UK 'Brexit' Vote Likely To Severely Impact Gaming Industry

Yesterday, the United Kingdom held a referendum vote about its future as part of the European Union. With nearly all votes tallied, the country has voiced its interest in leaving. The result is that world financial markets are in chaos, with the British Pound having plummeted by more than 10 percent to its lowest valuation in 30 years.

Depending on who you talk to, the independence vote was about different issues. However, whether a voter was focused on immigration or the financial relationship with the EU, the core of the matter is isolationist and nationalistic, leading to a precipitous drop in investment value.

Should the non-binding referendum vote become fact, it will have profound negative impact on the UK's video game industry. The industry there supports more than 2,000 companies responsible for more than 18,000 jobs.

Oddworld New 'n' Tasty was developed by UK studio Just Add Water.

The UK game industry, which benefits from EU-supported subsidies and employs individuals from around the union, is in a state of disbelief this morning. Ukie, the UK games and interactive entertainment trade group that provided the statistics above spoke out this morning about the decision.

"Ukie is committed to ensuring the UK 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," says CEO Dr. Jo Twist. "Ukie will continue to work hard with colleagues in government to ensure we continue to have the best possible business environment and we will be following developments closely as well as advising members as they unfold."

The organization laid out its priorities this morning. With change on the way, Ukie will not only have to focus on financial matters, but also ensuring that a wall doesn't go up segregating Europe's development community. "Issues that will be particularly pertinent to the UK games industry in the coming months, and that Ukie will be working hard to fully represent our sector on, include securing access to overseas talent, ensuring we have the right investment in skilling up our homegrown talent, the continuation of the Video Games Tax Relief, and access to funding," says Ukie head of policy and public affairs Theo Blackwell.

Despite Ukie's reassuring sentiments, small developers see the decision as a blow to the UK games sector. "I'm shocked and disgusted, beyond that there's not much else to say, as right now we've no idea what will happen, time will tell," says Just Add Water founder Stewart Gilray.

Frozen Synapse and its upcoming sequel are developed by UK's Mode7

The legal ramifications of the Brexit vote will be felt for some time. The UK will have to spend time and money revisiting and revising many of its statutes.

"It is no exaggeration to say that most of the UK’s laws and regulations are affected to some smaller or greater degree by the EU," says attorney Jas Purewal of Purewal & Partners. "Some UK laws are a direct or indirect implementation of EU directives. Some EU law applies directly in the UK without needing local implementation. In addition, there are a number of international trade and other agreements where the UK is currently a member through the EU and would, following its exit from the EU, need to set up new arrangements."

Purewall says that the legal changes will be far-reaching, touching many disciplines and impacting how companies operate in the UK and abroad. "It is too early to say with any detail at this very early stage, but we can say given the above that over time there are likely to be a wide number of legal changes affecting day to day business for digital entertainment and tech companies ranging from employment to intellectual property matters," he says. "This in turn is likely to mean changes to the business landscape."

The vote leaves many questions beyond legal ramifications unanswered. One such concern is about the status of tax breaks upon which many UK developers rely. According to Mode7 co-owner Paul Kilduff-Taylor, it's unclear whether EU-related tax breaks would need to be re-approved. There's also the concern, though Kilduff-Taylor cautions one that is purely speculative right now, about how an economic free-fall and austerity measures would impact tax breaks.

"Tax breaks are a huge help in running Mode 7 currently," he says. "It would make things difficult for us in the future if they were to be repealed."

The process of leaving the EU could take two years, unless matters are settled unanimously in advance. The UK and EU must settle issues related to winding down of the country's investment in the union and the more than 1 million British citizens living outside the country in the EU.

Because of the uncertainty this matter is causing in the financial markets, the EU has suggested it wants to finalize matters as soon as it can. UK Prime Minister David Cameron announced that he will step down by October, and his successor will need to be the leader to formally trigger the country's divorce from the union.

The British Pound Sterling has dropped precipitously overnight. (Source: Bloomberg)

For the short term, UK developers have a slight silver lining. Especially with a Steam sale in progress, there are short-term gains because of how Valve pays out around the world. "The significant fall in sterling is definitely going to benefit anyone who had a successful Steam release recently, as Valve (and most distributors) pay in USD, so that's one potential short-term upside," Kilduff-Taylor says.

But there are matters beyond financial concerns at play here. The Brexit vote was, in part, motivated by xenophobia. EU nation residents have the ability to freely move among and work in the 28 participating countries. That comes to a close with the UK's withdrawal.

"Many of us who work on games do so because they bring pleasure to a huge variety of different people around the world; it's not just about money, it's about a form of creative expression which is able to bridge divides," Kilduff-Taylor says. "I think it's utterly shameful that many people in our country based a critical long-term decision on xenophobia; that does not reflect the opinion of the overwhelming majority of the UK games industry. While I'm not suggesting that every Leave voter did this, it's clear that it played a huge part in both the campaign and the eventual vote."

He suggests that beyond the financial ability to create games, we may see an influence on the subject matter and presentation of titles under the new order. It's far to early to know how the Brexit vote will directly impact game creation, but it is notable that the concern about content is there.

"Through working in indie games, I've experienced a huge sense of commonality with people from different backgrounds all over the world: a lot of game devs are going to be thinking about that today," Kilduff-Taylor explains. "You may well see some specific outcomes from that, perhaps in the way events are organised or even in the creative content of games themselves."

Our Take
While there are certainly some (in fact a majority of UK voters) that will herald the Leave vote as a good decision, the financial markets are telling a different story. What is most alarming are the multiple stories of voters who cast their ballot thinking their vote didn't matter. Others say they were "pressured" into voting (a feeble and terrifying excuse). Once the votes are tallied, it's too late. As we enter our own election this fall, when you cast your ballot, please be informed.