Playing for Keeps Enhancing sustainability in Australia’s interactive entertainment industry © Screen Australia 2011 ISBN: 978-1-920998-17-2

The text in this report is released subject to a Creative Commons BY licence (Licence). This means, in summary, that you may reproduce, transmit and distribute the text, provided that you do not do so for commercial purposes, and provided that you attribute the text as extracted from Screen Australia’s report Playing for Keeps: Enhancing Sustainability in Australia's Interactive Entertainment Industry, November 2011. You must not alter, transform or build upon the text in this report. Your rights under the Licence are in addition to any fair dealing rights which you have under the Copyright Act 1968 (Cwlth). For further terms of the Licence, please see http://creativecommons.org/licenses/by-nc-nd/3.0/. You are not licensed to reproduce, transmit or distribute any still photographs contained in this report. This report draws from a number of resources. While Screen Australia has undertaken all reasonable measures to ensure its accuracy we cannot accept responsibility for inaccuracies and omissions. www.screenaustralia.gov.au/research Cover picture: Gesundheit! Developed by Revolutionary Concepts and published by Konami Report design: Alison White Designs Pty Limited Contents

EXECUTIVE SUMMARY 2 BUILDING A KNOWLEDGE BASE 4 ECOLOGY OF THE SECTOR 6 High-end console games 7 Games for digital distribution 8 Publishing and distribution 9 Creative digital services 10 Middleware and related services 11 FACTORS IMPACTING SUSTAINABILITY 13 Shifting demographics 14 Growth factors 18 Industry pressure points 20 OPTIONS TO SUPPORT SUSTAINABILITY 23 Current government support 23 Future support 24

Alternator character Courtesy: Alternator Pty Ltd

1 Executive summary

The challenges facing the interactive INTERACTIVE INDUSTRY entertainment industry are intrinsically ENTERTAINMENT IS A PRESSURE POINTS linked to those of the broader screen MAINSTREAM ACTIVITY Despite growing participation, the sector. With this in mind, the fi lm, IN AUSTRALIA sustainability of our local interactive television and interactive industries entertainment industry is under threat. must work together to ensure that In 2011, 92 per cent of households These threats fall broadly into two the right supporting frameworks are have a device for playing computer areas: in place to address the threats and games. With greater accessibility opportunities that come from greater through mobile and tablet devices • Falling foreign investment: convergence around fast broadband. and the rise of family-friendly casual Due to the current hardware cycle gaming options, the average age and a diffi cult economic climate, Screen Australia believes that of people who play games is now many international publishers have targeted support will stimulate 32 years and women are increasingly focused their development strategies production activity to achieve future represented. on blockbuster franchises, trimming growth, both economic and cultural, medium-budget games and licensed maximising the industry’s strong Ninety per cent of people who play titles from their portfolios. Coupled export potential as well as the games believe that games contribute with tax incentives in other territories distinctive creative expression that can to culture. Importantly, this sentiment and an unfavourable exchange only be achieved through interactivity. is echoed by people who don’t play games, with 80 per cent agreeing. rate, this has limited growth among This discussion paper draws together Australian companies. In terms of consumer spending, the insights to assist the evidence-based Like other forms of screen content, global interactive entertainment development of public policy and games produced for the Australian industry is forecast to be the fastest- provides additional context to the market tend to be riskier investments growing entertainment and media options for government contained in for publishers given the population sector, expanding from $64.8 billion Screen Australia’s submissions to the size. Because of this, most local in revenues in 2010 to $90.1 billion Australian Government’s Convergence developers are primarily export- in 2015. In Australia the market is Review and National Cultural Policy in focused and the contraction in foreign expected to grow during this time at a October 2011. investment means there are now compound annual rate of 9.5 per cent even less opportunities to raise funds. to reach $2.5 billion.

Melbourne-based start-up The Voxel Agents have found success with their self-published Train Conductor titles for iOS devices. The Train Conductor series has achieved over four million free downloads and over half a million paid downloads.

2 • Talent being driven offshore: The infl ux of • An Interactive Entertainment (Games) foreign investment into the local industry in Offset may assist in meeting the challenges the 2000s resulted in the industry acquiring a of sustainability in the screen sector. The talent pool of highly skilled and experienced proposal has two components: workers. However, the local talent pool has — Introduction of a new tax offset to assist been severely diminished as a consequence of with the production of stand-alone interactive recent studio closures, which resulted in the entertainment titles. loss of hundreds of jobs. — Expansion of the existing Producer Offset to allow for expenditure on interactive OPTIONS TO entertainment components of drama and SUPPORT SUSTAINABILITY documentary screen content. Achieving a healthy balance of fee-for-service Economic modelling of this proposed offset work and the creation of original content indicates that over a fi ve-year period there is critical to a more sustainable industry. would be an additional investment of $146 Australian interactive entertainment developers million, of which $100 million would come have the talent, skills and desire to create from foreign sources. In the medium- to high- original content, including for the local market, budget section of the industry analysed for but there has been some reluctance to invest this research, this would result in an additional in such content because of the relatively high contribution of $76 million to Australia’s Gross fi nancial risk involved. Enhanced government Domestic Product and a 50 per cent increase support would mitigate this risk and assist in the number of jobs. developers to retain intellectual property at • An additional option for government would be the same time as attracting private investment. direct funding through an Online Production Screen Australia believes the continuation Fund as a complementary initiative to the of current support measures as well as the Interactive Entertainment (Games) Offset. introduction of new targeted incentives would This Fund would support the production provide the foundation for growth. Two new of premium original content, including incentives are proposed: interactive entertainment projects, for online delivery.

Sydney-based studio Nnooo’s highly acclaimed arcade game escapeVektor was released via digital distribution for Wii consoles.

3 PLAYING FOR KEEPS: 2011 | SSCREENC R E E N AAUSTRALIAU S T R A L I A Building a knowledge base

Commission – the Broadband Screen Australia is the national funding agency for screen Production Initiative and Broadband Cross-media Production Initiative – production, charged with the development, support and a decade ago. Screen Australia has promotion of a highly creative, innovative and commercially funded interactive storytelling from sustainable Australian screen sector. its inception through the Innovation Program and its successor the All As part of its leadership objectives, Screen Australia plays Media Program, as well as other initiatives such as Serious Games. an important role in providing authoritative research and Beyond this, Screen Australia has also strategic analysis. This includes examining factors that advocated on behalf of the industry for greater recognition of its economic and infl uence the production and consumption of Australian cultural contribution. screen content and the role of the screen production sector As part of the Review of the in delivering the government’s cultural objectives. Independent Screen Production Sector in early 2010, Screen Australia raised two challenges facing local The challenges facing the interactive entertainment industry are intrinsically developers. First, was a need to sustain linked to those of the broader screen sector. Most notable among these are the Australia’s position as a preferred off- evolving ways that Australians are engaging with audiovisual content and how shore provider of production services this is being affected by the convergence of media and communications devices in light of incentives in competing around fast broadband. territories, and the second, was a lack A whole-of-sector approach is needed to ensure that the right supporting of retention of intellectual property in frameworks are in place to address the threats and opportunities that come from original ideas. greater convergence. With this in mind, this discussion paper draws together These challenges were further themes raised in several Screen Australia reports from the last two years and explored within the context of audience provides new insights to help inform the ongoing discussion. participation as part of Screen The linkages between interactive entertainment and fi lm and television Australia’s reports Beyond the Box production have long been acknowledged, and supported through programs Offi ce: Understanding Audiences in such as the content partnerships between the ABC and the Australian Film a Multi-screen World in April of this

Screen Australia funded the prototype of Warco, a video game in which players take on the role of a war correspondent to shoot reportage in hazardous territory. The player then edits together footage for news broadcast.

