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Can Canada Support Indies? A Critical Look At Canada's Incentives Model

August 4, 2011 Article Start Page 1 of 3 Next

[Canada is famous for tax breaks and other forms of support for the major publishers -- with Montreal being home to huge studios from Ubisoft, EA, Square Enix and more -- but can and should the country do more to build up the indie movement? Jason Della Rocca speaks to developers.]

The Canadian game development community has been going from strength to strength in recent years. With a growing reputation for producing blockbuster titles, like Ubisoft Montreal's Assassin's Creed franchise, and an expanding workforce currently tagged at 16,000 directly employed in game development, Canada has a lot to be proud of.

But as the business continues to be disrupted by a shift away from games as retail products to games as services primarily for digital platforms, is Canada poised for ongoing success?

The annual state-of-industry report by the Entertainment Software Association of Canada (ESAC) outlines in great detail the status of the Canadian industry, boasting nearly $2 billion of economic activity and the nation's third place ranking behind the U.S. and Japan for game production.

The growth and success of Canadian game development has been so marked that the country has come under fire for its government's aggressive support of the industry. In particular, the UK has accused Canada of creating an uneven playing field via the heavy use of tax incentives.

Whether as part of political rhetoric or simply other regions looking to model the achievements of Canada, the recipe for success often gets reduced down to the application of tax breaks.

While government tax-related incentives have indeed played an important role within Canada, there is much more at play within such a complex ecosystem as the game industry: deep pipeline of talent, strong history in visual simulation and animation, quality of life and favourable cost of living, full range of value chain partners, robust non-profit association support, funding of academic research, etc.

As has happened in several cases, the singular application of a tax break -- without an accompanying vibrant ecosystem -- rarely results in much progress. The recent debacle with the Michigan tax break is an unfortunate example of an incentive scheme envisioned to catalyze economic activity in a depressed region going nowhere. Famously, this was articulated by EA's European SVP Jens Uwe Intat with the quote: "Tax credits are good for people who are good at making money."

Even in the case of Canada's strong incentives regime, it is not a one-size-fits-all solution. Montreal-based indie developer Laurent Mascherpa of Massive Finger elaborates: "Various tax breaks are more appropriate for big companies because you need lawyers, specialized accountants, and time. There is the technology R&D tax incentive (SR&ED), which is very helpful especially when you are targeting new platforms. The drawback to this incentive is that you have to spend extensive time and money before knowing if you will get the tax return or not."

With successes like Shank and Eets to bank on, Jamie Cheng of Klei Entertainment in Vancouver still challenges the usefulness of such incentives in every context: "Government support is solid for established studios through the use of tax breaks. However, tax breaks are insufficient and ineffective as a source of funding for new projects where companies are not established, and thus cannot spend on salaries in order to make use of the breaks."

Canada 3.0

Not content to sit on its digital laurels, Canada has been embarking on efforts to rethink its national strategy towards the knowledge economy, content creation, digital media and so on. This has been driven by efforts such as Canada 3.0 events bringing industry, government and academia together, as well as calls for input directly into the government.

Late in 2010, the Social Sciences and Humanities Research Council of Canada (SSHRC) funded "knowledge synthesis" reports to feed into this process. One such report looked specifically at the game industry, the implications of government incentives, the role of academia and potential threats to the ongoing success of the Canadian game industry. [Full disclosure: I was part of the research team for the SSHRC report.]

A key finding of the SSHRC report was that the majority of the Canadian game development workforce was employed by foreign-owned publisher studios. In the most extreme case, it was estimated that nearly 90 percent of workers in Montreal were employed by foreign "masters" (e.g., Ubisoft, EA, WB, Funcom, THQ, Gameloft, etc.)

The report delved deeper into the implications of foreign ownership in regards to the effect on the creation of innovative intellectual property (IP) and the ongoing suitability of government tax/support schemes -- particularly for use by independent studios.

"I don't take advantage of nearly as many government programs as I should mostly because I'm lazy and because I hate doing paperwork," noted Matt Rix, the Toronto-based indie behind iOS hit Trainyard. "At the end of the day, I really just want to be making games and not filling out forms, which is probably true for a lot of indie game devs."

It is important to note that the major game development hubs in Canada (i.e., Vancouver, Montreal and Toronto) have each evolved in distinctive manners. Further, the specific provincial support programs (or lack thereof) and federal schemes have helped to nudge each hub in unique directions.

For example, the Vancouver region has mostly grown organically via an "acorn" model, without the help of tax breaks, which were only introduced in early 2010. Many of the studios in Vancouver were "splintered" from EA Canada's (originally Distinctive Software) presence in one way or another over the years -- similar to the effect that Origin Systems had in Austin, Texas.

