Game Industry Statistics and Tax Incentives

07Nov11

I came across a 2011 report from the Entertainment Software Association regards sales, demographic and usage data in the digital game industry. Like Emmalyn, I know nothing about video or computer games so I thought some of this information was really interesting. I only selected a few of the statistics but more can be found in the report (theesa.com/facts). This kind of segues into my blog post below. Enjoy!

72% of American households play computer or video games

Age
37: the average game player age
• 18% are under age 18
• 53% are 18-49
• 29% are 50+

Gender
42% of game players are female
58% are male

Motivations
Some reasons why gamers will purchase a computer or video game: quality of game graphics, an interesting storyline, a sequel to a favorite game, word of mouth

Methods
19% of most frequent game players pay to play online games
55% of gamers play games on their phones or handheld device
64% of gamers play games with other games in person

Parents
91% of the time parents are present at the time games are purchased or rented
86% of children receive parental permission before buying or renting
80% of parents place time limits on video game playing as opposed to 74% for Internet use; 70% for TV; and 65% for movies
45% of parents play computer and video games w/ their children at least weekly

53.9% of the best-selling video games are sports games, shooter games and action games compared to 13% of these genres in computer games

The best-selling genres of computer games are: strategy (33.6%); role-playing (20.3%); and “casual” (19.5%)

Top ten selling video games in 2010 (you can find the top 20 in the report):
• Call of Duty: Black 0PS
• Madden NFL 11
• Halo: Reach
• New Super Mario Bros. WII
• Red Dead Redemption
• WII Fit Plus
• Just Dance 2
• Call of Duty: Modern Warfare 2
• Assassin’s Creed: Brotherhood
• NBA 2K11

Top ten selling computer games of 2010:
• Starcraft II: Wings of Liberty
• World of Warcraft: Cataclysm Expansion Pack
• The Sims 3
• World of Warcraft: Wrath of the Lich King Expansion Pack
• Civilization V
• World of Warcraft: Cataclysm Expansion Pack Collector’s Edition
• The Sims 3: Ambitions Expansion Pack
• World of Warcraft: Battle Chest
• Call of Duty: Black Ops
• The Sims 3: High-End Loft Stuff

Sales growth
• In dollars: $15.9 billion in 2010 compared to $5.5 billion in 2000
• 257.2 million computer and video game units were sold in 2010

Bottom line
• $25.1 billion was spent by consumers on the games industry in 2010
o $15.90 billion in content
o $6.29 billion in hardware
o $2.94 billion in accessories
• The industry has created over 120,000 jobs in over 24 states

Based on this report and this week’s readings, you can see that the video and computer game industry has grown exponentially. This came as a surprise to me but it is also clear that the government is encouraging this industry to keep growing. Based on an article in the New York Times two months ago, the government is offering tax breaks for video game companies making the video game industry one of the most highly subsidized industries in the country. Such large tax breaks come because of the industry’s interdisciplinary nature: software development, the entertainment industry, and online retail.

Electronic Arts spend approximately $6 billion in development costs over the last five years but the company was allowed to deduct almost all of those with the exception of a small amount. The company was able to claim “tens of millions in tax savings” during the same time period for research and development. Analysts say the tax breaks “are a vivid example of a tax system that defies common sense. Most times, subsidies begin as a way to nurture a fledgling industry that will not be profitable for years or to encourage a business activity deemed to have a broad benefit to society, like reducing pollution or improving public health” (Kocieniewski). As a for-profit industry, game companies are not required to disclose tax information the way non-profits do. Is this fair?

Furthermore, in 2004 Electronic Arts lobbied to be part of a domestic production tax break that President Bush was signing and that included industries like sound recording and computer software but not video games. The company spent $60,000 to make sure they could get a deduction on revenues they earned from online subscriptions. As if they haven’t gotten enough, Electronic Arts is now lobbying for San Francisco to drop payroll taxes.

Nearly half of the states in the U.S. are currently offering video game developers tax breaks with more apparently on their way. (For the gaming people in the class, beckreedriden.com lists specific deductions in each state in case you are interested!) Additionally, the Entertainment Software Association is planning on lobbying for federal tax breaks that are available to film and television producers in the future.

Questions:

1. What do you think about this policy issue?
2. Should the government be subsidizing such a profitable industry?
3. Should the government cap the amount of deductions that can be taken?
4. Do you think this subsidy hurts other industries?

2011 Sales, Demographic and Usage Data: Essential Facts About the Computer and Video Game Industry. Rep. Entertainment Software Association. Web. 6 Nov. 2011. .

Kocieniewski, David. “Rich Tax Breaks Bolster Makers of Video Games.” New York Times. 10 Sept. 2011. Web. 6 Nov. 2011. .

Riden, Stephen D. “Tax Incentives for Video Games Companies.” Beck Reed Riden, LLP. Updated June 2011. Web. 7 Nov. 2011.

Kathryn Rudolph

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