Activision closure adds to fears for British games industry

The world's largest publisher of video games is adding to the woes of the UK industry by shutting down one of its studios. Yesterday's announcement came a few weeks after its chief executive attacked the Government for scrapping planned tax relief for the sector, warning that it could drive software companies abroad.

Activision Blizzard, whose releases include Call Of Duty: Black Ops, which grossed $1bn (£626m), decided this week to shut Bizarre Creations, its Liverpool-based subsidiary which employs about 200 staff. The US company confirmed the closure after consulting about alternative options for two months.

Activision put Bizarre up for sale in November following disappointing sales of its latest racing game Blur, which, despite "substantial investment", sold only 500,000 copies. Bizarre, founded in 1992, had previously developed the popular Project Gotham Racing, which sold more than 6 million copies.

The move leaves Activision with just one other development studio in the UK, FreeStyleGames, although it works with others based in this country. Activision said at the end of last year: "Bizarre has a very talented team of developers. However, because of the broader economic factors impacting the market, we are exploring our options regarding the future of the studio, including a potential sale of the business."

One of the broader economic factors that has riled the games industry is the Government's surprise decision to drop the proposed video games tax relief. Bobby Kotick, the chief executive of Activision, criticised the move earlier this month, calling it "a terrible mistake" and saying there were "many other places that are encouraging the video games industry".

The UK trade body Tiga warned of an exodus of skilled graduates to countries with more benevolent tax regimes such as Canada, potentially decimating a traditionally strong sector for Britain. While a spokesman for Activision said the UK remained "a key market" for the group, Mr Kotek's comments raised fears in the industry that the US parent might consider moving some of its UK operations abroad.

Richard Wilson, the Tiga chief executive, said the UK's lack of tax relief made it unattractive and cautioned that one major company withdrawing from the country could have dire consequences. "We are worried there could be a domino effect if one of the biggest developers goes," Mr Wilson added.

Sales of software in the UK last year were worth about £3bn, while developers contributed £1bn to the economy.

On Monday, Ed Vaizey, the creative industries minister, met executives from software houses including Eidos, Revolution Software and Playfish to discuss the challenges the industry faces in raising financing. He has also asked Cliona Kirby, a partner at the law firm Olswang, to review how makers of video games are affected by tax rules.