Future of Australia's Video Game Development Industry Submission

30 September 2015 Christopher Dunn Senate Standing Committees on Environment and Communications PO Box 6100 Parliament House Canberra ACT 2600 Re: Inquiry into the future of Australia’s video game development industry To the Committee Secretary, Thank you for the opportunity to respond to this inquiry. I apologise for the tardiness of my submission. I have responded to the terms of reference as an independent game developer recently returned to Australia. I know little of tax or business practice and merely wish that the Australian video games industry become self-sustaining. I humbly request that my submission be tabled amongst its peers and hope that the suggestions enclosed within are of some use to the Committee. Kind regards, Christopher Dunn Summary of recommendations: The future of Australia's video game development industry, with particular reference to: a how Australia can best set regulatory and taxation frameworks that will allow the local video game development industry to grow and fully meet its potential as a substantial employer Consider an amalgamation of the Film and Video game industries. Consider tax incentives for Australian-owned game companies that employ Australian staff within Australia. Consider tax incentives for foreign owned game-development companies or publishers that employ Australian staff, operate within Australia, and represent Australian developers. b how Australia can attract video game companies to set up development operations in Australia and employ local staff Initiate Australian Government funding of game developers and publishers. Financial incentives for Australian-owned industry to invest in or sponsor video games or incubator studios. Financial incentives for foreign game publishers to distribute Australian Indie Games within Australia and overseas. Restrict foreign investment from purchasing entire video game companies, encourage sale of IP instead. Fund research into Australian computer/mobile/console/component development. c how export opportunities from Australia's local video game industry can be maximised, and Encourage video game developers to create Australian-themed characters or games. Consider “Australian-themed games” as advertising material for Tourism Australia. Advertise Australian video games at international fairs and expos. Invite foreign game publishers to Australian video game fairs and expos. Fund development of Australian themed e-sport games or e-sport programs. Promote Australian participation in international e-sport events. d Other related matters; (none) The future of Australia's video game development industry, with particular reference to: a how Australia can best set regulatory and taxation frameworks that will allow the local video game development industry to grow and fully meet its potential as a substantial employer According to a recent rankings list [1] of the top 100 countries by ‘game revenues’, the top six countries were given as America, China, Japan, the Republic of Korea, Germany, and the United Kingdom. Australia was ranked thirteenth. We can improve the situation of the Australian position by exploring what ‘regulatory and taxation frameworks’ are in place in other successful countries. How did the game industry become self sustaining in America? The US appears to see the video game industry as a newly-developing offshoot of the Film industry, and treat it as such. This means that game developers can apply for Film grants, and vice versa. A recent example can be found in Texas [2]; “Texas now ranks second in the nation, behind California, in video game employment, with roughly 5,000 residents working in the industry. This is driven by one of the largest tax incentive programs in the nation, which offers cash grants to video game productions for wages paid to Texas residents. Texas legislators have allocated $85 million to the program for next year.” America has 27 other grants, differing by state [3]. Generally, these laws offer 20 - 30% rebate on expenses incurred for projects that fall within a certain ranges. Examples include: Alabama Film Incentive: Rebates on 35% of Alabama labour, 25% of nonpayroll expenditure. Total production cost must fall between $US500,000 and $US20 million. Entertainment Industry Investment Act (Georgia): 20% to 30% tax credit. Project must spend minimum $US500,000 on qualified Georgia expenditures, entire project has a fiscal year cap of $25 million. Digital Interactive Media and Software Development Incentive (Louisiana): 35% tax credit on labour, 25% tax credit on expenses. No cap, no minimum requirement, option to take a rebate worth 85% of tax credit. Digital Media Credit (North Carolina): 15% of wages, 20% on research expenses paid to NC schools. Minimum $US50,000 spend to qualify, $7.5 million cap on credits received. While the figures reflect the US market, the general trend can easily be seen. These distinctions are not unique to the US. The UK, currently ranked sixth behind Germany, has taken decisive action to claim a larger slice of the game revenue pie. The UK expects that treating the video game industry in the same way they treated their film industry will be effective. They considered how the film industry grew, and tax incentives were identified as the best way to lure developers [4]. A different kind of requirement applies to these UK developed games than US ones - the developer must pass a European Union mandated ‘cultural test’ to prove that their game is “British” enough. Some examples might be sets located in England, or if the default game language is English. This has the effect of advertising for the UK to a foreign audience. A counter-example provided was “Angry Birds”[5], a game developed by Rovio, Finland. Finland is a member state of the European Union. Yet, when it was time for the titular characters to go to space, they encountered the National Aeronautics and Space Administration (NASA) instead of the European Space Agency (ESA). The (UK) Independent Game Developers Association released a handy fifteen page document [6] describing exactly what qualifies for the tax incentives. The document also holds the UK Government directly responsible for their declining video game industry in the last seven years. Some key points are: “In 2007/2008, game developers in many countries received tax breaks for games production or other significant support. No such tax breaks existed in the UK and so the industry declined. Between 2008 and 2011, employment in the sector fell by over 10 percent and investment by £ 48 million.” “A video game qualifies for this relief if: a it is intended for supply to the general public b it is certified by the Secretary of State as a British video game, and c at least 25% of the “core expenditure” on the game incurred by the company is European economic area (EEA) expenditure. This relates to expenditure on goods/services used and consumed in the EEA (a just and reasonable apportionment would be used where expenditure is a mix of EEA and nonEEA).” “In broad terms, the video games development company may claim an additional tax deduction, based on its qualifying expenditure on the relevant video game. The additional deduction is calculated as 100% of the lower of: core expenditure incurred in the EEA in relation to that video game; and 80% of core expenditure incurred in relation to that video game.” These laws passed into effect in 2014 so no data yet is available to see their effectiveness. Following the example of America and the UK, Australia could consider our own film industry and video games industry as related entities. We can then review the Australian Film Industry and its funding to see if an effective solution for the video game industry can be identified. In 2006, the Australian Government announced the “Review of Australian Government Film Funding Support” [7], and invited submissions from interested parties. The outcome of this review was to be the Australian Screen Production Incentive (ASPI) [8]. As stated, the Incentive - "provides generous tax incentives for film, television and other screen production in Australia and is available in three streams: the Producer Offset, to encourage the production of Australian film and television projects. For information on this offset visit Screen Australia which administers this scheme the Location Offset, a 16.5 per cent rebate which supports the production of largebudget film and television projects shot in Australia the PDV Offset, a 30 per cent rebate which supports work on post, digital and visual effects production (PDV) in Australia, regardless of where a project is shot." Screen Australia states [9] that the Producer Offset is - 40 percent of qualifying Australian production expenditure incurred in making a film 20 percent of qualifying Australian production expenditure incurred in making programs other than feature films. The key points to take away are that any production should be Australian made, it should also be made in Australia, and it must be funded by Australia. The measure does not seem to take into account Australian employment figures. Before we can recommend this to the video game industry, we must first identify if these measures successful. A review in 2010 of the Australian Independent Screen Production sector [10] claimed: “Early signs show that the Producer Offset is encouraging domestic feature film production, with total production expenditure in 200912 of $265 million representing an 88 per cent increase

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