Evidence of meeting #44 for Canadian Heritage in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was ontario.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Maureen Parker  Executive Director, Writers Guild of Canada
Kelly Lynne Ashton  Director, Policy, Writers Guild of Canada
Jayson Hilchie  President and Chief Executive Officer, Entertainment Software Association of Canada
Carole Deniger  Executive Director, KPMG
Rob DePetris  Senior Manager, KPMG
Peter Miller  Chair, Interactive Ontario
Donald Henderson  President and Chief Executive Officer, Interactive Ontario
Pierre Proulx  General Manager, Alliance numérique
Stéphane D'Astous  Chairman of the Board, Alliance numérique
Jason Kee  Director, Policy and Legal Affairs, Entertainment Software Association of Canada

3:30 p.m.

Conservative

The Chair Conservative Rob Moore

Good afternoon, everybody. We'll get started.

Welcome to the Standing Committee on Canadian Heritage.

We're pleased to have a number of witnesses with us today as we continue our study on the Canadian entertainment software industry.

We have witnesses today from the Writers Guild of Canada, the Entertainment Software Association of Canada, KPMG, Interactive Ontario, as well as Alliance numérique—they're not here just yet, but I think they're on their way.

We will start with our rounds of opening remarks. Most of you have two witnesses per group, so you have a total of 10 minutes, however you want to divide that up.

Because someone has to go first, we're going to begin with the Writers Guild of Canada, Maureen Parker, executive director, and Kelly Lynne Ashton, director of policy. The floor is yours for your opening remarks.

3:30 p.m.

Maureen Parker Executive Director, Writers Guild of Canada

Thank you very much.

We did try to reduce our speaking time to seven minutes because we know there are a number of people.

Good afternoon, members of the heritage committee. My name is Maureen Parker and I am the executive director of the Writers Guild of Canada. Also with me today is Kelly Lynne Ashton, WGC's director of policy. Thank you for inviting us.

The Writers Guild is a national association representing more than 2,000 professional screenwriters working in English language film, television, radio, and digital production in Canada. We are here before you today to talk about the work they do specifically in writing for video games and how the government could support their work as part of the Canadian video game industry.

There is a common misconception that video games are nothing but shoot 'em up games for teenage boys. People are often surprised to hear that WGC members work on video games and that our guild has jurisdiction over that work.

What writing could a game need? Well, writing is an essential element of production of a video game. While in many ways it is the same craft as film and television writing, there are differences as well. Unlike television, the video game writer rarely initiates a project.

While every game is different, screenwriters can be engaged from the beginning to work with the game designer to write out a whole story for the game, including the world that the game inhabits, and end up with hundreds and hundreds of pages of script. We brought a sample script with us today to show you. It's hundreds and hundreds of pages. Or, they can be brought in late for the development of a game to write a few lines of dialogue for non-player characters who will add personality to those characters. Those lines of dialogue can add up over a game to 20,000 lines or more, depending on the game. Even if it is a simple shoot 'em up game, there has to be a story to explain why the battle is going on, and there are cinematic elements to move the action forward. An increasing amount of time and attention is being given to create the world in which the story is taking place, with detailed back stories and bonus scenes of action or dialogue among characters.

Fighting bad guys can be fun, but there needs to be a reason why to make the game truly interesting. In the crowded video game market developers want to be as engaging as possible to attract players, keep players with their game, and ensure that the players buy the series over multiple titles. Increasingly, the game community is turning to mainstream drama and comedy writers to bring plot and characters to life in their games. While Canadian screenwriters are being hired to work on video games in Canada, some Canadian-based video companies are still going to L.A. for their screenwriters.

We would like to describe a few games written by our members to give you a better idea of the kind of work they do and the role they play in this process.

Adrian Vershinin, who is also a television writer, has been writing video games since he got started on the racing game, Need For Speed: Underground2, in 2004. At times he writes dialogue for non-player characters and other times more involved scripts, such as for Battlefield3, a game where the player becomes a U.S. marine sent to battle terrorists in the Middle East. His video game scripts are often 300 pages long. In comparison, a feature film script is 90 to 100 pages long.

Matt MacLennan is an accomplished drama series writer. He has worked on The Listener and Republic of Doyle. His most recent work was as a writer on Tom Clancy's Splinter Cell: Blacklist, an ongoing adventure series about a fictional American black operation division that takes out terrorists around the world. But before you think that story-based video games are all about terrorists, we can tell you about our member Mario Azzopardi's work on Warriors: Legends of Troy. He wrote 300 pages of script to tell the story that allows players to participate in the battle of Troy.

