Are Tax Credits for "Cultural" Games a Good Thing?

That games development is a global phenomenon anymore goes without saying. So what happens when French game developers find themselves in the economic crosshairs of national governments? Develop's Rick Gibson speculates pointedly (and poignantly) here, exploring the pros and cons, and rightly questioning whether financial kickbacks for French game developers are just "classic French protectionism" under a different name.

I remember reading about this in late 2006, when news broke that the European Union was investigating whether tax breaks for French game makers constituted an illegal subsidy. France wanted to offer a tax credit worth 20 percent of the cost of making European video games with "cultural value" to France-based game studios. Pass a test of some sort -- satisfy a government-determined requirement that the game contributes to "European cultural diversity and creativity" -- and presto, instant 20 percent cha-ching-o. Reviewing the proposal, the EU was concerned that the definition of "cultural value" might be too broad, and that the tax break could dramatically bunch up the playing field.

One year on, in mid-December 2007, the EU reached a decision about that "broadness," and effectively said "Go for it, France."

To be fair, it's worth noting that this has every bit as much to do with whether the French recognize gaming as "artful," as the raw financials. French cinema is already eligible for tax breaks, you can argue, so why not games as well? Incidentally, see this piece about a very similar issue in Australia. The sorry reality seems to be that the artistic status of a medium, culturally speaking, has a lot to do with government bankrolling.

If the idea of a French tax credit for game studios seems unsettling, ask yourself whether you'd sit politely on your laurels and nobly refuse to partake of the same accolades granted other "artistic" venues. The tragedy is that game studios really have no choice, lest they buttress the idea that games, as antediluvian critics like Roger Ebert might have us believe, merely "represent a loss of those precious hours we have available to make ourselves more cultured, civilized and empathetic."

Gibson makes additional observations about a French tax break's pros and cons worth considering. He rightly notes that France's development sector "collapsed" in recent years because Quebec solicited a virtual exodus by offering massive tax breaks for game developers. According to Gibson, "in a further twist of the knife into the back of the French development industry, the Quebecois ["French-Canadians"] offered an additional tax break for Francophone ["French-speaking"] studios." Witness the rise of Canadian development studio Ubisoft Montreal in recent years -- the government of Quebec gave the company $4 million dollars to expand in 2005. The company gets that money over three years and says it plans to increase it's staff to 2,000 by 2010.

Surely, says Gibson, the French deserve an ameliorative tax break? Yes, but since France's games industry was ailing well before Quebecois stepped in, make that "yes with caveats."

...a tax break for games will definitely help French games studios attract finance and publishing deals by reducing their cost base, even though their scheme offers just over half as much assistance as Montreal’s. But the French need to learn from their past to make the scheme work.

...both larger and smaller studios alike will benefit but, unless commercially viable projects are assisted, the scheme could still fail.

Which gets us to the million dollar question: who decides which projects get funded? More from Gibson:

The disbursement in France must avoid illegal state aid by ensuring that funded projects are ‘cultural’ in nature. A scorecard for titles exists, based on a test applied by the Ministry of Culture. I suspect I’m not the only one filled with unease about the idea of a government wielding an effective veto over which games studios make.

Is anyone shuddering yet? Even with Gibson's suggestion that the criteria for funding are "fairly generous," the notion that a Ministry of Culture would scrutinize a game and determine its cultural "worth," and that such an organization already exists in the UK and applies a similar litmus test to UK-based films, sounds awfully creepy.

Think about it. 20 percent's a huge number if your budget's in the millions, say the Euro equivalent of $10 to $20 million U.S. dollars. Seeking approval from the Ministry of Culture will almost certainly determine which games get made. Witness the UK ban only recently lifted on Rockstar's Manhunt 2. What are the chances Rockstar would ever get that by the Ministry? Even if a company had the funding and recognizability of a company like Rockstar to succeed without the credit, they could find themselves competing with Francophile developers at a 20 percent disadvantage.

That's only the start of things. Gibson says more fundamental problems exist:

If the French Inland Revenue interprets games as audio-visual products rather than computer software, then there may eventually be ramifications for (amongst other things) development and retail contracts, possibly even import duties on games consoles. That could have a catastrophic impact on this business, with ramifications beyond France.

Read that again: "ramifications beyond France." I think he's right. As noted at the outset, gaming's long since gone global, with, for instance, art and other asset creation studios in China impacting game budgets and retail prices of games in Europe, the U.S., etc. Half the games you're playing on your console or PC were probably designed in another country, which in turn drew upwards of half its production costs from external asset creation et al. sources. Some of the hottest games going are created by nationally amorphous game studios with limbs extending into multiple countries and who offer cultural fealty to no one. National tax credits designed to influence game makers to promote a particular culture contravene the global trend.

I'm as skeptical about the legacy of the world's Milton Friedman's as anyone, but when you hop into bed with the government and mix national economics with aesthetic sensibility, you're playing with the sort of fire that's bound to burn someone, perhaps seriously, in the long run.

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Are Tax Credits for "Cultural" Games a Good Thing?

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