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Malmö is a town with a reputation. It is known for its gang crime and multicultural population, which has been a discursive bait to populists and the far-right to propagate their reactionary ideas. Yet Malmö is also known for being the Nordic Mecca for gaming and game development, making it into a vibrant hub for developers from across the world to meet to develop games and provide large budget Hollywood blockbusters like Avatar with animation. International investors are increasingly eyeing opportunities in the provincial capital. What is it that makes Malmö, and perhaps Sweden more widely, so special for the gaming industry?
Formerly known for its shipyards and manufacturing of commercial and military submarines, Malmö felt the growth pains after its industries moved to Asia in the 1990s. Its local government scouted for solutions in an effort to bring its structural unemployment to an end, the town invested in education and training, with a particular focus on IT. Artists and other creatives began to find their way to Malmö as housing was affordable and studios were aplenty, while also enjoying an enviable proximity to Copenhagen and the rest of Europe. This sowed the seeds from which the town’s game development scene would later sprout. Malmö now hosts a consortium of internationally renowned game development firms, including Fatshark, Massive, King, and Tarsier, making it one of Europe’s “hottest gaming towns”. With game development blossoming, studios are becoming increasingly open to cooperate with new businesses and launch sister studios in other towns. A parallel sector aimed to support game developers, such as cloud services and co-habiting spaces designed specifically for developers, has emerged in response to lift their work to new heights.
Global demand staves off youth unemployment
Global appetite for gaming continues to drive a demand to develop more games, and the gaming industry has eclipsed film and music altogether, many studios have been recruiting developers aggressively. Like elsewhere in the Swedish labour market, there is a shortage of skilled game developers. Gaming is therefore seen as a path to obtaining a good job in many young people’s eyes, which is reflected in a surge of game development courses at former polytechnics around the country, as other towns have seen how lucrative game development is as a source of employment. These courses cover every aspect of development, from design and animation to narratives and story-telling. Nevertheless, due to chronic staff shortages, outsourcing services have also emerged, with many studios offshoring work to countries like Estonia, India, and Poland.
Creative tools to shape innovation
Alongside this, studios have begun to branch out from the conventional definition of gaming, as they develop games for other purposes, from hunting to pregnancy care and problematising (in)justices. Gaming, in other words, stretches far beyond entertainment. Researchers are increasingly beginning to look at gaming as an option for simulations in their research, including mapping human behaviour. Games may be used as tools for innovation, such as to bolster the advancement of AI to “think by itself” (deep learning), augmented realities, shooting simulations, virtual realities and developing drone technologies. Allowing these areas to mature may allow developers and investors to transfer elements of such games to other sectors, such as the defence sector where drones and simulations have grown more important in the last two decades.
Battle of the investors
Brussels bureaucrats have acknowledged Sweden’s transformation and its eagerness to become one of the world’s leading centres for gaming, bequeathing grants to support its development. International investors, too, have eyed local game development businesses, with China’s Tencent investing hundreds of millions of Crowns in its acquisitions. Investors from the US to China via Sweden may soon be at loggerheads over who acquires which business first.
But how lucrative is this market actually? Swedish developers have set new records in games development, business expansion, sales and investments, transforming into a multi-billion SEK industry. According to the 2019 Game Development Index, the gaming industry’s revenues nearly tripled between 2014 and 2018, yielding nearly SEK 19.2 billion between 384 companies in 2018 alone. The sector has reported steady profits in the past decade and is quickly becoming a leading export market. Comparably, exports of paper generated a revenue of SEK 24.4 billion in 2018, but the gaming industry is set to overtake paper exports if current trends hold, according to a forecast made by the Swedish Games Industry (Dataspelsbranschen).
The global success of the gaming industry and Sweden’s tech start-up scene led one CEO to describe Sweden as “a test market, not [a] home market”. The gamin sector was most notably successful in attracting investment from global venture capital and hedge fund investors, with American video games behemoth Activision Blizzard purchasing King Digital Entertainment for nearly USD 6 billion, followed by the 2016 Microsoft purchase of Mojang valued at USD 2.5 billion. Global and domestic investor interest in entering early and exiting to high values has led to the rise in angel business networks and groups exploring lucrative opportunities in a high-risk market, where predicting the next successful game and studio is more difficult said than done, according to experienced investors. Even so, investing early in games that become successful has proven to yield generous profits, particularly if investors sell off the company before revenues fall, which in the longer term may prove a risk, both for the companies and the Swedish economy as a whole.