Some video games can take up to two years to write. Game developers can also be hired to perform the job function of game designer or level designer, which includes writing responsibilities. Job descriptions are certainly more fluid in the video game industry than in film and television, but the role of the writer is increasingly recognized and valued. For example, there are now awards for best writing for a video game around the world, including in Canada.

3:35 p.m.

Kelly Lynne Ashton Director, Policy, Writers Guild of Canada

The WGC believes that video game writing is an emerging sector within our jurisdiction. We see video game companies engaging mainstream drama and comedy screenwriters, and we see young screenwriters choosing to explore a career in video game writing.

This committee has asked what measures government might take to further promote growth, innovation, and commercial success in this vital 21st century industry. We have a few suggestions. A labour-based tax credit has been very effective in helping to build the gaming industry in several provinces, including B.C., Ontario, and Quebec. The tax credit is based on the provincially resident corporation's labour expenses for a qualifying interactive product. It can be used in financing, or as corporate revenue. It encourages companies to hire and develop a domestic talent pool rather than bringing in temporary talent from outside the country. We are very supportive of measures that will not only allow video game companies to grow in Canada, but also to support a domestic talent pool.

The government has done much with Telefilm, the Canada Media Fund, and the film and television tax credits to both support small businesses working in film and television and to ensure that they support Canadian talent as well. We understand that the video game industry is a different sector and perhaps needs different support systems, but the government should maintain the social policy goals of supporting Canadian talent as well as Canadian businesses. This means prioritizing hiring Canadian talent as well as ensuring that the majority of costs are spent in Canada. The Canada Media Fund's experimental program, which funds innovative digital media like video games, requires companies to be Canadian owned and controlled, and costs to be spent 75% on Canadians. They cannot be conditional upon a talent requirement system like CAVCO's because one does not exist.

However, if the government decides to directly support the production of Canadian video games, we strongly urge the development of a comparable talent system to ensure that federal funding assists in building a talent pool as well as capable companies. We want to be clear that we are not at all advocating for a content requirement for federal funding of video games as there is with film and television. While a video game that reflected Canadian society and stories would be fun, requiring that as a condition of support would be contrary to the fantasy nature of most video games. We are not advocating inserting beaver characters into hack and slash games.

Other witnesses that have spoken before you in this study have suggested that funding more university programs, such as specifically for video game writing, is needed. We would like to suggest that while university programs are helpful, it would be equally of value and would make more skilled writing talent immediately available if there was support for mid-career training programs that would allow experienced drama and comedy screenwriters to learn about the specific craft of video game writing. The transition from film or television screenwriting to video game writing requires workshops rather than a degree program.

3:35 p.m.

Executive Director, Writers Guild of Canada

Maureen Parker

We are excited about the opportunities that exist for screenwriters in the video game production world, and we are actively exploring those opportunities. The sector could benefit from federal government support in the areas of funding and training, provided that the government maintains a regulatory framework that insists on the development of a domestic talent pool along with a domestic video game industry.

We thank you for your time and look forward to answering any questions.

3:35 p.m.

Conservative

The Chair Conservative Rob Moore

Thank you.

Next is the Entertainment Software Association of Canada, Mr. Jayson Hilchie, who is the president and chief executive officer, as well as Jason Kee, director of policy and legal affairs.

Go ahead.

3:40 p.m.

Jayson Hilchie President and Chief Executive Officer, Entertainment Software Association of Canada

Good afternoon. My name is Jayson Hilchie and I'm the president of the Entertainment Software Association of Canada. I'm joined today by Mr. Jason Kee, ESAC's director of policy and legal affairs.

ESAC is a national association representing companies in Canada that make, market, and distribute video games for video game consoles, hand-held and mobile devices, personal computers, and the Internet. ESAC represents the Canadian video game industry, which collectively employs approximately 16,000 people at nearly 350 companies across the country. Our industry directly generates $1.7 billion in economic activity.

First off, I'd like to thank the committee for having devoted time to studying and better understanding the Canadian video game industry. The Canadian industry is currently the world's third largest, and first on a per capita basis. We appreciate the opportunity to discuss the success of this sector.

We've seen tremendous growth in this sector over the past few years, even in recessionary times, and we're expecting to see a continued growth of approximately 17% this year.

