The UK video games market is estimated to be the 6th largest in 2015 in terms of consumer revenues, after China, US, Japan, South Korea and Germany. According to data collected by UK Interactive Entertainment (UKIE) which is the only trade body for the UK’s games and wider interactive entertainment industry and MCV, the leading trade news and community site for all professionals working within the international video games market, video games sold more than video or music last year, particularly successful being Digital console and PC products. The video game industry in UK employs almost 20,000 people and generates £4.5 million every day for the national economy.
The UK video games market witnessed some huge examples of success in recent years. For instance the company Rockstar North based in Edinburgh released Grand Theft Auto V, an action-adventure open world video game which includes an online multi player mode. This game was a no.1 top selling game of all time in the UK, with 5 million units and £208 million value in 2014. It is also the most successful worldwide entertainment product of all time with grossing $1 billion worldwide in just 3 days. The edition for Microsoft was released in April 2015 and is still amongst the bestselling games on Steam.
On average, 45 per cent of a UK games business’ turnover is generated from the export of games and altogether, 95 per cent of British games businesses export some or all of their games and services to markets abroad. However, it is not just AAA titles, games from independent developers aim to prosper too. Many of these projects rely on crowdfunding and according to Nesta, they have raised more than £5 million since 2010 on Kickstarter. However, the market remains dominated by a handful of blockbusters, which is a pattern that can be observed in other creative markets too.
“The consumer market is really big and that’s not just in terms of people spending money on games, software and hardware but also merchandise, magazines, books and events. It is a large part of the creative industries, people spend more money on games than they do on films and on music,” Jo Twist says. Seeing the potential of the UK video game market, the government aims to boost it. Over the time between this year and 2019, smaller companies will have a chance to obtain grants from the UK Games Fund (UKGF). This project launched on 12 October 2015 and primarily aims to help new or small studios grow. The total money invested equals £4 million with £25,000 for each grant.
The Fund is ran by a team of six people and the application process is quite easy. It only consists of filling out an online form but a lot of details are required. One of the conditions is also that the £25,000 grant won’t represent more than 50% of the overall budget for creating the game. Apart from that, companies or individuals have to submit a description of their project, screenshots, some video footage and also their marketing plan.
Successful applicants then have about three months to develop a prototype game and the timeframe is determined by the amount of money. “Money drives the time rather than the other way around. Typically these teams tend to be four to six people and it’s their cost of a certain time that fits in with the £25,000 pounds of funding,” says Paul Durrant, founder of the UKGF. The timeframe seems quite short but it really depends on the size of the team.
“If you have all the staff you need to do all the assigned work, you could make a prototype within 3 weeks if you had the people,” says Chris Child – a developer and games technology lecturer. Therefore smaller studios can use some of the money to hire freelancers and external contractors to help out.
The video games industry has only been around for a little more than forty years which makes it very young compared to other creative industries like film. The industry was always digital and especially over the last few years was able to react to technological innovations quickly. “We are quite agile as the industry growth revolved around the different ways in which you can get games to consumers and how to publish. We don’t really have that many gatekeepers as other traditional sectors do and the app store economy helped that,” Jo Twist says. The combination of heritage and experience in making games allows all companies in the industry to transition and adapt to new trends. “Games are constantly top category among the applications that people download and also the content which people want to watch on YouTube for example,” she adds, referring to the phenomenon of let’s players.
Development, market and games distribution has seen a lot of progress and some aspects are way less complicated than they used to be. “When I was working for a publisher, they would sell games to shops and if they sold a game for £35 then they would take £15 from that. Whereas now, if I sell a game directly to a client, then I get all the money,” says Chris Child, founder of Childish Things studio, who stopped selling CDs four years ago. He has been working in the industry for over fifteen years now and developed the International Cricket Captain game series for PC, PlayStation and iPhone and also works as lecturer of computer games technology at City University London. “I think it’s a lot easier to just find funding for the game, you don’t need to find funding to publish it. As long as you make the game, you can distribute it quite easily,“ he says. For example Childish things Ltd is working together with Kiss a digital distribution management company which offers full digital distribution without the need of multiple contracts.
Apart from applying for direct funding, there are other ways how to start a studio and finance it. Most people in start-ups used to work in a big studio or company, they’ve got older and decided they want to set up a company on their own but the only easy thing about the process is completing the paperwork. “You can set up a company in 30 minutes, but in terms of running it, you’ve got to consider that you need office space, how expensive that is, whether you can work remotely as a team of five for instance and where do you get cash to actually pay people,” Jo Twist says and adds that lots of people would use family funding. “That’s called bootstrapping, they put in their own money. For example Hello games, a studio based in Guildford, they all used to work for EA and a couple of other studios and they decided about five or six years ago to set up on their own. They were all in their mid-late twenties and some of them had mortgages so they re-mortgaged and put everything into setting up this business,” she says. This allowed them to get to a stage where they built their first prototype and attracted audience, publishers or distributors. Since 2010, the studio released more than five games for mobile and. While their story is successful, they put everything on the line for it and there is no guarantee that everyone can be so lucky.
