The 10-year horizon is an interesting one to look at from my perspective. In the video game industry, 10 years ago many of us on the SME side of video games development were looking at what was to come with a lot of trepidation. It seemed that bigger corporations with ever-bigger budgets were starting to dominate the industry, but the great news is that we were completely wrong, because of the democratisation of distribution that has taken place over the past 10 years, whereby distribution is done through digital platforms rather than through physical retail.
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We always bemoan the fact that the high street is shrinking and becoming less important as a terrible thing for us all. The flipside of that is that, for small creative businesses, the distribution model being online has completely opened up the market. It is no longer the case that we are completely restricted by large-scale distributors that would, in effect, decide what the public would buy by distribution alone. That has led to a plethora of enormous growth in the past 10 years, with businesses being created almost out of nothing. Scotland has benefited significantly from that. At the high end, we have, a stone’s throw from the Parliament, what is reputed to be the most valuable video games property—in fact, the most valuable entertainment property in the world—in Rockstar North’s Grand Theft Auto. Who knows how to put an exact figure on it, but the franchise value is certainly north of £7 billion or £8 billion; it is probably now more than £10 billion. That is principally created here in Scotland.
4J Studios, of which I am the chairman, has been fortunate enough to be the console partner for PlayStation, Nintendo and Microsoft formats for Minecraft. Minecraft is a franchise that was created by one individual in Sweden who, within five years of creating the franchise, sold it to Microsoft for $2.5 billion. The most successful console development on Xbox 360 is the one that was developed in Scotland, and it continues to be developed in Scotland today.
Recently, a large-scale business in America, Epic Games, acquired a small Edinburgh company called Cloudgine. I think that Epic happens to be 20 per cent owned by the Chinese giant Tencent Holdings, which is now approaching becoming the biggest video games company in the world, with a market capitalisation of $0.5 trillion. If anyone has knowledge of the video games industry, Epic does. It is responsible for a game called Fortnite, which is reputed to be generating revenues of around $100 million a month at the moment, and that is from a standing start a few months ago. Those industries are accelerating to an order of magnitude above where they were 10 years ago, and the opportunities for small businesses to enter are significant.
We in Scotland have created some of those businesses. There is a venture capital-backed business in Scotland called Outplay Entertainment. Outplay is in the free-to-play mobile space, and it has seen significant growth, with principal backing from Scottish investors. We have a really bright outlook in that core video game sector, and we need more talented individuals to come in. We need indigenously created people. The University of Dundee is clearly a shining light globally in the training and development of individuals for the sector, but great people are being delivered by the core of our science, technology, engineering and mathematics subjects in Scotland. Some of the skills that we do not have at the moment are in what are called live operations, which relate to how the games are developed and published, and how the audience is engaged. I am talking about digital marketing and discoverability skills, which are shared with industries such as e-commerce.
We need more of that. When I say that we need more of it, I mean substantially more. I have just come back from our annual game developer conference in San Francisco, where I talked to a number of people who were interested in starting and supporting businesses here in Scotland. The one question that they ask is, “Are there enough people? Is it worth my while going there? Will I find the people?” Obviously, my immediate answer is, “Of course there are.” The more nuanced answer is, “Of course there will be, if we invest.” We need to overinvest in the sector. We will probably need to make some tough decisions not to invest elsewhere, but the skills in question are very transferable.
We have two other businesses in Scotland that we started in the past 10 years. One of them provides television data analytics for TV advertising. It is called TVSquared, and it is based in Edinburgh. Over the past five years, TVSquared has grown from a start-up idea to a global company that analyses the TV output of some of the biggest brand names in the world. The other business, which is called Broker Insights, has just started in Dundee. It operates in the commercial insurance space. Both those businesses have one big thing in common: they could not have existed 10 years ago. Ten years ago, there was no platform for cloud-based computing like, for example, Amazon Web Services in the way that there is today. That revolution has allowed people with amazing ideas, but without the enormous amounts of capital that need to be invested in hardware and infrastructure, to realise those ideas and build businesses of tremendous growth and scale.
Those businesses are incredibly close to success stories in Scotland such as Skyscanner and FanDuel in terms of the market environment that has allowed them to grow. The market environment is there. It is now all about the deployment of skill base, and if there is any restriction on growth for those companies, it is one of scale; it is no longer one of access to capital or access to the right core idea-generation talent. The potential restriction relates to the development of the right scale of talent—scaling is our biggest challenge from here on in.