Kicking off a series of reports on each country across the continent is a detailed dissection of the South African games industry. This ground-breaking research which was commissioned by Tshimologong Precinct, supported by a host of industry luminaries and advisory groups as well as researched and written by a team including Nick Hall, Sithe Ncube, Stephen Sack and Mxolisi Xaba poses a series of exploratory questions into ways to boost growth within the industry.

Introduction

The South African game development ecosystem is starting to attract the attention of a variety of stakeholders ranging from the Government to international investors. Many have the desire to implement interventions to assist the local ecosystem to grow by accelerating company growth and allowing new entrants to get into the market. However, there have been questions regarding the form these interventions should take.

It is critical to have a thorough understanding of what the ecosystem currently looks like, what the ecosystem should be striving for and the barriers preventing the ecosystem from achieving these goals. This will offer insight into the best design interventions.

This research project has been commissioned to provide the following:

  • An understanding of the current status of the games industry by conducting a baseline study of the major participants in the industry.
  • Case studies on other game development jurisdictions to provide benchmarks and to give insight into possible strategies and objectives.
  • A gap analysis on the baseline study against findings from the case studies to determine priority indicators to build a strategy around.
  • Recommendations for a strategy to follow to drive growth in the industry.

Base Lines Study and Mapping Exercise
The research team was tasked to deliver the following deliverables as part of the
baseline study and mapping exercise:

  • A Directory of current studios and stakeholders relevant to the Interactive Entertainment industries in South Africa.
  • An Industry Survey Report that lists the critical information about studios.
  • An Industry Survey Report that lists the critical information about individuals working in the games industry.

Responses from studios were generally poor, and due to time and funding limitations, additional research was not conducted. Fortunately, the largest studios in the industry did provide responses and additional interviews conducted with them allowed the researchers to compile the data and make some inferences about studio culture. Desktop research was conducted to ascertain additional information on studios that failed to respond to requests for interviews or fill in the survey questions.

  • Key findings from the baseline study include:
  • There are an estimated 60 studios active in the industry currently.
  • The majority of these are microenterprises comprising less than five people.
  • The majority of these microenterprises do not employ anyone and are comprised solely of their founders.
  • Similarly, these microenterprises are not active commercial enterprises as they have no cash flow and do not provide any form of employment.
  • Of the 60 studios in the country, only six appear to employ more than 10 people.

These larger studios also account for the majority of the revenue derived by developers and account for the vast majority of formal employment in the sector.

Cape Town and Johannesburg remain the hubs for the industry with the majority of studios and commercial activity happening in these cities.
The pandemic and the rise of “work-from-home” both locally and internationally has seen a dramatic increase in local developers finding employment for international entities.

The majority of the large studios do little to no work in the mobile sector, with console and PC being the platforms responsible for the majority of their revenue. This is especially true for entities that are developing games for the entertainment market.

Services-based companies did some mobile work, but no company had built itself upon mobile work nor generated their revenue streams exclusively from this.

From the census we derived the following statistics:

  • Most of the workforce (57%) are employed in development/programming work.
  • Because studios are small, people often fulfil multiple roles in their studios.

This suggests that to find employment in the industry one must have multiple
competencies.

  • The industry is starting to show signs of maturity in its workforce, with over 21% of the workforce having more than 10 years of experience.
  • Two-thirds of the workforce are 35 years old or younger. 82% of the workforce is “white”.
  • 83% of the workforce identifies as “male”. 94% of the workforce is South African.

Compared to historical data, there has been a slight improvement in the number of non-whites and females employed in the industry, but the bulk of this transformation is found only in the larger studios. The majority of the microenterprises remain comprised of only white males. An inference from the data suggests that studios that are sustainable and create actual employment are driving transformation and growth. Microenterprises seem to stagnate or close within a few years.

Case Studies

Case Studies focusing on the development and growth of game ecosystems were conducted in the following countries: Canada, France, The United Kingdom, Brazil, India, Poland, Nigeria and Kenya.

