How Scotland got ahead of the video game

After years of decline, following the closing of heavy industries in the 1970s, Scotland’s fourth city has reinvented itself as one of the global centres of the games industry and now plays host to around 40 developer studios.

The city’s relationship with technology can be traced back to the manufacture of the budget Sinclair Spectrum computers in the 1980s while the godfather of Scotland’s electronic gaming industry is widely regarded to be David Jones, who worked as an electrical engineer at Dundee’s Timex factory before founding video games company DMA Design in 1998.

One of Jones’s early successes was Lemmings, in which green-haired humanoid lemmings are directed through obstacles at increasing levels of difficulty: a game which went on to sell tens of millions of copies around the world.

But DMA – which later changed its name to Rockstar North, relocated to Edinburgh and was snapped up by the US corporation Take-Two Interactive – is best known for Grand Theft Auto, the action adventure game that has become one of the best-selling video games of all time.

Controversial because of its depiction of extreme violence, including player-initiated torture sessions, the game’s most recent version, GTA V, reputedly cost £175m to develop and broke records with sales of 11.2 million copies valued at £500m within 24 hours of its 2013 launch.

A further catalyst to Dundee’s gaming success was the launch of the world’s first degree course in video games by the University of Abertay in 1997. The bold move, subsequently copied by higher education colleges around the world, helped cement the reputation of Dundee as a centre of excellence for video games and helped create a “virtuous circle of growth”, says the Dundonian e-games entrepreneur Chris Van der Kuyl.

Among the companies that Van der Kuyl has founded is £10m turnover 4J Studios (the name of the company a reference to the latest J associated with the city), which now employs 20 people in Dundee and East Linton.

The company works solely on the X-box and PlayStation console versions of the hit Minecraft game, which has not been out of the top 10 in the charts globally since its launch in 2011.

Over 20 million console versions of the game – where players build computer-simulated Lego-like landscapes with pixelated digital cube blocks – have now been sold.

Last month Van der Kuyl made the headlines when he told Westminster’s Scottish Affairs Committee parliamentary inquiry into Scotland’s creative industries that North Sea oil could “look like a drop in the ocean” compared to the opportunities afforded by video games, if the country begins to take the industry seriously.

“The opportunity is huge,” Van der Kuyl told members of the committee at a hearing in Dundee. “This is the biggest entertainment industry in the world and Scotland actually has a serious foot in the door and we don’t treat it that way.”

Nevertheless, Van der Kuyl concedes that the UK government has recently introduced some important policy changes that will help the industry.

In particular, Van der Kuyl believes that the success of a ten-year campaign for tax breaks for companies to develop new video games has given the industry a boost since they were introduced last year.

Developing new games now costs around 25 per cent less, putting the UK industry on a “slightly more level playing field” with other countries such as Canada which for years has boosted its video games industry by providing the sort of tax breaks that other countries have reserved for their movie industries.

Van der Kuyl also welcomes the launch last month of a £4m investment fund, to be administered from offices in Dundee and London, which will provide grants of up to £25,000 to help turn new ideas into prototype games. For the next four years, the Video Games Prototype Fund will also provide up to £50,000 for a limited number of projects to take ideas beyond the prototype phase.

“Ten to 15 years ago it would have been next to impossible to believe that globally successful companies would move to or launch in Scotland but now angel investors and independent investors are keen to pile in,” Van der Kuyl said.

“In the next few years big money will be going into virtual and augmented reality games. Confidence is rising and there is now a view that Scotland is a place where creative companies are built. We now have the opportunity to significantly capitalise on this and build a sustainable business for the future.”

But Van der Kuyl, who will next year open a new digital headquarters in the redeveloped Dundee docks, believes that the UK government needs to adopt a more “enlightened immigration policy” as skills shortages in the tech sector are constraining growth.

“We need to be able to recruit the best talent in the business from around the world and at the moment that can be tricky,” he said.

The UK’s computer games industry, which grew 10 per cent in 2014, has an annual sales of £2.5bn and is the third largest in the world, behind only US and Japan.

Ninety-five per cent of all UK studios export their products – mostly to the US, Canada, Europe and high-growth markets in Asia such as China, South Korea and Japan – and the sector is estimated to boost UK GDP annually by £1.1bn, of which Scottish firms contribute £108m. Globally the industry is believed to worth around £80bn.

Just under a quarter of all UK games businesses were formed in the past four years and the number of companies grew 22 per cent between 2011 and 2013. According to trade body TIGA, there are 646 developer studios in the UK, of which around 100 are in Scotland.

Of the 10,870 highly skilled workers that the sector employs in the UK, around 10 per cent are in Scotland.

