The Canadian games industry has seen dramatic growth over the last decade to become a global hub for development.
Whilst the North America scene continues to grow at an alarming rate, there are always new challenges facing the region.
We asked those at the forefront what obstacles they are facing in an ever-changing landscape, particularly in these harsh economic times, and how Canada and its studios are helping to shape the industry’s future.
Despite growing overall, many studios in Canada have faced difficult times. The large studios in particular have been hit, especially those with links to the US and the problems with fluctuating exchange rates.
Propaganda Games, owned by Disney Interactive, closed in January this year following project cancellations. In 2010 Activision reduced the size of its workforce at Radical whilst in 2009 Nexon closed its Vancouver operations, and in 2008 EA shut its nearby Black Box studio.
When questioned about the effects of the economy, some of the big triple-A studios have noticed a decline in the purchase of blockbusters.
Ubisoft Toronto and Montreal CEO Yannis Mallat explains: “In recent years, we’ve seen that consumers purchase fewer blockbusters and are more inclined to purchase the most complete game experience that they can find.
"This has affected the entire global industry, and it would be false to pretend that Montreal has not felt its effect. Nonetheless, I am very proud of the studio’s performance.”
Ubisoft Vancouver managing director Bertrand Helias feels the same, adding: “Consumers purchase fewer blockbusters and invest more to ensure a more complete gaming experience.”
Xona lead programmer Jason Doucette sums up the problems that are currently facing the global industry: “Games in their nature are luxury, and luxuries are usually the first to go when money is tight. So any economic change is going to be felt by any video game studio.”
TIMES ARE CHANGING
The rise of cheap mobile gaming and the tightening of purse strings has meant that developers and publishers are now having to deal with a two sided attack on the industry.
QA provider Enzyme Labs’ CEO Yan Cyr says: “We have seen a decrease in volumes this year but these are not only driven by economics but also changing trends in the market. We are seeing a shift towards free-to-play games, social games and mobile which has grown a lot in the last year.”
However Helias says his Ubisoft studio, like others, is trying to adapt to these changing trends in customer behaviour by trying to offer more from their business and games.
“To better answer the market’s demands, we reevaluated our structure and established stronger and more flexible teams by building on our existing expertise.”
This re-evaluation means that the Vancouver studio now concentrates its efforts on developing assets for games made at other Ubisoft studios, such as Reflection’s Driver: San Franciso, rather than on creating its own IP.
As well as a changing global market, Canadian studios have to deal with the economic problems from their southern neighbours in the US, who are struggling with a crippling debt and lack of market confidence causing a fluctuation of the US dollar exchange rate.
Frima CEO Steve Couture says that despite expanding its workforce by an impressive 100 employees since last year, his studio has been affected by the economy.
“Frima works mainly with US clients and the US dollar devaluation has had some impact”.
Laurent Abecassis, president at Di-o-matic, adds: “As our neighbour is the US; the exchange rate fluctuation of the past few years has had a huge impact on outsourcing for US customers and as a result we have seen less contracts coming from there than before.”
SnowedIn CTO Chris Thiffault also says many of their clients are from the US or deal directly with US companies, and economic issues have forced Canadian studios to reduce staff and cut projects.
“Outsourced projects are often either cut or moved to an internal team which has its internal project recently cut," he says.
His colleague Matt Tanner adds: “Because many major publishers are based in the US, there’s been a slowdown of content being released, which in the end trickles down to studios like ours.
"On the other hand, Indies have really been able to flourish – since for them, its about releasing quality creative content.”
HB Studios President Alastair Jarvis sums up the overall situation Canada faces: “Both the economic climate and technological disruption has affected studios
“It’s very reminiscent of how the music industry was a decade ago, but it seems as though the industry and government policymakers have been much better prepared to react to this shift and have taken those lessons on-board.”
STRENGTH IN TAX
Despite all the challenges facing the Canadian industry, Canada has continued on a 20 to 30 per cent trend of growth.
Interactive Ontario president Ian Kelso puts it down to the tax incentives the various provinces are able to offer, which have offset the unusually strong Canadian dollar, whilst the cities have remained relatively inexpensive to live in.
Rocketowl’s Emily Armstrong even believes, “contrary to what most would assume, studios have been tremendously affected in a positive way by the economic climate in Canada.”
She explains that the tax incentives that are on offer “allow gaming studios the financial freedom to make employees enticing offers, including extremely competitive salaries and appealing incentives.
"Having the ability to work with the best talent in the industry has proven to be extremely beneficial to independent studios such as RocketOwl.”
It is no secret one of the key factors in Canada’s success is its generous tax policy. The federal corporate tax rate has been reduced to 16.5 per cent, and is set to go down to 15 per cent in 2012.
As a result Canada will have a combined federal-provincial corporate income tax rate of 26 per cent.
