Growing the Icelandic games industry beyond CCP Games

As a small country with a population of around 350,000 people, Icelanders like to joke that everyone is practically related – but that's certainly the case in the local games industry thanks to CCP Games.

Celebrating its 25th anniversary in June, CCP Games has been Iceland's biggest success story – not just for its persistent space-based MMO Eve Online, but also laying the foundations for other game companies to spring up over the years. In fact, new studios are still being founded by former alumni; Parity Games, for example, is led by CEO and co-founder Maria Gudmundsdottir, who worked at CCP for 12 years.

There was, however, a long time when CCP was Iceland's sole game developer. Having been with the company for more than two decades, CEO Hilmar Pétursson points to the 2008 global banking and economic crisis as a moment of opportunity.

"There were a lot of gaming companies starting in Iceland because there was a lot of intellectual capital freed up," he explains. "The banking system lost engineers and marketing people. As developers, you're always scouring the Earth for engineers – it's a lot of what goes into the actual making of it."

Shortly after this, in 2009, the Icelandic Games Industry (IGI) was founded: a formal association set up to establish a future vision for growing the industry operating under the Icelandic Federation of Industries, which at the time of its founding comprised ten companies. Today, Iceland has 24 active companies employing around 500 people.

These numbers may appear modest at first glance, but when taking into account the nation's small population, it's a significant proportion of Icelanders working in the games industry per capita – to compare to Iceland's Nordic siblings, that's higher than Norway and about on par with Denmark.

More importantly, it's a workforce that's seeing significant investment. Just as it did during the banking crisis, in spite of the pandemic, Iceland's gaming companies received a record $48 million in investment in 2021. For comparison, 2020 was just $13 million, albeit still a major increase from 2019's figure of $3 million – and the record is expected to be broken again this year.

This new increase of investment may be partly due to the tech and gaming sector's buzz towards the metaverse – an area Iceland's companies are specialists in, including CCP. Approximately half of the Eve studio's initial employees came from Icelandic company OZ Interactive, which was responsible for building OZ Virtual, a 3D world viewer that supported the Virtual Reality Modeling Language (VRML) – an early step towards building the metaverse.

"In Iceland, people are more generalists than they're specialists, so the respect for specialism is not very high"

Hilmar Pétursson, CCP

This is the direction that Directive Games has taken. General manager Thorgeir Odinsson tells us the company began as a breakout of CCP's Shanghai office by developing a number of XR projects, including the Ready Player One: Oasis.

"We've had aspirations of making the metaverse for a long time," Odinsson explains. "We have proprietary technology that is persistent of massively multiplayer worlds and the cross communication of different pathing servers. We jumped on the Web3 bandwagon last year, and we're now making a Web3 MMO."

But while MMOs and metaverses are the big headlines – including Mainframe Industries who is developing the world's first cloud-native MMO, while Klang Games is developing a player-built online sandbox universe – there's also breadth to the projects each company is pursuing. For instance, Parity Games' first game Island of Winds is a single-player story-driven adventure PC game set in 17th Century Iceland that looks to capture the authentic geography and culture of the country.

If there's one common thread, Pétursson believes it's in world-building. "You can see every Icelandic company is building a world, and it manifests in different companies doing different things, from single-player to Web3 MMO to EVE Online for-fricking-ever. You can trace that lineage back to the Icelandic sagas written in the 1200s. Especially if you read Snorra Edda – it reads like a game design script. So we've been in the storytelling world-building business for a thousand years."

While the wider games industry is still grappling with issues and scandals relating to inequality, harassment, crunch and other toxic cultures, the Icelandic games industry also prides itself with being progressive on equality issues. Last year, all the country's game companies, the Iceland Esports Association and grassroots organisation Game Makers Iceland even came together to sign an accord to commit to fostering a positive culture.

It's a reflection of Iceland being historically one of the most equal nations in the world, specifically in terms of gender, as the first country in the world to elect a female president while it was also named the most gender equal country in the World Economic Forum's Global Gender Gap Report 2022 for the 12th consecutive year. Studios similarly adopt a Nordic-style flat hierarchical structure, which essentially means, as Parity Games' Gudmundsdottir puts it: "Everyone is a game designer."

"In Iceland, people are more generalists than they're specialists, so the respect for specialism is not very high," Pétursson adds. "Even if some people are designated as a game designer, we can think, 'Oh, it can't be that hard.' That is obviously an attitude that has good and bad things, but here we are, with the highest per capita investment and employee count."

"There is a worry when you're trying to do something niche, but after working in CCP and the role models there, you just don't give up"

María Guðmundsdóttir, Parity Games

If there is a problem the Icelandic games industry has, it's that – regardless of its highly educated and ICT-literate workforce – there's just not a lot of people in Iceland. This means relying on importing experts from around the world or making investments in technology, such as procedural generation or machine learning to achieve grand results for teams that are mostly no more than 10 people (the exception being CCP, which still employs about half of the game developers in the country).

It's also about incentivising interest from overseas – hence the London event GamesIndustry.biz attended in September to meet the Icelandic Games Industry, organised in partnership with the Ambassador of Iceland, Sturla Sigurjónsson, as well as Business Iceland and CCP. And the hope is the event was the first of many.

Odinsson adds: "The new frontier we're facing now is the acquisition of talent. We are lobbying for changes in both incentive for talent to move to Iceland and to streamline the process of applications. Due to the small size of Iceland, we are two calls away from the president or any ministry. So if you have a good case, it is really easy to lobby positive change."

But in wanting to bring more people to Iceland, does that mean we will see incentives for international companies setting up shop in the country? Anecdotally, this has mostly been the case for Icelanders who have worked for a company abroad who decide to return.

"There's a tech company called Desana, which has a sizable office in Iceland run by someone who used to work at CCP," says Pétursson. "He worked for them in San Fransisco, but he was moving back home and they were like, 'Don't go, we'll just open an office for you!'"

Odinsson adds that limited red tape, fair labour laws that benefit both parties, not to mention Iceland's reputation as a safe and stable nation does make it an attractive place for someone to set up a studio. Nonetheless, the bigger trend is for corporations like Tencent to invest in Icelandic companies, which may also amount to acquisitions.

Given the rapid pace of acquisitions in recent years, it's a trend that Icelandic developers feel little anxiety over, even though the wider industry and consumers may view the consolidation of the games industry at large with weariness. This is not too surprising, given that CCP itself had been acquired back in 2018 by South Korean studio Pearl Abyss, which Pétursson believes helped create a precedent of an exit story for investors.

"Startups have a much clearer path to an outcome," he explains. "Whether they want to sell or not doesn't really matter, but mentally, investors want to exit at some point, and the more exit stories you have, the more it helps everyone else to kind of further build up the train tracks."

He continues: "Companies are also a lot more sophisticated, both in their investments and their acquisitions. Particularly the Asian strategics and investors, they've been quite smart in how they've organised these things where the style is very hands off and preserving what you're buying instead of a US-centric approach of integration and strategic synergies. I think you could talk to all the companies that have been acquired in recent times and they have been generally positive."

Having weathered the previous recession and so looking like it will also continue to grow this year and the next, the outlook looks optimistic for Iceland's games industry. Even Gudmundsdottir, whose studio has yet to publish a game since its founding in 2017 and arguably pursuing an outlier with its single-player adventure game, is unperturbed.

"We are not worried about it because the talent is still there. It doesn't go away," she says. "There is a worry when you're trying to do something niche, but it's in our culture not to give up. After working in CCP and the role models there, you just don't give up. You might do it in a smaller scope or a different way, but you follow your idea through."