Credit where itâ??s due

[Editor’s Note: this article was previously printed in Develop issue 79, and was published just days before the announcement by the EC that France’s proposed tax credit for games production – the history of which is given below – was legally allowed to be implemented.]

In October, thanks to an invitation from TIGA, I was able to attend both the BAFTAs and UKTI’s Games Production and Globalisation seminar hosted by the Minister Digby, Lord Jones of Birmingham. I also heard Margaret Hodge’s speech to the ELSPA AGM.

In those 48 hours I spent in London, I felt the (rare) privilege of having travelled several years back in time. Of course, the language and the landscape were different, but the discussions surrounding the threat posed by Canada’s tax credits on UK’s development community or the necessity to recognise the cultural nature of video games all sounded very familiar to me.

When I took the presidency of France’s video game association APOM in April 2005, all discussions with the different government bodies concerning the measures to be taken to help our national industry were in a standstill. Almost three years had been spent analysing the situation with different government bodies – namely the loss of a good half of our workforce to Montreal – an intense work that culminated on May 13th 2005 with a meeting with M. Patrick Devedjian, then Minister of Industry. As much as the Minister sympathised with the situation and understood the competitive distortion, he had no solution but to advise us to take advantage of the R&D tax credit (far lower and restrictive in France than in the UK) and the €4m Multimedia Fund co-financed by his Ministry and the Ministry of Culture.

It was indeed a bitter day for French developers: after three years of battle and education by my predecessor to obtain a more meaningful answer to the challenge posed by a growing number of countries offering multiple incentives to support their industries, we had nothing.

It took a political earthquake two weeks later and a great number of efforts to put us back on track.

PLAYING WITH POLITICS
The earthquake I am referring to was France’s ‘no’ to the European Treaty and the arrival of a new government lead by Dominique de Villepin. In June 2005, I sent a letter to the Prime Minister and explained thoroughly why we believed it was important for his government to take a more pro-active approach on the subject: the social impact of video games on the younger generation, its economic and technological weight as well as the issues posed by globalisation on our industry and, last but not least, the growing importance of our media as a form of cultural expression.

I believe some of the focus points must have appeared ‘politically interesting’ to the new Prime Minister and his response came quickly. Not only did he sympathise with the development community, but he truly wanted France to react to the Montreal challenge.

I had sent a similar letter to the Minister of Culture who received us promptly and we re-launched work with different services of his ministry, in particular the Centre National de la Cinématographie, France’s Film Office, on a Production Tax Credit of 20 per cent. This was half of what Canada was offering, but enough to restore confidence and stop the bleeding.

At that point in time, the SELL (the French counterpart to ELSPA) was a vibrant advocate of the measure, lead as it was by Ubisoft’s Geoffroy Sardin.

With the help of Ubisoft, the SELL and the CNC, and thanks to a French MP who also sympathised with our concerns, we were able to organise a colloquium in the French parliament in September 2005. It proved an important event as it gave us the opportunity to present our sector and its challenges to an audience which, mostly, never had played games nor understood what this industry was about.

A few weeks later, the Minister of Culture himself addressed the MPs during a parliamentary session and declared ‘officially’ that video games were a form of cultural expression, just like films. Video games had been unequivocally recognised in France as culture, a first true victory after three years of lobbying.

It took us another 15 months, many more meetings and hurdles to cross to obtain a bill with the promised 20 per cent tax credit from the French Parliament. In a country where the opposition almost systematically votes against any bill presented by the governing majority, the video game production tax credit passed with the votes of both majority and opposition, with only the communist party abstaining. This was a demonstration of the lobbying work APOM undertook during this period to convince all MPs that this tax credit was of vital importance for our industry. The measure, however, is still not in place as we are waiting for a green light from Brussels.

On the European side, following an official transmission by France of a detailed description of the envisaged tax credit, the DG competition launched an official Public Enquiry in December 2006. It is a procedure launched by the EU in parallel to its own investigations and analysis on the conformity with the European law and treaties of a public aid, whereby members of the public, organisations or government bodies can bring forward arguments in favour or against the said aid.

Surprisingly for us, to my knowledge, the only organisation to present arguments against the French tax credit came from the ISFE, the Interactive Software Federation of Europe, the ‘mother body’ of ELSPA and SELL. When I say ‘surprisingly’ I mean that it came as a surprise to us following SELL’s constant support for more than five years to introduce a mechanism to counter the distortion of competition created by Montreal’s tax credit and more specifically since two years on a production tax credit in France.

THE CULTURAL TEST
It took us a while to understand the real motivations of certain ISFE members for fighting the tax credit – namely software is patentable and copy protectable – however the frontline arguments brought forward by the ISFE can be summarised as follows:

1) Games don’t belong in a cultural box. Games are software by nature, not a form of cultural expression like movies.

