The local computer gaming sector has never been stronger, new industry stats show.
But at the same time, industry anger at the Government has reached boiling point - and the pull of recently-introduced Australian tax incentives is already pulling talent, companies and venture capital across the Tasman.
Revenue jumped from $276 million to $407m in the 2022 financial year - most of it earned offshore, making the sector an emerging force in high-tech exports.
And the number of people employed increased by 10 per cent, to 1070 in the year to March 31 - double the number five years ago.
Those are the headline figures from the NZ Game Developers Association’s survey of its 74 members. There are a lot of contenders, but much of the action is generated by a handful of heavy hitters. And the heads of the Big Three, especially, are fuming.
The local industry could add another 300 jobs next year, NZGDA chair Chelsea Rapp says - but only if the Government moves to counter threats to the industry. If it doesn’t, she sees those jobs going offshore.
Her organisation has put two measures to Digital Economy Minister David Clark:
“Announcements must be made soon so the industry can make business decisions knowing where the government stands. Our suggested solutions have an estimated cost of around $35m to the taxpayer but the industry already returns nearly $100m in employment and income taxes, which would continue to grow if we can introduce a similar scheme here,” Rapp says.
Australia’s incentive scheme, by contrast, has an A$1.2 billion budget.
“Digital games are New Zealand’s single fastest-growing export and one of our most productive sectors. These are exactly the type of jobs and businesses we want to grow in New Zealand,” says Rapp, who earlier called the emergence of the Aussie incentives, and the (so far) lack of action by our Government, a “crisis moment” for the industry.
West Auckland-based Grinding Gear Games, which reported $104.9 million revenue in 2021, is our largest game developer in financial terms. Some 160 staff work on its multiplayer fantasy game Path of Exile, played by millions worldwide.
“We’re increasingly worried about Australia. We are trying to hire more developers - especially seniors - but it’s very difficult with Australian companies being able to offer so much more money due to the subsidy,” says Chris Wilson, Grinding Gear Games’ co-founder, chief executive and part-owner.
“Because Kiwis can easily work in Australia and vice-versa, it’s essentially one job market but it’s not a level playing field at all,” Wilson says.
“There’s no way we can be competitive with them while they have this subsidy. We feel that the New Zealand economy would benefit greatly from increased digital exports.”
Wellington-based PikPok, which specialises in games for phones and iPads, is our largest game studio by staff. It employs around 220.
Co-founder Mario Wynands tells the Herald that while he prefers to hire locally, the skills squeeze here has seen him forced offshore to look for talent. It secured a chunk of 20 staff by buying a game studio in Colombia earlier this year.
Today, he tells the Herald: “With the new federal Australian games industry tax incentives moving forward from an announcement earlier in the year and into Parliament in the last few days, we’ll continue to see a flow of talent from New Zealand to that market, including staff that we may have brought to this part of the world from elsewhere.”
The recent wave of tech layoffs won’t help, the PikPok boss says, because most have skills suited to areas like fintech, social media or e-commerce.
Wynands adds, “International investors are leaning towards Australia over us, and some New Zealand game studios are already executing on plans to relocate some or all of their operations there. It is a grey cloud hanging over an announcement of otherwise amazing results and growth for the local games industry in the previous financial year.”
The Government’s main gaming sector play so far has been the “Code” initiative that has offered matching funding for early-stage gaming companies in Dunedin.
Code (Centre of Digital Excellence) was established in 2019 with $10m in Provincial Growth Fund money (or $1m per year) to cover the following decade. It offers three grants, all of which need to be matched by a studio’s own spending: Kickstart ($10,000 to $40,000), Start Up ($50,000 to $150,000) and Scale Up ($75,000 to $250,000).
Runaway Play became the largest single Code grant recipient last December when it landed $250,000.
Chief executive Zoe Hobson, who has seen an increase from eight to 35 staff since she started with Runaway in 2016, says Code’s success in bringing talent to Dunedin, and fostering early-stage firms, has been “staggering”. There are now some 27 gaming startups in the city.
