Australia's cautious game development community has ridden out the worst of 2024, but is it ready to take a risk to raise its profile on the world stage?
December 12, 2024
Australia’s rise as one of the world’s most creatively productive video games clusters has been a steady story within the global industry. The territory has recovered from near annihilation in the aftermath of the 2008 global financial crisis to emerge as a creative hub par excellence, spawning hits such as Hollow Knight, Unpacking, The Artful Escape and Untitled Goose Game at an almost jealousy-inducing rate for other video game clusters across the globe.
Last year, Game Developer attended Melbourne International Games Week to discover the factors behind the industry's blossoming creative output. A year on from that trip, the overall picture of the Australian industry remains largely the same. The overall consumer market in Australia has tapered upwards slightly, climbing by 5 percent to reach $4.4 billion AUD ($2.89B). Industry output to the economy also grew slightly in FY 2023, clambering to $345.5 million AUD ($226.9M) according to figures from Australian trade body The Interactive Games and Entertainment Association.
That steadiness is important in how it contrasts the rest of the world. While Australia has been buffeted by the waves that have battered the global games sector, it has navigated through much of the worst of the past 12 months comparatively well—leaving it well placed for the year ahead. How has it achieved that feat? During a three week trip to Melbourne and Sydney for Melbourne International Games Week and SXSW Sydney, I discovered that solidity is a result of the local sector adopting a 'never again' attitude in the wake of the 2008 financial crisis.
In prioritizing prevention, the country traded extensive intermeshing with the global game development supply chain for homegrown independence supported by a strong community ethos, establishing close ties with cultural institutions and building fruitful relationships with state and federal governments. It's an approach that has provided the local industry with valuable insulation from some of the firestorm. But as the industry begins to reach a ceiling imposed by self-sufficiency, the sector is beginning to ask what comes next and whether insulation runs the risk of turning into isolation in the future.
It has been a grim couple of years for the global video games industry and the Australian sector has suffered its fair share of thwacks during this period of time. In June 2023, EA’s Firemonkeys Studio—the creators of the Real Racing series—saw its headcount slashed by two-thirds after development work on the game was shifted abroad. A year later, League of Geeks, a legendary local studio responsible for Armello, entered an indefinite ‘hibernation’ in June 2024 after their latest game Solium Infernium failed to break through.
The loss of a symbolically significant local company—whose final game, perhaps a touch surprisingly, failed to make the shortlist for the Australian Game Developer Awards—contributed to a somewhat melancholic mood on the show floor of Games Connect Asia Pacific (GCAP). A number of developers I spoke to across the course of three days reported challenges securing funding for their projects, with both the amount and availability of publishing cash within the local scene dwindling as the global crisis rumbled on.
Jobs, meanwhile, have also proven harder to come by, with Colin MacDonald—the founder of UK business Game Jobs Live—reporting that the number of open roles in the territory had dropped from roughly 300 last September to approximately 150 a year later. A less than rosy picture, you'll agree. But when we examine the Australian scene in comparison to international competitors, a different perspective emerges.
Take the job figures as an example. As MacDonald reported, vacancies within the local sector halved year-on-year. But in the UK—a much larger video games cluster with more companies, more job roles and, theoretically, less susceptibility to a major percentage swing—job openings fell by two thirds across the same reporting period. And while funding for new projects has certainly been harder to come by, the Australian industry’s abundant range of smaller development studios—with 79 percent of companies in the local sector employing fewer than 20 people—has made it more cautious and less 'brittle' than rivals by spreading risk across a range of studios instead of centralizing it into a couple of enormous companies.
Ron Curry, CEO of Australian trade body the Interactive Games & Entertainment Association (IGEA), acknowledged that the local sector has not "had it as tough as other territories" over the past two years. Curry claimed a major reason for the sturdiness of the current sector is the traumatic impact of the 2008 global financial crash, which practically wiped out the local game industry when international partners withdrew as a result of the American and Australian dollar reaching parity. This demolished the cost saving benefits of outsourcing game development projects, such as licensed intellectual property titles, to the market: crushing it in the process.
