Power Up 2022

Power up 2022

The return of Armageddon Expo to Auckland last month marked another milestone for the New Zealand gaming industry. Armageddon Expo is the New Zealand owned and operated pop culture convention that has been running events around the country since 1985. But the global pandemic meant multiple events over the last two years were cancelled, so this recent large-scale expo – including in-person appearances by international guests like voice actor Colleen O’Shaughnessy (Digimon, Tales of Symphonia, Sonic the Hedgehog) – was a celebration for local fans.

Finally, a sense of normality for the gaming and related industries, which have been busy over the last year. So what’s been happening?

International interest in homegrown studios remains strong

Earlier this year yet another New Zealand game studio was sold to an overseas buyer.

Wellington-based NZXR develops augmented reality (AR) experiences on smartphones and headsets and was acquired in April by AR engine designer – and Pokémon Go maker – Niantic, for an undisclosed sum. The San Francisco-based Niantic focusses on multiplayer Metaverse applications and has forged a permanent partnership with NZXR to create new and more exciting multiplayer experiences. NZXR’s New Zealand based team will stay on following the deal.

The transaction is one of the many recent news stories involving New Zealand gaming, entertainment and visual effects businesses.  

Last year, HGM was privileged to be part of Unity’s New Zealand legal team for the $2.3 billion purchase by Unity of Weta Digital’s assets. Weta Digital is the world’s premier creator and innovator of visual effects and animation for a wide variety of award-winning movies and television shows, such as Avatar, Black Widow, Game of Thrones, Lord of the Rings, Planet of the Apes, The Suicide Squad, and more. Marc Whitten, Senior Vice President and General Manager, Unity Create Solutions said, “By bringing this team and technology to Unity, we can enable more storytellers to reach their creative potential by giving them access to the diamonds of all diamonds of VFX tools, underpinned by the power of real-time 3D”. Another great New Zealand success story.

In other deals last year, the Swedish company MTG acquired 100% of the shares in Auckland-based mobile game developer Ninja Kiwi for an upfront $203m. And UK-based global publisher and game developer Kepler Interactive purchased the Wellington-based A44 Games, best known for creating the top rating Xbox One and PS4 game Ashen, for an undisclosed sum.

Earlier this year, Wellington-based games publisher PikPok announced the acquisition of Wizard Fun Factory, an independent video game development studio based in Colombia, showing that the growth of the New Zealand sector is also leading to offshore investment by our local studios. PikPok celebrates 25 years in operation this year, making it one of New Zealand’s oldest game development businesses.

Microsoft acquisition of Activision Blizzard

Meanwhile, the New Zealand Commerce Commission has just released its Statement of Preliminary Issues relating to the proposed acquisition of Activision Blizzard (which makes the popular Candy Crush and Call of Duty games) by Microsoft (which makes Xbox). Earlier this year it was announced that Microsoft is paying nearly US$70 billion for the company in a deal, which – if it survives the scrutiny of global regulators and completes – will turn Microsoft into one of the world’s largest gaming companies.  

The Commission is investigating whether the proposed acquisition would be likely to substantially lessen competition in the video game (development, publishing, distribution, advertising, and merchandising) market in New Zealand. It is currently scheduled to decide whether to give clearance to the proposed acquisition by 11 August 2022.

A rapidly growing sector

The video gaming industry has boomed globally over the course of the coronavirus pandemic, with much of the world being ordered to stay at home. Hype over the Metaverse and other virtual worlds has also generated interest in gaming platforms and the growth of the gaming industry has generally tracked the rollout of ultra-fast broadband.

New Zealand is renowned for having an incredibly talented gaming industry. The Government has previously declared that the sector is on track to reach $1 billion in exports by 2025. This is despite the local industry receiving little in the way of Government subsidies because video games are specifically excluded from the New Zealand Screen Production Grant, which aims to attract major film and TV productions to shoot in Aotearoa.  

A war for talent

However, ongoing border restrictions and the introduction by the Australian Government of a 30% federal tax incentive for video game developers (which came into effect at the beginning of this month and sits alongside some existing State level incentives of 10%) have presented new challenges to the growth of the local gaming sector. The tech industry in New Zealand is already suffering a crippling skills shortage; industry body NZTech estimated last year that up to 10,000 roles were vacant in high-tech firms across the motu.  

The reopening of New Zealand’s borders will allow for more recruitment from overseas but will also lead to the loss of local talent to tech companies abroad – particularly given that game developers are typically younger and looking overseas for experience. Meanwhile, the war for talent is putting upward pressure on salaries to potentially unsustainable levels.

Industry Transformation Plan

Earlier this year the New Zealand Government sought feedback on its Digital Technologies Draft Industry Transformation Plan 2022 – 2032 (the ITP), which is a development plan outlining actions and initiatives to respond to these challenges. The ITP includes specific proposals to support the local interactive media and game development sector, including around funding, skills development, and export growth.

One proposal is the introduction of an Interactive Industry Development Programme, which is described as “a contestable fund to support early-stage, New Zealand-based studios to develop original intellectual property”. The reasoning is that this will “support the development of a pipeline of small and medium sized studios, and also fill the gap in start-up support for game development studios which do not qualify for R&D or screen sector support”. The ITP also recognises the need for “more immediate access to local and overseas talent” and proposes a funding programme to improve the quality of skills in the local workforce.

The New Zealand Game Developers Association collaborated with MBIE on the development of the ITP, and reports that 37% of submissions on the plan came from game developers and studios. However, the Chair of the Association, Chelsea Rapp, told the NZ Herald recently that the Government needs to urgently do much more to support the local video game industry, calling this a “crisis moment”: "The interactive media sector has been one of the New Zealand economy's rising stars. It is high-tech, fast-growing, clean, green and pays high salaries. These are exactly the type of jobs we need to grow and diversify New Zealand's economy, but Australia could benefit from them instead if we don't act now".  

More than just a game

Despite these ongoing challenges, recent deals and events suggest that the New Zealand gaming sector will continue its strong growth and become a billion-dollar export earner for the country within a few years. HGM’s client Legend Story Studios is the Auckland studio behind the massively popular fantasy trading card game Flesh and Blood. The team at Legend Story Studios recently hosted the first ever Flesh and Blood TCG Pro Tour in New Jersey, which is another huge achievement for a local business. Over 1,200 players attended a weekend tournament in May in New Jersey, and players from 25 different countries competed in the event.

And the global gaming community is paying attention.  

When Legend Story Studios decided recently to hold an event to raise money to help Ukrainian refugees who had fled to Poland, tickets sold out within days and the event raised over $75,000. As Legend Story Studios chief executive James White puts it, “So much of what we do is more than just a game, it is about the people". Read more about this by clicking here.  

Power up!

It’s certainly exciting and challenging times in the New Zealand gaming and related industries – a sector that truly deserves attention and support.