Game developer calls on feds for more effective tax incentives

OTTAWA—Canada’s video game industry employed more than 14,000 people and generated $2 billion in retail sales in 2009, but some smaller game developers say the federal government should offer more tax breaks to support the industry. Battlegoat Studios, a small PC strategy game developer in Ancaster, Ont., made a submission to Industry Canada’s digital economy consultation in which it said the treatment of the creative industries, through public policy and tax incentives at the provincial level, should be extended at the federal level. “The provincial government has really stepped up and has been very strong. So when you look at it from a provincial standpoint, I believe we get pretty equal treatment compared to the film industry,” George Geczy, co-founder and co-owner of Battlegoat Studios, said in an interview. “ when you look at the federal side, it’s quite a bit different.” Geczy said the film and music industries have an easier time accessing federal funds through organizations like Telefilm Canada. “They give out money quite easily to movies, music and even animation, but when you look at video games, it works much differently and it’s difficult to access. It isn’t a level playing field with the film industry, unfortunately.” The federal government is providing some help for the sector. Its Canada Media Fund has an "experimental stream" that dedicates $27 million to funding interactive, digital and new media content, including video games. Some provinces are also working with the federal government on digital media tax credits. But Geczy said the environment for the video game industry in Canada remains positive. When Battlegoat Studios was founded 10 years ago, the company’s business plan relied on the weak Canadian dollar for exports. Now that the loonie is closer to parity with the American greenback, Geczy said provincial tax breaks have helped his business compete on the world stage. Similarly, the Quebec government’s Multimedia Tax Credit Program provided incentive for French multinational company Ubisoft Entertainment to set up shop in Montreal in 1997. At the time, the Quebec government helped pay for up to half the salaries of employees working directly in production. Today, the tax credit covers up to 37.5 per cent of employees’ salaries. Cedric Orvoine, a spokesman for Ubisoft in Montreal, told The Wire Report in an interview that the company’s goal was to have 500 employees in Canada within 10 years of its launch of operations in Montreal. Today, the company has about 2,400 employees in Montreal, Quebec City and Toronto. Ubisoft Montreal is the company’s largest development studio and is responsible for blockbuster franchises such as the Assassin’s Creed and Splinter Cell game series. “Historically, most of the support has come from the provincial government,” Orvoine said. But he added that the federal government has started to take notice of the Canadian video game industry and has been a strong supporter of Canadian players on the world stage. Today, Canada is the world’s third largest developer of video games, following the United States and Japan. “We sometimes joke that if Canada was number three in the world, in many other industries we would celebrate it more,” Colin Macrae, a spokesman for Electronic Arts Canada (EA), said in an interview from Burnaby, BC. American company EA is one of the world’s biggest video game developers and publishers. In Canada, EA has about 2,500 employees in four provinces and develops popular franchises such as the NHL, NBA and FIFA series of sports games. Heritage Minister James Moore and Industry Minister Tony Clement announced the Conservative government’s new copyright Bill C-32 in June at EA’s Montreal offices. In its submission to Industry Canada’s digital economy consultation, the Entertainment Software Association of Canada (ESAC) threw its support behind the bill. “When you look at a video game, you’re talking about $20 million or $30 million, and up to two or three years, big console or PC titles,” Danielle Parr, the ESAC’s executive director, told The Wire Report. “In order to take risks and to continue to have innovative content, we really need to have the legal infrastructure in place to protect that.” But Parr said Bill C-32 isn’t perfect from her association’s point of view. “One thing we would have liked to have seen was notice-and-takedown instead of just notice-and-notice,” Parr said. Under a notice-and-notice regime, rights holders notify Internet service providers (ISPs) of alleged violations on their networks, and ISPs forward the notice to the alleged copyright infringer. A notice-and-takedown approach—which is opposed by major ISPs like Rogers Communications and Bell Canada and tech companies like Google—requires ISPs to remove allegedly infringing materials online once rights holders identify them. The Conservative government has repeatedly rejected the proposal. Parr added that mod chips, which allow people to modify their gaming consoles, should be illegal in Canada. “There’s no legitimate use for it. The people who are using mod chips are doing it to access illegal content,” she said. Some argue that mod chips allow users to get around region locks on games. Geczy said he opposes bill C-32’s legal protection for digital locks or digital rights management, which critics say takes away some user rights. He said strict legal protection for digital locks could prevent users from creating a backup of a game or installing it on a second computer. “Digital locks are still in place when the creator of the lock goes bankrupt, which happens a lot in the game industry,” Geczy said. “So a lot of times you have products that remain locked even though the creator and supporter of the lock has long since disappeared.” Geczy added that digital locks will not prevent the illegal piracy of video games, as many in the industry hope, but will prevent legitimate users from using the product as they please. “The assumption that piracy will disappear simply because the locks have some form of legal protection is already weak,” he said. “The people who are pirating … are already breaking the Copyright Act, so causing them to break a second section of the act to break the lock isn’t going to preclude them from doing the piracy in the first place.” But Orvoine said the two biggest strengths any video game developer has are its talent and its intellectual property. “You need to protect both,” he said. Despite a few forks in the road ahead for Canada’s video game industry, the sector has emerged as one of the strongest in the world. “From coast to coast, this has been a real success story for Canada,” Macrae said. But there is a lot of competition in the industry globally, he added, and Canadian developers need to work hard to retain their talent. “Canada has got a lot of good things going for it right now but nothing can be taken for granted.” jmigneault@thewirereport.ca

Game developer calls on feds for more effective tax incentives

Broadcast | July 21, 2010

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