Two weeks ago, the New Zealand government announced a new 20% tax rebate for game development studios as part of its budget 2023.
Ginny Anderson, New Zealand’s minister for digital economy and communications, said in the announcement that the rebate will be available for studios who meet the minimum expenditure threshold, which is NZ$250,000 (US$150,000) per year.
“Individual studios will be able to receive up to NZ$3 million [US$1.8 million] per year in rebate funding, and the scheme will be backdated to 1 April 2023,” she further explained. “The rebate will help attract and retain gaming studios to operate in New Zealand and provide a long-term incentive to build their business here.”
The country’s games industry had been hoping for a tax relief scheme for a long time, and it has been an ongoing battle for its trade bodies. Prior to this announcement, we talked to Chelsea Rapp, chairperson of the New Zealand Game Developers Association (and head of strategy at Cerebral Fix). Incidentally, Rapp had met with Ginny Anderson just prior to our interview.
“We’ve been campaigning like mad for the last year to try to get this across the line because if we don’t do it this year, it’s going to be really challenging for studios to recover,” she tells GamesIndustry.biz about the tax rebate. “So many of our studios are saying, ‘Well, if we don’t get it this year, my only option is to set up a studio in Australia because the labour pool is bigger’.”
Competing with Australia is one of the biggest issues currently facing the games industry in New Zealand. As reported by RNZ earlier this year, Kiwi talent is regularly poached by the neighbouring country due to Australia’s attractive tax breaks.
“For context on that issue, New Zealand and Australia have a shared labour market,” Rapp explains. “If you are a New Zealand citizen, you kind of get an automatic visa when you go to Australia. It’s super common for young people who are just getting started to leave New Zealand, do a couple of years in Australia, and then come back.”
She notes that the games industry in New Zealand previously wasn’t massively impacted by this as it wasn’t a “huge vacuum of talent.” But things changed in 2021, when Australia introduced a 30% tax break for game studios.
“When they introduced their scheme, because we have a shared labour market, they were now able to pay anywhere from 30% to 45% more for the same person. At first, it was just like ‘Oh, salaries have always been a little bit higher in Australia’, but you just saw this steady climb until it was getting to the point where I saw somebody who had a $100,000 signing bonus!
“And the challenge with that is not just the [loss] of people, it’s losing your senior talent. Because at the end of the day, that’s where real knowledge transfer happens. You can take courses and you can get certificates, but when it comes to your studio systems and solving really complex problems, those senior people are the key to the future innovation. For every senior person we say that on average you can hire between four to six juniors, because that person can train those people. But if you are losing a lot of senior talent, you can’t afford to take on juniors [because there’s no one to train them].”
She gives the example of long running mobile studio PikPok. The Wellington-based developer employs around 200 people and over the last year has lost 15 of its senior staff.
“That’s a crippling loss to their ability to invest in new projects because they can’t afford to move the seniors that they were able to keep on to something that’s maybe innovative or risky,” Rapp says. “And if you can’t invest in those new projects, you can’t attract investments. And if studios aren’t able to attract investment, the whole pool moves…
“The real bummer for New Zealand especially is that over the last ten years, the industry has grown so much and everybody has really seen that. Almost every university in New Zealand has invested in a games program. There’s almost 200 graduates every year in this space so [if] we can’t fix the incentive issue, where do those people go?”
The announcement of the tax rebate will hopefully mean that these graduates will stay in New Zealand for a bit longer. Rapp notes that “the whole idea of the system of corporate welfare isn’t common” in New Zealand, with most subsidies being removed in the ’80s (film being the exception).
The introduction of a games tax rebate is all the more impressive then, with the country’s industry having been on an impressive growth trajectory over the past few years. In 2020, the New Zealand’s games industry more than doubled its annual revenue compared to 2018. And looking at the NZGDA annual report for 2022, its revenue grew 47% compared to 2021, reaching NZ$407 million (US$244 million).
“The New Zealand games industry is now worth more than the New Zealand wool industry, which is the thing that we are known for,” Rapp smiles. “We love to say that we’re going to be a billion dollar industry by 2026. We have about between 28% and 35% growth annually, so if we keep with that then it’ll be by 2025-26.”
New Zealand didn’t quite experience the pandemic boost that other games markets have seen worldwide. Its revenue steadily increased over the years between 2019 and 2021 but not to the same spectacular boom that some territories experienced in 2020.