"Before the global financial crisis (often called the GFC by other developers), Australia had a lot of publishers here,” explained Curry. "Any time there's a contraction in the economy, people withdraw: they bring everything back to the head office, bring everything home. So what we saw is pretty much all the large employers of game developers in Australia left....and there was this big gaping hole of unemployed [game] developers"
This left an extraordinary amount of talent in the cluster without a job, but it also gave them a choice about what their future held. According to Paul Callaghan, Head of Games and Interactive at VicScreen, many of them chose to go it alone on their own terms. "I think ultimately it was people making a choice to stay in games and going 'if we want to stay in games, we have to build what we want'," he said. "There was always a desire to do more original projects even back then, pre-GFC. So when studios suffered in the GFC period, people were like, 'all right, this is the point where we have to do it'."
Even today, that self-sufficient culture lives on amongst some of the biggest names within the local scene. “Quite often in our history, we've [the Australian Games Industry] had moments where we just get cut. you know, because we're on the other side of the world,” said Clara Reeves, CEO of Hipster Whale—creators of hit free-to-play mobile game Crossy Road. "So we've had to just be like, okay, well, we'll do our own thing and make it work."
Mobile hit Crossy Road was born in Australia / Image via Hipster Whale
Rather fortuitously, that desire to stay independent post-global financial crisis aligned with wider trends within the industry. The democratization of game development via the growth of Unity and Unreal gave burgeoning indies the tools they needed to create games on their terms. Meanwhile, the emergence of Steam and the mobile app stores in the early 2010s flattened routes to market for Australian developers: something of particular importance for studios who are, by dint of geography, a minimum of a four hour flight away from setting foot on a foreign shore. Importantly, these trends were underpinned by the emergence of a tight-knit community around the local industry, which saw game developers, education institutions and even cultural organizations such as ACMI—Australia’s museum of screen culture and self proclaimed 'home of video games'—rallying to support the industry.
For Curry, this led to the development of a wider culture within the Australian industry which has seen companies celebrate each other's successes, hook one another up to sources of finance, and tip each other off to talent: creating a sustainable structure underneath it. "We saw a really collegial group of game developers come together," he said. "Even though they might conceivably be competitors in the wider market, they saw themselves as allies. So we ended up with this really strong culture of great independent game makers who support each other.”
The result of this has been steady growth for the Australian industry. Between FY 2016 and FY 2023, Australia’s full time employee count has nearly tripled from 842 to 2458 while its company count has almost doubled from 63 to 111. Crucially though, much of this growth proved to be sustainable because the shadow of the global financial crisis has encouraged businesses to think more carefully. On an individual business level, this has seen companies across the country build more cautious, but sustainable, pathways to growth to keep them on track.
Playside Studios is emerging as one of Australia’s powerhouse names, employing nearly 400 people in studios across the country. Ryan McMahon, General Manager of the PC and Console Division of Playside Studios, explained to me how its growth—initially driven by viral mobile game hit Dumb Ways to Die—now rests on a clever mix of accessing local finance and working on a mixture of development projects to achieve sustainability. “Playside is a publicly listed company on the Australian Stock Exchange, so we have different access to funding than your average studio," said McMahon. "We also have a work for hire portion of the businesses that brings in a lot of revenue that supports our original IP development."
On a wider cultural level, the Australian industry evolved a natural caution that prevented over-extension. This included being less susceptible to the short term sugar-high of the pandemic funding spree, which set the global industry up for an almighty slump a couple of years later. “We saw that through Covid that businesses [across the world] were kind of growing exponentially,” Curry added. "I think we took it a little slower here and were a little bit more reserved.”
The Australian games industry has been better insulated from harm than its international rivals because its creative success has been underpinned by a cautious, self-sustainable ethos that has allowed its participants to steadily build companies capable of weathering the storm. But it has also been supported in the past 15 years by the evolution of local and federal Government funding for video games that has both sustained the sector through tumultuous times and given it a distinctive character of its own.