Me’shel Gulliver Belanger, spokesperson for international trade Canada points out this is well below most other G-7 countries, and more than 13 per cent lower than their neighbours the US.
Each province manages its own tax programs adapted to its own needs, which in the games industry are notoriously generous.
It all started in 1997 with Quebec offering tax credit to help French developer Ubisoft to set up. Since then the studio has released hit franchises such as Assassins Creed and Prince of Persia, whilst expanding into other cities such as Vancouver and Toronto.
This has encouraged other regions to implement similar initiatives after demand from developers and publishers who wanted to set up outside of Quebec but stay in Canada.
With British Columbia setting up their digital media tax credit last year, Nova Scotia increasing their own tax breaks in 2008 and Ontario reacting in a similar fashion in 2009, the Canadian industry looks set to continue spreading throughout the country.
In British Columbia, the most used tax breaks according to Digibc President Howard Donaldson are R&D credit, digital media tax credit that can be used to claim back 17.5 per cent on eligible salary and wages incurred, and can be combined with R&D, and 30 per cent refunds on investments.
“These tax breaks have been instrumental in raising capital, hiring staff and funding development. All development studios use these tax breaks.
"This helps keep development costs manageable and competitive with many other jurisdictions,” he says.
Many studios agree that tax breaks are a key part of their success. Ubisoft Vancouver’s Bertrand Helias says: “The new BC Interactive Digital Media tax credit has the potential to benefit our industry on many levels.
"It offers us that extra financial flexibility to acquire talents and infrastructure that will enable us to grow and return to the levels of success we celebrated a few years ago.”
He cautions however that it is too early to analyse its effects, but that there is every reason to be confident in its success of raising the prominence of the Vancouver game industry.
Tax breaks have also boosted how the Canadian industry works with educators. Many studios have formed partnerships with local universities and courses with the extra money they have at their disposal.
They are providing tools, speakers and internships to students there, with more than enough jobs available for graduates to get into work.
The Great Northern Way Campus in Vancouver, set up in 2007 as a product of local academic institutions, has received significant funding from government and publishers.
Director Dennis Chenard claims that even if tax breaks were taken away that the industry would remain strong.
“Tax incentives are only part of the success story. Vancouver has always had a strong talent base, with a thriving film/VFX/animation sector, but quality of life and a city full of talented developers also helps the game industry thrive.”
Longtail Studios GM Estelle Jacquemard says that the schools and provincial governments have helped in developing the industry in Canada which now offers a large talent pool creating huge ip’s. She says: “Because of all these huge IPs, we can still attract foreigners to work in our country.”
Despite the obvious benefits, there are some criticisms of the competition between the various provinces on offering such generous tax breaks.
Brian Provinciano, founder of Vancouver based Vblank Entertainment, believes that other provinces in the east offering better tax breaks in recent years has caused larger studios to expand there and scale down or even completely close BC operations.
“The problem with this is that it scatters talent. When talent is concentrated, more innovation and breakthroughs can happen. Many friends of mine have had to relocate to other parts of Canada in recent years, which is very unfortunate.”
Jacquemard agrees that it is hard for BC studios to compete, saying: “Toronto, Montreal and Vancouver are the main competitors, in terms of recruitment. We are a small province, with very few games studios. It’s not easy to attract people over here.”
The tables seem to have turned on Canada after its tax breaks initially offered it a distinct attraction. If they were taken away or not enhanced, would the studios still stay just because of the large talent pool it has created and the money if offers for large publishers to set up there?
Koolhaus Games president Wolfgang Hamann admits: “We have and are investigating other provinces and also south of the border in the US where about 22 states provide tax incentives, most of which are greater than what British Columbia has to offer.
"We will probably never close our Vancouver operation, but we can’t ignore what is happening elsewhere.”
Some who criticise Canada also believe that, given the global nature of the industry, it is unfair that it offers such generous tax polices when other countries can’t compete.
But Canada’s international trade spokesperson Belanger insists that Canada’s programs for the industry are fully compliant with the country’s World Trade Organisation commitments.
Despite no plans to take incentives away, many believe that even if they were, the infrastructure and abundance of talent now available means the Canadian games industry is here to stay.
It is clear that Canada and its provinces need to constantly compete to keep attracting the top studios and publishers, and most importantly, keep them.
But this must not risk turning into a ‘race to the bottom’ for taxes, losing the balance between a successful industry and one that helps benefit Canada itself.
STATES OF PLAY: BRITISH COLUMBIA
British Columbia has long been a Canadian development hotspot, but recently stepped up plans to attract studios by introducing the BC Interactive Digital Media tax credit.
But Koolhaus president Wolfgang Hamann says it is not the tax incentives that encouraged him to start up the studio in Vancouver, but because of the area and its other benefits.