Desktop research on scholarly articles, industry reports and interviews with key stakeholders from the respective countries were conducted to get a better understanding of how the game development industries in those countries started and what factors if any, led to their success and growth. The counties were grouped into the following categories to allow commonalities to be found:

  • Developed Countries (Canada, France, the United Kingdom).
  • Developing Countries (Brazil, India and Poland). African Countries (Nigeria and Kenya)

Some commonalities found in the categories are listed below:

Developed Countries

  • Diversity and inclusivity are driving forces in developed countries that are looking to transform their industries.
  • Games as a service are on the increase, both for consumers and developers.
  • Three to five year-year plans in place for their respective game industries to implement.
  • Plans are developed by local trade bodies and then implemented by the government. This highlights the importance of industry and government collaboration.
  • The games industry receives extensive support from the national and local governments, and this support is often identified as a critical component of the industries success. The industries in these countries are very mature, populated by large studios who have been around for a very long time.

Developing Countries

  • The economic climate of these countries prevented them from establishing industries sooner, however, widespread piracy allowed consumers to participate, which in turn led to the growth of game development in their countries. This suggests a soft link between the size of the consumer market and the emergence of a development industry.
  • Early pioneers in the game development industry were primarily motivated by passion rather than commercial gain or viability.
  • Local investment in the video game industry is critical to kick start its growth.
  • Growth has been stifled to a degree by a lack of access to local high-level skills resulting in the need to import skills from other jurisdictions, as it is cheaper to import skills than to upskill the local talent/own workforce.
  • In at least one of the countries examined, government support has been critical to its growth.

African Countries

  • Both Nigeria and Kenya have adopted a regional approach to growing their development industries, where they strive to be the epicentres of game development in their respective industries.
  • A huge focus on mobile games both from a consumer and developer perspective.
  • A lack of a cohesive or central community or data cataloguing often means the broader community doesn’t know what is going on, which leads to a disjointed and uncoordinated approach.
  • Mobile Network Operators have played a pivotal role in developing the local ecosystems thus far.
  • Games Development is primarily self-funded.
  • Similar to South Africa, the majority of the studios are microenterprises, with very few of them being commercially active. The majority of jobs and revenue is derived from a small set of “larger” studios.

Gap Analysis
In examining the case studies and supplementing them with additional interviews, both with local and international stakeholders, the research team determined 8 key indicators to use as a measure of the “health” of the ecosystem. The Gap Analysis focused on these indicators and tried to determine how well the current South African Ecosystem measures up in terms of these indicators and investigated potential actions that could be taken to improve on them. Additionally, research was conducted on the role of game development for mobile platforms could hold for the industry as well as any challenges that local developers may face.

The 8 Key Indicators identified are:

  1. Large/Anchor Studios
  2. Local investment
  3. Access
  4. Clusters
  5. Government Participation
  6. Skills
  7. Industry Body/Lobby Group
  8. Comprehensive data and ongoing research

Generally speaking, South Africa ranked poorly on all the key indicators. The presence of Large (or what in some jurisdictions are referred to as “Anchor”) studios was identified as the most important indicator of a healthy industry, and the one indicator that should be prioritised in the strategy. This was done because it either had an overwhelmingly positive effect on all seven of the other indicators, or it was also one of the easiest indicators to measure. However, the presence of large studios was also reliant on at least 3 of the other indicators (namely, Local Investment, Government Participation and Skills) which suggests that the strategy must focus on these elements in parallel if the goal of having more large studios in the country is to be realised.

Looking at the indicators separately we find the following gaps:

Large/Anchor Studios

There appears to be no commercial benefit to scaling or growing a game development studio in the country. Looking at the existing “large” studios, over 80% had or were in the process of moving some or all of their operations outside of the country.

Ease of doing business, access to funding and skills, and a restrictive policy environment were the most common factors listed as reasons to move operations off-shore.

Local Investment
Based on the research, only a single studio had received funding from a local source.

While research indicates that there appear to be ample opportunities for local studios to receive company investment, very few were in a position to capitalise on these opportunities. This was due to a misalignment between what investors are looking for and what the studios are offering or because the founders themselves were not looking for studio investment. Several studios had reported on receiving
funding for projects, but all of it came from foreign sources, and no local sources existed.

