The video games industry in the UK is looking healthy but could do with more government support, according to a report by analysts Screen Digest. More software and games are being sold overseas than are imported, a good sign for the economy, said the report. It shows the interactive entertainment industry is doing financially better than film and television industries. The rising cost of making games has meant many studios have closed however, sending talent overseas.

The games industry employed 7.5% more people than in 2000, but the number of actual developers fell by 6%. Most of the gain was made in publishing, distribution, and retail jobs. Roger Bennett, director general of Elspa (Entertainment and Leisure Software Publishers Association) which commissioned the report, said the financial success was a "marvellous achievement". But he warned more government help was needed if the industry's future was to stay healthy.

"Our greatest asset is our creativity and in recent times we have seen this talent being leeched away through lack of funding and more attractive prospects overseas," he said. As a result, the UK risks losing its position as the source of global blockbuster titles, he added, and as the first European destination for global funding.

The cost of developing titles for the current generation of consoles has already meant some studios have had to shut. In October, one of the largest and oldest independent games developers in the UK, Argonaut - responsible for the Harry Potter games - went into administration after a severe cash crisis.

The global games market is worth some $28bn (£14.5bn). Gamers spent more than £1.34bn in 2004, with Grand Theft Auto: San Andreas the top biggest seller. The UK-developed game smashed sales records, selling more than a million copies in its first nine days on release. "It is now time for government to recognise the valuable contribution we make to the UK economy, comparative to other entertainment sectors," said Mr Bennett.