The types of jobs that are offered in the video game industry are truly the jobs of the future: high paying, knowledge intensive, innovation driven, and at the cutting edge of creativity and artistry. Our industry comprises a unique mix of artistic and technological professions, and the collaboration of these two areas is what produces truly innovative products.

It also fosters the creation and development of many different multi-functional skill sets, such as art and design, animation, visual effects, game design, sound design, motion or performance capture, computer engineering, production, quality assurance, narrative development, and business and marketing. These skills transcend narrowly construed industries and constitute the types of transferable skills that can be used to grow various subsectors of the Canadian knowledge economy.

We have a good sense that these types of jobs will be the jobs of the future, because of the growth in the popularity of the interactive entertainment industry all over the world. The video game industry is the fastest growing entertainment industry globally. The global market is currently estimated to be approximately $67 billion U.S. That's bigger than the box office revenues for movies. With a growth rate of 7.2% annually, this industry will be worth $83 billion by 2016.

Mobile phones, tablets, and online game platforms are expanding the video game market in unexpected ways. We're seeing women and men over the age of 55 getting in on the action. Innovative new technologies are transforming the way people play games, extending the life of a game across multiple devices and providing immersive experiences that rival our enjoyment of television and movies. The average age of a Canadian gamer is 31 years, so any notion that this medium is strictly for kids in their basement is outdated.

Canada has seen tremendous success in the past with big budget video game blockbusters, and we're known the world over for franchises like NHL, FIFA, Mass Effect, Dragon Age, Assassin's Creed, and Splinter Cell, just to name a few. However, the rise in the number of companies developing games for mobile devices has largely grown out of exciting new opportunities on the mobile front and the challenges associated with risky big budget titles that take hundreds of thousands of dollars more to produce and many more years compared to lower costs and production time for mobile or more casual types of play.

The industry has also been shifting to a model of digital distribution, where consumers purchase games directly from their mobile devices, PCs, or their consoles. This has created challenges for existing distribution models, but has also opened up opportunities in reaching a global consumer base for games.

Innovation is a key component of our industry. We make significant investments in research and development to continually advance the technological underpinnings of games. Our consumers are demanding better, faster, bigger game play experiences, and our industry is responding by investing in technology in a concerted way.

The National Research Council and New Media BC undertook a study which showed that 55% of Canadian video game companies are developing technologies to aid them in production, and that 61% of these companies believe they could develop viable commercial products from these technologies. Our 2011 study showed that over 53% of companies surveyed indicated they'd spent between 76% and 100% of their production budget on the development of new intellectual property. In addition, over 45% indicated that up to 25% of their production budget was devoted to the development of new technologies.

To maintain a strong video game industry, Canada must seize the opportunity to establish itself as the world leader in this innovative and cutting-edge industry. In our view, this requires a holistic approach that recognizes the interrelationships between different segments of the digital ecosystem.

ESAC urges the federal government to develop a digital economy strategy that addresses a full range of digital economy issues, including ready access to skilled labour and capital. Indeed, as already discussed by the companies that have appeared in previous sessions, our industry is facing a shortage of available talent at the intermediate, senior, and expert levels in various disciplines, and delays in processing work permits for foreign workers are causing significant challenges which must be addressed.

We have a comprehensive list of recommendations to make on specific actions that could be taken to continue to create the right conditions for the success of the video game industry in Canada. We've circulated those recommendations to you in our information package along with a more detailed brief on our issues bringing in temporary foreign workers. We will also be providing a paper on our recommendations to you shortly.

We thank you for the opportunity to present and would be happy to answer any questions that you may have.

3:45 p.m.

Conservative

The Chair Conservative Rob Moore

Thank you.

Next from KPMG, we have Rob DePetris and Carole Deniger. Rob is the senior manager and Carole is an executive director.

The floor is yours.

3:45 p.m.

Carole Deniger Executive Director, KPMG

Good afternoon. I will be making my presentation in French.

I am Carole Deniger, from SECOR-KPMG. It feels a bit odd to say that name because SECOR and KPMG merged very recently. My colleague Rob DePetris will speak to you afterwards. I will be making a somewhat more general presentation, whereas Rob will address specific questions and tax issues.

KPMG-SECOR's expertise in this sector is in both the tax and economic areas and in more strategic studies, particularly those that SECOR conducted at the time for Quebec, Ontario and Prince Edward Island and many industry clients.