Another option is crowdfunding as mentioned earlier and many start-ups head to Kickstarter or other online platforms. “It works well if you already have a fan-base and people who know who you are and the studio you came from or if you are taking a game which has been dead for a number of years and you’re revitalizing it. Games companies can rely on the community of players and fans to have a donation base,” Jo Twist says. Kickstarter works on a simple basis – donate and get something extra in return that other customers won’t have.
For example Five Leaf Clover studio launched a campaign for The Rocky Horror Show: Touch Me Game asking for $32,000 in total in April. The donation options ranged between a couple of dollars to thousands. For pledging $15, you could become a beta tester, play the game in early stage and give feedback to the developers. For pledging $500, you would be invited to the launching party in London and if you decided to donate $10,000, the team would model a playable character for the game based on your appearance. “We had private investment and the Kickstarter is about building community which the games fund wouldn’t have given us. We wanted to build a community and get them involved – we wanted to prove that they are out there,” Ella Romanos, partner of the Five Leaf Clover studio, explains why they went for this option and not another crowdfunding campaign or different type of funding. With 315 backers helping bring the project to life, Five Leaf Clover collected enough money to roll into production in June.
Another indie success story is Krillbite studio with their horror game Among the Sleep. They launched a campaign in April 2013 and in the first three days on Kickstarter, over 2500 backers raised $70.000. Three weeks later the project was funded past 100%. It took about a year to finish the game which was published in May 2014 and became quite a hit in the indie community. Having recently reviewed this horror adventure, we can confirm that it’s worth trying.
From Kickstarter the backers only earn rewards for contributing, they won’t get their capital back. Although it is not common practise, there are crowdfunding sites which allow that. “Crowdcube is an interesting one to look at since you can get return of your investment in financial terms,” Jo Twist says. This campaign allows customers to buy a share of a business and hope it makes profit over time, however, as they warn on their website, this kind of investment is risky.
Another option for crowdfunding is Patreon which allow creators to continuously earn revenue from their audience. This model is not intended for start-ups but for projects which are already being created – whether it is comics, videos or websites. Fans have the options to contribute per post or regularly each month. Except for viewing the content, there is no further benefits for the patrons. However they can help increase quality of whatever the creator is doing. Quite well known for using Patreon is Amanda Palmer, an American singer and member of Dresden Dolls. She has been struggling since 2008 to find the right platform for ongoing support. Patreon allows her to produce songs and videos constantly while getting paid. While this might not be e relevant choice for developers, Patreon can help other creative content related platforms such as video casts or news websites.
Bootstrapping, crowdfunding and grants provide only initial funding which of course needs a follow-up. And as Jo Twist points out, this stage can prove quite tricky if you don’t know the right places where to look. “We have an issue in this country with venture capitals (VC) which are often very risk-averse. Also the level of money that they’re interested in investing sometimes doesn’t match the level of funding the small companies are looking for in games.” While VCs usually look to invest sums which can vary between £10 million and £20 million, independent studios might be looking for way smaller amounts of money, about £1 million or £2 million so there is a huge gap in the access to finance in this case.
Another problem is with banks which don’t like the idea of investing into intangible IPs. “They perceive it’s quite risky,” Jo Twist admits. “They are more likely to loan money to set up a coffee shop or hairdressers rather than a games company.” This is mainly because such facilities have assets and things that the banks can take if they don’t pay the loan.
For small companies, there are other more viable options in the follow up funding. “We have government schemes that give tax relief to people with money to be able to invest in seed fund and angel-invest in a company or a project,” Jo Twist explains. An angel-investor is someone who provides financial backing for small start-ups or entrepreneurs, either with a one-time financial injection or ongoing support, as defined by Investopedia. In UK, there is the Enterprise Investment Scheme which was launched in 1994.
Once the companies are past the prototype stage and proceed to making a game, they are also able to take advantage another government incentive which was so far successful for the games industry: the video games tax relief. “Just like film, we argued to government that games need the same tax incentive when you get money back from government on the cost that you have incurred,” Jo Twist says. It only applies to those who are paying themselves to make a game as a company. If they qualify, the government gives 20% of the developer costs back. While the government expected that only about 40 games will qualify in the first year, there were over 240.