Sweden raked in USD 122 in venture capital investment per capita based on 2018 estimates, outpacing the European average of USD 36 per capita. Thanks to cross-border investments between 2016 and 2018, the wider Nordic region gleaned in approximately USD 411 of venture capital investment per capita between a combined population of 26 million, according to the same figures, putting the region in a favourable position to outcompete rivalling regions.
Since 2018, Karlstad-based Embracer Group is the largest games company operating in Sweden, after its acquisition of Germany’s Koch Media, reeling in over SEK 4 billion in revenues and an international workforce consisting of 1,300 employees. Mojang (Minecraft) and King Digital Entertainment (Midasplayer), both of which have long dominated the Swedish gaming market, continue to report major profits and stable revenues of around SEK 3 billion and SEK 2 billion respectively. Other relevant competitors continue to see good growth prospects, with G5 Entertainment, EA DICE, Stillfront Group and Paradox Interactive each bringing in over SEK 1 billion in revenues during 2018. The sector employed 7,924 people in 2018, of which 5,320 hires were based in Sweden. This reflects a surge in outsourced jobs to countries with lower costs, primarily in Central and Eastern Europe, but also further afield.
Regional start-up clusters have grown independently of each other and are important sources of growth, with the Skellefteå-based Arctic Game Lab experiencing the fastest growth in 2018. Bringing together developers and investors from Norr- and Västerbotten, the Lab has become a successful base for gaming development in Northern Sweden, giving rise to around 40 companies since 2014. East Sweden Game in Östergötaland has generated some 30 gaming projects and a popular accelerator programme for developers since 2017. Skövde’s Science Park has arguably become a gaming metropolis, amassing global venture capital investment and acquisitions in its successful games, from where China’s Tencent purchased shares in Stunlock Studios, after its popular game Battlerite became a success with Chinese gamers. In the east, Science Park Gotland struck a partnership with developers in the Baltic States as part of the mutual Game Camp project, while The Great Journey is forming the Innovation Park Karlstad cluster. Dalarna hosts Gamification of Dalarna, organised with Tension, to promote collaboration between developers and the tourism sector. Stockholm received its first gaming incubator Sting Game in 2017, launched by venture capital fund Sting. In the south, Blekinge Business Incubator has successfully run Gameport as an incubator in Karlshamn, while the community-focussed, non-profit organisation Game Habitat has regularly worked with Skåne’s regional government and Malmö municipality to develop the local game industry, launching the co-working space Game Habitat DevHub in 2018. Gaming has left its marks on the region, and it is likely to make it “even wealthier,” as a head at Massive put it. The Stockholm based Paradox Interactive morphed from a boutique start-up consisting of game developers into an investment firm aimed to back promising unicorns – is this a lesson that Malmö could take after?
This is a discussion that unearths sensitivities, as Malmö faces a challenge in keeping professionals as residents within its town limits as local authorities hope to receive a slice of the cake (paid via taxes). It is no surprise that Stockholm’s opinion-builders, who tend to overlook regions outside capital territories, advocate that Sweden should take good care of its unicorns and its place within gaming. Yet Malmö is a town with many contrasts, where bus lines divide the well-off from the less well-off. What type of wealth and the way it should be shared, alongside how attractive Malmö wants to become to global talent (now that the town grapples with spiralling rents, almost comparable to Stockholm), is a discussion authorities should be having with its developers, investors and its residents. Nevertheless, this could be a boon for the creative sectors if Malmö municipality is allowed to handle it correctly, balancing business with local welfare, equality, etc.
The game development sector has undoubtedly left its imprint on the Swedish economy. A revitalising force, it has brought life to industrial towns and promoted regional growth, stitching towns and sectors together into regional clusters. An example of that is the Öresund cluster, consisting of Malmö, Copenhagen and Lund, where a transnational economy is playing a real role locally, regionally and perhaps even nationally. Such clusters help loosen Stockholm’s grasp of the Swedish economy, bringing regeneration and young talent to areas which otherwise would have flown under the radar. With international investors showing interest in a sector whose games could be used for multiple purposes, it is easy to forget that something as innocent video games could be used to propel AI and armed combat to a new age.
Note: This is a shortened version of an article that appeared in the March 2020 edition of the Monthly Policy Review. Graphs and footnotes are only available in the subscriber version.