The good news for the video gaming industry: A $160 million, four-year incentive scheme, expected to be axed by National, was kept on. The more so-so news: Only $22.3m of an available $40m was doled out this year. And the situation is coloured by an increasing number of
$160m video game rebate: First recipients named after brush with death
Subscribe to listen
Access to Herald Premium articles require a Premium subscription. Subscribe now to listen.
Already a subscriber? Sign in here
Listening to articles is free for open-access content—explore other articles or learn more about text-to-speech.
AdvertisementAdvertise with NZME.
The Labour Government announced the Games Development Sector Rebate (GDSR): a four-year, $160 million incentive scheme.
Video game makers would be able to claim back 20 cents in every dollar they spent creating a new title, to a cap of $3m, with up to $40m doled out each year.
The first recipients were to be named in June 2024, by NZ on Air, which would administer the scheme.
NZ on Air came into the frame because the industry had long argued that beyond the need to match tax rebates offered across the Tasman, where Aussie game studios were stealing Kiwi staff, unsubsidised local game studios were in an unfair fight with the heavily subsidised film industry for special effects and software talent.
AdvertisementAdvertise with NZME.
The stage was set for a fightback against Aussie poaching.
But come early October, things had taken a grim turn, from GDSR boosters’ point of view. Lance Burgess - chief financial officer at Wellington’s PikPok, one of New Zealand’s big-three game studios – was at GCAP, a major industry trade show in Melbourne.
Crews from all of New Zealand’s major game studios were at the event, and they all had one thing on their agenda, Burgess said: holding meetings about a move across the Tasman.
National was looking a sure bet to win the election later the same month, or at least lead the next government. “And we assumed they would axe the GDSR,” Burgess said.
In the first week of December, it looked bleak for the rebate. The word was that the new Government was cancelling funding for the GDSR, and also axing Code (Centre for Digital Excellence), a Dunedin-based regional development programme for the sector with $2.3m per year in funding.
Burgess and others hit the phones.
Shortly before Christmas, top industry players got confidential word that key players in the new Cabinet – including Technology Minister Judith Collins, Trade Minister Todd McClay and Prime Minister Christopher Luxon – supported the rebate.
They had bought into the idea that the gaming sector – which the NZGDA says can double its revenue, mainly generated offshore, to $1 billion within five years – could help lead an export-led recovery.
AdvertisementAdvertise with NZME.
Collins made the rebate’s survival public in early January. McClay said the video game sector would play a key role in an export-led recovery.
Three get maximum $3 million
Today, following a pilot, the first 32 recipients were named (see full list below). Code is also staying.
Figures were not attached to each, but the Herald understands that three studios successfully claimed the maximum $3m.
The trio included PikPok, a mobile specialist that employs around 170 in New Zealand, and Grinding Gear Games, the West Auckland outfit with a similar number of staff (putting the two neck-and-neck as New Zealand’s largest studios by headcount).
READ MORE: Taxpayers’ Union attacks KiwiSaaS group that includes big tech names; they stand their ground
Grinding makes the multiplayer fantasy title Path of Exile, played by millions worldwide. It’s also our only large studio that files public accounts.
In 2023, it made an after-tax profit of $28.4m on revenue of $83.4m.
Co-founder and CEO Chris Wilson was one of those threatening to shift operations offshore if New Zealand did not counter the Australian subsidy. In March, Wilson told the Herald he had 185 staff.
More than half planned to quit NZ
Earlier this week, Burgess told the Herald the rebate had already done its job
With assurance in late December that the rebate would survive and that the first full recipients would be named mid-June, PikPok and other studios had been able to staunch the bleeding across the Tasman, which he says had become an existential threat.
Although growth slowed last year, key talent had been retained, and staff were being added (Burgess spoke in his capacity as PikPok CFO, but as the NZGDA treasurer, he also has a good overview of the entire sector).
That’s a contrast to a global trend that’s seen game companies culling staff amid a post-pandemic hangover (lockdowns pushed revenue from subscription-based online games to an all-time high) and a slowdown in the ad market, which fuels free games, which has hit hard.
“The feedback from our members is positive, indicating that the rebate will help them compete with the salaries being offered in Australia and beyond,” NZGDA executive director Joy Keene said.
“We also know that more than half our studios were considering moving to Australia prior to the GDSR announcement and have taken that option off the table – which means both the IP and the revenue are staying in NZ, supporting the economic recovery through highly paid jobs and the tax paid on revenue earned globally.”
First-year payout light
Others also rated it a success, even in the context of only $22.3m (including the pilot) being paid in the scheme’s first year (to April 1, 2024), from the total available pool of $40m.
”We anticipate there will certainly be growth in demand for the rebate as the sector grows,” NZ on Air GDSR programme director Chantelle Cole told the Herald.
“It will allow us to hire and retain more people and pay more competitive salaries,” said Zoe Hobson, CEO of one of the first successful applicants, Runaway Games.
“That will enable us to produce more products, faster, and provide stronger growth in industry revenue. It’s already had a positive impact on our team’s growth and our product pipelines.”
