Cashing in on video games

12 December 2005
As video games become more mainstream, game development is emerging as a respectable industry, writes Reuben Schwarz.
For video game developers, securing government or venture capital funding has always been difficult.
Video games have only in the past few years emerged as a respectable industry with mass market appeal. Worldwide they now rival the film industry in size, with $US25 billion in sales last year.
But it's not an area investors have been keen to embrace. For one, many still associate gaming with nerdy teenagers, even though a large proportion of gamers are men in their twenties and thirties, or women.
Video games are expected to drive growth in the media industry in the next few years, growing at about 16 per cent per year to reach US$55 billion by 2009, according to analysts PriceWaterhouseCoopers.
Many countries are now looking to cash in on this. Australia recently planted the seeds for what it hopes will become a $25 million fund to transform the country's games industry into a global powerhouse.
The president of the Australian Game Developers Association, Evelyn Richardson, believes Australia has about two years to build a critical mass of talent - six studios employing up to 200 people each. Fail, and the domestic industry will be marginalised by the big publishers. New Zealand is in a similar situation, but Trade and Enterprise has no plans to follow Australia's lead.
Mario Wynands, president of the New Zealand Game Developers Association and head of the country's largest developer, Sidhe Interactive in Wellington, says games don't fit into the traditional government schemes because development is both a technical exercise and a creative one.
"We are quite a new industry and a lot of what we do doesn't fit neatly into the buckets that the Government creates for funding. A lot of those targeted funding schemes don't apply directly.
"We're hoping down the track we can move from grassroots funding to more creative-based funding."
Developers can apply for grassroots technical funding. Sidhe, for example, received government funding to research the PlayStation Portable before its release, but it's more difficult to get money for actual game development.
Sidhe released its PlayStation Portable game GripShift in the US in May, a few months after the device was released. Mr Wynands says the research grant was crucial to fast-track the game.
Sidhe is best known for making Stacey Jones Rugby League, which has sold more than 150,000 copies worldwide. The sequel was released last week.
Thomas Reimann, chief executive of Auckland developer Binary Star, says getting government money for games is "almost impossible" beyond the grassroots grants.
He says a lot of the development cost is in buying overseas technology and adapting it for his company.
"People need enough time to play with those tools and get good at it. That's what we needed money for."
Binary Star is creating an engine from scratch for its game Homeland, a first person shooter. Though it's an expensive exercise, Mr Reimann believes it will pay for itself in time.
Mr Wynands believes New Zealand should follow Canada, which aggressively courts publishers with tax breaks like other countries do for the film industry.
"Publishers are looking at other markets. Now's a great time to kick things up a notch."
Time may not be on the New Zealand industry's side. India, China and Eastern Europe are expanding their game industries, and have a clear cost advantage.
Australia and New Zealand have their own advantages though. Developers here are more experienced and culturally the countries are quite similar to the large sales markets in Britain and North America.
"It's very hard for an Indian-based company to create content for an American market," he says.
Mr Wynands says the industry must learn to pitch itself as a provider of premium content rather than cheap production houses. While games for leading consoles are becoming more and more expensive to develop, there are still opportunities for small developers to make games for handheld devices and mobile phones.
He says it's easier to find funding today than when he started Sidhe in 1997 with Tyrone McAuley.
"The reputation that games have had and the awareness of the industry has been changing rapidly as games have become more and more a mainstream option."
Most of Sidhe's funding has come from private sources, including $45,000 from the two founders. Over the years it has received less than $200,000 of specific government funding.
Early on, Mr Wynands says government help was key in allowing Sidhe to travel to industry conferences overseas. Today, with 30 staff, it can find its own way if it needs to.
"For a lot of smaller companies that are trying to make a name for themselves and get a break, that's really really important."
NZTE funds many of the developer trips to overseas conferences, such as $30,000 to pay for a stand, DVD, and travel costs for games firms Sidhe, Metia Interactive and Straylight studios to attend the recent Australian Games Developers Conference.
Sidhe won "Best Handheld Game", "Best Level Design", and "Best Game Design" at the conference.
Two months ago NZTE created a role to oversee funding of all digital content, including animation, e-learning, TV and film production, and games.
But Mr Reimann says New Zealand should still follow Australia's lead and set up a fund to help the industry get off the ground.
"The New Zealand government really needs to get on top of this. If they want this industry to kick start they need some sort of catalyst. And there's nothing there."
Mr Wynands is more cautious. He points out that Australia's industry has a five-year head-start on New Zealand's. The industry here, he says, isn't ready for such a fund yet.
"It's something we need to work towards. We still have some maturing to do in the industry. We have to create some more stability and breadth before we start playing around with money on that scale.
"It's not enough to have a great idea for a video game, or even be able to create great video games. You've got to be business savvy as well. We need to make sure the companies that are receiving that funding are going to make the best use of the money that they possibly can."

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