4 year and Convergence 2011: Australian Content rolling in components of both the Digital Game State of Play in August. Together they mapped Development Services and Television, Film and screen content including games across all media Video Production and Post-production Services A whole- distribution points. publications. of-sector While organisations such as the Interactive When released in 2013, this survey will close approach is Games and Entertainment Association (iGEA) a fi ve-year gap in knowledge and for the and the Game Developers' Association of fi rst time report on the entire audiovisual needed to Australia (GDAA) are generating important production sector, with greater clarity about ensure that analysis about the industry, there remains a the intersections that occur across the fi lm, lack of ongoing data to benchmark the sources television and interactive entertainment the right of fi nance, levels of production activity and industries. supporting employment within Australia’s interactive However, the screen sector cannot just sit back frameworks entertainment industry. and wait. In the meantime, to get a sense of the To date the most comprehensive source of this environment in which the sector is operating, are in place information has been the one-off Digital Game Screen Australia undertook 22 interviews to address the Development Services survey, undertaken by the across the screen sector in mid-2011 with six Australian Bureau of Statistics (ABS) in 2006/07. overseas publishers, 10 local developers and threats and Data such as this is fundamental to informing six local fi lm and television production opportunities structural change as it not only illustrates areas companies (see page 29). that come that require greater assistance but also means These interviews have helped us articulate the effectiveness of any such assistance can be the challenges identifi ed in this document from greater measured once implemented. and formed the basis of economic modelling convergence. Screen Australia has consistently articulated compiled by PricewaterhouseCoopers on behalf the importance of continuing this work. As a of Screen Australia. They have also informed result, the Australian Government earmarked the thinking behind the options for government specifi c funds as part of Screen Australia’s support proposed in section 4, as well as in allocation in the May 2011 budget. With this submissions to the Australian Government’s additional money, the agency can now work with Convergence Review and National Cultural Policy the ABS to rerun and improve the survey design, in October 2011.

The original idea for Warco came from veteran journalist and news producer Tony Maniaty, who collaborated with fi lmmaker Robert Connolly (Balibo) and game developer Morgan Jaffi t from Defi ant Development to produce the playable proof of concept.

Warco

5 PLAYING FOR KEEPS: 2011 | SSCREENC R E E N AAUSTRALIAU S T R A L I A Ecology of the sector

For reasons explored in more detail in section 3, the ecology of the interactive The screen sector is in transition as distribution mechanisms entertainment industry has changed converge and access points increasingly fragment. This signifi cantly since 2006/07, with the closure of several development change is bringing with it a wealth of opportunities, be it studios focused on console games and new approaches to the distribution of content or the ability the emergence of many independent of interactive elements to transform the way we engage developers specialising in online games and those for mobile and with information and entertainment. These technological tablet devices. Digital distribution has changes are forcing many broadcasters, aggregators, also meant that self-publishing has emerged as a viable business model, distributors, publishers and creators to rethink their allowing developers to bypass the business models. traditional publishers in making their product available. These days, based on Screen Australia’s interviews with companies Australia currently has a small but By comparison, the fi lm and television across the sector, activity can be diverse interactive entertainment industry tends to rely less on fee-for- broadly categorised as follows: development industry, with service work, with 38 per cent out of • High-end console games: activity independent and publisher-owned a total income of $2.03 billion coming primarily focused on games for studios producing various types of from the provision of services to console hardware. Studios are games for a variety of platforms. With others in 2006/07, and the remainder generally independently owned, the local industry at a cross-roads, it is from ‘completed works’ (feature fi lms, although some are subsidiaries of vital to take stock of its achievements TV drama, TV commercials, etc). In foreign publishers. and develop a strategy to best realise total, 13,844 people were employed in • Games for digital distribution: the industry’s cultural and economic the fi lm and television industry at the developers are also mostly potential. end of June 2007, 10,873 in production independently owned with some businesses and 2,971 in post- Data from the ABS shows that as subsidiaries of foreign publishers. production businesses.2 Compared to at June 2007 there were 45 digital • Publishing and distribution: the interactive entertainment industry, game development businesses bringing interactive entertainment the greater diversity of income sources in the interactive entertainment to market. for these businesses has been made industry, employing 1,431 workers. • Creative digital services: provided possible in part through sustained Total income in 2006/07 was $136.9 by a wide range of companies government support. million, with $116.9 million coming across all industries to introduce from the provision of services to other interactive elements into company businesses. Of this service income, 93 activities, such as advertising and per cent came from overseas sources promotion. and 71 per cent related to console • Middleware and related services: games.1 primarily focused on creating game engine and animation technology. 1. Australian Bureau of Statistics, Digital Game 2. Australian Bureau of Statistics, Television, Film and Development Services Australia 2006/07 (cat. no. 8515.0). Video Production and Post-production Services 2006/07 Developers rely on a pool of artistic (cat. no. 8679.0). talent coming from specialist education and training institutions. SCREEN SECTOR INCOME BY TYPE, 2006/07 In addition to private colleges such as Qantm College and the Academy of Interactive Entertainment, many universities now offer game development courses and degrees. This is coupled with a growing number of research labs, such as Deakin University’s Motion Capture Lab and RMIT’s Game and Experimental Entertainment Lab (GEELab) launched in 2011. These labs aim to research new creative visions, products and Source: ABS, Television, Film and Video Production and Post-production Services, 2006/07; Digital Game Development business models. Services Australia 2006/07

6 HIGH-END CONSOLE GAMES

The budgets for blockbuster or ‘triple A’ console games such as XCOM in collaboration with titles are typically upwards of $15 million and other 2K studios, and Sega Studios Australia is time in development is on average approximately developing the London Olympics 2012 Offi cial two years. Video Game. Sega Studios Australia has the Titles of this scale employ hundreds of people largest motion capture studio in the southern and incorporate many artistic and technical hemisphere. disciplines including: programmers, game Independent console development studios designers, writers, voice actors or actors for operating in Australia include Torus Games, motion capture, composers, animators and Tantalus, Trickstar Games and Big Ant Studios. sound designers. The output of these studios includes fee-for- Around 15 large publishers headquartered in the service work and work on licensed titles as well US, Japan and Europe dominate the industry and as original IP projects. These studios develop provide most of the fi nance for console game titles for Wii, Xbox 360, PlayStation 3, handheld development. Publishers generally have multiple consoles such as Nintendo DS and PlayStation in-house studios located in various territories as Portable, amongst other platforms. well as outsourcing work to independent studios. Independent development studios with an There are two publisher-owned console studios original project can approach publishers remaining in Australia: 2K Marin Canberra, for funding at prototype or later stages of whose parent company is Take-Two Interactive; development. The further along the development and Sega Studios Australia. 2K Marin and Sega of the game, the better position the developer Studios Australia are fully funded by their is in to negotiate a favourable royalty share. parent companies. In the past Electronic Arts, Console developers are reliant on publishers THQ, Midway Games and Atari have had local to bring their titles to market, due to the large subsidiaries. marketing and physical production costs. Both of the publisher-owned studios develop Fee-for-service work can involve ‘porting’ games large-budget titles. 2K Marin Canberra has from one platform to another or developing developed narrative-driven, fi rst-person-shooter whole games, such as movie or television tie-in games, from scratch.

Melbourne-based console developer Tantalus develops licensed titles on a fee-for-service basis as well as developing original IP. Pony Friends, a pet and horse-riding simulation game is their most successful original IP title, selling over one million copies. The success of Pony Friends has contributed to Tantalus’ lasting business sustainability.

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GAMES FOR DIGITAL DISTRIBUTION

Budgets for digitally distributed games vary to take advantage of the opportunities offered widely. An indicative range for social network by digital distribution platforms and have had a games and downloadable console and PC titles number of successes in this space. is $200,000 to $2 million, while commercially Halfbrick is a stand out independent studio orientated games for mobile and tablet devices developing games for digital distribution, are typically cheaper, between $20,000 and with several hit titles across various mobile $500,000. and console platforms. Halfbrick has over 45 There are three publisher-owned development employees at its Brisbane studio, has recently studios focused on the creation of games for opened a satellite studio in Sydney and has digital distribution: EA Firemint, EA IronMonkey partially acquired local animation production and RockYou’s 3 Blokes Studios. All three were company, The People’s Republic of Animation. acquired the past two years and are fully funded Halfbrick primarily develop original games in by their parent companies. which they retain their intellectual property and EA IronMonkey primarily develops mobile which they self-fund and self-publish. Notable titles based on intellectual property owned by titles include Fruit Ninja and Jetpack Joyride. Electronic Arts, such as The Sims. By contrast, Numerous small, independent mobile and EA Firemint develops games in which they retain online studios have emerged in recent years, intellectual property rights, such as their recent many founded by former members of defunct mobile title, Spy Mouse. RockYou’s 3 Blokes local console studios. Some examples Studios develops original IP social games for include: The Voxel Agents, Bubble Gum Facebook such as Galactic Allies. Interactive, Brawsome, Tin Man Games, Defi ant As noted earlier, digital distribution has further Development, Blowfi sh Studios, Uppercut Games opened up the interactive entertainment market and Fiasco Studios. to independent developers, who are able to sell Independent studios are self-funding their titles to audiences without the need for development as well as attracting some private intermediaries such as publishers and retail investment and accessing government funding outlets. Australian developers have been quick programs.