Government funding for games is prevalent across the world but it is fundamental to the Australian video games development sector. According to IGEA research, 49 percent of Australian video game developers receive government funding in some shape or form, with 51 percent of developers planning to claim the country's Digital Games Tax Offset—a 30 percent rebate on projects valued upwards of $500,000 AUD. While it's tough to find like-for-like comparisons around the world—largely because other trade associations don’t have comparable data—the fact that almost one in two developers operating in the country have been subsidized by the state to some extent is notable.
Crucially, this funding has emerged from a mixture of individual states and the country’s federal government. This means that developers have multiple pathways open to them to secure funding for their projects—resting the creative output of the industry on more solid foundations. "What government investment does is to create a space for experimentation, supports creative risk-taking and buys people time to work through their ideas,” explained Callaghan when discussing the work that VicScreen has done to support its local sector. That work has, in many ways, transformed Victoria into the poster child for both the Australian games industry and the value of backing games businesses from the ground up.
Over the past decade, the state has become the beating heart of Australia’s video games development scene—attracting 29 percent of the country’s studios and 41 percent of its jobs. A major reason for this success is the range of financial support it provides for developers. Developers in Victoria can qualify for small scale prototype funding of $50,000 AUD to get a project off the ground, the Victorian production fund which can put between $300,000-$500,000 AUD into qualifying games (without a recoup or taking IP), and the provision of a 10 percent relief on projects—which can be claimed alongside the 30 percent tax offset.
Alongside this, local government has also evolved a program of activities and support designed to provide wider business and cultural support for the sector. Within VicScreen, this has manifested in forms such as the organization's Play Now video games market which matches local development talent with relevant publishers and investors to see who could support their growth. It is also running programs to support the development of talent within the territory too, helping companies to upskill as they grow. Meanwhile, Creative Victoria—the State of Victoria’s creative industries body—has been responsible for supporting Melbourne International Games Week for over a decade: bringing international attendees into town, creating a new Education Symposium this year to link industry to the creative sector and celebrating the cultural impact of games through celebrations such as its free to attend Big Games Night Out in Federation Square.
The aim of all this work, according to Callaghan, is to ensure there is relevant support for games businesses of all sizes in the territory—raising all boats as the tide climbs upwards. "These are interventions that help lots of people, rather than just like a tactical intervention that supports one studio or one project,” he explained. The result has been plenty of support for developers based within, or choosing to base themselves in, Victoria. But the state's success has also sparked a friendly rivalry amongst other states which has led to the evolution of similar funding pots in other states: promoting a sustainable race to the top in the process.
This is best evidenced in Queensland. The state is another one of Australia’s largest clusters, hosting 20 percent of the country’s studios and 25 percent of its headcount. It was previously the heart of the Australian industry, with state capital Brisbane a favored home of the international publishers who funded the scene. But as Jed Dawson, Head of Games at Screen Queensland explained to me, its status was largely a result of the unsustainable international development that blew the Australian video games industry apart. “Brisbane used to be the hub of game development 20 years ago and and it collapsed almost overnight just because of a change in exchange rate” explained Dawson. “So that is not the most solid business structure."
The Gameloft Brisbane offices / Image via Gameloft
It did, however, retain some major developers including Gameloft Brisbane which is one of the largest employers in the country. Over the past five years, in response to the success of Victoria, Queensland has introduced its own digital games incentive of 15 percent (outgunning its rival to the south) as well as grant funding for games projects and a prototype funding pot that mimics the structure of relief elsewhere.
"We want to help studios [with the prototype funding pot] get to that point where they can say, hey, 'We're ready for investment or we're ready for a publisher’s support. We've got a company, we've got a team ready to go and we just need the rest of that money,' Dawson continued. "And then the digital games incentive is for companies that are a little more mature, so maybe they're looking at their five, six year plan and they're, you know, trying to secure investment. 15 percent goes a really long way and can help them secure that business case. So yeah, both programs have sort of meant to lead ito each other…[to act as] a lovely conveyor belt, which is great."
