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A taxing proposition: GST and digital game distribution.

The question of how game makers get their creations into the hands of players has always been a complicated one. For those within studios, the answer has involved the complexities of technology, profits and governments. For those working on the boundaries of the recognised industry, the answer has usually been to make do: the earliest independent game designers would just put their game on a tape and leave it, along with some photocopied instructions, in a sandwich bag at the local computer store, with information on how appreciative players can send them five dollars through the post.

Recent developments, however, have seen this question of distribution get more complicated--and possibly more interesting. For a long time now, the internet has dominated game distribution in Australia. Despite the bricks-and-mortal retailers of this country having been able to historically rely on physical game sales, that reliability now seems less and less stable. When Kmart decided to bow to the calls of an online petition in December last year and remove the provocative Grand Theft Auto V from its shelves, some commentators suggested that this might have been an easy decision, given Kmart's flagging game sales. This was confirmed in April, when Kmart managing director Guy Russo specifically drew attention, in Kmart parent company Wesfarmers' quarterly report, to the 'continued decline' in video game sales.

Online retailers rule when it comes to game sales and distribution, with cheap prices and instant access lending obvious benefits to consumers. One particular advantage, however, has stemmed from most of these online retailers being located outside Australia. For the most part, sales of games online have accordingly been exempt from GST something that clearly stuck in the craw of physical retailers like Harvey Norman's Gerry Harvey, who, for many years now, has campaigned against 'totally unfair' tax-free thresholds for online purchases.

That is set to change, however, with the introduction of what has been called the 'Netflix tax' as part of the recent federal budget. From 2017, foreign companies selling digital goods--that means video games, among other things--will be required to charge GST, lifting prices by 10 per cent. The fact that this change isn't expected to be enforced for another two years says a lot about the practicalities involved. A previous Productivity Commission report argued that it would be more trouble than it's worth to charge GST on digital goods, and there's a fair point to be made there. Collecting tax from digital game distributors like Steam and is one thing, but figuring out how to pursue more esoteric distributors like (which continues to grow in popularity) adds another level of complexity altogether.

Implementing a tax on online sales will all depend on international cooperation and, in all likelihood, formal agreements. Treasurer Joe Hockey may frame the 'Netflix tax' as an Australian intervention into balancing the federal budget, but it's actually been brewing for years as part of the OECD's exploration of and advocacy for such local taxes being collected by online retailers. The European Union and many countries in Africa already have similar laws in place, while Japan, Canada and New Zealand are moving towards introducing their own, too.

At the same time, locals are moving to cut out the multinational middleman altogether. In April, the Perth-based SK Games successfully crowdfunded the launch of its own online store, Backyard. SK Games is, in many ways, an anomaly in the Australian video games landscape: it's both commercial and utterly grassroots-oriented, while remaining distinctively Australian. The company makes games predominantly for live events--'games parties', which in practice function a lot like a gig night at your local pub except, instead of local bands, you'll find local video games on display.

Selling games at these events is always a little tricky, and SK Games tries to sell physical copies on CD--much like you'd find bands spruiking their latest EPs at gigs. Yet, when it came to finding a natural online I home for SK Games' work, there was no clear answer. The biggest and most popular online stores require many hurdles to be cleared before allowing anything to be sold, and SK Games' esoteric output would likely not fit in, anyway. The obvious answer was for SK Games to create its own online store --but, in Backyard, it has created a platform for others' games as well as its own. SK Games claims to be doing something more, too. 'The ways of getting a game out to the public [...] are like a catalogue,' says SK Games founder Louis Roots in the company's crowdfunding pitch.

You don't go [to physical shops] to find anything new; you go there to get the [game] you're looking for [...] Our shop is more like walking into a little set-up at a record fair, where you can talk to the people behind it and you can trust their curation and their judgement of the product.

So distribution, a surprisingly complicated thing for a naturally digital industry, appears to be getting more complex in Australia. For consumers of mainstream distribution, products online may get 10 per cent pricier, while local distributors regain some lost footing. Meanwhile, for independent and grassroots distributors, it remains to be seen whether curation can indeed create a meaningful alternative.

Daniel Golding is the director of the Freeplay Independent Games Festival, and a freelance arts and video games journalist. He also teaches in the University of Melbourne's Screen Studies program.
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Title Annotation:Scope: Screen industry views
Author:Golding, Daniel
Publication:Metro Magazine
Date:Dec 22, 2015
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