Uppercut Games, which was established by former 2K Marin Canberra members Andrew James and Ed Orman, will release its fi rst title, Epoch, late 2011. Epoch features a science fi ction narrative and fi rst-person-shooter and strategy gameplay.

8 PUBLISHING AND DISTRIBUTION

Many of these studios are also As noted earlier, publishers are involved in the acquisition of titles during the self-publishing their projects. development stage, often investing in the completion of the project. Self-publishing via online digital The two leading Australian publishers, Tru Blu Entertainment and N3VRF41L distribution platforms enables Publishing, are limited in scale and not capable of providing fi nance for the full developers to remain in control range of gaming titles being developed locally. of intellectual property and Tru Blu Entertainment is the publishing arm of Home Entertainment Suppliers, generate revenue through a a distributor of retail video game titles. It primarily publishes sport console variety of business models. These games such as AFL Live and Rugby Challenge developed by Australian and platforms generally take a 30 New Zealand studios. In contrast, N3VRF41L Publishing is both a developer per cent revenue share and offer and publisher. It typically publishes its own titles, such as the long-running fl exible business models such as: Trainz series, but does handle some titles from external developers. download-to-own, in-app purchases for paid or free to play games, New kinds of services are also appearing in the digital distribution environment. subscription, advertising-supported For example, Surprise Attack, established in 2011, provides marketing support and ‘freemium’ (offering a free ‘lite’ to independent game developers self-publishing their titles. version with the option to upgrade to a ‘premium’ version). The lower barriers to entry and large market also mean that developing games for niche audiences is less risky, encouraging innovation and diversity.

Developed by Team Bondi in conjunction with Rockstar Games, L.A. Noire has elements of simulation and role-playing, fi rst-person shooter, racing, action and adventure, as well as a strong narrative component.

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CREATIVE DIGITAL SERVICES

Adelaide-based animation With the introduction of elements of game-thinking into other forms of studio The People’s Republic interactive entertainment, game developers have become embedded in of Animation was established creative digital agencies. in 2003 and has been providing Digital agencies work with a wide variety of clients including advertisers, animation services to game not-for-profi t organisations, fi lm and television production companies developers since 2006. In and government agencies, as well as developing original interactive addition to providing fee-for- entertainment projects. Examples of these companies include The Project service work for various clients, Factory, Chocolate Liberation Front, Enabled, Revolutionary Concepts and PRA have produced original Soap Creative. animated shorts including The Cat Piano, which was shortlisted for an Academy Award® in 2010. Game developer Halfbrick Soap Creative was established in 2002 by Ashley Ringrose and Rob Studios partially acquired PRA Dennis as a game development studio creating online games and has in 2011. Halfbrick chief executive since expanded into website production, digital strategy and online Shaniel Deo stated, "We see their marketing. Their clients include entertainment companies such as narrative focus as an incredible Activision, 20th Century Fox and National Geographic Kids. Expanding resource for creating new and into a full service digital agency has enabled Soap Creative to grow truly compelling IP. Between PRA from two staff to over 40 and to establish an offi ce in Los Angeles in and Halfbrick, there is barely a 2008. The company still earns 20 per cent of its revenue from online screen we can't reach." games with the rest derived from producing digital campaigns and brand strategies.

AFL Live console game – developed by Melbourne-based Big Ant Studios and published by Tru Blu Entertainment.

10 MIDDLEWARE AND RELATED SERVICES

Middleware, or game engine, technology is an integral part of game Canberra-based BigWorld development. Many studios develop middleware in-house as well as producing Technology is one of the whole games. Australia has a small group of companies that principally develop world’s leading developers middleware and license the technology to game developers. of MMOG middleware. The BigWorld Technology and Epiphany Games are examples of two companies BigWorld middleware was heavily involved in producing game engines for Massively Multiplayer Online originally created by game Games (MMOGs), while Firelight Technologies is a company that focuses on developer Micro Forté with the interactive audio technology. support of Federal Government R&D grants. BigWorld There are also a number of companies and individual contractors that provide Technology was established as related services to the interactive entertainment industry, including character a separate company in 2002. animation, sound design and companies that provide technical tools, such as 3D BigWorld Technology licenses modelling, visualisation and motion capture software systems. Examples of such its middleware to game companies include The People’s Republic of Animation, Act3 Animation, Depth developers internationally and Analysis and Impact Audio Services. has had particular success in Some of these companies and contractors work solely in the game development China where MMOGs are the industry while others service other creative industries such as advertising and dominant form of gaming. fi lm and television production.

AFL Live

Middleware, or game engine, technology is an integral part of game development.

11 PLAYING FOR KEEPS: 2011 | SSCREENC R E E N AAUSTRALIAU S T R A L I A ECOLOGY OF THE SECTOR

Tie-ins to film and television projects

The practice of adapting games from fi lm and television content is not new. Such games can deepen audience engagement with the setting and narrative of the original property, as well as generate additional revenue streams. They are often made for high-end consoles but are increasingly produced for digital distribution to mobile and tablet devices. The project may be undertaken by either interactive entertainment publishers or developers and/or digital agencies linked to the original audiovisual production company or broadcaster. Local examples include KMM Games, the game development arm of fi lm production company Kennedy Miller Mitchell. KMM Games develop tie-in games to KMM feature fi lms. The KMM Games Brisbane studio recently closed following the completion of Happy Feet Two: The Video Game, although a smaller KMM Games studio remains in Sydney. Of the local broadcasters, the ABC is the most heavily involved in interactive entertainment, commissioning external developers as well as producing interactive projects in-house through its Innovation division. The ABC has commissioned and developed interactive extensions of ABC television properties, such as The Gradual Demise of Phillipa Finch and Spicks and Specks, as well as producing stand-alone interactive projects. One of ABC Innovation’s most ambitious projects is Bluebird AR, an interactive online drama exploring the issues of geo-engineering, whistleblowing and philanthro-capitalism through the story of a young scientist working for the Bluebird Corporation. In addition, other production companies such as Flying Bark and Animal Logic have also actively explored interactive entertainment options in the past.

Kennedy Miller Mitchell established KMM Games to develop console tie-in games to their feature fi lm properties, such as Happy Feet Two. The tie-in game to the original Happy Feet game was developed by a Canadian studio. KMM decided to develop the Happy Feet Two tie-in game in-house to ensure greater quality and creative control. KMM has benefi ted from the strong local talent pool for game development, hiring many former members of Krome Studios. KMM also purchased assets and IP from local studio Team Bondi when it closed.

12 Factors impacting sustainability

Over the last 30 years the Australian interactive entertainment industry has consistently produced games of considerable technological and artistic merit. Many of these titles have achieved critical and commercial success both here and abroad. However, local developers have had to remain dynamic to adapt to shifting market conditions. They have done this through the leadership of pioneering companies and a vibrant skills base that has embraced new business models, ensuring that Australia remains at the forefront of this global industry.