At the risk of seeming to repeat what was said by our friends from the Entertainment Software Association of Canada who preceded us, I believe it is important to note all the profound changes that have been affecting the industry in the past few years.

We know that the recession hurt the market, but there have also been major paradigm shifts as a result of digital distribution, new platforms, the construction of mobile and online platforms, networked games, particularly social games, and all the new business models that have followed, with subscription and microtransaction models. So there have been some major changes to which Canadian and foreign businesses must adapt.

Incidentally, when we talk about Canadian businesses, I believe we are still really talking about businesses that are provincial or are based around major cities such as Montreal, Toronto, Vancouver and various hubs where solid expertise and real maturity have been developed. I believe those hubs have managed to position Canadian businesses on the global stage. That is also the case of foreign businesses because we know that most of the gaming industry's workforce is at large firms owned by major publishers such as Ubisoft and Eidos, but also by many national businesses and smaller but very dynamic players.

As for the growth issue, as a result of tax credits in particular, I believe we have achieved such a degree of maturity that this is not a priority at the present time. We have managed to build critical mass, expertise that is recognized and no longer challenged. Now we have to develop recognition related more to our content and success, and that is perhaps where we must focus our efforts, particularly at the federal level and across Canada. For the general public, what is made in Canada does not really exist. It exists for the professional industry because people know each other. Initiatives such as Game Nation are also starting to make our businesses better known here, but we are talking about an entertainment-related sector. So it is important to position ourselves as Canadians on the world stage.

What does that mean? There is obviously a marketing issue, but we have to make sure that there is support for intellectual property created here. We have to be able to maximize the success of that property, that is to say original content, to support it and to generate maximum profits. In fact, in certain respects, we are talking about a service industry that creates a lot of jobs. Now we have to think about creating value. That does not mean that we have to control everything here. I think it is important, particularly for games intended for very large audiences, to have publishers outside Canada. However, if we can retain more of our intellectual property, we will negotiate better conditions, earn larger royalties and generate more profits that will stay here.

That can be done through existing measures, in particular the Canada Media Fund, which is quite a large fund, particularly its experimental component. However, perhaps it should be adjusted to provide more support for the creation of original content. That is what we also call prototyping in the gaming industry. We have to get to at least the prototype stage. We obviously already have the research and development tax credit. However, tax credits are mainly granted at the provincial level, and we are well served in that respect.

Incidentally, I took another look at the KPMG study. As you probably know, it states that Canada is a mature region where digital entertainment costs as a whole are the lowest in the world. We are well served in that respect.

I do not want to go back over immigration, but the issue of work permits, like that of marketing and commercialization support, is becoming an increasingly important issue. The same is true for venture capital in general. I know you have funded studies on that topic, including this one, which is a very good study. It shows that there are obvious deficiencies in funding to assist business start-ups, particularly in the digital entertainment industry.

Thank you.

3:50 p.m.

Conservative

The Chair Conservative Rob Moore

Thank you.

Rob, do you have anything to add?

3:50 p.m.

Rob DePetris Senior Manager, KPMG

Yes, I'm going to take a different tack on this.

I want to thank you for inviting me. It was so important to me that I gave up Tuesday night bowling.

Basically, my role at KPMG is tax, but in the past I worked at a video game company. I was vice-president of finance for a domestic company. I want to bring that experience in and touch on some of the things we did in Ontario.

Our goal, when we looked at this from an Ontario point of view, was to grow the industry. It wasn't about other factors, such as trying to create Canadian content and other things. We focused on one thing: creating jobs in a knowledge-based economy in Ontario. With that goal in place, what we looked at a lot was the tax credit system. We looked at taking a tax credit system that didn't work in Ontario and making it work.

We also looked at investing through business incubators. The federal government played a great role in this. We looked at how to help the entrepreneurs out there. Tax credits and entrepreneurial training are things I think the federal government should be concentrating on.

That's the reason things have progressed so well in Ontario, Quebec, and in places like Nova Scotia and Manitoba. I think B.C. was affected by a weak Canadian dollar at the time the industry started there. The tax credits over the last 20 years have been a replacement for a high Canadian dollar. The Canadian dollar back when B.C. created their industry was at 64¢ to 65¢ U.S., and now we have a Canadian dollar at par and we're replacing that with tax credits.

