Gaming industry: Britain's got game – but can the UK hold on to the controller?

“You don’t have to be playing Grand Theft Auto or Call of Duty, or own an Xbox – if you’re playing Wordle once a day on the New York Times website, you’re a gamer. Welcome to the dark side,” says Brian Baglow, the founder and director of Scottish Games Network and Scottish Games Week. 

Indeed, a whopping 40 million of us in the United Kingdom play games regularly. We also excel at developing them, with the UK regarded as a key player in the global gaming industry. But amid significant job losses in the sector, threats from artificial intelligence (AI) and fast changes to revenue models are presenting challenges to studios everywhere, is the UK losing its competitive edge?

“The amount of MPs talking in the tearoom about how many temples we’d done was quite funny”

According to trade body UK Interactive Entertainment (Ukie), there are 2,555 active games businesses throughout the UK and the sector supports about 75,000 jobs, from coding, art, music and storytelling, through to commercial and legal roles. It is worth £5bn to the UK economy annually and, unlike other creative industries, there is a good geographical spread, with 55 per cent of studio roles based outside of London and the South East.

There was a Covid bubble in gaming, however, which has now burst. When consumer activity returned to pre-pandemic levels, it became apparent that lockdown had prompted overinvestment, so big studios cancelled projects and jobs were lost. Sony, for example, has announced 900 layoffs globally and the closure of its London studio.

While industry experts are hopeful that the worst of it is behind them now, there is an uncertainty in the gaming sector – as in tech generally – and they want more government support. When the video games tax relief (VGTR) was introduced in 2014, there was an explosion in UK game development; now the industry is asking for another boost. 

“The tax credits were transformational for the UK industry when they were introduced about 10 years ago, and still remain a massive reason why so many games are made here and we get investment here. But they’re increasingly becoming less competitive as more countries wake up to the opportunities,” explains Ukie’s special projects lead Daniel Wood.

Wood points out that the UK tax relief rate stands at 25 per cent, whereas “others are up to 30, if not beyond”. “Without recognising the global picture here, the UK will fall behind,” Wood warns. “That commercial competitiveness needs to be addressed.” 

Brexit has also meant studios are looking at Germany – where it is said there is not only generous tax relief but also talent and cheaper labour thanks to European Union migration – among other competitors such as Singapore, Australia and the United States.

Yet the way in which the UK video games tax relief has been applied regularly attracts criticism: although it is supposed to promote British culture and boost independent developers, VGTR has been used by large developers of high-budget, high-profile ‘AAA’ games. American-owned but Dundee-based studio Rockstar is the main culprit, having claimed £360m and paid no corporation tax since being accredited for the scheme in 2015, according to The Scotsman.

“I think that is a problem,” agrees Alex Sobel MP, chair of the Video Games All-Party Parliamentary Group. “It should be modelled on the film model, where it’s based on production size. For the biggest games, we shouldn’t be giving tax relief.” He is clear that something like Grand Theft Auto VI should not be taking advantage.

Despite those concerns, Rockstar is creating huge excitement around its next instalment in the Grand Theft Auto series, due to be released next year. GTA 6 is expected to cost a staggering $2bn to make and promote, but there are predictions it will break revenue records by clearing $1bn in just 24 hours. And the world’s biggest game is made here in the UK. 

GTA plays a central role in the story of why the UK – and specifically Scotland – is important to gaming, as Dundee was its birthplace. How did that happen? 

“The Sinclair computers, which sparked the home computer revolution in the UK, were manufactured in Dundee,” says Baglow, a writer on the original GTA game. “Local legend has it that quite a few of them failed QA [quality assurance] or fell off the back of a lorry and got into the hands of kids across the whole of the city.”

Those computers were only really good for playing games, he adds, so Dundee was given a head start. It started with the formation of computer clubs; today he says Scotland has 11 colleges offering games qualifications, seven universities offering degrees, and 145 studios by his last count.

Baglow is now writing a games strategy for Scotland, which is backed by the devolved government. “Across the whole of the UK, games are seen as part of the screen industries. But in Scotland, we’re part of the creative industries,” he explains to The House when asked why the strategy is needed. 

“It’s not a logical place for us to be. And clearly, we’re from the world of tech – no computers, no games – but we’re not seen as part of tech. We’re not treated the same way as data or cyber or fintech. Games sits incredibly awkwardly, and our pitch to the politicians was: please help us to do better.”

The Scottish Games Network director believes there has been a strong focus on the technical skills used to develop games, but less attention paid to the commercial skills needed: “We teach people how to make the thing – we don’t teach them how to get it out on to the market or make money from it.”

Baglow is also concerned that opportunities presented by games are being missed. “We build worlds that every single five-year-old-plus wants to spend dozens, hundreds, of hours in. We are helping to teach the next generation. How can we use that better as we try to reimagine education, as we try to deal with a world where we might have to retrain half the population if AI does indeed come and take our jobs? Games have a big, big role to play in all of this.”

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The name of the game

• Daniel Wood, Ukie, is currently playing Baldur’s Gate 3, a role-playing Dungeons & Dragons game that won big at the Baftas this year and was partly developed in Guildford.
• Alex Sobel MP names The Witcher 3, another role-playing fantasy game, as his favourite.
• Brian Baglow, Scottish Games Network, praises The Hitchhiker’s Guide to the Galaxy from 1984, a text adventure game written by Douglas Adams himself, as “the purest expression of games writing”. “It’s beautiful. It took me six years to finish the game. It is absolutely, unflinchingly difficult.”
• Charlotte Nichols MP is a huge Zelda fan: “I got Zelda and the Ocarina of Time on N64 when I was about eight, it must have been, and I think I’ve owned every single console and game that it’s come out on ever since.”
• Austin Kelmore, IWGB, says his favourite game is The Witness, a first-person puzzle video game.

