mobile advertising agencies. game companies to target. To back this up, 47% of UK smartphone owners use There is also growing grassroots apps on their phones to play games – eSports scene in the UK’s universities, more that use apps for online banking with 3,000 players in the National (40%) or reading the news (33%). University Esports League, representing 110 universities. In terms of revenue per download, the UK is best positioned in western Europe The largest prize pool event held in the with a potential profit of $0.47 per UK to date was ESL One Birmingham, download. The UK is more profitable with a prize pool of $1 million, held at than Germany, United States and China. Arena Birmingham in May 2018. whilst the largest LED screen in the country is at an eSports arena in Leicester. 1,483 Active games companies making mobile games in the UK 6 great.gov.uk | Midlands Gaming Collateral

The Midlands Gaming Story

The Midlands is a thriving hub of In nearby Coventry, the CUE capability and development which Interactive, a spin out of the School is home to 250 of the UK’s best of Computing, Engineering and games businesses. These games Mathematics at Coventry University, is companies are creating highly skilled, an internationally recognised centre of productive jobs and opportunities excellence in the application of games throughout the region. technologies in learning, professional development and applied research. Overall the region has produced 13% of all the UK’s games and on average the The Leamington games cluster has West Midlands is home to the longest developed over more than three established video games companies decades through a distinctive focus on in the country. quality and creativity. The birthplace of Dizzy, Guitar Hero and Forza ‘Silicon Spa’ is an established games Horizon, it is an outstanding example of cluster, centred on Royal Leamington developing regional economic growth Spa and taking in Coventry and the through a local ‘smart specialisation’ towns of Warwick and Southam, with in a sector that demonstrates clear over 80 studios directly employing advantages over its competitors in some 2,500 people and supporting a international markets. wider base of contractors. Towards the east of the Midlands we see an impressive resume of games which have left a lasting impression upon an entire generation of gamers. Leicester created one of the most influential and impressive games of all time, GoldenEye 007, and it was Core Design in Derby who originated the Tomb Raider series. Heroine Lara Croft would go on to become a pop culture phenomenon in film and advertising, as well as games. The first two Tomb Raider titles, developed in the Midlands, sold more than 10 million copies on the PlayStation alone.

Source: Games Industry in Coventry and Warwickshire, 2017, iNews Midlands Video Games Industry, May 2018, Warwickshire County Council great.gov.uk | Midlands Gaming Collateral 7

Midlands Games Cluster

Collectively the Midlands has created over 1,400 games and 250 companies can be found in the region. In the East Midlands there are 110 active games companies have produced nearly 400 games. Just over half of the regions games are developed for IOS systems but high quality console games still account for a large proportion of production; around 40% of all games are developed for PCs or consoles. The West Midlands is home to 135 games developers and publishers who have created over 1,000 games. Over 80 of these active games companies are located in Coventry and Warwickshire where the rate of company formation is high – 50% of active businesses in the cluster have been established since 2012, and two-thirds since 2010. There is a core of medium sized companies (between 50 and 500 It is estimated that there are 3,500 employees) that ‘anchor’ the cluster: full time employees across the games , Hardlight, Ubisoft sector in the West Midlands. Leamington (previously Freestyle A high proportion of companies in Games), Playground Games (Microsoft Leamington are high-growth (hitting Xbox Studio) and Rebellion. This spread £1m turnover within 3 years of trading, of larger companies underpins the and growing at 20%+ per annum) with employment opportunity for games a significant minority turning over professionals in the region: there is a more than £5m. very high likelihood that one or more of those companies will be ‘gearing up’ for a new game at any time, smoothing out the ‘peaks and troughs’ of a hit-based business that can affect less well- established clusters, or those dependent on a single large company.