I think there's opportunity out there. I'm not saying the federal government has to jump into providing tax credits, but I think the SR and ED programs and other federal programs have helped. However, we must remember that in most video game companies, only 20% to 30% of the staff are programmers. The rest of the staff are artists, writers, and designers, people who aren't subject to the SR and ED credit. Even a lot of the programming people are not necessarily getting those tax credits, so SR and ED is only a small part for a video game company, whereas the digital tax credits offered by the province allow them to do a lot more.

That said, we need to concentrate on how to grow the industry. One of the things I'm not a big fan of, and this may be more personal than anything else, is the Canadian Media Fund. It does a lot of good things, but it's a $375-million fund. Why is the video game part of it a small fraction that is called “experimental”? How did a $67-billion industry become an experimental arm in Canada? I don't understand that.

This fund needs to focus a lot more on the video game industry. The other thing is, it's picking a lot of winners and losers, and I'm not sure that's always the best thing for government. I'd like to know how much return on investment they get from all these things they're investing in. How much have they actually gained? Can we put that money to better use than somebody sitting back and trying to figure out which video game they think is going to be commercially successful? I don't have the evidence on this, but I'd like to know.

Those are my initial thoughts.

On retaining intellectual property, perhaps there are ways through a tax credit system to do that. The biggest problem from the domestic side of retaining intellectual property is simply that most video games, other than some of the small mobile projects, are David and Goliath situations where a Canadian developer is being financed mostly by a publisher such as Ubisoft or Electronic Arts or some other big entity. There's no way you ever win the battle; if they're supplying the cash, there goes the intellectual property. It's very rare for a company to keep intellectual property.

The other thing I will quickly mention is the tax credits for investors.

3:55 p.m.

Conservative

The Chair Conservative Rob Moore

We're running a little over on time, so I'm sure that will come up in the question and answer round.

3:55 p.m.

Senior Manager, KPMG

3:55 p.m.

Conservative

The Chair Conservative Rob Moore

Thank you for your presentation.

We will go to Interactive Ontario, and Donald Henderson, the president and CEO, and Peter Miller, the chair.

3:55 p.m.

Peter Miller Chair, Interactive Ontario

Thanks, Mr. Chair. I am Peter Miller. Members, thank you for having us. It's a delight to be here to discuss with you one of Canada's huge success stories, our entertainment software industry within the broader digital media sector.

I am going to ask Don to start and I will pick it up later.

3:55 p.m.

Donald Henderson President and Chief Executive Officer, Interactive Ontario

Thank you, Peter. Good afternoon everyone.

Interactive Ontario is a not-for-profit trade association. It was founded about 12 years ago. Our mandate is to assist our members in growing their businesses. Those are businesses in what we call the interactive digital media or IDM sector. IDM is one of the six cultural sectors supported by Ontario Media Development Corporation. We represent approximately 300 interactive digital media companies. These companies create interactive content across a range of sectors and for a wide variety of digital media devices or platforms.

Our members create video games but they also create e-learning applications, web-based content, apps and other types of content for mobile devices, transmedia properties for broadcasters or other rights holders, interactive advertising campaigns, and social media content.

Given our mandate and membership, it will not surprise you that we take a broad view of what the entertainment software industry means. As a couple of people have already alluded to, the idea of what a video game is has changed pretty dramatically over the past five years. You have already heard from witnesses who represent the triple-A game studios that create games for consoles such as Xbox 360 or PlayStation3 or for PCs. This is the traditional idea of a video game.

As you've heard, the industry in Ontario is quite different from that in Montreal. Ontario is home to many smaller developers who are bootstrapping their small businesses. They're financing their own projects and distributing their content through new digital marketplaces such as the App Store.

People also consume gaming content in new ways. You've heard a little bit about that. People, including people in this room, will pull out their smart phone while they wait for a bus and play a game really quickly or take a break at work and play a game on Facebook.

Games also serve a purpose broader than simply entertaining: they can also inform or educate. This is no different from other cultural products like film or television. According to somewhat dated data, Ontario's interactive digital media industry employs approximately 16,000 full-time employees. Approximately two-thirds of these companies employ 10 or fewer employees, so it is much more skewed to smaller companies. Ontario's digital gaming companies are heavily export oriented, with about half of the firms reporting that foreign sales reflect 90% to 100% of their revenues.

Ontario has had great success. As Peter said, this is a great Canadian success story. We believe this is due to four factors:

First, unlike the manufacturing or natural resource sectors, the barriers to creating an IDM company are much lower and this encourages entrepreneurship and the creation of small businesses. The main input in creating great content is great talent. Ontario benefits from a large number of universities and colleges that provide skilled labour to create these games. This includes technical skills, such as computer science, as well as artistic or creative skills through programs like Sheridan's world-leading animation program, or Centennial College's game design program, and many others.