The fi rst wave of local studios appeared in the international publishers and developers began early 1980s, developing games for personal setting up or acquiring studios in Australia, computers (PCs) and home entertainment attracted by the local talent pool and low costs consoles. The fi rst was Beam Software, thanks to a favourable exchange rate. established in 1980, followed by Strategic Although this led to a growing focus on foreign Studies Group in 1983 and Micro Forté in 1985. fee-for-service work,5 projects based on original Beam Software released over 150 titles, ideas were still being created. However, unless including text adventure game The Hobbit, which the developer was affi liated with an international became the fi rst Australian game to sell over publisher, these games faced a diffi cult route a million copies.3 Micro Forté went on to break to market due to limited local investment new ground in MMOG middleware technology. opportunities. As a result many independent During the 1990s the industry grew steadily, with companies turned to the foreign market, selling the likes of Torus Games, Tantalus Interactive, their rights to secure money from publishers, Krome Studios, Blue Tongue, Rat Bag Games thus losing the ability to retain intellectual and IR Gurus among the notable start-ups. This property. was coupled with broader industry initiatives and increasing infrastructure that saw the launch of 5. Game Developers' Association of Australia, 2003, Inquiry into the Future Opportunities for Australia’s Film, Animation, Special Effects and training institutes and the founding of the GDAA. Electronic Game Industries. The founder of Micro Forté, John De Margheriti, was an instrumental fi gure in this activity, founding the Academy of Interactive “Luckily enough we’ve had Entertainment in 1996 and the GDAA in 1999. In addition, support was earmarked through the choices. We made choices to get Australian Government’s cultural policy of the into Australian product, which time, which recognised the artistic contribution of the interactive entertainment industry through is a risky move but has paid off the seed funding of Qantm College in 1996.4 because the Australian dollar is However, following this period of early growth so high compared to the US.” Ross changes occurred in the early 2000s that put pressure on the independence of local Symons, CEO of Big Ant Studios, developers and their ability to fi nance new on how his studio has been able to original ideas. In particular, budgets for console games became larger, fuelled by increasing achieve sustainability in a diffi cult hardware capabilities. During this time, environment.*

3. Knight, S & Brand, J, 2007, History of Game Development in Australia, * Hill, J, 2011, ‘Hands on with AFL 2011’, Sydney Morning Herald: ACMI. Screen Play Blog, (http://www.smh.com.au/digital-life/games/blogs/ 4. Higgs, PL & Kennedy, TA, 2003, From Cottages to Corporations: screenplay/hands-on-with-afl -2011-20110202-1acoh.html). Building a Global Industry from Australian Creativity – Report on Access to Overseas Markets for Australia’s Creative Digital Industry, Department of Communications, Information Technology and the Arts.

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By the late 2000s, the value of the developers working on medium- to SHIFTING Australian dollar, had increased, large-budget console games have reducing the margins of foreign fought to remain viable, studios DEMOGRAPHICS investors. At the same time the developing smaller-scale games Participation in interactive console market contracted with for digital distribution have been entertainment is a mainstream activity the current generation of hardware experiencing signifi cant growth in Australia. This is due to cultural and reaching maturity and publishers and acquisition. Taking advantage technological shifts in the industry responded strategically by focusing of new services such as Steam, which have made a wider variety on franchise titles with a proven sales iTunes and Facebook and the of games more accessible to more record. console distribution services people. This led to the closure of many of Xbox Live Arcade (XBLA), A recent study commissioned by PlayStation Network (PSN) foreign-owned developers in Australia the iGEA, Digital Australia 2012,6 while other independent studios and WiiWare, some companies found that 92 per cent of Australian struggled to compete with more cost- have been able to diversify their households have a device for playing competitive territories in the fee-for- operations and reduce their computer games, up from 88 per cent service console market. In 2011 alone, previous reliance on fee-for-service in late 2008. Team Bondi, THQ Studio Australia, work. The report shows that the THQ Blue Tongue and EA Visceral To ensure that the industry is best demographic profi le of people playing Studio Australia all closed and many placed both to tackle its acute interactive games is moving closer to talented people left the country. This threats and take advantage of that of the general population, with worrying exodus has threatened the the great opportunities offered by 75 per cent aged 18 years and over. very thing that the industry was built the evolving media landscape, a In fact, the average age has risen on three decades earlier – its creative supporting framework is needed from 30 to 32 years old since 2008. skills base. that strengthens the bonds across Furthermore, women now make However, technological change is the entire screen sector as well up 47 per cent of the total gaming providing opportunities as well as as acknowledges the distinctive population, up from 46 per cent over challenges. At the same time as creative expression that can only be achieved through interactivity. 6. Interactive Game and Entertainment Association, 2011, Digital Australia 2012.

Developed by Melbourne-based studio Brawsome, Jolly Rover was originally self-published via PC digital distribution platforms, selling 60,000 copies on Steam alone, before being picked up for international retail distribution by publisher Lace Mamba Global. Jolly Rover is a narrative-drivenriven pointpoint-and-click and clic adventure game.

14 the same period. It goes on to state that the ‘very motivated’ to sign up to a faster broadband average adult who plays games has now been service for game downloads and online play. playing them for 12 years, with 26 per cent Games households are also generally more having played for more than 20 years. likely than non-games households to use newer The study also found that 90 per cent of media such as portable music systems, surround people who played games believed that sound, Blu-ray etc. games contribute to culture. Importantly, this sentiment was echoed by people who didn’t play DEVICES USED FOR PLAYING GAMES IN GAME games, with 80 per cent agreeing. HOUSEHOLDS, 2011 The hardware used by people playing games can be grouped into fi ve categories: • Computers (PCs) • Television-based consoles, eg Microsoft’s Xbox 360, Sony’s PlayStation 3 and Nintendo’s Wii • Handheld consoles, eg Nintendo 3DS, Sony’s PSP • Mobile devices, eg Apple’s iPhone and iPods • Tablet devices, eg Apple’s iPads and Amazon’s Kindle Fire Sixty-three per cent of games households use a console for gaming and 62 per cent use their PC. Mobile devices such as smartphones are used in 43 per cent of games households, followed by handheld consoles and tablet devices at 13 per cent each. One in fi ve people who play games said they would either be ‘motivated’ or Source: iGEA, Digital Australia 2012.

Developed by Revolutionary Conceptsepts andand published by Konami through iTunes, Gesundheit! is an action-puzzlection-puzzle game with sstorybook visuals.

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Game genres

The iGEA breaks the genre of games into 16 categories, although many interactive titles combine several of these elements. For example, L.A. Noire has elements of simulation and role-playing, fi rst-person shooter, racing, action and adventure, as well as a strong narrative component. The following table includes defi nitions prepared by Screen Australia for these categories, along with selected examples.

GENRE DEFINITION EXAMPLES

Action Games that require quick thinking and refl exes to overcome God of War series, Assassin’s Creed, Batman obstacles or opponents. Arkham Asylum Adventure Story-driven games involving exploration and puzzle solving. Myst, Heavy Rain Board/Card Often adaptations of physical board or card games such as chess, Solitaire, Pokemon Trading Card Game, Monopoly, scrabble or bridge. Can also include original games or card trading Scrabble games. Classic (Retro) Games original released in the 1980s and 1990s. Pac Man, Space Invaders, Frogger Educational Games designed to teach players about a particular subject or assist Where in the World is Carmen San Diego?, in learning skills. Brain Fitness, My Word Coach Family/Party Collections of simple mini games designed for multiple players. Mario Party, Wii Party Fighting/Combat Players engage in close combat with an opponent. Street Fighter, Mortal Kombat First Person Shooter Involves shooting at a series of opponents. Player sees the action Call of Duty, Resident Evil, Dead Space through the eyes of the protagonist. Usually requires quick refl exes. Massively Multiplayer A role-playing game in which a large number of players interact World of Warcraft, Star Trek Online Online Role-playing within a virtual world. Game Platformer Games in which the primary objective requires movement through a Donkey Kong, Mario Bros., series of levels, by way of running, climbing, jumping. Sonic the Hedgehog Puzzle Games which require problem solving skills such as logic or spatial Tetris, Lemmings, Puzzle Quest, reasoning to solve a problem or puzzle. Angry Birds Racing Games based primarily on driving skills. Games can be based on real racing events or imaginary settings. Role-playing Game Games in which a player creates or takes on a character. Typically The Elder Scrolls series, Fallout series, Final rely on a detailed and expansive setting and story with an emphasis Fantasy series on character interactions. Simulation Games which simulate real world situations. The Sims Sports Adaptations of existing sports. AFL Live, FIFA World Cup Strategy/Real Time Games which require strategic thinking and planning skills rather Starcraft, Total War series, Strategy than quick refl exes to defeat opponents. Can involve strategic Civilisation series deployment of armies or resource management.

