03.2 Games funding

The past year has brought a number of important changes in the area of federal games funding. With the funding application freeze that took effect in May 2023 – the second since the federal games funding launch in 2020 – still in force, there have been almost as many months under this freeze as there have been months in which applications could actually be submitted.

The Federal Ministry for Economic Affairs and Climate Action had to announce the first application freeze in October 2022, as the 50 million euros available in funds for that year had already been used up.

This was a result of the wave of start-ups set in motion by the introduction of federal games funding, without the necessary accompanying ongoing adjustment of the funding budgets. From 2020 to 2024, the number of companies developing and publishing games in Germany grew by 52 per cent. Many new teams arose, as the improved framework funding conditions helped to enable an internationally competitive level of financing. This comes as no surprise, because the funding helps in multiple ways. For one, it reduces the development costs the companies must bear themselves by 25 to 50 per cent, depending on the production budget. In addition, this cost advantage significantly enhances the attractiveness and therefore the negotiating position of domestic developers vis-à-vis potential business partners and publishers. However, the funding application freeze in October 2022 meant that, suddenly and unexpectedly, no new projects could be supported. Companies in Germany that hadn’t already obtained funding approval or been able to submit their application before the freeze were thus subject to the internationally uncompetitive location conditions that had been in effect before the introduction of the federal games funding – with cost disadvantages of around 30 per cent compared to other locations.

Policymakers themselves recognised that, without a reliably level playing field, the federal government’s declared goal of developing Germany into a leading market for the games industry couldn’t be achieved. The budgetary committee of the German Bundestag responded by providing additional funding in its budget adjustment session of November 2022. This increased games funding to 70 million euros – unfortunately only enough to lift the stop on applications from January to May 2023. A second freeze followed, but this time not just for the rest of the year. Because the vast majority of funded games require several years of development, the funds for 2024 had already been reserved. But stopping applications until the end of 2024 – that is, for a year and a half – would have meant slamming on the brakes in Germany’s race to catch up with the top international game development locations.

Once again, the Bundestag stepped in. An additional 33 million euros per year were made available in the budgetary committee’s budget adjustment session. However, this new funding was not allocated to the Federal Ministry for Economic Affairs and Climate Action, as it had been previously, but as a separate budget for the Federal Government Commissioner for Culture and the Media, Claudia Roth. This allocation came as a surprise to the games industry. It brought new challenges, leading to a delay in the disbursement of the funds by the two ministries, with no resolution yet found as of July 2024. This state of unclarity for games companies only further emphasises the need for an ambitious, systematic and consistent games policy that ensures funding from a single source, and it again significantly weakens the international perception of Germany as a games location in the wake of the funding application freezes.

Despite these challenges, the federal games funding policy is having an impact, as an external evaluation shows. Three years after the funding launch, the auditing firm PricewaterhouseCoopers (PwC) was commissioned by the Federal Economic Ministry to more closely examine the results of the programme. It found that the goals of the funding had essentially been achieved: an increase in the number of games developed, in games industry employment figures and in sales revenue.

For example, 72 per cent of the games developed in Germany would not have been realised without the funding, and the funds enabled 34 per cent of games to be implemented on a much larger scale than they would have been otherwise. A large majority of games companies that received funding were able to create significantly more jobs than those that did not in the same period. The funding also had a positive impact on companies’ overall development: almost half of them (45 per cent) achieved additional sales revenue over and above that generated by the funded projects themselves. However, the evaluation also concluded that Germany’s current approach to games funding stands in stark contrast to that taken by other countries worldwide. Game-promotion policies in locations that are particularly successful internationally frequently utilise tax incentives. The international comparison also shows that the proportion of employees in the games industry as a share of the overall labour force and the number of games companies per million inhabitants are still significantly lower in Germany than in other countries. This clearly indicates that Germany still has not tapped its full potential as a games location. The fact that, even at 50 million euros, Germany’s total provision of games funding represents less than a quarter of the average per-capita amount of the other countries in the analysis speaks for itself. And it helps explain the gap between Germany and more successful games locations around the world.

This is also the conclusion of the study ‘Die deutsche Games-Förderung im internationalen Vergleich’ (‘German games funding in an international comparison’), which was commissioned by game and carried out by Nordicity (Canada) in collaboration with Goldmedia (Germany) as well as Games Germany, an association of state-level funding organisations and networks. One of the study’s findings is that the funding systems employed in top international locations differ significantly from the games funding programme in Germany. Established production locations such as Canada, France and the UK place a deliberate emphasis on tax incentives for game development. In most cases, this eliminates the need to designate fixed amounts of funding in the budget which can be exhausted if the funds required exceed those made available. In contrast, in countries with tax-incentivised funding models, games funding is permanently available and therefore more predictable and reliable. This approach works so well that locations that want to play a greater role in game development internationally, like Ireland and Australia, have also adopted it. Germany, on the other hand, has opted for a fund-based model with a fixed annual budget. This model brings with it the risk of renewed funding application freezes if sufficient funds aren’t made available by the government. Because companies don’t know whether funding will be accessible when needed, games funding in Germany can’t be reliably planned.

An economic model was used to analyse the significance of the differences between the countries, taking three typical game-production budgets as examples. The results show that with existing funding – but only then – Germany currently ranks mid-table internationally, both for smaller productions and for game projects with budgets in the tens or even hundreds of millions of euros. For periods in which funding applications were frozen, however, Germany ranks last in the field. The comparison shows that reliable funding on the basis of sufficient budgets is indispensable in order to be competitive. In the absence of a level playing field in the area of funding, Germany can hardly take advantage of its numerous positive location factors.

There have been improvements for games companies in a number of Germany’s federal states. Again in 2023, growing numbers of states launched their own funding programmes or further increased funding levels. State funding programmes are also providing additional funds in an effort to help meet the increased demand due to the funding application freeze at the federal level – even though they can’t nearly compensate for the lacking federal funds. Berlin and Brandenburg, for example, distributed record amounts for game development: studios received funding totalling 5.3 million euros. In addition, numerous further projects and plans are being supported by Berlin’s state government – a coalition of CDU and SPD – from the House of Games to the Computer Games Museum and the International Computer Game Collection, the latter of which is to be the first of its kind in the world at its size. The Bavarian state government is distributing funds of around 3.3 million euros in total. With the new game hub DIE GAMEREI – a recipient of 560,000 euros in funding – as well as the Level Up accelerator programme and the gaming event GG Bavaria, the state is providing additional support to the companies in the region. Baden-Wuerttemberg, Hamburg, Hesse and Saxony have all increased their funding budgets for 2024 as well. In Saarland, the state games funding programme has been transferred to the Ministry of Economic Affairs, Innovation, Digital Affairs and Energy and allocated a total of 300,000 euros in the 2024 budget – also an increase over the previous amount. Mecklenburg-Vorpommern brings up the rear as the last remaining federal state without regional game funding, although the prospect of such a programme was held out in the coalition agreement between the governing parties SPD and Die Linke.

Games companies closely monitor the efforts that are made by the various states with regard to the respective relevant framework conditions. At the beginning of 2023, the game industry barometer showed very clearly that North Rhine-Westphalia was perceived most positively as a games location. With this result, Germany’s most populous state climbed from third place in the 2021 survey to first place. Hamburg also made a leap forward, from fourth to second place, sharing this ranking with Berlin, which held firm in its 2021 position. Bavaria, which topped the list in 2021, achieved only third-place status at the start of 2023 as three other states overtook it.