California's Video Game Industry Dominance May Be in Jeopardy

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Courtesy of Sony
A new report from the Milken Institute shows that the Golden State is experiencing some competition.

California's status as a leader in the video game industry may be in jeopardy as competition has increased from other states and nations, according to a new report from the Milken Institute.

More than 900 companies that work on video games are currently based in California, employing more than 33,000 workers, making up a large part of the state's $32 billion software publishing sector. In 2017, global revenue from the gaming industry topped $116 billion.

“No other industry reflects the convergence of technology and entertainment as well as the video game industry,” said Kevin Klowden, executive director of the Milken Institute’s Center for Regional Economics. “As the industry grows, cities, states and countries are offering economic incentives such as tax credits, rebates or grants and creating, attracting and retaining strong talent pipelines that compete with California.”

The Milken Institute's report drew on publicly available data as well as broad consultation with gaming industry leaders, academic experts and elected officials. A narrowing gap between California and other states competing for video game companies was identified, and a number of recommendations were offered for consideration by state policymakers to keep business in California.

Such suggestions included adapting California’s sales and use tax exemptions to apply to video games; expanding or revising the state research and development tax credit to better serve startups and small businesses; exploring the development of a production-based tax credit for video games if California’s share of the video game industry declines; and improving the development of in-state computer programmers and developers by strengthening relationships between the video game industry and two- and four-year colleges.

“Like its counterpart in Hollywood, the comparative advantage of having a lead in video game employment and corporate headquarters may not be enough to maintain California's consistent growth in the industry or to remain a leader in fostering the small development studios that are so essential to California's edge in both video game production and employment,” said Klowden.

The findings and recommendations of the report were shown to state legislators at a public forum in Sacramento on Tuesday. It is available online here.