Cautious business optimism for UK games studios, but challenges ahead

Latest research from TIGA, the trade association representing the UK video games industry, has revealed that UK games studios are cautiously optimistic about their business in 2024 – but have highlighted some key challenges for the year ahead.

They are building on a positive performance in 2023 when:

• 41% of respondents reported that their company’s net profits increased during the year, compared to 2022;
• 62% stated that their organisation’s workforce grew compared to 2022;
• 70% made use of at least one Government tax incentive or scheme;
• 54% made use of Video Games Tax Relief;
• 41% used R&D Tax Credit incentives.

Staff & recruitment

Looking ahead to 2024, the recruitment of additional staff remains key to sustaining and growing businesses:

• 73% of respondents plan to grow their organisation’s workforce over the coming year (compared to 75% last year);
• 21% expect to keep staffing at current levels;
• 6% anticipate that their workforce will diminish.

Some 33% have cited skills shortages and skills gaps as the biggest obstacle to the success of their business in 2024. However, this compares to 53% in TIGA’s previous Business Opinion Survey.

Investment

When it comes to investing in their business – covering areas such as R&D, training, new games development, etc – 44% of respondents said that the outlook was more optimistic compared to 12 months ago; 36% said the outlook was unchanged; 19% said the outlook for investment was less optimistic.

Performance

70% of respondents reported that their company was performing either ‘very well’ or ‘well’. This compares to 75% last year.

27% said that their company was performing ‘neither well nor badly’; 3 per cent reported that their company was performing ‘badly’ or ‘very badly’.

Further analysis of business attitudes within the UK games industry reveals:

• 46% of respondents said that they are more optimistic about their company’s prospects compared to 12 months ago (up from 40% last year);
• 54% forecast that the trend in their company’s net profits over the next 12 months would be up;
• 46% believe that the economic and business climate is favourable to the video games industry (compared to 66% last year)

Costs & pricing

As in many other industries, costs are rising, with 77% of survey respondents anticipating that their company outgoings on staff, equipment, energy, etc. are likely to increase this year. This compares to 86% who said the same last year.

When it comes to passing on those costs to consumers, 35% of games businesses expect to increase prices, but the lion’s share – 56% – anticipate their prices to remain the same.

Obstacles to success

The UK video games development and digital publishing sector is operating in a challenging environment which is characterised by higher business costs and relatively suppressed consumer and business discretionary expenditure. TIGA’s survey respondents highlighted a number of key challenges facing the sector in 2024:

• 33% cited skills shortages and skills gaps as the biggest obstacle to the success of their business (compared to 53 per cent in the previous BOS);
• 30% highlighted discoverability;
• 12% referred to limited access to finance;
• 6% cited late payment of commercial debt;
• 6% noted reduced work for hire opportunities due to publisher caution;
• 6% per cent said that ongoing disruption and uncertainty caused by Unity’s runtime fees fallout was an obstacle to growth;
• 3% highlighted debts due to the pandemic;
• 3% said that the overall poor economic environment was holding the sector back;
• 3% spoke of the maturity of the mobile games market

Brexit

Meanwhile, 71% of respondents said that the UK’s decision to leave the European Union (EU) has harmed their business.

Some of these respondents reported that it was becoming harder and more time consuming to recruit skilled workers from the EU because of the end of free movement, the cost of visas and because the UK was seen as a less hospitable location.

In previous BOSs respondents have also expressed concern at not being able to access EU funding schemes like Creative Europe or Horizon 2020.

29% reported that the UK’s decision to leave had not had any repercussions, and no respondents said that the UK’s departure from the EU had had a positive impact.

Powering the sector forward

TIGA is campaigning for the following measures to enable the UK video games industry to surmount the challenges of skills shortages and skills gaps and access to finance:

• Video Games Expenditure Credit: TIGA has proposed an increase in the rate of VGEC from 34 to 39 per cent of 80 per cent of core expenditure.
• Video Games Investment Fund (VGIF): TIGA has proposed the creation of a VGIF.  The VGIF would provide funding to start-ups and small studios on a pound for pound matched funding basis up to a maximum of £500,000.
• The Skills Investment Fund (SIF): TIGA has called for the resurrection of the SIF to provide pound for pound matched funding for games businesses to hire trainees, enhance their skills and grow the industry.
• The UK Games Fund: TIGA has recommended continued support for the UK Games Fund, which offers grants of up to £25,000 to businesses looking to build game prototypes.
• BTECs: TIGA has called on the Government to continue to fund BTEC qualifications because they provide an important route for many learners into the video games industry.
• An Industrial Secondments Programme (ISP): TIGA is advocating the introduction of an ISP to enable the secondments of lecturers in game businesses to enhance skills development.

Dr Richard Wilson OBE, CEO of TIGA said: “Our report reveals a cautiously optimistic outlook among UK games studios, building on a positive performance in 2023. This includes increases in net profits for 41% of respondents, workforce growth for 62% of organisations, and widespread utilisation of Government tax incentives and schemes.

“However, it is important to acknowledge the challenges we face, including rising costs and a relatively suppressed consumer and business expenditure environment. Skills shortages, discoverability, access to finance, and other obstacles remain concerns.

“To address these challenges, TIGA is advocating for several measures, including an increased rate of relief for the Video Games Expenditure Credit (VGEC), the creation of a Video Games Investment Fund (VGIF), and the resurrection of the Skills Investment Fund (SIF). We also recommend continued support for the UK Games Fund, funding for BTEC qualifications, and the introduction of an Industrial Secondments Programme (ISP).

“The UK video games sector is a high-skills, high-technology industry with significant export potential. By maintaining and enhancing support for these initiatives and ensuring a migration system that facilitates the recruitment of highly skilled individuals, the UK can continue to be a global leader in video games development. Together, we can navigate the challenges ahead and power our sector forward.”

Jason Kingsley CBE, TIGA Chairman and Creative Director at Rebellion, added, “As we enter 2024, our industry faces challenges, but remains resilient, with a commitment to expanding our workforce, investing in innovation, and navigating challenges.

“TIGA stands ready to support our vibrant community of game developers and digital publishers as we continue to collectively shape the future of this dynamic sector.”

TIGA’s Business Opinion Survey 2023-2024 was carried out in December 2023. The survey is based upon a sample of 37 games businesses including small, medium and large firms, developing games across mobile/tablet, VR/AR, PC and console.

Companies that provide services for games studios also participated in the survey.  Percentages are rounded throughout this report and so do not always add up to 100 per cent. Companies participating in the survey employed 2,554 developers, which equates to approximately 11 per cent of the UK video games industry’s workforce.