But, like the NZGDA as a whole, she would like to see Code-style support extended across the whole country.
And she says that nurturing talent is just the first step. “We also have to keep it”.
Hobson emphasises that her firm is not about to decamp across the Tasman. “We feel very strongly connected to Aotearoa and it will always be our base,” she says.
But Runaway is currently planning for growth projects that will kick off in mid-2023. “And it’s a matter of whether that growth will happen here or in Australia,” Hobson says.
“I want to hire here but if our Government doesn’t match Australia’s 30 per cent incentives ... as CEO I wouldn’t be doing my job if I didn’t at least consider opening an office in Australia and hiring there.”
Dean Hall, founder and majority owner of RocketWerkz, says his firm’s latest title, which sees players trying to survive on an alien planet, has been a hit for his Auckland-based firm, which occupies the top floor and penthouse of the new PwC building at Commercial Bay.
“Icarus [$34.99] has been enormously successful for us, quickly reaching over 1m units sold. We’ve also noticed month-on-month growth in player numbers and revenues based on our continued development,” Hall says.
The founder says Rocketwerkz has ambitious plans for future projects, but at this point it’s an open question about where they’ll be developed.
“We have spoken with both Australian Federal and State agencies. A 40 per cent incentive is pretty hard to ignore.”
Others have already begun hiring across the Tasman, including Wellington-based A44 games, which recently opened an office in Melbourne.
Computer gaming is a global industry, and any fast-growing protagonist will want offices, and staff, in a number of countries. And many, like A44, have taken on majority offshore investors which, while fueling growth, put their ultimate direction beyond local control.
Still, NZGDA’s survey reveals gaming is our fastest-growing export earner. And many of the companies involved say they need a clear signal from our Government about its policy intentions, and soon, as they plan where to hire over the next 12 to 24 months.
The industry is getting restless, and impatient.
When the Herald spoke to Hall, he was drafting an open letter (due to be posted to social media today) which notes, among other points, that Labour first proposed giving gaming access to the New Zealand Screen Production Grant back in 2013.
The Herald asked Clark if the Government planned to match Australia’s 30 and 40 per cent rebates, or make any screen funding contestable by the game sector.
The Digital Economy Minister’s response was, in short: We’re looking at it.
“New Zealand’s game development sector is growing fast and is contributing to the realisation of the Government’s vision for a low-emission, high-wage economy given its focus on weightless exports and high-skill, high-wage jobs,” Clark said.
“The sector’s compound annual growth rate is 34 per cent compared to the average global CAGR of 12.8 per cent. In terms of productivity, the sector earned $285,000 per employee.
“Already, there are successful initiatives in place to support the gaming sector. Code in Dunedin was funded to assist sector growth and is having great results and the Ārohia - Innovation Trail Blazer Grant will pick up some of the innovation not covered by the R&D tax credit that some gaming companies have been able to tap into.”
National has criticised the R&D tax credit on the basis that most startups are not making any profit, so have no tax payments to claim against. However, the party is still in the process of formulating its own policy.
“In light of the Australian Government’s recently announced support programmes for the gaming sector, shorter-term measures, including those aimed at providing a competitive environment are needed now in New Zealand. I have a constructive working relationship with the NZGDA and meet with them regularly,” said Clark.
“Officials will be working through what support would most appropriately look like, remaining mindful of Australian competition.”
UPDATE: The gaming sector got a modest boost just as this article went to press. Digital Economy Minister David Clark and Regional Development Minister Stuart Nash. announced that funding for the “Code” programme, which offers matching grants for game development work, would be increased from $1 million per year to $2.25m per year until 2027, and expanded beyond Dunedin to other centres.
The local gaming industry has been calling on the Government to expand the Code programme, but its main pleas have been for the Government to match a A$1.2 billion tax incentive scheme across the Tasman and open screen grants to the games sector. Neither point was addressed today.
But the NZX index finished the year with a gain of 11.4%.