Source: Games Map UK, 2019 8 great.gov.uk | Midlands Gaming Collateral

Case Study – AppyNation

AppyNation was founded by Andy AppyNation tests how games businesses Payne in 2011 in London as a might work together to successfully developer-led collaborative consortium exploit their own intellectual property.” of independent studios from around AppyNation was also recognised by the UK who came together with the UK Government as providing the backing of NESTA to offer foundations for growth and an alternative to the traditional development within the industry, with publisher model. former Culture Minister Ed Vaizey saying In 2015 AppyNation relocated to that such a scheme is “exactly what the Leamington Spa and focused on games industry needs to grow”. publishing their own free to play mobile and tablet games developed only by Supersonic. AppyNation is highly profitable and totally “ The UK has the world’s independent with no debt. best developer talent. Jon Kingsbury, programme director Born out of an idea shared by for the Creative Economy at NESTA developers Finblade, Proper Games, Niffler, Onteca, Supersonic and Chromativity, AppyNation gave member developers freedom over the games they choose to develop for iOS & Android whilst allowing them to maintain complete control and ownership over their IP. AppyNation and the collaboration between publisher and digital, social and independent UK developers it represented was very positively received by the games industry and already having the support of NESTA and industry associations TIGA and Ukie. Jon Kingsbury, programme director for the Creative Economy at NESTA, said in 2011: “The UK has the world’s best developer talent. great.gov.uk | Midlands Gaming Collateral 9

Serious Games

Cue Interactive is a digital studio based The team of artists, programmers in Coventry, UK and is part of the local and engineers’ experiences include university. The studio are experts the commercial games industry which in developing large scale immersive means they’re highly skilled at using simulations, 3D visualisations using the latest technologies on demanding virtual and augmented reality, and projects with a creative flair. Cue gamification applications. This Interactive also have expertise in enables their clients to better engage, delivering 3D simulations for training train and/or support their staff applications and is recognised by and customers. the Learning and Performance Institute accreditation as a Learning Solutions Provider.

Services Include: • Simulation – Where the training is dangerous or expensive to do in the real world Cue Interactive can simulate it to provide safe learning and practice environments across platforms including Virtual Reality. • Visualisation – Virtual and augmented reality expertise applied to visualise complex data and environments using 360 photography, 360 video, CAD, BIM and 3D modelling • Gamification – The studio can deliver game based experiences and applied game mechanics through programming and experience design expertise for learning and behaviour change

Source: http://cueinteractive.com/ 10 great.gov.uk | Midlands Gaming Collateral

Skills

Students and Graduates in This pipeline of talent is sourced from the UK over 30 different higher education courses at 20 different higher In the 2016/17 academic year there were education providers in the Midlands. 540 games graduates in the Midlands. This can be split into 275 in the East Staffordshire University Midlands and 265 in the West Midlands. The Staffordshire University School In total the UK produced 1,675 games of Computing offered one of the first graduates across all regions. BSc courses in computing in the United In the same academic year there was Kingdom and its first major computer a total of 6,330 students studying was a second hand DEUCE. game subjects across the UK. The They have since developed a strong East Midlands accounted for 890 of curriculum to support the growing these students and the West Midlands games industry in the UK. Courses accounted for 940. include Computer Games Design, 3D Using a broader range of subjects that Games, Games Studies and Games can be categorised into computer Development & Testing. science and creative arts & design we De Montford University see a total pipeline of 40,890 students in the region and 276,845 across the DMU has achieved Gold, the highest UK. From the academic year 2016/17 ranking possible under the Teaching there was a total 21,890 graduates in Excellence Framework (TEF) indicating the region and 86,335 in the UK. the outstanding learning and teaching on offer at DMU. In 2017 92.9% of In the East Midlands there are 7,025 Computer Games Programming computer science students and 13,110 graduates found employment or creative arts & design students. There enrolled in further study after were also 1,925 computer science graduating. De Montford University graduates and 4,035 creative arts & excels in many different computer design graduates. science subjects. In the West Midlands there are 8,805 Example courses include Computer computer science students and 11,950 Programming, AI for Simulation, creative arts and design students. There 3D Modelling and Mobile were 2,750 graduates in computer Games Development. science and 4,185 graduates in creative arts & design. great.gov.uk | Midlands Gaming Collateral 11

