This briefing investigates the value of external project finance to the video games sector, and suggests ways of encouraging it.

Key findings:

• Video games studios in the UK rely on global publishers for the financing of their development activities. 
• This has made it difficult for UK studios to scale their businesses – under this model, publishers retain ownership over the Intellectual Property (IP) generated, a crucial source of long-term value in the sector.
• Excessive reliance on publisher funding might also be hindering UK studios’ transition to booming online and mobile gaming markets.
• New financing instruments are needed for UK studios to remain innovative and grow in new markets; external project finance has benefits for investors, studios and publishers.
• But there are significant barriers to the wider uptake of external project finance. Policy has an important role to play in lowering these barriers.

Seemingly everyone agrees on the importance of the video games sector to the UK economy. Yet the fiscal environment may prevent policymakers giving the sector what it most wants – a tax credit that helps to level the international playing field. Policies to improve the quality of university video games courses are crucial, but they will not stave off the industry’s near-term decline in global development rankings. Fresh thinking is urgently needed on what government can do.

This briefing – the first in a series on this topic from Nesta – looks at one such idea, encouraging external project finance.

Authors:

Hasan Bakhshi, Juan Mateos-Garcia, and Tim Gatland, CEO of F4G Software.