2) Developers would inevitably stop producing games that meet market expectations to focus on productions that fit the cultural test necessary to obtain tax credits.

3) Such a tax credit would create a distortion of competition within the EU and therefore shall be forbidden by the DG competition.

I believe that the time has come for these three points to be publicly discussed within the European video games industry. As we are becoming a mature and structured business, I think it is high time all parties involved, in particular independent developers, production and publishing executives from small and large international publishers – be they European or not – discuss these topics thoroughly. In short, my point of view on the three mentioned points is as follows:

1. Do games belong in a cultural box?

I am not sure what this ‘cultural box’ ISFE or State Minister Margaret Hodge refer to, but I know for sure that video games have become in recent years a major entertainment form.

I also know that a great number of video games not only are inspired by major motion pictures or books, but that they today in turn inspire a wealth of cultural forms of expression (films, books, paintings…).

When I read interviews of some of the most recognised (and successful) game makers today, I also see that a great number of them perceive themselves as fully fledged creators in their own right.

I sense as well that most developers and a great number of senior production executives or studio heads at major international publishers do feel they are part of a culturally vibrant industry rather than of the conventional software or toy makers’ one.

Foremostly though, I see a true new language emerge – interactivity – with its own grammar and vocabulary, a form of expression that transcends cultures and races and is experienced by billions worldwide.

I also see the growing debate over violence or sex in games and I ask myself: “If games are software, what exactly is our argument for not banning certain games? Freedom of expression?”

2. Would developers have to stop producing games that meet market expectations to focus on productions that only fit the cultural test?

First of all, I would like to re-iterate that my organisation would of course favour a mechanism whereby all games, regardless of nature, size or content would benefit from a tax credit, as it exists for instance in Montreal.

This kind of tax credit proves universally beneficial, whatever the industry or country. Many countries in the world have adopted or are about to adopt this kind of tax incentive and not only successfully stimulate their local video game industry, but also woo international productions; it only seems natural for Europe to react and offer similar incentives.

The EU commission so far refuses to recognise that video games as a whole are a cultural sector. Therefore, games cannot benefit from the ‘cultural exception’ clauses of the EU treaties, essential to obtain any sector specific state aids. The DG competition, however, seems to be inclined to accept that certain games, responding to objective cultural criteria, be recognised as cultural and therefore be eligible to specific government aids.

If the European video games industry considers it is under threat because of other countries tax incentives (to me the obvious), we are put in front of a difficult choice: either we accept the EU commission’s current position and certain games will be able to benefit from tax credits, or we reject the process as a whole and lobby extensively the Commission to obtain a full cultural recognition of video games.

Now I understand that the ‘objective cultural criteria’ that the EU commission would like to establish are already in place for the film sector in a number of European countries.

Films in the UK, the Netherlands and Germany for instance can only benefit form tax credits if they successfully pass such test; I would like to encourage all of you to take a look at these tests to understand more precisely what they are about and to analyse how many games produced in Europe could benefit from tax credits were they to pass such comparable tests.

Based on the analysis of said tests, and even if I am inclined to accept the argument that the one for video games might be more rigid than those for movies (they differ from country to country), I believe that games that are ‘culturally relevant’ will be plenty, and can of course meet markets demand. And if a developer does not want to be bound to such test and/or produce a ‘culturally approved title’, it will have the free choice to produce its game out of this context, as we all do today.

Finally, I believe that the cultural recognition of games will only increase with time and that more and more productions will be able to benefit from tax credits. I think we shall all consider this as a first step in the right direction, instead of being passively subjected to the current production drain to Canada or Asia.

3) A tax credit would create a distortion of competition within the EU.

This argument was largely debated during the games seminar hosted by UKTI on October 24th and I couldn’t agree more with the conclusion to this discussion expressed by UK’s Minister for Trade and Investment Digby, Lord Jones of Birmingham: the distortion of competition comes from the outside (most notably Canada) and Europe has to respond to this threat by allowing our different governments to put any mechanisms in place they deem necessary to protect and grow their national industry.

If the EU commission accepts France’s proposal, all countries in Europe will be able to put similar mechanisms in place. It will then be the responsibility of the different governments to effectively grant to their local sector tax credits or not. France’s tax credit does not represent a threat to other countries within the EU – on the contrary, it represents an opportunity to react to the challenges of a globalised and highly competitive economy.

The debate that is currently stirring in the UK on these different subjects is a very welcomed one and I hope that it will rapidly lead to a strong and unified consensus by developers and publishers across Europe.