Last week saw one of the largest ever purchases in the video games sector when the UK’s most valuable gaming company, the creator of the top-selling mobile download game Candy Crush Saga, King Digital Entertainment was sold to US computer game company Activision Blizzard for $5.9bn (£3.8bn).

The mega-deal dwarfed previous mergers in a consolidation-prone industry which include Microsoft’s $2.5bn (£1.6bn) purchase of Minecraft’s developer Mojang and Facebook’s $2bn (£1.3bn) takeover of virtual reality headset manufacturer Oculus.

The King deal was significant for underlining the increasing importance of smartphones, rather than consoles, as the gaming platforms of choice.

Over half of Scottish companies focus on the fast-growing tablet and mobile sector, where sales are expected to grow globally to £36bn by 2019 (up from an estimated £24bn this year), only marginally behind the £37bn of PC and console games sales projected for 2019.

Unlike PC and console games, mobile and tablet versions are usually free and creators make money by selling add-on features. Video games studios in England, by contrast, tend to be larger and spread their work across mobile and tablet games, console versions and PC gaming. The advantage for Scottish firms of focussing on mobile and tablet games is that there is less up-front costs, says TIGA’s Richard Wilson.

As market penetration of smartphones around the world continues to grow so will their profits, the hope is.

The downside for Scotland, says Wilson, is that mobile and tablet games development is the most crowded sector of the industry and there is now, among developers south of the border, a move back towards PC and console games brought about by the intense competition for work in the mobile and tablet sector.

“If you are successful in mobile or tablet games you have got it made but there are a lot of studios that are not successful,” says Wilson.

With 30 per cent of all games companies closing down over the last five years Wilson says that “the challenge now is to reduce the failure rate of games companies and to encourage the growth of more durable studios with more staff that are capable of handling larger projects.”

Wilson advocates the launch of a creative content fund that would provide pound for pound matched funding up to £200,000 per game following the successful launch of such a fund in Finland.

Although gaming companies are increasingly raising investment through crowdfunding Wilson believes that there is still a need to improve access to finance as “small games companies are too risky for private investors.”

Another high grossing video games headquartered on the banks of the Tay is Outplay Entertainment whose chief executive Douglas Hare returned to Scotland following several years of working in California where he and his brother Richard ran a company which specialised in developing games for big franchise titles such as Star Wars and Indiana Jones.

Since launching in 2011, Outplay – whose rapidly growing workforce reached 100 this month – has launched games such as Word Trick and Booty Quest for Facebook. Last year the company raised $5m (£3.3m) in fresh venture capital funding to fund expansion and “a full pipeline of global releases”.

Hare says that the tilt of the video games industry towards mobile and social media platformed games (games that are played on Facebook) has accelerated since the launch of Apple’s app store in 2008

“Any developer with a great idea for a game only needs to spend $99 to be able to sell their games on the app store,” he says. This helps smaller studios as there no need for the involvement of publishing companies which are used to sell console versions of games.

Colin Macdonald – a veteran of the Scottish gaming industry for 25 years – produces games on the back of Channel 4 TV shows from Channel 4’s Glasgow offices. The games help to promote hit shows such as Made in Chelsea, Embarrassing Bodies and Hollyoaks and also create extra revenue for the state-owned broadcaster.

Changes in government policy in recent years have made Macdonald more optimistic about the industry’s future. “We didn’t really have the recognition and moral support from government in the past and the industry has suffered from not being taken seriously,” he said. “But that has begun to change over the last couple of years as people have realised that this industry is not going to go away and is not going to do anything but keep growing.”

The Scottish Easter Eggs in Grand Theft Auto

While Rockstar North, the developers of the smash hit Grand Theft Auto game, is now owned by an American corporation, the creators of the most recent version – who work out of the former Scotsman offices in Edinburgh – have peppered GTA V with Scottish references and in-jokes.

The game features sex, drugs, violence and high-speed car chases supposedly set in the fictional US megatropolis of Los Santos, believed to be loosely based on Los Angeles. Among the “easter eggs” was the naming of one of the city’s “druggie hipster” suburbs as Hawick – a Borders town some 50 miles south of Edinburgh. The inclusion of Hawick in the game caused a stir in the normally quiet rural community, prompting one local councillor to brand the use of the town’s name in the game as “disgusting”.

GTA V also features a Saltire flying over the Vespucci Beach, a reference to the Lothian seaside town of Port Seton, an ice cream parlour called the Sundae Post (a reference to a Dundee-based newspaper), a news bulletin which refers to an over budget and long delayed tram project and a reference to the Forth bridges.