The results have been impressive. According to Dawson, headcount in Queensland has grown by 600 people over the last two years: bucking the trend for layoffs around the rest of the world. And whereas Victoria has developed a reputation as the creator of cultural hits like Untitled Goose Game, Queensland has been quietly attracting the likes of Rockstar to their shores—encouraging companies to stack state reliefs on top of the federal offset. It's also where a video game called Unpacking was born. You might have heard of that one. "Queensland, with our 15 percent [relief] stacks on top of the 30 percent [from the Digital Games Tax Offset], so it's a 45% incentive, which is globally competitive," Dawson explained.
The efforts of Australia’s two biggest game development states to push forward video games funding has encouraged other screen bodies across the country to court the industry. While reliefs do differ from state to state, nearly every state from Western Australia through to Tasmania offers prototype or grant funding at least to allow them to compete with rivals—ensuring developers in all parts of the country can access at least some cash to protect their projects. It has also created the conditions for the industry to resist the reduction, or removal, of reliefs too.
In September 2023, the state Government for New South Wales–the home of Sydney—reversed a decision to cut funding for the creative industries, including for its local sector’s digital games incentive and grant funding pots, after the wider screen industries publicly revolted against the decision. But overall, the importance of this state funding has been to provide developers off all sizes with at least some form of funding to lean into as the freeze has set in across the wider world. This was best epitomized by the fact that the first payments for the federal tax offset—which functions as a rebate and is released to developers after a qualifying period—started landing in the summer of 2024: handing qualifying businesses valuable chunks of change to ease cash flow fears.
As a result, the culturally self-sufficient Australian video games industry has found itself usefully underwritten by robust government funding—guiding it through the worst of the past 24 months. But as the drive to 'survive to ‘25' begins to pass with the waning of the year, thoughts within the Australian industry have turned to what comes next for the industry. And here, a tension is emerging between the value that cautious self-sufficiency has delivered to the Australian games industry so far and the risk that such an approach could inadvertently temper its ability to grow in the future.
On the one hand, self-sufficiency and caution have paid off for the industry over the past decade. As well as maintaining the sector’s decidedly creative reputation, the decision of Australian games businesses to keep team sizes and games costs tight—while also securing all available funding to support projects—has allowed the sector to ride through the worst of the pandemic and the recent financial turmoil. On the other, there were a number of people quietly raising questions about whether such an approach could meaningfully support the evolution of the local sector. Largely, these concerns were reflective of a reality of creating within Australia: its geopolitics.
The country is really far away from anywhere else. And while developers may generate 87 percent of game revenue from overseas through digital storefronts, the reality of a self-sufficient strategy is that it becomes tough to execute when you're an isolated country of 27 million people. First, access to talent is problematic. For junior talent, the presence of numerous smaller developers in the market means there are fewer opportunities to get a foot on the ladder–prioritizing those who can make it into the industry’s word of mouth recommendation network. Senior talent quickly run out of places to go if they decide to advance their career without founding a company, inevitably leading to them being lured away from the market when they want to hone, or showcase their skills, on international projects.
Next, securing finance outside of Government pots is tricky. For the most part, Australian developers are seeking publishing cash to support their work rather than investment for many of the reasons outlined earlier. But with fewer publishers based in the market, Australian developers eventually have to push out internationally to have a chance of meeting someone and then have to find a way to maintain a dialogue while located thousands of miles—and often many timezones—from the finance they’re trying to get.
“Australia's a long way away,” Curry said. “It's very expensive to go anywhere. So being under someone's nose the whole time or having that iterative conversation becomes really difficult. You can do a lot on Zoom but we know a lot of business works on the fact that you're face to face." And finally, even government money has limits on both what it can effectively do and what it can effectively fund. While the many funding pots and incentives are welcome, incentives such as VicScreen’s $50,000 AUD prototype fund don’t stretch particularly far—leaving developers at risk of never rising above a certain size of project.
