Gallic videogame giants outsourcing to Montreal, Eastern Europe

PARIS — The French gaming biz may look to some like one of the world’s hot spots: booming heavyweight shingle Ubisoft calls the country home, and the Gallic education system ensures a deep talent pool. But less than a third of France’s 300 gaming companies generate more than €1 million ($1.3 million) in annual revenue, and nationwide tax incentives aren’t easy to access or attractive enough to compete with the likes of Canada.

Indeed the industry’s profile is a bit Jekyll-and-Hyde. According the National Video Game Syndicate, the biz grossed an estimated $3.6 billion, more than the film and music industries, but this figure takes into account sales of consoles, as well as PC, software, hardware, online and mobile sales. As far as companies developing and publishing games for the global market is concerned, Gaul’s gaming industry counts only a handful of large-scale independents.

The drop in physical sales of console software for the fourth consecutive year ($1.5 billion in 2012, a 16% year-to-year decline), combined with the changing consumer habits and economic recession have prompted the downfall of a dozen established vidgame outfits headquartered in France, including Mindscape, which specialized in educational titles.

“Our industry is undergoing the same challenges as the movie business: Big companies have become so risk-averse that they’re increasingly focusing on producing franchise-based blockbusters with crazy budgets, and as a result, smaller companies that can’t compete are often squeezed out of the market unless they try to do something totally different,” says Ankama co-founder Anthony Roux.

To underscore that point, Arkane Studios, one of the last high-profile independent French developers, was bought by U.S. media group ZeniMax, which also owns Bethesda Softworks, in 2010. Arkane has developed “Arx Fatalis,” “Dark Messiah of Might and Magic” and worked on “Dishonored” for Bethesda.

The country’s undisputed leader is Ubisoft, the world’s third-largest independent vidgame publisher. The company generates approximately half its annual revenue (an estimated $1.6 billion) from the U.S., with just 7% coming from France, according to Richard-Maxime Beaudoux, equity analyst at Natixis.

Beaudoux says Ubisoft is expected to score big this year with the launch of “Assassin’s Creed IV Black Flag” and “Watch Dogs,” with releases timed to the eighth-generation of game consoles Wii U, Xbox 720 and PlayStation 4.

Many of those games, however — including such blockbuster franchises as “Assassin’s Creed” and “Splinter Cell” — are being developed elsewhere, particularly in Quebec, Ubisoft’s biggest operation, with 2,500 employees, as well as Eastern Europe.

Key reasons for the outsourcing have to do with labor laws and tax incentives. Local industryites have argued the lack of good incentives for videogames and R&D have hampered the growth of the French vidgame biz. The vidgame tax credit — which allows for a 20% refund on creation expenditure — is so restrictive that only three titles qualified for it in 2012. Games skewing 18 and older aren’t eligible for the rebate, which is a major setback, since the average age of gamers in France is 35. And since the vidgame tax rebate was modeled on the tax program for film production, it boasts specific narrative criteria that aren’t compatible with games like “Just Dance,” which don’t have a traditional storyline.

Other incentives include a research and innovation tax credit covering 30% of spending (40% in the first year) and a videogame support fund.

It all adds up to a number that can’t compete with Quebec’s incentive, which pays 37.5% of employee salaries.

Still, Xavier Poix, managing director of Ubisoft’s French studios (located in Montreuil — its worldwide HQ — Annecy and Montpellier), notes that the company continues to tap into a French creative talent pool constantly replenished by such schools as Supinfogame, Gobelins and Enjmin, the national school of games and interactive media.

Ubisoft’s main rivals are Activision-Blizzard (“Call of Duty,” “Warcraft,” “Diablo”), which is owned by Gallic media conglom Vivendi but has no studio in France; and Electronic Arts, which is headquartered in the U.S.

Among France’s thriving vidgame shingles: Focus Home Interactive, a publisher and distributor whose credits include “Sherlock Holmes,” and “A Game of Thrones — Genesis” ; Quantic Dream, a developer and motion capture studio, which has developed “Heavy Rain” and the psychological thriller game “Beyond: Two Souls” starring Ellen Page, set for an October release; and Ankama, a developer and publisher of online multiplayer games such as “Wakfu,” “Dofus.”

But with a biz so dependent on sales to the U.S., French developers are finding North America a good place to establish a foothold.

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