Source: iGEA, Digital Australia 2012 and Screen Australia.

16 ... SHIFTING DEMOGRAPHICS

MEDIA USED IN GAME VS NON-GAME HOUSEHOLDS, 2011

MEDIA USED IN HOUSEHOLDS, 2011

MEDIA % IN GAME HOMES % IN NON-GAME HOMES

STANDARD MEDIA (DEVICE OR SERVICE) Mobile phone 100 100 PC/Laptop 98 99 All print media 88 85 Flat-panel TV 85 70 DVD player 66 66 Sound/Music system 51 67 NEWER MEDIA Portable music/iPod 44 3 Surround sound 42 14 e-Print media 39 18 DTV set-top box 32 33 DVD recorder 31 32 Subscription TV 27 Blu-ray play/rec 21 7 PVR 14 8 DAB - Digital Audio 5 2 OLDER MEDIA VCR 39 50 CRT TV 29 38

Source: iGEA, Digital Australia 2012.

17 PLAYING FOR KEEPS: 2011 | SSCREENC R E E N AAUSTRALIAU S T R A L I A FACTORS IMPACTING SUSTAINABILITY

GROWTH FACTORS Wii and Microsoft’s Kinect has been especially for tablets. Examples instrumental in broadening the gaming include interactive electronic books demographic to include older family as well as console titles adapted for Although the majority of retail value members. Motion-based controllers mobile use. continues to come from the sale of are simple to use and facilitate a physical media, especially for high-end The penetration of smartphones in greater range of family, lifestyle and console titles, games for all hardware the Australian market is forecast to party games. Family games are now types are increasingly available increase from 46 per cent in 2011 the most popular type of game sold at online. This includes everything from to 82 per cent in 2015 and tablet retail in Australia; according to NDP browser-based titles played online penetration will increase from 8.5 Group Australia point of sale data, this either by multiple players or a single per cent to 33 per cent over the same category accounted for 19 per cent of 8 player to content downloaded to period. all retail game sales in 2010.7 gaming devices including consoles, The introduction of games to popular handheld consoles, PCs, smartphones Similarly, mobile and tablet devices, social networks such as Facebook has and tablet devices. with their intuitive touch screen created another area of growth. These controls and a straightforward For example, Microsoft, Sony and ‘social games’ feature asynchronous marketplace from the likes of Nintendo all provide a wide range of interactivity across multiple players. iTunes as well as the availability of games via digital distribution that can Popular genres include role-playing inexpensive and free titles, have added be downloaded on their respective titles such as The Sims and property to the broader appeal of games. consoles. Downloadable console management games such as titles are less expensive and tend to Many of the most popular titles for Farmville. be smaller-scale games than those these devices employ relatively The wide variety of browser-based purchased on physical media. PC simple graphics and gameplay that games played online includes virtual games ranging from blockbusters features puzzles, physics and strategic worlds for children such as Disney’s released by major publishers to small elements. There is, however, a market Club Penguin, MMOGs such as the games from independent developers for more visually sophisticated, role-playing and combat fantasy can all be downloaded via services narrative-driven interactive World of Warcraft, and single-player such as Steam. entertainment for mobile devices, browser-based games.

The introduction of motion-based 7. Interactive Game and Entertainment Association, 8. PricewaterhouseCoopers, 2011, Australian controllers such as the Nintendo 2011, Digital Australia 2012. Entertainment and Media Outlook 2011–2015.

Developed by Tin Man Games, Gamebook Adventures is a series of interactive electronic books which feature text- based narratives as well as gameplay elements. The series was cited by The Guardian as an outstanding example of the interactive fi ction genre for its elegant illustrations and well-written narrative.

18 Online games cater to a wide variety of audiences; however, children in particular have a high propensity for playing them. Information about children’s use of information technology compiled by the ABS reveals that playing online games Technological was the second most popular use of the internet, increasing from 51 per cent of all developments, children who accessed the internet at home in 2006, to more than 69 per cent of children in 2009.9 along with improved The emergence of connected televisions and connected living room devices will bandwidth from the further propel participation in interactive entertainment. Connected televisions and introduction of living room devices have created new methods of distribution with Smart TV and Apple TV allowing direct access to digitally distributed content without the need for high-speed broadband a PC or gaming console. infrastructure, will These technological developments, along with improved bandwidth from the facilitate further introduction of high-speed broadband infrastructure, will facilitate further growth in digitally distributed games, and allow a penetration of cloud gaming services growth in digitally into the Australian market. Cloud services differ from traditional browser-based distributed games, services as the games are generally more complex with larger environments and can be played on a wide range of hardware types. as well as allowing the In terms of consumer spending, the global interactive entertainment industry is penetration of cloud forecast to be the fastest growing entertainment and media sector, expanding from gaming services. $64.8 billion in revenues in 2010 to $90.1 billion in 2015.10 In Australia the market is expected to grow at a compound annual growth rate of 9.5 per cent to reach $2.5 billion in 2015. This is in large part due to the exponential growth of online distribution of games.11 The physical retail console and PC market is expected to pick up over the next fi ve years after falling in 2009 and 2010, expanding globally at a growth rate of 3.7 per cent. The growth will be driven by the release of the next generation of console hardware.

9. Australian Bureau of Statistics, June 2011, Australian Social Trends: Children of the Digital Revolution (cat no. 4102.0). 10. PricewaterhouseCoopers, 2011, Australian Entertainment and Media Outlook 2011–2015. 11. The online segment includes revenue from downloadable console and PC games.

Little Space Heroes, developed by Sydney-based Bubble Gum Interactive, is an upcoming virtual world for children. It features an overarching narrative as well as mini-games, missions and opportunities for social interaction between players. Little Space Heroes aims to compete with the likes of Club Penguin, which has over 150 million registered users worldwide.

19 PLAYING FOR KEEPS: 2011 | SSCREENC R E E N AAUSTRALIAU S T R A L I A FACTORS IMPACTING SUSTAINABILITY

INDUSTRY PRESSURE POINTS

The threats confronting the Australian is cyclical with development and retail As a fee-for-service location, industry fall broadly into two activity stimulated by the release Australia is no longer considered interrelated areas: falling foreign of new ‘generations’ of hardware. cost competitive due to the strong investment and talent being driven This has resulted in a contraction in Australian dollar, which has risen offshore. sales in the last few years, in part steadily against the US dollar from due to a large second hand market. the late 1990s to 2011, with severe FALLING FOREIGN The current generation of consoles, impacts on the local industry. Between INVESTMENT which commenced with the launch of 1999 and 2002 the average value of The fall in publisher investment in Xbox 360 in 2005, is predicted to be the AUD was 57 US cents, this has local console development over the replaced in 2012–2014. risen to an average value of 97 US past three years is a direct impact Furthermore, the impact of the cents between 2010 and October of the contracting retail market for global fi nancial crisis on consumer 2011.12 physical console games. spending in the US and Europe has Nor are there tax incentives in place Publishers have been commissioning meant that consumers are not buying to offset this rise. Quebec, British fewer console titles and focusing as many physical console and PC Columbia and Ontario are notable their resources on blockbuster titles titles, preferring to purchase fewer examples of territories that offer of their established intellectual high-quality titles. competitive tax incentives – refundable property, trimming medium-budget The contraction of the retail market tax credits ranging from 17.5 to games and licensed titles from their for physical console games, combined 37.5 per cent on labour expenditure. portfolios. This has had an impact on with rising development costs, As a result of the tax incentives and local developers as work on licensed has forced console development to the subsequent presence of publisher- console titles like movie tie-in games low-cost territories in order to owned subsidiaries, Canada is now has historically been one of the improve profi t margins. In order to home to the third-largest game Australian industry’s strengths. reduce development costs, publishers industry in terms of employment, Exacerbating this trend is fact that the are relocating studios to territories that offer tax incentives or territories 12. Reserve Bank of Australia, Exchange Rate Data, Daily current generation of consoles are in Data 1999–2002, Daily Data 2010–2011, (http://www.rba. a maturing phase. The console market with low labour costs such as China, gov.au/statistics/hist-exchange-rates/index.html). India and Russia.

