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Brexit and its impact on the gaming sector | Opinion

Wright Hassall solicitor Patrick McCallum offers an update on the potential impact of the UK's departure from the EU

Theresa May famously once said that "Brexit means Brexit", but exactly what does Brexit mean for the gaming sector?

With the proverbial can now kicked into the long grass (and fallen leaves) of late autumn, businesses have a small window of opportunity to draw breath, after a month where the UK was seeming to be constantly teetering on the brink of constitutional crisis and crashing out of the EU without a deal.

For those businesses in the UK gaming industry, there is much to consider and take stock of, as Brexit poses a potential threat to the future success and prosperity of the sector. Obviously the extent to which Brexit will have an impact is dependent on what kind of deal (if any) the UK leaves the EU with, which is still open to Parliamentary debate, of which everyone is no doubt all too aware!

In spite of this, the following provides a useful summary of some of the ways in which Brexit could impact the UK gaming industry and the commercial issues that businesses in the gaming and technology sector will need to bear in mind in the months and years ahead.

Labour and resource

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Patrick McCallum, Wright Hassall

Immigration was a key issue for many people "leave" voters in the referendum. It is therefore likely that the EU pillar of the free movement of workers will be abolished or significantly restricted as part of any Brexit deal.

The government has reassured those people already in the country that there will be a means by which they can apply for UK citizenship. However, the uncertainty over individuals' ability to legally remain within the UK (coupled with the general sense of resentment towards foreigners which Brexit has exacerbated) could lead to a number of EU workers leaving the UK market and applying for jobs on the continent.

In the short term, this could create labour shortages, potentially making it difficult for developers to meet contractual deadlines. When a developer misses its deadlines it is likely to be in breach of its contract with its publisher, which could, in turn, make it liable to pay damages and or liquidated damages to the publisher. If the breach is sufficiently serious, it could even give rise to a right for the publisher to terminate the contract.

In the long term, UK businesses may struggle to attract certain-skilled creative/technical individuals, leading to a general drain on talent within the UK gaming industry. This could potentially put the UK at a disadvantage on a global scale and require UK businesses to work even harder to continue to produce/develop high quality games in the UK.

Losing access to a cheap labour market in the EU could also lead to increased labour costs for UK businesses in the gaming sector.

Access to finance

The EU currently offers grants to SME's and start-ups across the EU. These grants can be as large as five-, six- and even seven-figure sums depending on the project being undertaken. These can provide a vital source of income to small business looking to establish themselves in their respective industry.

"In the short term, Brexit could create labour shortages, potentially making it difficult for developers to meet contractual deadlines"

By leaving the EU, UK businesses will lose access to these grants. A significant number of businesses within the UK gaming sector rely on funding such as this and may not be able to survive without it.

Some of the best games developed in the UK have come from small start-ups and SME's and without these types of businesses the market may stagnate and struggle to compete on a global scale.

Tariffs at the border

Due to the free movement of goods between EU member states, UK businesses do not have to pay any tariffs/customs duties on any goods they import from or export to the EU. Similarly, any tariffs/customs duties payable in respect of goods being imported from/exported to countries with which the EU has a trade deal are either reduced or not applicable.

Depending on the type of deal the UK leaves the EU with, Brexit may cause an increase in existing tariffs/customs duties or trigger new tariffs/customs duties which previously were not payable. This will make it more costly for businesses to perform their contractual obligations and could cause disputes between parties as to who is liable to pay for such additional and/or new tariffs/customs duties.

With it becoming more expensive to import goods into the country, Brexit could lead to an increase in the prices of consoles and games as retailers seek to pass on their added costs to consumers.

Consumer impact

" Now is the time to review your existing contracts, establish who would bear the cost of some of the issues we have identified"

As stated above, if the cost of importing goods into the UK increases, then it is likely that this will have a subsequent impact on the price of games and gaming consoles on the high street and online.

Not only could products become more expensive but, over time, widening technological differences between the UK and the EU (for example, download speeds and internet access) could mean that some games become harder to access within the UK or even wholly/partially unavailable.