540 In the 2016/17 academic year there were 540 games graduates in the Midlands.

Coventry University Birmingham City University In 2019, Coventry University was the Offering accelerated 2 year courses that highest ranked modern university for guarantee a video game development the 7th year running in the UK and 92% placement in the in-house studio. The of the research has been rated as ‘world- work-place simulation approach of the leading’, ‘internationally excellent’ or department has been championed ‘recognised internationally. by the influential 2009 Livingstone, Hope Next Gen Report which cited the Coventry University’s School of Art and university as a national best practice Design has a long tradition of producing example for developing new talent for highly employable graduates, making the games industry. a distinctive contribution to creative industries around the world. Courses 2 year courses are available in several relevant for the industry include Graphic subjects including Video Games Digital Design and Games Technology. Art, Video Games Design & Production and Video Games Development.

Source: Games Map UK, 2019; HESA Student Record 2016/17; www.staffs.ac.uk/ ; www.dmu.ac.uk ; https://www. theguardian.com/education/ng-interactive/2018/may/29/university-league-tables-2019 12 great.gov.uk | Midlands Gaming Collateral

Tax and Incentives

Video Games Tax Relief R&D Tax Credits Video Games Tax Relief (VGTR) The UK has a generous and has been available for qualifying internationally competitive R&D credit games companies to claim since system. The average claim made by April 2014. This scheme supports SMEs in the UK is £53,876 (2016-17); the 9,240 FTE jobs across the UK games average claim made by large companies industry, including 4,320 directly in in the UK is £272,881 (2016-17). There development roles (31% of the total UK are different regimes tailored to large development workforce). companies and Small and medium sized enterprises (SME): VGTR has provided £230m to UK studios across 770 claims since the SME R&D Relief relief was launched in April 2014. Of The SME scheme allows eligible that total, £105m was paid out to 345 companies to claim an overall claims in the financial year 2017-18. deduction of 230% on qualifying R&D VGTR games represented £389.9m of expenditure. The cash back available UK development spend, 31% of the total to loss making SMEs is 33.35% of the development spend. Overall, projects qualifying expenditure. supported by the VGTR contributed £525m in GVA to the UK economy and £158m in tax revenue. 68% of VGTR-supported games would 9,240 not be made in the UK, or at all, without the relief in place. The Video Games Tax Relief scheme supports 9,240 FTE jobs For every £1 the Government invested across the UK games industry, into the games sector via VGTR, an including 4,320 directly in development roles additional £4 in GVA was generated for the UK economy. Of all the screen sector tax reliefs, the games sector was shown to have the highest rate of productivity, where each employee generated an average of £83,800 in GVA for the economy, significantly above the national industrial average of £62,100.

Source: Gov.UK, Guidance, Research and Development (R&D) tax reliefs, 2018 great.gov.uk | Midlands Gaming Collateral 13

Research and Development Patent Box Expenditure Credit (RDEC) Companies eligible for the Patent Large companies are granted an R&D Box tax support can receive a ‘above the line’ tax credit of 12%’ of reduced rate of corporation tax of their qualifying expenditure. just 10% on profits earned from patented inventions and certain other The following costs all qualify intellectual property. for tax credits The Patent Box provides an attractive • Staff, including salaries, employer’s opportunity for businesses to reduce the NIC, pension contributions and costs associated with the commercial reimbursed expenses exploitation of IP. The regime is flexible and generous and should prompt • Subcontractors and freelancers global businesses to give favourable • Materials and consumables consideration to using the UK as a place including heat, light and power that to invest in innovation. are used up or transformed by the Profits can include a significant part of R&D process the trading profit from the sales of a product that includes a patent, not just Some types of software • income from patent royalties. 14 great.gov.uk | Midlands Gaming Collateral

Notes great.gov.uk | Midlands Gaming Collateral 15 great.gov.uk

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Published March 2019 by Department for International Trade.