Siegecraft was developed by Sydney-based developer Blowfi sh Studios and released by independent publisher Crescent Moon Games. It reached the top of the Strategy game charts for iPad and iPhone in 39 countries.

FRUIT NINJA Halfbrick is a stand out independent studio primarily developing orginal IP games which are self-funded and self-published. Notable titles include Fruit Ninja.

20 overtaking the UK in 2010.13 Louisiana, which has recently enhanced its tax incentive structure to a 35 per cent tax credit on labour expenditure and a 25 per cent tax credit on other development expenditure, is also experiencing an increase in publisher investment in the state. 14

KEY TAX INCENTIVES IN SELECTED TERRITORIES

Quebec 30% refundable tax credit of qualifying labour expenditure Additional 7.5% for inclusion of French language versioning A maximum 26.25% refundable tax credit of labour expenditure for projects developed under a fee-for-service arrangement. British Columbia 17.5% refundable tax credit of qualifying labour expenditure Ontario 40% refundable tax credit of qualifying labour expenditure and eligible marketing and distribution expenses 35% refundable tax credit of labour expenditure for projects developed under a fee-for-service arrangement France 20% refundable tax credit on production expenditure subject to passing a cultural signifi cance test Alternator character Courtesy: Louisiana 35% refundable tax credit on labour expenditure Alternator Pty Ltd 25% tax credit on all direct support costs Texas 15% refundable tax incentive on production expenditure Additional 2.5% offered for projects that complete 25% of their production in an underutilised area of Texas Florida 20% refundable tax credit on production expenditure Additional 5% for ‘family friendly’ titles Additional 5% for production expenditure in an underutilised region

13. Entertainment Software Association of Canada, 2011, Canada’s Entertainment Software Industry in 2011. 14. Baxter, CL, 2011, Fiscal and Economic Impact Analysis of Louisiana’s Entertainment Incentives (http://www.louisianaentertainment.gov/images/ louisiana_entertainment_2011_economic_impact_analysis.pdf).

"The major hurdle facing the industry is the move from work-for-hire on noted franchises to the creation of original IP and self-publishing. This is a major shift in the design process and one that is a lot harder than often credited." — Mark Fludder, Information Industries Bureau (Queensland) Siegecraft

21 PLAYING FOR KEEPS: 2011 | SSCREENC R E E N AAUSTRALIAU S T R A L I A FACTORS IMPACTING SUSTAINABILITY: INDUSTRY PRESSURE POINTS

Like other forms of screen content, defunct studios, many of them of are The loss of the skills and experience games produced for the Australian moving overseas. initially expanded through console market tend to be riskier investments Jason Stark, the artistic director of game development will have a for publishers given the population KMM Games’ Brisbane studio, which detrimental impact on other sectors size, a notable exception being console ceased operation in October this year, of the interactive entertainment games based on local football codes. estimates that 90 per cent of local development industry which have Because of this, most local developers developers move overseas when a benefi ted from these skills. The local are primarily export focussed and with studio closes. 15 This phenomenon has industry has been well positioned to the contraction in foreign investment been confi rmed by other published take advantage of digital distribution there are now even less opportunities commentary on the local industry platforms because of the skills to raise funds for original projects. and anecdotal reports.16 The industry development and training facilitated is also struggling to retain talent by local console development activity TALENT BEING DRIVEN emerging from tertiary education. in the 2000s. For example, Halfbrick OFFSHORE developed licensed handheld console Without a critical mass of talent and titles for international publishers for The infl ux of foreign investment experience, the industry will not be eight years before releasing their into the local industry in the 2000s able to rebuild in the future, even with breakthrough hit Fruit Ninja. resulted in the industry acquiring the return of favourable conditions a talent pool of highly skilled and such as a weaker Australian dollar and experienced workers. Console the forecast upturn in physical retail development requires a combination sales over the next fi ve years.17 of high-level creative, technical and management skills, which 15. Jason Stark interviewed by Daniel Miller, 2011, are transferable to other types of Australian Game Studios Face Obliteration, ABC News interactive digital media. (www.abc.net.au/news/2011-10-17/australian-game-dev- studios-shutting-down/3575196). However, the local talent pool 16. Serrels, M, 2011, The Prodigal Son: One Developer's Journey from THQ Studio Australia to Montreal, Kotaku has been severely diminished as a Australia, (http://www.kotaku.com.au/2011/10/the- consequence of recent studio closures, prodigal-son-one-developers-journey-from-thq-studio- australia-to-montreal). which resulted in the loss of hundreds 17. PricewaterhouseCoopers, 2011, Australian Media and of jobs. As the local industry is too Entertainment Outlook 2011–2015. small to absorb the employees from

Brisbane-based games company, Halfbrick Studios, has moved from developing licensed games for medium-budget console games, into creating original IP for mobile and digital distribution. Halfbrick is best known for Fruit Ninja, which was created for iPhone and iPad but has recently been released as Fruit Ninja Kinect via Xbox Live Arcade and Fruit Ninja Frenzy on Facebook.

22 Options to support sustainability

Achieving a healthy balance of fee-for-service work and the creation of original content is critical to a more sustainable industry. Australian interactive entertainment developers have the talent, skills and desire to create original content, including for the local market, but there has been some reluctance to invest in such content because of the relatively high fi nancial risk involved. Enhanced government support would mitigate this risk and assist developers to retain intellectual property at the same time as attracting private investment. Building on current initiatives, two new options are proposed: an Interactive Entertainment (Games) Offset providing indirect support through the taxation system, and direct support through an Online Production Fund.

Support which helps developers retain intellectual property would lead to a greater volume of interactive entertainment based on Australian artistic expression and development under local creative control. This in turn would augment the interactive entertainment industry’s contribution to the broader cultural objectives of the screen sector. In such a scenario, companies involved in console game development would still be able to attract fee-for-service work as well as ready their skills base in preparation for an upturn in the console market when new hardware is released in the next few years. Furthermore, these companies, plus an array of specialist developers, would have an incentive to explore new digital distribution alternatives with games of a smaller scale. Australia is already a leader in the development of interactive content for mobile and tablet devices, with the likes of Fruit Ninja, Flight Control and Spy Mouse each achieving millions of downloads. Leadership at a national level, supported by initiatives from state and territory governments, has the ability to assist game developers to build upon this success. CURRENT GOVERNMENT SUPPORT Federal and state governments provide a range of specialised support services currently utilised by the interactive entertainment industry. These services, which will continue to be vitally important in the future, are currently available through: • Department of Innovation, Industry, Science and Research • Austrade • state governments and state screen agencies • Screen Australia ABS data shows that government funding contributed $1.7 million, or 1.2 per cent of the total income of digital games development businesses in 2006/07.18 DEPARTMENT OF INNOVATION, INDUSTRY, SCIENCE AND RESEARCH (DIISR) Interactive entertainment development businesses can access a number of the key programs and services offered by the Department of Innovation, Industry, Science and Research. These programs and services aim to support businesses to commercialise new ideas and technologies and embrace innovation as the pathway to greater competitiveness.

