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


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