How was the tide turned with a lousier rebate?
The tide has turned despite New Zealand’s rebate being 20 cents in the dollar (to a maximum $3m), compared to the 30c in the dollar federal rebate across the Tasman (with a top-up in Victoria, South Australia and New South Wales taking that to 40 cents or 45 cents on every dollar in Queensland) to a maximum A$20m ($21.5m) per recipient.
Burgess – who had input into the final shape of New Zealand’s rebate – says it has key elements that make it more attractive, despite its lower rate.
New Zealand’s rebate is paid annually, while Australia’s is paid out at the end of a project.
“And a AAA [high production value] game can take five years to develop,” Burgess said.
The other key difference: Australia’s rebate is labour-only, while New Zealand’s is much broader-brush.
Incidentals from software subscriptions to tools from Adobe can be claimed, as can hosting on cloud services like Amazon’s AWS, the cost of trademarks and the likes of travel to industry conferences – “where lots of publishing deals get done”, Burgess said.
The NZGDA’s Keene noted that the Aussie rebate was harder for small game studios to access because of its higher revenue thresholds.
In fact, New Zealand’s lower ($250,000 minimum revenue) and ability to claim on a broader range of spending meant a reverse migration was now under way.
“I am aware of some Australian studios considering establishing a presence in NZ to take advantage of this benefit, which again, injects revenue into NZ’s economy.
“So in essence, the rebate is working as intended, and any review of the rate will result in more meaningful benefits for our industry,” she said.
“The NZ game development industry is doing well in a challenging economy. There are 29 new games being released over the next 18 months, from both new and existing studios.”
Keene said recent hits included Abiotic Factor from Dunedin’s Deepfield Games, which became one of the five most-played on Steam.
The year ahead will see Path of Exile 2 from Grinding Gear Games.
Offshore-owned, local rebates
There is a nuance here in that a number of New Zealand’s highest-profile game studios now have offshore owners.
Chinese giant Tencent bought 80 per cent of Grinding Gear Games in a $100m-plus deal in 2018. And in March this year, Tencent, which has been gradually upping its stake, took 100 per cent control of the West Auckland firm from Wilson and other founders. Wilson told the Herald in March that operations would continue to be based in Henderson; staff had been boosted from 114 to 185 since Tencent first bought in. The offshore owners had funded faster global growth.
Tencent also has a 47 per cent stake in Rocketwerkz, the Auckland firm behind the global hit Icarus (founder Dean Hall owns the balance) and a 25 per cent holding in Christchurch’s Digital Confectioners - maker of Dread Hunger, which has claimed 100,000 concurrent players on Steam, making it for a period one of the worldwide platform’s 15 most-played games.
Kumeū-based iPhone and Android game specialist Ninja Kiwi was sold to Sweden’s MTG for $203m in 2021.
And Wellington’s A44 games was bought by the UK’s Kepler Interactive in 2021, among other deals.
The list of initial recipients also includes Pokemon Go maker Niantic (based in San Francisco) which bought Wellington developer NZXR for an undisclosed sum in 2022.
NZ on Air’s Cole said the rules of engagement for the rebate are clear:
“Only NZ-based activities and NZ-based employees are eligible.”
And PikPok’s Burgess added: While there is some overseas ownership now the Govt has kept our industry here, boosted employment and we pay around $100m of taxes here for the $22m cost of the support. This is tax revenue that Australia would have instead of NZ.”
Two-year review
“The Government is committed to supporting New Zealand’s domestic game development sector through the Game Development Sector Rebate scheme and through funding for the Centre of Digital Excellence [Code],” Collins told the Herald in response to questions on whether she supported the Labour-introduced scheme, and whether she thought the rebate should be increased to the rate offered across the Tasman.
“Together, this funding helps to deliver a pipeline of game development studios, and to keep our talent and IP [intellectual property] ownership onshore in an increasingly competitive global market,” Collins said.
“Gaming is a growing and exciting sector and is an important part of the Government’s ambition to boost New Zealand’s tech sector. Any changes to the scheme will be considered as part of two- and four-year mark reviews of the scheme.”
Rebate recipients
$22.3m of $40m available paid to 32 game studios for the year to April 1, 2024.
- Grinding Gear Games
- PikPok
- RocketWerkz
- Ninja Kiwi
- A44
- Mytona
- 2Up Games
- Niantic Aotearoa NZ
- Balancing Monkey Games
- Beyond Studios
- Blind Squirrel Games
- CamShaft Software
- CerebralFix
- Deep Field Games
- Digital Confectioners
- Dreamloft Games
- Dinosaur Polo Club
- Gfactor
- Flightless
- Hashbane Interactive
- Janzen IP Co
- Mighty Eyes
- Outerdawn
- RiffRaff Games
- Runaway
- Sharpmind Games
- Space Rock Games
- StaplesVR
- Synty Studios
- Usual Suspects Studios
- Wētā Workshop
- Zero King
Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.