“The primary reason for setting up in Vancouver was the amount of talent here. Not the tax breaks as these only arrived in British Columbia last year and Koolhaus has been going for over six years. The tax breaks are also much lower than in other provinces.”
The Centre for Digital Media, located near Downtown Vacouver, is one of the academic institutions to have set up here.
Director of industry relations Denis Chenard says that, after the Government was lobbied by the local industry asking for a new program to create skilled producers and directors, the provincial government responded in 2006 with $40.5 million funding to get the program started.
In less than a year the campus opened its doors to the first class of its Masters of Digital Media program.
Chenard says that as part of the MDM curriculum, students work closely with game companies such as EA, Ubisoft, Microsoft and Zynga in providing the local industry with well trained talent.
Construction is currently underway on a new centre to open in September 2012 to further expand Vancouver’s talent base and help cement it as a key region in Canada’s ever growing industry.
STATES OF PLAY: NOVA SCOTIA
Another booming province in the burgeoning Canadian industry is the south-eastern province of Nova Scotia.
Whilst not yet as big as its Ontario and Quebec neighbours, the local developers are privy to strong provincial support and it has become a haven for new IP and independent developers, particularly in the digital space.
NSBI, which supports companies in the area to grow and succeed, believes the area is set to grow. Director Jayson Hilchie also says: “Many of our start-ups are doing innovative things that don't overlap at all with the larger studios. It is quite remarkable to see the range of games being made here.”
One indie studio that has set up in the region is Xona, which in December last year released four-player shoot ‘em up Score Rush to Xbox Live. Lead programmer Jason Doucette says that although new IP is important, creativity is very much a risk.
“When you've hit the jackpot, why would you change? From a business perspective, it makes little sense to not keep the momentum up with what you already have.”
New studio Fourth Monkey, which currently has a headcount of 12 employees, says it is “dedicated to developing innovative, visually stunning, high quality games” on social and mobile platforms.
President Kirsten Tomilson says the biggest challenge they face is “getting the funding to create a vertical slice”, but the digital tax credit “helps to alleviate issues resulting from a downward economic spiral.”
Of the increasing competition in Nova Scotia, she says: “I think it allows for more creativity in that the climate is extremely competitive in nature causing us to think outside of the box and create IPs that push the proverbial envelope.”
STATES OF PLAY: QUEBEC
Montreal is the most influential industry hub in Canada, along with its close neighbour Quebec City. The region has flourished to house some of the biggest developers, publishers and services in the world such as two Ubisoft studios, BioWare, THQ and Enzyme Testing Labs.
The region has become a huge global centre for industry education, with thousands of graduates coming out of local universities and institutions with a plethora of jobs available once they leave education.
Babel Media CEO Richard Leinfellner says that, as of this month, it is offering three courses in partnership with a program called "Intégration Jeunesse Emploi" (Youth Work Integration) for students wishing to join the industry.
“People realise that working with us is a great way to get into the games business and be noticed, many current games Execs started as testers.”
The National Institute of Digital Entertainment, based in Quebec City, was formed by a group of developers and universities such as Beenox, Ubisoft and Frima Studio.
Beenox’s HR director Alexandra Beaulieu says of the institute: “This school gives, among other things, an opportunity for some young graduates to live a unique video game development experience and to benefit from mentors presently working in the video game industry.”
With such a big focus on education in the area, Quebec will clearly never be short on young talent and new ideas as the industry progress on to new frontiers.
STATES OF PLAY: ONTARIO
Home to Toronto and the nation’s capital Ottawa, the most populous cities in Canada, Ontario provides the perfect infrastructure and talent base for studios.
The large metropolitan area is recognised as a thriving hub for independent game development and is an important part of the successful Canadian industry.
Interactive Ontario president Ian Kelso says the association has grown by 30 per cent annually and now has over 320 companies in its membership, with a third of these game studios.
Ubisoft Toronto, founded in 2009, has grown dramatically over the past two years to house over 190 employees and claims it is on track to grow to 800 creators over the next ten years as it actively recruits talent.
Managing director Jade Raymond says: “The untapped talent in the province is second to none and Ubisoft is excited to support the growing game development industry in Ontario.
"The region combines world-class technical schools and training with strong film industry expertise, providing Ubisoft Toronto with access to a unique pool of talent.”
But far from Ontario having intense competition with neighbours such as Montreal as it expands its industry, Kelso refers to it as ‘co-opetition’.
“Each region wants the economic benefits of a thriving games industry, and the governments compete to create the best value propositions to attract the best companies,” he says.
“Yet we are united as an industry through the Canadian Interactive Alliance, and we work together to promote Canadian companies on the world stage.”
With such rapid expansion occurring in Ontario and its large untapped talent base, you can expect the region to be one of the world’s biggest gaming hubs in years to come, but only if the province and its local studios can work together and match its vast potential with big ambition and results.