Access
“Access” was the term used to describe how easy it is for individuals to join the industry, either through starting their own companies or through employment opportunities. In the South African context, access viewed through the lens of race and gender is especially important given the huge racial and gender skew observed in the industry. From an employment perspective, the biggest barrier was simply
that there are very few jobs in the industry. Secondary issues include exposure to the industry or had social taboos, especially in non-white communities and that relative to other industries that employed similar skill sets, the pay was lower. From a founder perspective, the lack of support and the general risk associated with the games industry prevented many from setting up their own studios, with only white
men having the privilege, social support and experience in the games industry to be successful founders.

Clusters
Several studies revealed that clustering (multiple businesses of the same or related industries coexisting in the same geographical space) had an exponential effect of driving growth, especially in the creative industries. However, the positive effects are only realised once a critical mass is gained. In South Africa, while the starting clusters are being observed in Johannesburg and Cape Town, neither of these areas
have reached a critical mass to realise the positive benefits.

Government Participation
Government participation through a positive policy environment and more directly through support (through tax incentives, grants or other financial incentives) was identified as a critical enabler of a growing industry. In South Africa, there is no formal support for the industry and initiatives that development studios can apply for are often not suitable for the business realities that studios face, which prevents many from using them. In addition, there appears to be distrust between the industry and Government which is hampering meaningful participation and lobbying efforts to enable change for the sector.

Skills

The lack of experienced, specialised skills was identified by local studios as the biggest factor limiting growth in the local industry. Because the majority of the studios in the country are microenterprises (and even the “large” studios are only small-to-medium enterprises), most employees are required to be generalists. The lack of opportunities for individuals to gain specialised skills in the domestic market
was identified as a major gap and one of the barriers preventing local studios from “upskilling” the relatively large talent pool of juniors. Local laws around visas were identified as a major barrier in bringing in foreign talent that could be used as a stop-gap to fill this shortage.

Industry Body/Lobby Group
A formal industry/lobby group present and active in the industry was identified as an effective means of driving change and growth, especially with government and other stakeholders. While an industry body does exist in South Africa its effectiveness has been severely hampered by a lack of funding.

Comprehensive data and ongoing research
Accurate, reliable and up-to-date research on the status of the industry is essential to inform decision-makers and track any effective interventions. Unfortunately, very little data exists on the local industry and due to funding constraints, much of it tends to be out of date.

Based on the research, the following goals, focus areas and strategies have been recommended by the research team. The ultimate goal is that efforts must be made to ensure that in the future, South Africa is home to many large game development studios. With this in mind, the strategies recommended by the research team are focused on how to make this a reality. The overall strategy can be broken down into Short Term, Medium Term and Long-Term Goals.

Short-Term Goals
Establish and empower the industry body – Interactive Entertainment South Africa (IESA) nominally fills the role of the industry body, however, it is severely underfunded, understaffed and lacks a mandate from many of the participants in the industry. Despite this, it has already made some gains and connections in the industry, so it makes sense to build off the base it has established. The first task to be undertaken with urgency is to empower IESA to be more effective and build off the base it has already established.

Get better at telling our story – The industry needs to get better at showing off and promoting the success and wins it makes. This will help contextualise the viability of the industry when engaging with other stakeholders but also goes a long way in “normalising” the industry in the common discourse. This will start to make inroads into the game industry as one where one can get a “real” job and where one can legitimately pursue a career. This will also start making a case for local investment which will be essential for local businesses to scale.

Develop a social compact – Critical to the medium-term goals is the industry getting its “own house in order”. Ideally, the industry should be leading the development of a medium and long term plan, backed by data, that has the support of critical stakeholders to present to the Government. Part of this goal must be to develop a framework for third-party stakeholders to “plugin” to the industry development
pipeline to help new studios as they progress through the journey to sustainability and growth.

Seed the ecosystem with potential new founders that have the support to fail sustainability – We know that the path to more diverse ownership is through diverse employment, but in the short term this poses a significant problem. There are simply not enough studios of sufficient size to employ new graduates. Since we cannot wait for the ecosystem to grow we need to create “surrogate” employers to
fill this gap. If these efforts are focused on non-white groups, it will lead to more non-white founders being able to sustainably and successfully establish businesses in the industry.

