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German video game producers may get state aid

main 0203893198 Oliver Berg DPA – Gamescom cologne video games trade fair gaming Darksiders Vigil
Will trade hit points for subsidies. Source: Oliver Berg / DPA

German video game developers may finally be getting the type of government support their international competitors get. Berlin is earmarking up to €100 million to provide tax credits and research grants, which rivals in Canada, France and even the United States already enjoy.

“German companies can’t keep up,” says Felix Falk, head of the industry association Game. The group has lobbied for years to get similar aid, and Dorothee Bär, Germany’s digital czar, promised help is on the way, just in time for the Gamescon trade fair in Cologne.

“We are already developing simple and effective funding mechanisms that will benefit both large and small studios,” Ms. Bär told Handelsblatt. She expects to get initial funding for video game support in the 2019 budget, which will head to parliament this fall.

Video games are big business, reaching €2.1 billion in revenue last year in Germany (compared to €1.6 billion for the music industry) alone. The industry may be booming in terms of revenue and fans, but domestic productions only have a 5.4 percent market share.

Battle for the future

Some German gaming companies, such as Innogames, GameForge, Crytek and Wooga, are succeeding internationally, but the sector is small compared with US and other foreign rivals. Germany has no big listed games maker, such as Electronic Arts in the US or Ubisoft in France.

Hamburg-based Goodgame Studios grew rapidly until 2016, when it was forced to lay off hundreds of developers as new games failed to become as popular as earlier productions. Subsidizing the industry should help weather these type of setbacks.

Equally important is the impetus gaming software gives to research and development in 3-D simulation, artificial intelligence and virtual reality, which all have applications in several other industries, such as automotive, media and construction businesses. “It is a battle for the future viability of countries as digital producers,” says Mr. Falk.

The chances for government aid have improved since the government agreed to set up a support fund. Jörg Müller-Lietzkow, an economist specialized in the media industry at Paderborn University, says subsidies are an important building block to develop the industry.

Laggard as Germany may be in producing video games, the Cologne fair, in keeping with the country’s tradition of trade fairs, bills itself as the world’s largest trade event for interactive games and entertainment. It is expected to draw 350,000 visitors this week, many of them costumed as characters from the games.

21 p22 German game studios play in the junior league-01

Government aid won’t solve all of the German industry’s problems. There needs to be a blockbuster “anchor production” to let the world know the expertise is there for big projects. Management and financing also need to be put on a more professional footing, experts say.

“Government funding is a key element in improving the framework for producers,” says Benedikt Grindel, who heads up the Bluebyte studio in Germany for French producer Ubisoft. But it is also necessary to train the specialists and improve the expertise of the studios. Ubisoft took the lead in developing the “Assassin’s Creed” video games.

German studios focus on games for browsers and smartphones — sectors which have seen a sharp rise in competition. This means higher costs for development and marketing and less room for error. The promised government aid should help, but it will be some time before “Made in Germany” means a lot in the video game world.

Christof Kerkmann covers digital technology for Handelsblatt. Darrell Delamaide adapted this story into English for Handelsblatt Global. To contact the author: kerkmann@handelsblatt.com.

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