18. Australian Bureau of Statistics, Digital Game Development Services Australia 2006/07 (cat. no. 8515.0).

23 PLAYING FOR KEEPS: 2011 | SSCREENC R E E N AAUSTRALIAU S T R A L I A OPTIONS TO SUPPORT SUSTAINABILITY: CURRENT SUPPORT

R&D incentives Enterprise Connect – Creative collaboration between various game The leading incentive for the Industries Innovation Centre: industry stakeholders, and Brisbane interactive entertainment industry • Business Review: Comprehensive Marketing’s Investment Attraction is the R&D Tax Incentive. Game Business Review for companies Division. developers stand to benefi t from the which meet the eligibility criteria The Victorian Government supports recently introduced Research and and turnover at least $1 million per the industry through Film Victoria Development (R&D) Tax Credit. R&D annum and Multimedia Victoria. Film is a fundamental aspect of game • Tailored Advisory Service: Victoria provides direct project development, especially for companies Matching funding of up to $20 000 funding while Multimedia Victoria that develop engine-level technology. to implement changes identifi ed initiatives include funding the Game The R&D tax incentive program through the Business Review Developers’ Association of Australia, consists of two tiers: • Researchers in Business: funding Deakin University’s motion • For companies with a turnover of Matching funding initiative providing capture studio and assisting game less than $20 million, the program up to $50 000 for small- and development companies to attend key offers a 45 per cent refundable medium-sized fi rms to engage a overseas game shows. R&D tax offset. This is equivalent to researcher to help develop new The NSW Government provides a 15 cents in the dollar benefi t, with ideas with commercial potential. direct project funding and enterprise a refund of up to 45 cents in the Cooperative Research Centres funding through the Interactive Media dollar if the company has a tax loss. Program – Australasian Centre for Initiative, which was launched in 2011. • For companies with a turnover of Interaction Design 2003–2010: more than $20 million, the program SCREEN AUSTRALIA • Collaboration between start- offers a 40 per cent non-refundable ups, small- and medium-sized Since its formation in 2008, Screen R&D tax offset. This is equivalent to enterprises (SMEs), industry Australia has provided direct project a 10 cents in the dollar benefi t.19 partners and university researchers funding to interactive entertainment projects through the Innovation The proportion of a game development including game developer Auran Program and its successor the All budget spent on R&D might range and Qantm College Media Fund. from 10 per cent to over 50 per cent.20 • Commercial outcomes from The All Media Fund has a $3–5 million While the R&D Tax Incentive is intellectual property generated allocation for 2011/12. Projects can benefi cial to local developers, its within research projects were receive up to $200,000 in production appeal to international publishers is shared with core and supporting funding through the program. The limited due to uncertainty surrounding participants, kick-starting program supports narrative content what proportion of expenditure will opportunities for more rapid in both linear and non-linear forms, qualify as R&D for the purpose of the commercialisation and technology including games, that pushes the incentive.21 transfer. envelope of creative storytelling. Other grants and services AUSTRADE Screen Australia has also provided Commercialisation Australia: Developers can access Export Market development funding for fi ve projects and production funding for one project • Skills and Knowledge grants of Development Grants from Austrade. through a one-off collaboration with up to $50,000 to access specialist This scheme assists small and the ABC, Serious Games Initiative. advice and services medium exporters to seek out and • Experienced Executives funding of develop export markets by partially up to $200,000 to engage a CEO or reimbursing their expenditure on FUTURE SUPPORT other senior executive export promotion, such as travel and Tax incentives have worked well for • Proof of Concept grants between sample costs. the fi lm and television industry. As $50,000 and $250,000 to prove the at 30 June 2011, there have been commercial viability of new IP STATE GOVERNMENT AND 326 fi nal Producer Offset certifi cates • Early Stage Commercialisation STATE SCREEN AGENCIES issued for drama and documentary repayable grants from $250,000 to There are a variety of initiatives that projects with total budgets of $1.46 $2 million to take a new product, support interactive entertainment billion. service or process to market. companies with state governments The policy intent behind the Producer and local screen agency programs. Offset was to ‘help the fi lm and These include a wide range of television industry to become enterprise assistance as well as some 19. PricewaterhouseCoopers, 2011, New R&D Tax more competitive and responsive Incentive Program (http://www.pwc.com.au/tax/ specially targeted funds. to audiences, and will be a major assets/R&D-Alert-24Aug11.pdf). 20. Screen Australia interviews with international The Queensland Government incentive for projects with signifi cant publishers and local developers. supports the local industry through commercial potential… The [Offset] 21. Screen Australia interviews with international publishers. Queensland Games, a promotional provides a substantial opportunity for

24 Broader impacts of the interactive entertainment industry

Interactive entertainment skills and technology have had an impact on other key industries such as defence, mining and health. Ensuring that the game development industry grows, diversifi es and drives technological innovations is vital to transferring game development skills to these industries. An example of game development skills driving innovation in another industry is Neuroscience Research Australia’s research into using Kinect, iPad and Wii games for health outcomes such as stroke rehabilitation and strengthening postural stability in older people. Neuroscience Research Australia’s Stuart Smith and Penelope McNulty worked with local developer Halfbrick to create a modifi ed version of their game Fruit Ninja to use with stroke rehabilitation patients.* Another example is Newcastle-based Bohemia Interactive Simulations, who use video game technology to create virtual environments for use in simulated defence training used by the Australian Defence Force.

Local company Immersive Technologies is a world leader in using gaming technology to Alternator is an simulate heavy equipment in a virtual world, which is used by the mining industry to train its online racing operators. game funded through Screen Furthermore, technologies driven by the development of interactive entertainment, such as 3D Australia and modelling, artifi cial intelligence, and the natural user interface, are all utilised in health and ABC’s Serious military fi elds among others. Games Initiative. These indirect benefi ts derived from the screen sector must be taken into account when Set in a world experiencing considering the public cost of supporting cultural products and services. harsh climate

* Gambotto-Burke, A, 2011. Hi-Tech Stimuli Help to Dull the Pain, The Australian, August 13 (www.theaustralian.com.au/news/health-science/hi-tech- change, players stimuli-help-to-dull-the-pain/story-e6frg8y6-1226113730661). invent new clean energy technologies to modify their cars and race to prove their prowess.

25 PLAYING FOR KEEPS: 2011 | SSCREENC R E E N AAUSTRALIAU S T R A L I A OPTIONS TO SUPPORT SUSTAINABILITY: FUTURE SUPPORT

producers to retain signifi cant equity Unlike the fi lm and television industry Australian talent and bolstering not in their productions and build stable where most productions are typically just the creative industries but also and sustainable production companies, fi nanced by multiple partners, other industries that seek to take both important for the long term interactive entertainment projects are advantage of interactive entertainment growth of the fi lm industry.’22 fi nanced primarily through publishers. skills and technology. The key aims for the Producer Offset Due to the high level of risk, large This support would see greater were: budgets and long development levels of interactive entertainment timeframes, local console game • dramatically increased production developed under Australian creative developers have generally been unable • increased equity for fi lmmakers control at the same time as the to access private fi nance. • creation of sustainable businesses market for interactive entertainment • increased private investment. Government support does, however, is burgeoning both domestically and make the industry a more attractive internationally. These aims equally apply to the proposition to private investors. While As Digital Australia 2012 and Screen interactive entertainment industry there are direct funding programs Australia’s Beyond the Box Offi ce where a lack of local sources of currently available to the interactive show, a large number of Australians fi nance has meant many studios, entertainment industry, these are already participate in a wide variety particularly those focused on console generally directed at titles for digital of interactive entertainment. The software, have been unable to develop distribution, which are less expensive roll out of high-speed broadband original intellectual property. They to produce, and do not benefi t large- infrastructure combined with the have instead had to rely on fee- budget interactive entertainment. uptake of new gaming hardware for-service work or relinquish their Enhanced support from government platforms will further establish intellectual property to publishers in would be a catalyst for foreign interactive entertainment as a return for project funding. This leaves investment, as well as provide an signifi cant part of Australians’ the industry vulnerable to external opportunity to better foster the engagement with screen content. factors such as the strength of the creation of interactive entertainment Australian dollar, and also inhibits the that is culturally relevant to Australian creative potential of the industry. audiences. It would assist in building sustainable businesses, bringing back 22. Sen the Hon Helen Coonan and Sen the Hon George Brandis SC, New producer incentive for Australian fi lm and television productions, joint media release, 8 May 2007. The Producer Offset was referred to as the ‘Producer Rebate’ at announcement.

Asylum: Exit Australia is an online simulation game exploring the issues raised in the SBS series Go Back to Where You Came From in an immersive and interactive way. The player takes the role of a member of a persecuted minority attempting to fl ee a hypothetical Australia riven with internal confl ict.