By contrast, in Montreal, studios have taken advantage of the tax incentives to grow alongside Ubisoft. Looking back a decade, after several block-buster hits, Ubisoft's Montreal studio attracted the attention of Electronic Arts, which was motivated to open a nearby studio to gain access to the "magical" talent in the region.

As more successes came, other studios followed and kicked the clustering effect into high gear. Ubisoft served as an "anchor tenant," its success attracting other large studios to invest in the region. Unlike the acorn effect of EA in Vancouver, Ubisoft has yet to spawn many independent offshoot studios in Montreal.

With so many whales swimming within Montreal, it is hard for smaller studios to get noticed: "Maybe I'm just unaware of what's going on here, but I don't feel like the government is doing anything for indies, or takes us seriously, or is aware we exist," lamented Phil Fish of Polytron Corporation, the IGF award winning Montreal studio working on the much anticipated Fez.

Across to the other coast in British Columbia, Andy Moore of Radial Games, most famously known for SteamBirds, is feeling similarly neglected: "The government is not meeting my needs at all. I can't find a single person that's been able to apply for the incentives here, never mind get them. I believe they are all geared to larger studios, and it's very difficult for me to find any information or take any advantage of it."

In the case of Toronto, historically, there was no anchor tenant to attract other studios, nor an oak tree to seed the city with start-ups. Instead, there is a large community of small developers. A number of these companies, including Metanet, Capy, and Queasy Games, have developed highly successful games for XBLA, iOS, etc. These developers and others have created a hotbed of independent game development in and around the Toronto area which is taking advantage of the lowered barriers to entry of digital platforms.

Rix praises the vibe in Toronto: "The whole industry is switching towards digital-only games, which is what indies have basically been making the whole time anyway. There is a great indie gaming community and culture here that is growing constantly. It's a fantastic place to be making indie games."

In addition to a local creator society, several yearly game jams and camps all nurturing the independent community, the Ontario Media Development Corporation (OMDC) offers a targeted production funding program that developers can access to complete their project financing.

"I believe the OMDC were an absolutely essential part of why the independent game community has been so vibrant in Ontario," stated Guillaume Provost, formerly working out of Toronto, and now heading up Montreal-based indie studio Compulsion Games.

Despite the success of this organic "incubation" model in Toronto, the Ontario government chose to aggressively pursue Ubisoft to serve as their "anchor tenant," luring them with a $260 million tax incentive package with the intent to create 800 jobs within 10 years.

Article Start Page 1 of 3 Next

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Mike Kasprzak
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^ This. 'cmon Canada!

Susannah Skerl
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Thanks to Jason Della Rocca for keeping this issue alive.

Hundreds of mobile, social, indie and casual developers in Canada are doing great work, and recently formed groups are endeavouring to raise awareness of their efforts. I'll chime in here with two such orgs who are taking this mission on.

My home town, Vancouver, definitely has a long-standing history of the 'acorn model' of large studios begetting similar ones. That's changing in a BIG way now.

Developers have so many other avenues they can pursue, though there are some real challenges ahead.

Many of Vancouver's independent developers have come together this past year under the group Full Indie, fullindie(dot)com.

Our members (I'm a volunteer organizer) have created a social & web presence and monthly events to gather & strengthen the community. We hope to promote the efforts of Vancouver's awesome, dynamic indie creatives by helping them gain visibility with government, a forum to network and share knowledge.

There are over five hundred and fifty subscribers to our Meetup group, and our monthly events are packed to the rafters.

Another segment of the community that has a Meetup group and regular events- the Vancouver Social Game group. They're hosting an event next week during Siggraph 2011 if anyone's visiting for the conference and wants to check it out.

It's difficult for government and broader media to keep up with what's happening in any sector, particularly one which moves as fast as ours. It's also extremely tough to slog it out on your own when most, if not all, infrastructure support is built around models you don't subscribe to.

This can and must be helped by a concerted effort from creatives themselves to seek ways of publicizing their efforts, and building a platform for their views to be heard.

Mathieu Rouleau
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I can definitely second what's being reported here.

There isn't much done to foster local endeavors, it's all about bringing in large foreign companies.

nathan vella
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That's not really the case in Toronto. The OMDC, often in conjunction with others like the Bell Tiff Lightbox, have been more and more involved in helping local 'events'. Further, they've supported many of the indie studios here: us, metanet, queasy, drinkbox, spooky squid, and more. Sure, they spend the big bucks and the big effort on bringing Ubi, Gameloft and growing SK, but that doesn't mean they don't work to support the small studio scene here.