From a strictly legal perspective, whilst existing EU consumer legislation will be adopted into UK law as part of the EU Withdrawal Bill, in the future the UK could alter or remove some of the consumer rights we enjoy today, such as when we are entitled to a refund and mobile data roaming charges.

Relocation

After Brexit, some businesses may feel compelled to divert all or part of their business to the EU in order to continue to enjoy the various benefits that the EU has to offer.

The impact of this on any sort of scale would be significant, as many UK employees would not be able to follow their employers to the continent and have to suffer redundancy or unemployment.

On an economic level, the relocation of UK businesses to the EU takes money out of the UK economy. With current financial forecasts for a post-Brexit world already looking bleak, this is something that the UK government and all its citizens who rely on public services could do without.

In conclusion, there are many potential threats to the UK gaming sector posed by Brexit. As to the scale of the impact these threats will have, this is largely unquantifiable until we know more about the kind of deal the UK will be leaving the EU with.

In the meantime, businesses in the gaming sector do not have to just sit and wait for news from Westminster. Now is the time to:

  • Review your existing commercial contracts, establish who would bear the cost of some of the issues we have identified above and seek to make amendments so as to mitigate the commercial effects of Brexit on your business.
  • Be mindful of how Brexit could impact the parties' obligations in relation to any contracts you are currently negotiating or looking to enter into and consider whether this means additional "Brexit clauses" need to be inserted to manage risk for both parties.

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Latest comments (3)

Evtim Trenkov Founder, Playright Games12 days ago
It will have an impact. Probably. But I think speaking of relocation is a bit too pessimistic. The UK is a major major consumer of Gaming Products. The biggest revenue-wise in Europe.

UK is also the biggest game dev powerhouse on the European continent. Its either the 3rd or 4th biggest in the world. Together on the top with America, Japan, China and Canada.

The established infrastructure, culture, tradition and lifestyle matters. There has already been outsourcing towards Eastern Europe for cost reasons (mind you not infrastructure or lifestyle), but can't see a queue of game devs on the french or german border.
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Tom Keresztes Programmer 12 days ago
@Evtim Trenkov: Too many of my friends left the UK to work abroad Most for Canada, some to the US, and a few to Sweden. France and Germany is not the most popular destination for game devs. The cost, and quality of life is an issue . And if they don't go abroad, then they might be tempted to work outside the games industry.

Count the number of locally owned mid or large studios now, and twenty years ago. It's not all roses.
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Evtim Trenkov Founder, Playright Games12 days ago
@Tom fair enough for grown up people to avoid risk. And Brexit is risky. It's a bit funny though that these people migrated to US and Canada mainly from what you say who are not in the EU (with the exception of a few in Sweden who have their own currency). I don't think a lot of development will move the EU. And that's what I was arguing against - the assumption that development companies will move to the continent.

Our industry is export oriented anyway, so physical customs don't matter as much. And the revenue coming per player from EU27 is not as high as Americas, Japan, Australia or UK.

Re quality of life - I don't see how it's going to go down here more-so than anywhere else. Less choice of products on the market? Wouldn't expect european producers to stop selling to UK consumers because politics. If they do - great - more demand for local companies to make use of! That would be utterly stupid move. Lower GDP growth? Well for one the global slowdown is definitely not influenced by Brexit only, so its going to be interesting how things will go in the months ahead. Secondly I don't think the % GDP growth is direct reflection of the wellbeing of a nation anyway. It's a nice vanity statistic but in the grand scheme of things what matters is ease of doing business (less regulatory weight and cost), adequacy of public services and so on, rule of law, fair competition rules, infrastructure, entrepreneurial culture, financial market maturity.

One thing thats being impacted and it's a pain in the bum is the £ exchange rate. But its a global reserve currency so it will probably stabilise and sit where it is.

I agree with you on the locally owned studios. This is something I've been worried about. Not sure if there are any big AAA British-owned publishers left? But still there's plenty of indie devs and nice games coming out every yeah. Take Team17 and Curve for example they do contribute a lot.
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