The Commonwealth of Massachusetts is now leading the country in … taxes on software services, according to one study.
The Commonwealth of Massachusetts is now leading the country in … taxes on software services, according to one study.
Beck Reed Riden LLP featured in The Wall Street Journal on Noncompete Agreements & Litigation
According to this sector analysis, there is hope and expectation that holiday video game sales will serve as a shot in the arm to a year of otherwise disappointing sales.
Reduced to its moveable assets, a video game company’s value can often be measured in thousands - not millions. This photo from the 38 Studios auction, held earlier this month, shows where the intellectual property - the true value of any such company - was created.
Zynga’s cost cutting hits home as its Boston office closes. Above: Zynga’s historical share prices.
For a great overview of the state of play for the video game industry in Massachusetts, check out Scott Kirsner’s Aug. 14 article here. Kirsner identifies several opportunities for growth, but notes that the Bay State faces many challenges and challengers for future development:
The very first video game, Spacewar, was created at MIT in 1960, in part to demonstrate the capabilities of the PDP-1 minicomputer made by Digital Equipment Corp. In the 1980s, Massachusetts was home to game publishers like Infocom, which made text-based games like Hitchhiker’s Guide to the Galaxy, and Spinnaker Software, which focused on educational games. But more recently, the action has shifted to cities like San Francisco, Seattle, and Austin.
Canada, meanwhile, has woven a lavish welcome mat for video game companies, including tax credits and no-strings-attached funding. Ontario’s Interactive Digital Media Fund, for instance, has supplied $7.7 million to 76 different projects in that province. (Incentives proposed in Massachusetts earlier this year seem to be stalled on Beacon Hill.)
For a good read, check out Hiawatha Bray’s profile of Cambridge’s darling developer, Harmonix, in this Globe article. The kicker offers a glimmer of hope along with a dose of reality:
Harmonix is also at work on something entirely new, though nobody at the company will say what it is. Last month, the company trademarked the word Vidrhythm and confirmed it’s the name of an upcoming project, but has declined to offer details.
Harmonix’s comeback may never match its explosive success of just a few years ago. Then again, said Pidgeon, “just staying in business is a plus these days.’’
Today the Supreme Court ruled that California’s statute banning the sale of violent video games to minors is unconstitutional, as it violates the First Amendment’s protection of freedom of speech. A copy of the Supreme Court’s ruling in Brown v. EMA can be downloaded here.
The ruling, a 7-2 decision, features some interesting analysis of video games and their treatment under the First Amendment. For instance, the Court compares the violence depicted in some video games to violence in children’s literature:
Certainly the books we give children to read—or read to them when they are younger—contain no shortage of gore. Grimm’s Fairy Tales, for example, are grim indeed. As her just deserts for trying to poison Snow White, the wicked queen is made to dance in red hot slippers “till she fell dead on the floor, a sad example of envy and jealousy.” Cinderella’s evil stepsisters have their eyes pecked out by doves. And Hansel and Gretel (children!) kill their captor by baking her in an oven.
The Supreme Court rejects California’s singular focus on the video game industry and highlights examples of other media that arguably arouse violent tendencies in children:
Of course, California has (wisely) declined to restrict Saturday morning cartoons, the sale of games rated for young children, or the distribution of pictures of guns. The consequence is that its regulation is wildly underinclusive when judged against its asserted justification,which in our view is alone enough to defeat it. Underinclusiveness raises serious doubts about whether the government is in fact pursuing the interest it invokes, rather than disfavoring a particular speaker or viewpoint. Here, California has singled out the purveyors of video games for disfavored treatment—at least when compared to booksellers, cartoonists, and movie producers—and has given no persuasive reason why.
In affirming the Ninth Circuit’s ruling that California’s statute is unconstitutional, the Court concludes as follows:
California’s legislation straddles the fence between (1) addressing a serious social problem and (2) helping concerned parents control their children. Both ends are legitimate, but when they affect First Amendment rights they must be pursued by means that are neither seriously underinclusive nor seriously overinclusive. As a means of protecting children from portrayals of violence, the legislation is seriously underinclusive, not only because it excludes portrayals other than video games, but also because it permits a parental or avuncular veto. And as a means of assisting concerned parents it isseriously overinclusive because it abridges the First Amendment rights of young people whose parents (and aunts and uncles) think violent video games are a harmless pastime. And the overbreadth in achieving one goal isnot cured by the underbreadth in achieving the other.Legislation such as this, which is neither fish nor fowl, cannot survive strict scrutiny.
Justice Thomas, in his dissent, provides a long dissertation about the Puritan approach to child-rearing and concludes that
“[t]he freedom of speech,” as originally understood, does not include a right to speak to minors without going through the minors’ parents or guardians. Therefore, I cannot agree that the statute at issue is facially unconstitutional under the First Amendment.
For more about this case, including a summary of arguments for and against the statute, as well as a transcript of the oral argument, visit my firm’s website here.
Will Massachusetts join the pack of states that provide tax incentives to video game companies? At this early stage, it is impossible to tell. The bill to provide tax credits, sponsored by Rep. Vincent A. Pedone, was referred to the Joint Committee on Revenue in March 2011. There, the committee members will do their homework and make a recommendation on the bill. This stage can take months and it is something of a black box: typically, very little information about the prospect of a given bill is publicly leaked.
Despite the deliberate pace of the legislature, the prospect of making tax incentives available to video game companies remains a hot topic. On June 6, 2011, the Boston Globe published a story by Hiawatha Bray profiling various supporters of the legislation. Attorney Michael Cavaretta, a local video game insider, shared his insights about the national race to enact tax incentives:
“I think we’re already starting to miss the boat here,’’ said Michael Cavaretta, a lawyer at Morse, Barnes-Brown & Pendleton in Boston who works with local game companies. “Other states are getting more aggressive.’’