26 INTERACTIVE ENTERTAINMENT The 30 per cent tax offset would be aimed at (GAMES) OFFSET: attracting foreign investment in console games and larger-scale digitally distributed games. The The Interactive Entertainment (Games) rebate would make Australia cost competitive Offset would capitalise on the benefi ts of fast with development locations in Europe, the US broadband and changing business models. and Canada, encouraging publishers to establish Not only would it enable stand-alone games or expand existing subsidiaries in Australia. to benefi t from new revenue streams such as micro-transactions, but it would also facilitate a The 30 per cent offset would also assist greater intersection with the fi lm and television independent developers working on console industry, which would similarly benefi t from this and high-end mobile and social games to retain socialisation of content. intellectual property by negotiating a favourable royalty share when approaching publishers for Supporting new interactive experiences project funding. Furthermore, local developers One component of this initiative could be the performing fee-for-service work have the introduction of a new offset for stand-alone opportunity to reinvest the tax credit in the interactive entertainment projects that are creation of original intellectual property. unrelated to linear drama and documentary The 20 per cent offset is aimed at smaller content. This initiative could support high-cost businesses working on high-quality games for projects such as traditional console games and digital distribution, boosting the local industry’s massively multiplayer online environments, as ability to take advantage of opportunities that well as lower-cost downloadable titles that are have come from greater convergence. emerging across consoles, smartphones, tablets Projects accessing this component of the offset and personal computers. would be required to meet an eligibility test. Levels could be scaled in the following manner: However, unlike the existing Producer Offset for • 30 per cent tax credit on eligible expenditure the fi lm and television industry, this test would with a minimum expenditure threshold of not place an emphasis on story or setting, but $500,000 rather consider issues of Australian creative • 20 per cent tax credit on eligible expenditure control. with a minimum expenditure threshold of $200,000.

Asylum: Exit Australia has been awarded a Special Commendation for Promoting Multi-cultural Issues by the United Nations Association of Australia, in recognition of its achievement in informing participants about asylum seeker issues.

27 PLAYING FOR KEEPS: 2011 | SSCREENC R E E N AAUSTRALIAU S T R A L I A OPTIONS TO SUPPORT SUSTAINABILITY: FUTURE SUPPORT

Extending fi lm and Many local developers were also • feature fi lm and television content television properties enthusiastic about the idea of using a digital distribution strategy collaborating with local fi lm and • immersive narrative projects such The other component of the television producers. While they as interactive documentaries Interactive Entertainment (Games) identifi ed only a small proportion of • browser-based interactive Offset could see the scope of the Australian fi lms – animated children’s entertainment current Producer Offset broadened to fi lms and large-budget action fi lms in • mobile and tablet applications. allow for expenditure on interactive particular – as lending themselves to entertainment components of The Fund would be targeted to a console game tie-in for the physical otherwise eligible projects to qualify projects that have a story component retail market, they saw creative and under the rebate. in which the production company or commercial potential in digitally developer (and any associated fi rst- In this scenario, a fi lm and television distributed and online extensions for a release broadcaster or distributor) production company partnering with variety of fi lms. an interactive entertainment developer agrees to an exclusive online release Examples of digitally distributed and would not need to submit an additional window, prior to other distribution online interactive extensions of fi lm application for a game that extended points. The Fund would have the and television properties include an either the brand or narrative of their capacity to assist a wide range of interactive e-book to accompany the drama or documentary project, and content, from small-scale projects long-running documentary series therefore would not have to meet any with limited marketplace attachment Mythbusters, an online simulation additional eligibility tests. that may only ever be distributed game Asylum: Exit Australia to online to others that follow traditional For eligible projects, the value of the accompany the documentary series fi nancing structures that will Producer Offset is calculated based Go Back to Where You Came From and ultimately be released in cinema and on the project’s qualifying Australian an iPhone game to accompany the on television or video. production expenditure (QAPE). It’s animated series The Gradual Demise Ultimately, the objective is that each worth: of Phillipa Finch. Funding for these project needs to explore potential • 40 per cent of QAPE incurred on has come from production companies, business models, advancing the feature fi lms developers, Screen Australia and development of new distribution • 20 per cent of QAPE incurred on state screen agencies and the public arrangements for content that are narrative programs other than broadcasters. more in keeping with changes in feature fi lms (television series, Supporting the local production audience expectation and demand. mini-series or telemovies, short- of tie-in games as proposed will This will lead to a more sustainable form animations, non-theatrical ultimately offer a way to expand screen production industry, delivering documentary, or direct-to-DVD or linear storytelling into more dynamic an increase in production activity, web-distributed programming). environments, leveraging these drama gross domestic product and For more information about and documentary stories further by employment. increasing their appeal among new eligibility requirements including Importantly, it will heighten the audiences. Interactive entertainment minimum levels of QAPE and the cultural impact of screen content may offer totally new experiences Signifi cant Australian Content test, through greater audience access built within the narrative setting see the Producer Offset section of and engagement with innovative of the drama or documentary, or Screen Australia’s website: www. and original content on emerging move towards greater transmedia screenaustralia.gov.au/producer_ platforms. The Fund permits the storytelling. offset/ creation of socialised content – screen Local fi lm and television producers ONLINE stories that people can actively have indicated through Screen PRODUCTION FUND discuss and interact with in ways Australia’s interviews that they are they are increasingly seeking and enthusiastic about the potential of In its National Cultural Policy and demanding. This is of particular interactive entertainment, in particular Convergence Review submissions, signifi cance for younger generations, digitally distributed games, to deepen Screen Australia proposed the creation who will take the accessibility of such audience engagement with the story of an Online Production Fund, which content for granted. would provide a launching pad for universe of their narrative properties For businesses, the Fund would the screen sector to fully embrace and generate new revenue streams. provide an opportunity to test and the opportunities that fast broadband However, local producers cite the develop new content and distribution makes available. It would build on a diffi culty in attracting fi nance for models that harness the unique growing array of projects that have interactive entertainment extensions interactive components offered by the moved into this space, including: as a barrier to engaging in this space. internet.

28 Economic impacts of the Interactive Entertainment (Games) Offset

Screen Australia has worked with PricewaterhouseCoopers (PwC) to model the economic outcomes of the Interactive Entertainment (Games) Offset. PwC assisted Screen Australia in gathering data from local fi lm and television production companies as well as local and international interactive entertainment developers and publishers. Overseas publishers were interviewed to understand their attitudes to Australian developers and whether their investment behaviour would change in the presence of incentives. Local fi lm producers were interviewed to understand their willingness to extend locally developed fi lm and television properties into interactive entertainment projects. This modelling indicates that over a fi ve-year period from the introduction of the Offset there would be an additional investment in the interactive entertainment industry of $146 million, of which $100 million would come from foreign sources. This would result in an additional contribution of $76 million to Australia’s Gross Domestic Product. Furthermore, 383 new jobs would be created and sustained, which is an increase of around 50 per cent on those currently working on projects with budgets in excess of $200,000. The total additional investment of $146 million over the fi ve years anticipates a gradual take-up of the Offset. On an annual basis, the additional investment is expected to reach $44.3 million per year, of which $30.3 million would come from foreign sources and $13.9 million from domestic sources. This analysis of the economic impact associated with interactive entertainment production expenditure employs the Monash Multi-Regional Forecasting (MMRF) model. MMRF is a general equilibrium model, developed by the Centre of Policy Studies (CoPS) at Monash University, to quantify the economy-wide impact of projects or policy changes. In this case, MMRF is used to assess the economy-wide impact of removing the industry from the Australian economy (ie a deprival methodology). It is important to remember that consumer spending is also on the rise, with double-digit growth forecast for online, mobile and tablet gaming over the next fi ve years.*

* PricewaterhouseCoopers, 2011, Australian Media and Entertainment Outlook: 2011–15.

Companies interviewed by Screen Australia for this report

Local developers International publishers Local fi lm and television 2K Marin Canberra Activision production companies 3 Blokes Studios Electronic Arts Animal Logic Big Ant Studios Microsoft Beyond Entertainment Epiphany Games Sega Flying Bark Halfbrick THQ Mushroom Pictures Tantalus Media Ubisoft Mystery Clock Torus Games Omnilab Trickstar Games Sega Studios Australia Wicked Witch Software

29 PLAYING FOR KEEPS: 2011 | SSCREENC R E E N AAUSTRALIAU S T R A L I A