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Another somewhat surprising hub for gaming in the UK is England’s answer to Silicon Valley: Leamington Spa. Matt Western, MP for Warwick and Leamington, reckons the West Midlands town – known as “Silicon Spa” – is “probably the densest concentrate of businesses and employees per capita for the gaming industry anywhere in the world”.

Here, too, the story began with young entrepreneurs: brothers Richard and David Darling created games in their bedroom, then set up a small business on the outskirts of Western’s constituency; their company, Codemasters, grew from there to become best-selling in Britain and internationally recognised. “From that, you’ve got this splintering, which happens in so much of the creative sector,” says Western.

Like Baglow, the MP worries that the opportunities gaming offers are underappreciated. “What I sometimes wonder, or fear, is that too many don’t recognise the opportunity that originates from not just the games themselves but the emergent technologies around them,” he says.

“I was at Aston Martin the other day. They have a virtual vehicle showroom where they can configure the product right in front of a customer’s eyes, but it’s all done on a very large screen as if you have the vehicle in front of you. These are design and coding skills that are coming out of the video games sector.”

Do ministers truly grasp the benefits of the gaming sector? Industry figures complain that there was considerable help for the creative industries in the spring budget but no mention of games at all, despite their sizeable contribution to the economy. 

While ministers watch films and go to the theatre, games largely do not feature in their cultural lives. The only minister who takes a personal interest, says one industry insider, is Rishi Sunak. The Prime Minister is a gamer and has said he looks back fondly on the days he spent playing Mario Kart as a child alongside his brother. The House is told his “main” – i.e. favourite character to play – is Blanka in Street Fighter. 

MPs outside the Cabinet perhaps better understand the emotional argument for prioritising games. Charlotte Nichols, vice-chair of the Video Games and Esports APPG, is a big fan of the Legend of Zelda franchise and reports there was much enthusiasm among her colleagues when there was a new release.

“The amount of MPs talking in the tearoom about how many temples we’d done was quite funny,” says Nichols. “But I think there’s almost a bit of a stigma around it… If you say you’re really into film or theatre, people see you as very highbrow, but if you say video games, it’s looked down on in some way, which is a shame.”

“In games, we’re heading towards a post-install era, if you will, where you can stream games in exactly the same way you can video and audio”

Another source of anxiety for the industry is the threat of AI. While it has long been used in video games to enable core functions, the current rise in generative AI – which can write code and generate assets, such as trees – could jeopardise the jobs of developers. French game publisher Ubisoft recently revealed it has used AI to generate low-level dialogue in stories, which is cheaper than paying writers.

Nichols is not worried: “You’re never going to get an AI model write you a video game as good as Zelda, it’s just not going to happen.” Instead, she thinks there is potential for AI to help developers if it can take the place of grunt work and make time for more creative work. As ever, it is a question of job augmentation versus job replacement.

Gaming is notorious for “dev crunch”, when developers approaching a deadline are forced to work long and stressful hours to get the game finished. Austin Kelmore, a developer who has worked in the industry for 16 years, confirms that “it has got better over that time”.

“They’re always wanting things faster and we’re always fighting against that,” he says. “It really depends place to place, and even project to project, but it’s something that we still see and we’re helping workers push back on. In a general sense, it has lessened, but it has not gone away.”

It is not just crunch that games developers have to contend with but lower pay. Kelmore also confirms this as a problem he identifies as chair of the Independent Workers Union of Great Britain (IWGB) Game Workers Branch.

“People in general tech will make anywhere from 30 to 50 per cent more, or even more, than the games industry, doing virtually the same type of work. It’s definitely an issue.

“It’s also worth pointing out that tends to be the high end of the pay scale, but... we have a lot of people in the games industry who are actually on the minimum wage and struggling to make ends meet.”

As for AI, he adds: “What a lot of executives and upper management are trying to use generative AI for is to effectively undercut wages. That is what a lot of people are worried about.” And yet the benefits are overstated, Kelmore argues.

“A lot of companies claim, ‘This can help you a ton’, and then you actually start using it and you’re like, ‘This is not that great’. But because the claims of the AI companies, a lot of executives are like, ‘Oh, this seems really interesting or intriguing’, so they’re wanting to try it out even if it doesn’t actually work well in practice.”

What, then, is the future of gaming? “It’s going to look more and more like music or TV streaming platforms. More and more people are going to buy subscription packages, with games included, or they’re going to have a monthly payment model,” says gamer MP Alex Sobel.

Should the change in revenue models be resisted? Is that even possible? Baglow thinks not. 

“In games, we’re heading towards a post-install era, if you will, where you can stream games in exactly the same way you can video and audio. But we’re not confined to the same business model that you have with YouTube or Spotify. The buffet approach – one payment, you play whatever you want – that’s not baked into streaming.”

To Baglow, this is an opportunity: to open up the back catalogue of games, and to offer gamers choices, from free-to-play games relying on in-app purchases, downloadable content and small micro-transactions, to the old pay-upfront retail model. 

But if we are to keep up with the latest set of challenges, the UK gaming industry will need to think fast, he says. “We need to be far more agile and resilient as a sector, because we know change is coming.”

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