How Brexit impacts U.K.’s $3.83 billion gaming industry

The United Kingdom is the sixth-largest market for game spending in the world. It’s ahead of countries like France and Canada as well as all of Southeast Asia put together. But now, following Britain’s stunning decision to exit the European Union (a move most people refer to as “Brexit”), the United Kingdom’s position as a gaming leader is under threat.

The British pound’s value compared to the United States dollar has crashed to $1.36. That matches its lowest value during the darkest days of the 2008 global financial collapse brought on by U.S. banks selling toxic mortgage-backed securities to investors around the world. Overnight, the pound dropped to $1.33, which is its lowest point in more than 30 years. But a depreciating pound is only one concern. Prior to the British referendum, companies like Rolls Royce and JPMorgan warned the country that leaving the EU could lead to job losses as companies avoid investing in a region embroiled in uncertainty.

And no one knows what is going to happen next — but, in economics, that is an answer in itself. When doubts about the future replace consumer confidence, that can lead to a downturn or even a full recession. That’s one the U.K. may have to face, and GamesBeat has brought together experts from multiple sectors in the gaming industry to tell us whether or not they’re worried.

U.K. and games

The U.K. spends $3.83 billion annually on games, according to research firm Newzoo, and publishers and developers around the world have come to rely on that revenue. The country is especially important in the mobile market, where it is regularly one of the top regions for billion-dollar hits like Candy Crush Saga and Clash Royale. After Brexit, GamesBeat talked to experts around the industry think will happen next — even if most people are unsure.

“The falling pound could mean that games increase in price and British consumers can afford to buy fewer games,” R.W. Baird analyst Colin Sebastian told GamesBeat. “In addition, it’s possible that companies could decide over the long term to locate operations outside of the U.K.”

The first effect of a weak pound is that it just won’t have the purchasing power that it did earlier this year. Even if consumer confidence in the U.K. remains high, foreign publishers won’t see as big of a return from game sales. At the same time, Sebastian points out that this turmoil is likely going to frighten investment out of Great Britain.

Above: Ghost Recon: Wildlands has a team working on it in the U.K.

Image Credit: Ubisoft

Newzoo cofounder and CEO Peter Warman echoed that concern.

“One of the things that will happen now is that global games and media companies will no longer set up their global or European HQ in London,” Warman told GamesBeat. “And I expect that the ones that have their HQ in the UK are thinking of moving out — like Sega and King.”

GamesBeat reached out to major publishers like Nintendo, Sony, Microsoft, Activision, Ubisoft, and EA as well as Sega and King to ask about this. Those companies all have major investments in the U.K. including development studios like Ubisoft Reflections in London that is working on Tom Clancy’s Ghost Recon: Wildlands. But so far, EA, Activision, and King have all declined to comment until they know more. The rest have yet to respond to our request.

A risky investment

For the companies that do choose to remain in the U.K., they may face some new adversities.

“The decision to leave the EU means an increase in taxes for the U.K. games industry, and will weaken its competitive position,” SuperData Research CEO and analyst Joost van Dreunen told GamesBeat. “What makes this particularly bitter is that it may effectively undo the work done by organizations like Ukie that only recently won much-needed tax relief. The U.K. has a long history of small development shops coming up with popular and innovative content, and Britain’s exit and the inevitable tax increases will likely hit indies and small studios the hardest.”

Ukie, which van Dreunen refers to, is the trade body that represents gaming companies in the U.K. In January, Ukie led an effort to get a $1.64 million investment to turn London into “the world’s games capital.” Despite the exit from the EU, Ukie claims it will continue to try to do more of that in the future.

Above: Candy Crush Saga from U.K. company King.

Image Credit: King

Ukie CEO Dr. Jo Twist, Order of the British Empire released the following statement following the Brexit:

“Ukie is committed to ensuring the U.K. is the best place in the world to make and sell games, and although this decision and the political uncertainty it brings will have an impact on our businesses, it is important to remember that we are already a globally successful sector and a leading exporter in the digital economy. Ukie will continue to work hard with colleagues in government and other sectors to ensure we continue to have the best possible business environment for our sector, and we will be following developments closely and advising members as they unfold.”

But Ukie, like every other organization, will have to wait to see how everything plays out before it can serve any workable advice to studios in the U.K. Meanwhile, studios like Talisman (discounted now as part of Steam’s summer sale) developer Nomad games, which is in a town outside of Manchester, U.K., thinks this could cause problems as it goes to raise money from foreign investors.

“Around 80 percent of our funding so far originated in Europe,” Nomad CEO Donald Whiteford said. “It won’t suddenly disappear, but new EU pots will likely dry up for Britain.”

Nothing to worry about

And while Ukie is keeping that stiff upper lip, it is not alone in thinking that Brexit anxieties, too, shall pass. Wedbush Securities analyst Michael Pacther told GamesBeat that while he agrees the Brexit will affect trade and jobs, he thinks the overall gaming market is going to come out relatively unscathed.