As one example, Cavaretta cited Louisiana, where a program of tax incentives for video game companies has attracted investments from industry giant Electronic Arts Inc. and French mobile game publisher Gameloft. “You don’t think of Louisiana as a hotbed of technological, media, and artistic talent.’’ Cavaretta said. “Nevertheless, because of these incentives, they’re attracting companies.’’
A few days later, on June 12, 2011, Boston Globe’s conservative columnist, Jeff Jacoby, wrote an opinion piece opposing the incentive initiative. Although the Globe previously endorsed video game incentives, Jacoby pulled no punches when he started his column by saying: “So now it’s the video game industry that wants to be bribed to do business in Massachusetts.”
Jacoby named a few other recipients of past tax incentives (Fidelity, Evergreen Solar Inc., and the film industry) and concluded as follows:
State officials should not be trying to game the market for the benefit of industries it deems glamorous or cutting-edge or most likely to succeed. If they are persuaded that lower taxes would be good for the film industry — or for solar energy or biotech or financial-services — then it’s a pretty good bet that lower tax rates would be good for business, period.
Tax-code favoritism breeds corruption. It substitutes the judgment of millions of consumers in an open market with those of political officials and the special interests that seek their favor. Video-game developers who see the largesse showered on certain industries can hardly be faulted for wanting some for themselves. “Wherever there is a trough,’’ wrote the Russian poet Alexander Pushkin, “there you will find pigs.’’
But slopping pigs isn’t the government’s job. Neither is manipulating the tax code to advantage some businesses over others. If the Massachusetts video-game industry can’t succeed on its own, it shouldn’t go crying to Beacon Hill. No other industry should either.
The debate continues. In the meantime, Beacon Hill’s consideration of Rep. Pedone’s initiative is generating business for lobbyists and raising the hopes of the game developers and tax credit companies that stand to directly benefit from any incentives that are enacted. It is the promise and hope of everyone who supports these incentives that the local economy will be the ultimate beneficiary.
According to the Boston Globe:
The institute will feature a lab where academic researchers and game developers can test the latest innovations. It will also establish a “reverse sabbatical’’ program, allowing people employed in gaming companies to work at the institute.
Becker College’s video game institute was first announced in December 2010.
For our friends on the West Coast — the City of Worcester is the second largest city in New England and it’s pronounced “Wooster” (like the “woo” sound in “wood” plus “ster”) or — if you’re a true local — “Woosta.”
The BiG Conference is set for Thursday, March 10, 2011. This all-day conference brings together the stakeholders in the MA video game industry. I went last year — it was great. The event is being held at the Seaport Hotel in Boston. More details and registration information can be found here: http://www.mitbig.com/
Boston.com is featuring an online poll with the question:
Do you support giving state tax credits to video game companies?
Right now, the voting stands at 56% of users in favor of giving tax breaks to video game companies in MA.
The non-scientific poll follows on the heels of Hiawatha Bray’s extensive article in today’s Globe about the issue of tax incentives for this sector. Bray’s report provides a cogent analysis of this initiative, its challenges, and potential payoff.
The bill’s chief sponsor had this to say about the goal of his tax incentive legislation:
“We want to take the entire video game industry and its supporting cast and have them locate here,’’ said State Representative Vincent Pedone, a Worcester Democrat, who has introduced a bill to offer a variety of tax credits to attract video game developers. “We want to make Massachusetts the hub of the universe for video game design.’’
On Tuesday, January 25, 2011, New England Games SIG hosted a panel discussion of new legislation proposed by Representative Vincent A. Pedone to provide tax incentives to video game companies. The event was held at the Microsoft NERD Center in Cambridge.
The panel, pictured below, gave an informed presentation about the benefits of tax incentives for this sector. The panel, which included Rep. Pedone and industry leaders, described the challenges and opportunities for Massachusetts in attracting new video game companies. Notably, many of the panelists mentioned that Massachusetts already faces tough competition from Canada and the 17 other states that already offer incentives.
Michael Cavaretta of Morse Barnes-Brown Pendleton, PC, served as the MC for the evening’s events. The panel was moderated by Rodney Brown, News Editor of Mass High Tech. The panelists included Rep. Pedone, Eric Nakajima, Dr. Ian Davis, President of Rockstar New England, Ken Surdan, VP of Operations for Turbine, and Mike Tinney, President of CCP North America.
In today’s Boston Globe, its editors endorse a plan to offer tax incentives to video game companies. Recognizing that this sector offers significant growth potential and jobs, the Globe editorial characterizes incentives as a long-term investment:
Incentives for video game developers … could serve as an invaluable long-term incubator of talent, helping to further build up the local industry. While Greater Boston’s strengths — a wealth of top research institutions and a concentration of tech-savvy young people — are a good match for the industry’s needs, other jurisdictions are also making a strong bid to attract game developers.
If reader comments to the editorial are any measure of voter enthusiasm for the measure, the legislature will have an uphill battle trying to implement an incentive program. Nevertheless, the Globe’s support is a major development in the effort to create a tax-friendly environment for this burgeoning sector.
As noted here before, there are already at least 17 other states that offer tax incentives to video game companies. The tax incentive game is sometimes criticized as a race to the bottom, with states competing with one another at the expense of taxpayers. However, the judicious use of tax credits could yield dividends to the Commonwealth because the Bay State already has much to offer interactive media companies and a thoughtful incentive plan would further buttress our standing as a top destination for video game entrepreneurs.