Of course, the industry has had the foresight to attempt to resolve some of these problems. International publishers are consistently flown into the territory for events like MIGW and SXSW, including the representatives of the likes of Kwalee and Raw Fury this year. Funding pots have been established by the likes of Screen Australia to support domestic talent, including a recently unveiled $30,000 a year pot, while the MIGW Education Symposium deliberately ran events like a hackathon to showcase the work of up and coming talent. There is also enough camaraderie between the respective national screen agencies to fund trade missions to places such as GDC and Gamescom, pulling the cost of meeting the world down at least a little bit for developers involved.
Image via GCAP
McMahon and Reeves also each had their own thoughts on how the industry could be better supported within the current framework, with PlaySide seeking more support for skills development in the territory and the Hipster Whale CEO drawing on her experience at VicScreen to advocate for funding which backs projects that generate value without hitting the market. "I think if they could focus on making funding available to projects that also don't release…making sure that funding is there to let people have some falls as well as be ready for that hit,” Reeves said. “We're maybe not as reliant on that. But for a lot of people, if they can't survive a couple of tries and fails, then they won't be ready for that hit. So that’s what I’d want from the government."
But there is also a sense Australia could solve some of the potential challenges awaiting it is by raising the ceiling through international investment. This is something that Dawson advocates for now that the DGTO has been implemented, albeit cautiously, "What's gonna happen if Epic or Microsoft or Google comes into the state and invests a billion dollars into a game studio, how is that going to impact the local studios? How do we make sure that whoever comes into the space, whoever's investing in Australia is doing that from a respectful way or thoughtful way? Like they don’t want to nuke the studios here."
Curry has a similar balancing act going on in his mind. While he’s well aware of concerns over a return to a GFC style dependency on international cash, he also believes that creating a space within the local ecosystem to allow some larger players to enter could have positive downstream effects on talent across the sector. “I think we need those businesses here but we need to do it sustainably. We’re a big island but a small population, so we’ve got to be mindful of what that would look like. But you know, triple A businesses and double A businesses, they’re accelerators. They bring in very talented staff, who train up juniors and they accelerate their learning journey."
While such businesses could be a haven for junior talent, Curry also believes they may be a valuable home for experienced Australian talent either looking for the next step on its shores or offer more of a safe harbor for those who may enter—or return to—the territory. "It creates a safe environment that, you know, if I'm if you know, if I'm a 40-year-old, I've got young kids and I think about coming to work for an Australian game studio, I need to be able to take the risk of coming to Australia, but what if it doesn't work? What if I don't like studio A? Well, that's okay because there's studio B, C and D that I can go to. "
But while there may be that desire to grow such a presence, Callaghan cautions about the risk of losing sight of what Australia is known for in the process. After highlighting how Victorian talent—such as the team behind Stray Gods—were celebrated at this year’s GDC, he emphasized that any effort to bolster a cluster shouldn't lose sight of the reality of what was happening on the ground. “It's about sustainability. It's about what a sector, and a community can actually do to remain balanced. I absolutely acknowledge the question of what is coming next but I think also acknowledging that the sector in Victoria is diverse. It does have a mix of studios at lots of different scales pursuing lots of different projects with lots of different international partners and publishers," he explained. "That's not to say that there needs to be some development and different areas over, you know, the next four to ten years. But it has to be done in a way that doesn't destroy what people have built over the past 10 years and is sensitive to the actual conditions on the ground and the businesses and the practices that people wanna have here"
It's a neat summary of the question of what comes next for Australia and the state clusters that underpin it. The country has found strength, creativity and community in the aftermath of the financial collapse, rebuilding its industry from scratch in an independent, self-sufficient and impressive form that other countries should take notes from. But as its game businesses and studios become corporeal on the global stage, the sector faces a question of whether to carry on with its current approach and accept its limitations or lean further into the international market and the risk that brings. Neither paths will provide an easy route forward, but as the Australian industry emerges from a tough year in reasonable health, it has space to ask these questions and define its future of one of the world’s most intriguing video game clusters.
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