The United Kingdom narrowly voted to leave the European Union via a non-legally binding referendum. At present the UK is still a member of the EU, and the two year process to leave does not begin until what is known as Article 50 is triggered. Despite this, the value of British Sterling has fallen through the floor, billions wiped off stock exchanges, and $2 trillion has been wiped off the global economy.
The video games industry, unsurprisingly, is not immune to the political and economic fallout of this vote and the potential new procedures put together as a result. The ramifications though affect different elements that comprise overall production and marketing of video games within the UK, and how they operate abroad as well. Some are as a direct result of what happens due to not being part of the EU, while others are influenced by the market shock that came out of the referendum result.
Even though some of the impacts can be anticipated, others are less predictable, and – due to a complete lack of leadership from the political establishment in the country – the uncertainties are exacerbated. It is this uncertainty that is perhaps most worrying, for it is not conducive to good business: how can one prepare for the future when there are considerable factors that will change, but no one knows how, or to what extent, these changes will unfold?
This uncertainty isn’t just worrying for those operating solely within the UK, but for foreign companies with a sizeable presence within the UK, be it development studios or publishing. Before the referendum the UK saw the closure of two sizeable development studios, Evolution Studios and Lionhead Studios, both owned by large multinational corporations, Sony and Microsoft respectively. These were in response to operational decisions within the parent companies, but unknown factors outside of large foreign companies could force the hand of other companies in the near future.
One of the main concerns is in regards to acquiring new talent, which is obviously crucial to help a business grow, but retaining existing talent is also an issue. It is unlikely in the short term for this to be an issue, as the UK is still in the EU, and EU citizens are still free to travel, work, and live in different EU countries. Immigration is one of the biggest points of contention for Britain’s past and future relationship with the EU, but it is one that has helped the UK video games industry remain competitive on a global scale, despite a lack of support from different governments over the decades. The UK video games industry only began to be able to claim government tax breaks in 2014 (after its inclusion was dropped from the budget before it could be implemented due to the change of government in 2010) equating to 25% of production costs, providing they qualify as “British” under the Video Games Cultural Test, and at least 25% of the core expenditure takes place within the UK/EEA (European Economic Area). Of course the latter criteria could be subject to change.
In addition to tax breaks from the UK government, British developers have been able to access non-repayable grants from the EU to support the early development stages of a game. To date, the UK has represented the second highest number of applications. The grants available varied in size, but could go up to €150,000. An important element of note is that out of the EU-wide budget of €3.4 million, it was the UK that received the highest total allocation of €547,000. Recipients included The Chinese Room (Everybody’s Gone to the Rapture) for Total Dark and Revolution Software (Broken Sword) for The Enemy Within. This potential funding is unlikely to still be available to British developers if and when the process to leave is completed, and it is yet to be seen whether the UK government can provide an alternative (in addition to the numerous research grants it will need to replace as well – which the UK is also one of the highest recipients of). This highlights that both sides of video game development in the UK may suffer financial difficulties, albeit due to different factors, but smaller, independent development – already a difficult process – may be the cruelest hit; passion alone unfortunately cannot always result in a finished game.
Another point of concern is the price of video games, and this impacts in different ways; not all of them negative. When speaking to Eurogamer, Piers Harding-Rolls, director at analyst HIS Technology, said that price changes relating to video games were more likely to affect hardware rather than software, which is a concern given the upcoming consoles from Sony, Nintendo, and Microsoft in the coming 18 months. The reasoning for this is that, according to Harding-Rolls, “any currency exchange rate swing is more likely to impact console hardware pricing over software, as margins on hardware are generally tighter than on software”. He also adds that due to the competitive nature of game sales (compared to other European nations), which have kept game prices relatively low, also means that it is unlikely that the recommended retail price (RRP) of games on existing systems to change.
However, there could be price discrepancies between digital and physical games (and for the latter based on where they are manufactured). Britain’s future access to the free market is still unknown, and the EU is unwilling to start negotiations until Article 50 has been triggered. There is political unease (from both sides) for triggering Article 50 until there is some indication of the extent of market access Britain will have, and the country finds itself in an awkward Catch-22. If import tariffs return, then it will mean video games physically manufactured in the EU (which is the case with physical PlayStation and Xbox games sold in the UK) could rise in price, as it would be difficult for merchants to absorb the extra cost. Although for digital games there is again more uncertainty, as the EU Digital Single Market rules have yet to be agreed, and what could result in cheaper digital games for those within the EU could put up prices of some games for those outside.
Currency devaluation does benefit British based studios that sell their games on digital storefronts, where games are purchased using US Dollars. As the US Dollar is worth more British Sterling due to the latter’s weaker value against the former. Yet that is only a sort term benefit, as Sterling will partly recover, and placing long term projections based on short term currency valuations is not a long term solution. The currency discrepancies have also had a potentially unexpected outcome, for UK investors at least. Whilst on the US stock market companies like Apple had lost value in Dollar terms (shares falling from $96.10 on June 23 to $92.04 on June 27), yet owing to the devaluation of the British currency, the same share prices simultaneously rose in value in the UK (in purely isolated Sterling terms, rising from £65.44 to £67.17).
For now the status quo will, for the most part, remain, but it is the uncertainty that will be the lasting concern. The lack of political leadership and the lack of a clear economic plan for the next two years will not instil confidence and will likely deter investments in the video games industry (among many others) in the UK. This is combined with the aforementioned looming sense of unknown for EU citizens in the UK, as well as UK citizens in the EU, as so far there has been no clear guarantee as to anybody’s reciprocal status. Crucially, there is also the likelihood that UK developers will no longer have access to EU grants, and it is the smaller developers who will suffer, unless the UK government provides an alternative. Sadly when the Brexit campaign can’t get their story straight regarding money for the NHS, and with UK regions who voted to leave the EU now crying out for replacement for all the EU funding they inexplicably voted to lose, it’s hard to see video games being high on the list of priorities.
It is yet to be made clear whether Brexit could ultimately benefit the UK’s video games industry, but what is clear that at this moment in time it is causing more harm than good.
And if you haven’t followed all that/would prefer a simpler explanation – perhaps in the form of a video game metaphor and an animated GIF – how about Brexit as a Pokémon battle?