“I think New Zealand had a very unique experience with the pandemic,” Rapp reminisces. “We had our first lockdown in March of 2020 and then there was no COVID in New Zealand until August of 2021. So we went more than a year while the whole world was dealing with this catastrophic thing and we weren’t.
“And I think that made it so that we could learn from a lot of what was happening around the world. We could still be in the office and be together if people wanted to, but a lot of studios set it out so you [could] work from home if you want to. And then when COVID did come, I think we were more ready for it because of that.
“In my experience, the vast majority of the studios in New Zealand are really open to flexible working conditions and always have been. New Zealand is very unusually collaborative – even more so now. So there were a lot of studios talking to each other, being like, ‘Hey, how are you handling everything?’ I just think we had the luxury that we didn’t have to do it at the same time as everybody else.”
As per the figures of the 2022 NZGDA reports, there are 74 registered game studios in New Zealand, and up until last year all of those were studios that had been founded in the country.
“Recently, we’re starting to see some studios from Australia set up remote offices in New Zealand, but up until mid last year almost all were Kiwi-started studios,” Rapp says. “Out of those 74, the top 15 account for 96% of the revenue. So it’s very centred at the top and the average age of this top 15 is 11 years [old].
“It’s really interesting because you’ve got a lot of really big players, but you’re not really seeing as many studios move into that space in terms of going from small/medium and then having that really exponential growth. And I think a big part of that is our startup investment ecosystem in New Zealand isn’t as mature as it is worldwide. The idea of a traditional tech investor investing in the games spaces is still really novel here [and] the maturity of the investment landscape makes it so that you don’t have as many studios moving up that pipeline.
“The other really big piece is just our location. Such a big part of starting a studio is taking your game to all of the expos, and having all those serendipitous meetings with distributors, publishers, streamers and all of those people in the value chain. And being a tiny island in the middle of the Pacific makes going to all of those things really expensive.”
While the location challenge isn’t easily solved, early stage startup funding is being supported among others by the Center Of Digital Excellence, headed by Vee Pendergrast and Tim Ponting.
“They created this center which is all about creating a pipeline of startup funding for games,” Rapp explains. “And it’s really unique because it’s not just like an Epic Mega Grant kind of situation where it’s just big pools of cash and you apply. They have this really beautiful tiered system where you start at the prototyping stage and if that goes successfully you can apply for the next stage. And it’s really the only funding mechanism I’ve seen that has both business mentorship and significant enough funding to lead to measurable outcomes. I think they’ve created over 80 jobs in the last two years. They’re really important.
“Ultimately, the goal of the NZGDA is to build a thriving ecosystem and that means having all of the pieces of the value chain from start to finish, so that all levels of businesses have the opportunity to thrive given the landscape. The incentive really only helps the really heavy hitters but CODE is really focused on building those foundational businesses and supporting [them] with the mentorship that they need to really be successful. That program used to just be in Dunedin and last year they expanded it to the whole country.”
Campaigning to obtain the tax incentive was “the really big one” when it comes to the NZGDA objectives, Rapp says. But, looking ahead, the chairperson hopes to keep growing its New Zealand Game Developers Conference, which takes place in Wellington at the end of August/beginning of September.
“It’ll remain the same but we’re also creating a sort of a New Zealand screen festival. New Zealand has this really rich history in film development. Everyone remembers us for The Lord of the Rings and for Avatar and things like that. And you’re starting to see so much convergence of these two industries. And I think the New Zealand film industry is really keen to look for new opportunities to take distinctly New Zealand content to the world.
“This is the only place in the world where you have the Maori culture and it’s something that New Zealand is incredibly proud of and does a better job than most – obviously, any biculturalist culture has problems – [at] finding opportunities to integrate into our creative products. It’s going to be a showcase of all the amazing work that gets done here, more so than just Lord of the Rings.”
The convergence of games and film is something we touched upon recently in an interview with Epic Games. While the idea isn’t new of course, the recent developments in game technology does make it feel closer than it’s ever been.
“Whether you’re in film [or something else], games has become so ubiquitous,” Rapp says. “It is the future of content creation, and consumption. And I love to say that you’re going to be at our party; you just don’t know it yet.”
