The End Game

In a post-Covid economy creating new jobs will be crucial in Ireland; a good place to start would be the Gaming sector where government funding is long overdue

Since the introduction of the Section 481 tax relief scheme in 1997, direct employment in the Irish Film and TV sector grew from 1,000 to 12,000 between 1997 and 2019. The industry now employs more than Google and Facebook combined.

It is estimated that for every euro spent on Section 481 outlays, approximately €3.50 is generated as a net benefit to the economy. A PWC report for Screen Ireland in 2020 shows that S481 payments totalled €41.52m, with €144.35m earned for the exchequer in the form of income taxes and VAT. Such figures represent over 3:1 return on investment and as such, the audio visual sector is now worth over €1 billion to the wider economy.

The significance of these tax credits is clear from the calibre of the international projects that have been produced in Ireland in recent years. Star Wars, Vikings, Game of Thrones, Brooklyn, Room - in addition to Oscar and Emmy nominated animation projects such as The Breadwinner, Pete The Cat, Vampirina - have helped create a reputation for Ireland that is the envy of many countries around the rest of the world. HBO, Netflix, Apple, Disney, Nickelodeon and Amazon Studios have all benefited from 32-37% tax relief on eligible Irish expenditure, contributing to the recent boom in the indigenous industry.

While the TV and Film sectors have enjoyed a period of rapid growth since 2008, the gaming industry in Ireland has been lagging behind by comparison. A report by financial group, Olsberg SPI, in 2017 showed that live action films and television programmes earned €123.3 million in exports to foreign producers. In comparison, export earnings by games companies was just €3.3 million.

A major contributing factor to the relatively slow growth in the sector would point to the lack of Section 481 tax relief, which is vital to the Film and TV industry. Similar tax subsidies are available in other EU countries who support their gaming sectors and have hence experienced significant growth. In addition, many European countries have dedicated games funding to support their indigenous gaming companies, which Ireland does not.

According to data from the Interactive Software Federation of Europe (ISFE) the EU games market is worth €21 billion, with the market expected to grow to almost €30bn by 2022. The UK is the largest gaming producer in Europe, with a market share of 34.2%. Germany was the next best performing country with a share of 11.1%, followed by France (8.8%), Italy (8.1%) and Sweden (5.2%). These countries provide a combination of tax relief and government funding for qualifying gaming projects, where Ireland offers no tax relief and limited funding for projects. Ireland’s total gaming share in the EU is less than 1% and is ranked 52nd in the world table measured in revenue earnings ($103). In contrast, the UK lies 5th with revenues showing $3.5bn in 2019. The lack of a dedicated funding body, such as Screen Ireland which provides €17 million worth of funding to the TV and Film industry per annum, is a growing concern as funding in gaming is largely limited to private investment.

“For the games industry, all project finance is presently private. Given the small scale of the industry such finance is difficult to come by, and is often raised by those working on a project, their friends, and their family.” (Olsberg SPI)

On a global scale, the gaming industry which is valued at $120bn, is now larger than the Film, TV and music industries combined ($65bn). Despite the economic fallout from the Coronavirus, Japanese games developer Nintendo reported an increase in it’s share price by 2.8%. The company is now valued at $65bn and market analysts predict Nintendo is on track to sell 75 million units of its new ‘Switch’ console by the end of 2020.

In June 2020, Sony announced a €250 million stake in Epic games, the maker of Fortnight, as it prepares for the launch of the Playstation 5 console. The purchase represents a 1.4% share in the US company as it looks to strengthen it’s music publishing business. Rap artist, Travis Scott, hosted a virtual concert inside the virtual world on Fortnight which recently drew over 12 million live viewers in one night.

Analysts at Investment Bank, Citigroup, forecast that the global VR market could grow from $7 billion in 2020 to $155 billion in 2030. Sony is a major player in VR having sold more than 5 million units of its Playstation VR console since launching in 2016. Citigroup estimates that the PSV2 console, launching in 2021, will sell over 6 million units by 2030 as it also targets the use of VR in healthcare and online education.

In fact, gaming courses are now being offered at many universities across USA, Asia and Europe. In 2019 EMLyon’s Business School in France launched Esports as a module on their Masters in Management programme. Esports is where students compete against each other in a multiplayer environment with the possibility of entering world recognised tournaments such as eGames.

At Shenandoah University, Virginia, students are offered sports scholarships similar to traditional athletes. Joey Gawrysiak, director of the Esports department explained “we already have students working in marketing and social media jobs outside the sports industry but they learnt the skills for these positions through our classes.”

Due to the growth in home entertainment and increased uptake in education, PWC UK predict that Esport revenues could double over the next three years to $1.8 billion.

Regrettably, however, it appears that Ireland is set to miss out on the global spoils from the gaming industry. Without adequate support from the government, and a general lack of public investment, the Irish gaming industry is unlikely to grow to the level of the TV and Film industry or compete with its EU neighbours. This represents a large oversight in recent years by successive Irish governments, especially since gaming is a high value export product and the boost to existing jobs in education, software engineering, animation, visual effects, recording, post production, financial and legal services, and hospitality would be substantial.

“While the Irish games sector is presently tiny, given the speed of overall growth in the global games market, there is major growth potential if the right circumstances are available in Ireland.” (Olsberg SPI)

Given the recent successes in the animation & visual effects sectors, Ireland is perfectly placed to ride the crest of a wave in a booming gaming industry. Currently, however, there are only 16 games development companies in Ireland, 12 of which are Irish. Direct employment in the sector stands at approximately 12 employees per company on average, with freelancers and casual workers making up the total number employed at approximately 2,000. This pales in comparison to over 17,000 employed in the Film and TV sectors when including ancillary services.

Game production in Ireland is thus painfully small in relation to its potential, and poorly supported.  While large firms such as EA Sports and Activision have Irish offices, the lion's share of their valuable production gets carried out in the EU, Japan, and North America where subsidies exist.

The UK employs over 50,000 full-time games professionals and qualifying projects receive 20% tax relief on eligible expenditure through the Video Games Tax Relief (VGTR) scheme. Given the success of Section 481 in the Film industry in Ireland, a larger 32%-37% tax credit in gaming could garner significant attraction from aboard - and indeed from the UK in a no-deal Brexit scenario.

“Ireland should attract a major games studio to open a local branch; such studios form the core of many successful games sectors, and the recommended implementation of Section 481 for games will make Ireland a much more attractive destination” (Olsberg SPI).

The success of the IDA in recent years in attracting large multinationals to Ireland is evidence that a successful model for expansion and growth in certain industries already exists. In order for the gaming industry to fulfil its potential, however, the political will must also exist. Creating 100,000 new jobs as part of the coalitions new programme for government is, after all, their end game.

Like Dislike Button