Strong on ideas, weak at capitalising on them: that was the state of UK videogame development in 2008, according to a report from NESTA (the National Endowment for Science, Technology and the Arts).

Called Raise the Game, it goes on to argue that the UK videogame industry is at risk of being overtaken by South Korea, Canada and China in 2009. “Things seem healthy now, but one company, Rockstar North, is responsible for most of that,” warns Jackie McKenzie, NESTA’s head of innovation programmes.

NESTA suggests crucial factors in the UK’s declining game fortunes are a lack of government funding, few global-scale publishers and a shortage of workers with the necessary skills. Commenting on the report, Ian Livingstone, creative director at Eidos, summed up something of a worrying trend: “In the last six years, half the independent development studios have closed or been bought by foreign companies. The UK is becoming a work-for-hire nation; this seems certain to continue unless the government takes action.”

“When you’ve got the Canadian government offering huge incentives that simply aren’t available in the UK, it’s clear why there’s a skill shortage,” says McKenzie. “Developers we spoke to would prefer to stay in the UK, but if they get a better offer from abroad, they’re going to take that to stay in games. You can’t stop that, but you can create a robust industry where talent flourishes.”

And this outgoing talent isn’t necessarily being replaced. Perhaps the most depressing finding of the report is that only 18 per cent of graduates from game courses end up working in development. “It’s shocking. The companies we’ve spoken to said that they can’t work with most graduates without re-skilling them,” says McKenzie, who argues that the way to improve university courses may be through increased focus on accreditation by Skillset, the Sector Skills Council for Creative Media.

“The courses that have been accredited are really very good: graduates are ten per cent more likely to get an industry job. Their accreditation programme brings an industry panel to the universities for an auditing process. But sadly there are only four degree programmes across the UK that have met their standard.”

Among NESTA’s principal recommendations is that university funding is tied directly to accreditation to strip out courses that aren’t delivering. In terms of retaining core talent and encouraging individual development teams to take risks with new IP, McKenzie would also like to see a ‘prototype fund’ created. “This could replace cumbersome R&D tax credits, and would be a perfect way to enable smaller teams to create original content to take to publishers.”

Funding initiatives are central to the growth of territories such as Singapore and Canada, and McKenzie believes that the UK government’s traditionally antagonistic attitude to videogames may be changing. “The government is aware that this is a creative industry that’s not all about violence. We ran an event at the Tory party conference about game myths and the reaction was very positive: creative people creating trade for the UK. But NESTA’s job is not to lobby the government for tax incentives. It’s to provide a report that says: this is what’s happening.”

McKenzie admits that NESTA itself is unsure how to remedy some of the issues its report highlights. “How does the government encourage online development? How do they encourage global publishers? I’d like to see the industry working collaboratively for the good of the entire UK industry: through skill shares, placements, more mentoring and other approaches.”

Such a unilateral approach may seem unlikely but, whatever the solution, if ‘Raise the Game’ is correct, these are problems that UK teams will need to address. As Livingstone points out: “Cash tills might be ringing loudly, but not through sales of games developed in the UK.”