Glenn Storm
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Despite the issues supporting big vs indie in Canada, Toronto sounds like an exciting place to be.

Nice article, Jason. Thank you. :)

Richard Flanagan
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Toronto does seem better equipped to help indies than Montreal (maddeningly) - and while there are few national programs that have the potential to contribute to start-ups, the requirements can be a bit out of sync with what you *might* get out of them (I'm looking at you CMF).

With examples like the Montreal Games Incubator, Founder Fuel and rumblings of other programs in the works, hopefully Montreal will be better equipped to help indies soon.

That, or we could always move to Toronto.

Matt Rix
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I think a key point is that most government tax breaks are all about creating jobs, but as an indie, creating great games is my priority, not creating jobs.

Yannick Boucher
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Solid piece, Jason.

Nicholas Lovell
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Great piece. I hope that the UK government (and trade bodies) pay attention and see that tax credits are not the be-all and end-all of government support for the games industry.

Christer Kaitila
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I propose that a better solution would be to offer "art grants" rather than "tax breaks" to indies.

Tax breaks help AAA studios who make a lot of money and therefore have a lot of tax to pay but indie game devs / garage developers are more similar to artists, sculptors, painters, musicians: many barely break even each year which makes a tax break useless.

Eddy Boxerman
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Great article, thanks!

Ian Morrison
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How could you have an article about game development in Canada without mentioning the Game Camp guys? ;)

There's actually a substantial number of game developers in the Edmonton area, aside from Bioware. Definitely worthy of mention. No specific industry subsidies yet, but the Game Camp guys are trying to move towards that, in addition to helping local developers network.

Mathieu MarquisBolduc
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"The industry continues to struggle with the ramp-up and ramp-down needed on projects, and most of the challenges in sustaining and growing studios rest with the question of how to manage the peak overhead issue"

You know the "big studios" that everyone seems to diss lately? They can manage that problem, as long as they are smart enough to de-synchronize productions. I can think of a few big studios that havent announced "redundancies" in many years.

As for helping indies, I agree with Chris & other that the multimedia tax incensitive is for creating high-wage jobs, and that culture grants are more appropriate for indies. Canada has a *lot* of those.

Im not to fond of the scorn that "big studios" are getting on gamasutra lately. Jason, you seem to assume that innovation, be it creative or technological, comes from indies and not large studios, but I dont see supporting evidence of that. People will point out to sequels, but I think innovation can come in sequels too, and the endless copying in the indy market shows that innovation has nothing to do with the size of the studio.

Jason Della Rocca
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@Mathieu: My article wasn't placing any scorn on the big studios per se. The main conclusion was finding more balance so that BOTH big studios and little indies are equally supported.

(And, I did mention in the article how the big studios solve the peak overhead problem by having multiple out-of-synch projects. So yes, you are right, that challenge was the main driver for studios to move to multiple projects back on the PS1 and PS2 days...)

With regards to innovation, there is a strong body of research to validate that in times of disruption and market shift, it is new/nimble upstarts that can capitalize on the change, and that the big incumbents have a really hard time making the jump. That would be categorized as disruptive or revolutionary innovation. Big companies are really good at incremental innovations.

Look up the books/work of Clayton Christensen as a starting point...

Joe McGinn
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Good article ... not sure I'm entirely convinced yet, but some good points. I am in favor of government stimulating the knowledge economy as it tends to pay off. The problem you are going to have in generating enthusiasm in government is that you can't quantify it. Ubisoft gets x million dollars they can put out a press release about creating N hundred jobs in Toronto. Not just good press, but as you say Jason it does work to build the "anchor studio" like Ubisoft did in Montreal. It's a proven model.

Although in Vancouver, I'd suggest the more modest 17% tax benefits are kind of useless in their current form. It's not enough to keep a big studio healthy, not like the big 40$ Montreal/Ontario subsidies. So they'd be better off just reallocating those funds to support indie development in the hope it might make a difference there.

Marc-Andre Parizeau
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Being in Canada might blind my judgment a bit but...

I'm kind of divided on the issue. Yes to tax breaks and stuff like that if it's to create jobs. But no if it's to keep your wallet full. But at the same time, I wouldn't want the government to fund artificially jobs just so that then can say: "Hey look what we've done!" and then once the pot is empty, the jobs are gone. You're not helping their either.

I think, that there's no perfect solution in helping indies or big publishers but good management, innovative ways of marketing your games will help you.

Tynan Sylvester
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Jason, thank you for this well-researched and well-written article.