The videogame industry is the biggest earning entertainment industry in the world, raking in billions of dollars every year.
Even in South Africa, revenue from video games has been pegged by auditing firm PwC as R2.6 billion.
Unfortunately, about 99% of that revenue stems from the sale of games made overseas. The local revenue derived from South African-made games is far, far less, hovering around the R2.2 million value.
According to Nicholas Hall, founding member of Make Games SA and Interactive Entertainment SA, there are several problems facing the local development scene, which includes the South African Reserve Bank’s Exchange Control Regulations and legislation from the Film and Publications Board (FPB).
South African Reserve Bank
The Exchange Control Regulations essentially aims to control revenue coming into, and leaving, the country. If game developers want to bring cash into the country through games sales on distribution service Steam or Google’s Play store, they would be subject to forking over a portion to the South African Reserve Bank.
“South African developers, cannot from South Africa, create a Google Merchant account and sell their mobile game on the Google Play store,” Hall told an audience at the launch of a report by Fifth Era on the effect of regulation on investors in the digital economy. The report was funded by Google.
“The largest mobile market in the world is being excluded. So the only way that you can do it, is by incorporating off-shore. You have to create a company in the US or UK, and then once you got that company set up (and that is what is happening) why do you bother staying in South Africa?”
“There simply isn’t any industry competitive advantage to be developing games in this country.”
According to Hall, South Africa is a great destination for games as the country speaks English, it’s on the right time zone with Europe, has the necessary skill sets in place, and the country is cheaper to make games in.
So by rights, South Africa is the perfect destination for companies like Rockstar, Ubisoft and Blizzard to set up shop here.
“[Big publishers] are not interested in investing, simply because they say there is no exit. There is no way for them getting the capital that has been put in the country, outside, once they have invested,” says Hall.
“If they did manage to wrangle it, is it subject to an arbitrary control (Exchange Control Regulations) that no one has any idea on how the decisions are made.”
But funds for videogames do have to come from somewhere, right? Most individuals and small companies might turn to crowdfunding for a revenue boost. But that in itself is a huge problem.
Sites like Kickstarter and IndieGoGo allow people to effectively ask random internet citizens for money to develop almost anything, and in most cases funders get something in return.
“As a South African business, you cannot create an account on Kickstarter and tap into the local or international crowdfunding market, and that is hugely prohibitive” says Hall. “That is one of the big issues facing South African game developers, is access to capital.”
A lawyer by trade, Hall mentioned that he has seen on numerous occasions that as soon as a company in South Africa make enough money, they go off-shore and leave.
“Not only is our largest market potentially forgotten because we can’t monetise it, but if you wanted to try and go somewhere else to make money, well, we can’t do that either,” he says.
“I happen to do legal work for about 98% of the video game companies in South Africa, and as soon as they make enough money, they go off-shore – and I have seen this over and over again. As soon as these companies start making money and realise it is not beneficial to be in South Africa, they incorporate off-shore and they leave.” Hall added that he has helped three South African game developers incorporate off-shore this year alone.
Film and Publications Board
If the lack of funds or the difficulty of getting cash into (or out) the country isn’t enough, the proposed Film and Publications Amendment Bill could also spell a dark time for game developers in the country.
“If my developers want to sell a game in South Africa, they would have to get (FPB) rated first, prior to publication – which they don’t have to do elsewhere in the world,” says Hall. “And if they don’t, it’s a criminal offence. Well, no one wants to go to jail, so they just don’t make games available here – it’s that simple.”
The fact that games need to be rated by the FPB before publication isn’t the problem, but if draft legislation by the FPB is passed, it would give the organisation the power to remove anything from the internet – including games.
Game makers in SA bypass the FPB rating by making their games available online through foreign services like Steam, but it could soon have the power to simply remove the titles from Steam – robbing developers of revenue.
The Film and Publications Amendment Bill ultimately seeks to strengthen the law regarding explicit and violent content, outlaw child pornography online and decriminalise the online distribution of adult content.
While that is fine and dandy, it poses a number of issue for Hall.
“The problem is that it hampers a whole bunch of other stuff – and it is making that very difficult. It also serves as the background to then block access to websites and services, and for us in the games industry it is huge.”
Hall asks the question what would happen if Steam refuses to give FPB proverbial backdoor access that would allow the FPB to pull down content from the online distribution site.
“Well, what has been intimated, is that it will simply block access to Steam. It gives the government the legal grounds to start blocking access to websites and service – and those services are our primary services for distributing content – and that is highly alarming.”
He mentioned that it may not be the intention of the Film and Publications Amendment Bill, but the law would still allow it to happen.
In conclusion, Hall added that he doesn’t have a problem with the Film and Publications Amendment Bill or the Exchange Control Regulations, but called for transparency and clarity, so that it can be made easier for all companies, not just game developers, to operate internationally from South Africa.
“It’s not the problem that the regulations are happening itself per se, but with the FPB example, I do think that they can be drafted to be more conclusive and I think we need to take a serious look at what content we are actually going to be regulating,” he says.
“As for the Exchange Control Regulations, just being more open and being able to deal with the people. These decisions will go a long way to making our lives easier.”[Image – Snailboy from Cape Town developer Thoopid]