California’s dominance of the video game industry is facing a potential threat as other states and international players have begun to vie for a piece of the pie, according to a new report from the nonpartisan think tank Milken Institute.

“Future-Proofing the Video Game Industry in California” noted California is second only to China as a leading force in the video game industry. Over 900 video-game companies with over 33,000 employees call California home, largely in Los Angeles and the Bay Area. As the gross domestic product of the software industry, to which video games contribute, doubled from $72 million to $145 billion between 2006 and 2016, California’s portion of that sum also doubled from $14 billion to $32 billion.

Though California’s 27 percent stake in the industry is larger than the next four states (Texas, Washington, New York, and Massachusetts) combined, these four states have managed to cut into the lead over the past decade, and now have a combined 25 percent share in the industry.

The implementation of tax credits and incentives by other states and the Canadian province of Quebec, have encouraged companies to look outside of California. Tax incentives for research and development and production do exist in California but few apply to video games since they are considered a software industry rather than entertainment.

In order to protect its industry standing, California must offer more tax incentives specifically targeted towards software and video game companies and also offer more education-to-career opportunities to guide people into industry jobs, according to the report.

Despite California’s high-quality video game design programs at institutions like USC and UC Santa Cruz, gaming company executives say there is not enough support in educational systems or industry connection to fill these jobs in the state, often forcing them to recruit or relocate in other states with more established applicant pools. While California enjoyed a 184 percent increase in software company locations between 2009 and 2015, the rest of the country grew 304 percent, a jump from 708 locations in 2009 to 2,858 in 2015.

Furthermore, while the average software industry wage in California was $201,000, $53,000 greater than the national average and second only to Washington at $211,000, the gaming development hubs of Los Angeles and the Bay Area have some of the highest costs of living in the country, causing potential employees to flee to states like Texas that are more affordable and also offer industry jobs.

While large, prominent gaming companies like Activision Blizzard, Riot Games, Tencent, Atari, and Electronic Arts call California home, a majority of video game companies (99.7 percent) are small businesses and over 90 percent claim 30 employees or fewer. This trend is largely influenced by the rise of self-publishing of mobile games and virtual/augmented reality games on platforms like Steam, Facebook, and the Apple App Store.

The authors of the report presented their findings to a to state legislators at a public forum in Sacramento on February 13.