Medium-Term Goals

Government participation – With a strong foundation in place and a united industry and body of stakeholders ready, the process to re-establish connections with Government can proceed. Each of the items below is its own medium terms objective, but we will deal with it in summary, and on the assumption that they will be followed in order:

  1. Identify a champion – A high-level political figure needs to be identified and lobbied to be the appointed champion of the industry agenda. This person will be responsible in part to ensure there is sufficient drive within the government to pursue and implement the agenda and strategy as presented by the industry.
  1. Department/Agency owner – Once the champion is identified, a suitable agency or department that falls within the champions sphere of influence needs to be identified as the “owner” of the industry development. Engagement can then proceed to craft a more sophisticated intervention/ incentive program for Government to deliver on.
  2. Incentives and initiatives – This should happen concurrently, with the assistance of the champion’s efforts to lobby for policy change, primarily around “barrier” removal. For now, the role of the Government should be seen to foster growth as opposed to directly incentivising specific behaviour.

Studio Development – In addition to improving relationships with the government, the industry with its stakeholder partners must take steps to start achieving its goals of producing more medium-sized enterprises. The following strategies are suggested to assist incumbents and experienced new founders to achieve this:

  1. Identify incumbents for growth and potential exit – A process must be undertaken to identify which studios are geared for growth and assist them in planning for an eventual exit or mass growth. Not all teams will be suitable, and most will require some form of training or support.
  2. Enable/Support co-production – Industry must actively increase its engagement with foreign studios, especially around its own IP production to ensure that it gets exposed to the specialised skills and networks required for it to scale accordingly. International government partners will be essential to help formulate and implement these agreements.
  1. Bring the turtles home – Several South Africans are working abroad with experience in large studios. The industry with the support of its stakeholder partners needs to identify how best to attract these “turtles” to come home and establish studios here.
  2. Get foreign studios to establish offices here – Following from the co-production, and provided there is a sufficient” skills pipeline”e in place, steps should be investigated that would see medium or large-sized foreign studios establish a footprint on the continent, with the caveat that these should be small or medium enterprises and not a large entity.
  1. Unlock local investment – The industry with assistance from its stakeholder partners needs to engage with local investors and large corporates to unlock local investment to drive growth and scaling in the previously identified studios. Linked to this will be encouraging non-endemic founders to set up game development studios.

Skills Development – The studio development goals are predicated on sufficient talent and skills being available to drive the growth in the local studios. This can be done in the short-term by improving access to foreign skills and in the longer-term by improving capabilities to meet demand:

  1. Residencies – Existing educational institutions should partner with foreign agencies, studios and other institutions to organise skills exchange and residencies. Provided that there is a requirement that the beneficiaries are required to return home and work in their domestic industry for some time, this will help ensure that high-quality, specialised talent is seeded into the domestic industry.
  1. Import Foreign Skills – In the interim, while our own skill sets are developed, studios will likely need to import talent or hire remote workers to fill the gap. Steps should be taken to reverse the trend of local studios offshoring to fill their skill deficit, and coupled with this, local skills that are being employed by foreign enterprises should be encouraged to “give back” to the local industry in a structured way. Local community initiatives and events will be critical to fostering this engagement.
  1. Improved skills development pipeline – To see sustained growth, the industry cannot be reliant on wholly importing talent. Working with Academia, the industry must assist in the development of a curriculum and ensure that graduates with the right skills are available to feed the growth required. Part of this is ensuring that a diverse set of people are entering the pipeline. This will likely require bursary support and outreach programs from the industry.

Long Term
Establishment of large studios – With a strong, sustainable and diverse ecosystem to build from, the local industry is ready for its first large studios to emerge, either through an exit of one of the incumbents, the organic growth of one of the incumbents or an international studio establishing itself in the country.

The executive summary can be downloaded and viewed in its entirety via the image below:

In efforts to ensure that this great piece of research is shared with the wider gaming community and stakeholders, Tshimologong Digital Innovation Precinct will be hosting an online round table to further dissect, discuss and share deeper insight of the report on January 28th 2022.