Connecticut Technology & Intellectual Property

As Connecticut has transitioned from being a manufacturing state, it is the high-technology development industries that present the best opportunities for business development.  One such high-tech industry that could prove to be growth sector in the state, even during the current market downturn, is video game development. 

Although not currently a significant piece of the Connecticut high-tech landscape, in recent years, the state has taken steps to try to attract video game development companies.  In 2006, the state established tax credits for the production of digital media and motion pictures in Connecticut, and “qualified productions” included video game productions.  A video game development company that produces in the state is entitled to a tax credit equal to 30% of those of its production, pre-production and post-production expenses incurred in the state that exceed $50,000 (See details from The Connecticut Commission on Culture and Tourism).

Brandon Curiel, President of Venan, highlighted the importance of the tax credit program for video game developers in a recent interview with WFSB (“Gaming Co. Pushing To Keep Tax Credit”, February 11, 2009).  Venan is located in Cromwell, CT, and produces video games for cell phones and other handheld devices.  Mr. Curiel fears that the recent fiscal and economic conditions of Connecticut could result in such tax credits being taken away, which would have the effect of curtailing Venan’s business expansion (“Venan, for example, hopes to hire about six more people this year, he said, but it can’t without the tax credit”).

About a year ago, Kristin Kalning (games editor at MSNBC.com) explored whether the unique nature of the video game industry insulated it from economic downturns (“Is the video game industry recession-proof?”, March 7, 2008).  Back then, many analysts and those in the industry were optimistic that the industry was in a better position to weather the storm, analogizing the industry to theaters during the Great Depression when people were “willing to spend a quarter per person to forget about their troubles for a few hours”.

Ms. Kalning has taken a look as to how those predictions held up during the past year in a recent article (“Economy has game-makers honing strategies”, March 2, 2009).  The news for the video game industry during such year was that it did particularly well during 2008, but was not totally recession-proof.

First, the good news: Overall revenues in the U.S. game industry topped $21 billion in 2008, up 19 percent from 2007, says the NPD Group. What’s more, year-over-year sales for January were up. That’s quite a feat in this dreary economy.

But even though games are faring better than, say, the auto industry, “that doesn’t mean that there’s not pain, and it certainly doesn’t mean that there’s not winners and losers,” says UBS analyst Ben Schachter.

The unique nature of the video game industry in general during volatile market conditions, along with the financial (i.e. tax credits) and “intangible” (e.g. nice place to bring up a family) benefits that the state can provide, allows for some promise in the growth of the video game industry in Connecticut.  Such growth would help to diversify Connecticut’s tax base, attract highly-skilled/educated workforce (stop the “brain drain”) and promote investment by angels, venture capitalists and strategic acquirers/partners.  However, there are pitfalls, the first and foremost being any elimination of the tax credit by the state in its attempts to solve its current fiscal crisis.

- Gregg J. Lallier