Apps 'way forward' after gaming firms hit by recession

What's the biggest selling console game of the year so far? Not Call of Duty or Halo: Reach, but a title that gets you jumping around to Katy Perry and Gorillaz.

Nintendo Wii game Just Dance has shifted more than a million copies in the UK, despite some mixed reviews.

Red Dead Redemption and Fifa 11 are also in the top 10.

Unfortunately for the British game industry they have one thing in common: they were all made overseas.

Brain drain

It has been a tough few years for British game developers.

Five years ago they were sitting in third place in the world league just behind the US and Japan.

The UK has now dropped to fifth, overtaken by Canada and South Korea in terms of the number of firms and people employed by the industry.

The rise of big budget games has increased the risk for developers

More than 30 British game companies went out of business between July 2008 and March 2010, according to the developers' association TIGA.

So why the gloom?

The recession has taken its toll with major high street chains forced to shut shops over the last 12 months.

The cost of developing the latest console games has also soared with some major Xbox and PS3 titles now taking up to five years to produce.

"There is a focus on blockbuster games right now," said Torsten Reil, the boss of Oxford based NaturalMotion, which invented the animation technology used in GTA 4 and Red Dead Redemption.

"Many game budgets have gone up significantly. They can now exceed movies and cost between £10 and £25 million."

That kind of risk has forced some players out of the market.

Dundee-based Realtime Worlds recently went into administration after its big budget online game APB was met with negative reviews and "lacklustre" demand.

But the video games industry also blames the tax man.

Other countries, in particular Canada and the US, offer significant tax breaks to their own studios, cutting the cost of developing expensive new titles.

The Labour government committed to matching some of those incentives, but before it could be introduced the policy was scrapped by the coalition in its emergency budget in June.

"While we sit on our hands and don't take action, jobs and investment will just move to other countries," said Richard Wilson, the boss of TIGA.

The Government said it scrapped the plans because it didn't like the idea of targeting specific sectors like the video games industry.

Instead its policy is to try to lower business tax rates across the board for all firms.

Bedroom developers

It's hoped a major change in the way games are produced and sold can offer developers, both large and small, a chance to bounce back.

Apple triggered what became a gold rush when it launched its app store for the iPhone back in 2008.

Competitors quickly joined the market and apps are now big business on most phones.

The popularity of phone apps is a new low cost avenue for games makers

For game developers there are obvious advantages to apps.

For example, there's no need to print stacks of discs or pay for distribution, and no need to hand over a slice of the cash to the retailer (although in many cases the app store itself takes a cut).

The nature of downloading means that app games tend to be stripped down versions of established franchises, or original titles designed to waste a lunch hour.

For the first time in years one or two-man teams can make serious money from low risk, low budget games.

Some titles may cost £1.99 but sell a million, making serious money for a small studio employing just a handful of developers.

"It's really back to the future," said Richard Wilson at TIGA.

"These people are the successors to the bedroom coders of the 1980s and early 1990s.

"Small teams can now operate more cheaply and competitively than ever before. It's good news for the development sector."

Like other British games companies, NaturalMotion is not putting all its eggs in one basket.

As well as developing some of the technology used in big budget titles like GTA, it makes its own original titles for the Xbox and PS3 and has started developing stripped down versions for mobile app stores.

"The market has changed and new platforms like the iPhone have attracted huge numbers of people who simply wouldn't consider themselves gamers," said boss Torsten Reil.

"We were surprised at the way it has grown and the commercial opportunities around it. You can reach people very quickly in very large numbers."

"If you have a million-seller on the iPhone, even if each game costs just a dollar, it's still very, very profitable."