Second, there is a concentration of other creative industries in Ontario. There's been a long history of excellence in creative industries such as music, broadcasting, publishing, film and TV production, and so on. This provides talent and cross-media opportunities that have fostered the development of a strong digital media sector.

Third, the Ontario government has made digital media, along with the broader ICT sector, one of its economic priorities, investing through tax credits and other means of support.

Fourth, both the federal and provincial governments have provided support targeted at domestic, Canadian companies as well as foreign-owned digital media companies. Not necessarily to the same extent or in the same way, but the government has recognized that to build strong Canadian companies, we need an ecosystem that has both smaller and large companies. You heard about that from some of your other witnesses as well.

Government's role in fostering a successful digital media industry is critical and it cannot be overstated. That said, we believe the objective must be to build a successful creative industry. The emphasis is on the last word: industry. It's not to subsidize cultural products as has been the assignment for other cultural industries. In other words, unlike is often the case in film or television, the goal must be to make money and for the government to see its investments recouped through employment, taxes, or even straight ROI.

4 p.m.

Chair, Interactive Ontario

Peter Miller

Thanks, Don.

It's typical for witnesses in a situation like this to speak with great certainty about the industries they know. We thought we'd actually tell you about some stuff that we don't know because it might inform you on some of the things that you want to inquire into.

Surprisingly, one of the things we don't know is the precise size and scope of the digital media sector in Canada and in Ontario. The Canadian Interactive Alliance, the trade association that we and Alliance numérique are members of, have done some studies in the past. They are sampling survey studies. They don't get a full sample of the sector, but roughly speaking, with the best numbers we have, there are about 3,000 digital media companies in Canada, about 1,000 of which are in Ontario. It seems like a simple thing. One of the things we as a trade association have as a goal and as a priority is to try to do a proper mapping of the sector in Ontario and find out things like the extent to which companies depend on government support, because that simply isn't known. That's something we're hoping to do with the Ontario government around venture capital in the next little while.

The other thing we actually don't know much about is precisely how the synergies among subsectors within the digital media industry and among the digital media industry and traditional media work. We know it's important, and we know it's a competitive advantage for Canada and for Ontario, but we don't know exactly how it works. That might be an interesting thing to understand a little more, because if we understand it a bit more, we can replicate it in perhaps a more formal way.

Tax credits have been spoken about. I would agree with what Rob has said about their importance in building the industry and building companies. Where we have been less successful is in the early-stage support. I define early-stage support as both early stage in the life of a company and early stage in the life of a project. That leads down two paths of VC, venture capital, support for early-stage financing of companies and project support for specific projects. The challenge there, quite frankly, is we don't know what the right mix is; we don't know how to do it. Inevitably you get to the problem that Rob alluded to. If you're not careful, you find yourself picking winners and losers rather than supporting all parts of the sector.

Another thing we're still not really that sure about is whether the design of federal and provincial credits, for example, the intersection of SR and ED and the provincial tax credits that support digital media, work in an ideal coincidental way or whether it's actually a perfect synergy. It's fascinating when you think about it. SR and ED was designed for something entirely different. You all know a bit of the history of R and D tax credits and the controversy surrounding that, but SR and ED does sit there so importantly on the technology side, and then digital media tax credits, in Ontario and Quebec, in particular, sit there on the content side. They seem to work very well together, but we don't actually know if there are other ways we could get them to work better. Are there gaps between the two that could be improved?

All that said, and this is difficult for public policy-makers, we think public policy has to take some chances and take some risks and experiment. We're an industry and a technology that's having to reinvent itself all the time. We've always taken risks. We're always going into new territory. In this area in particular we think government should do likewise. Be prepared to experiment. Be prepared to examine what you've done. Be prepared to refine what you've done. There's no shame in not getting it right precisely the first time. If we want leading-edge digital media companies in Canada, we're going to need a leading-edge public policy framework as well.

Thanks very much.

4:05 p.m.

Conservative

The Chair Conservative Rob Moore

Thank you.

Finally, we have Alliance numérique, Pierre Proulx, general manager, and Stéphane D'Astous, chairman of the board.

The floor is yours.

4:05 p.m.

Pierre Proulx General Manager, Alliance numérique

Thank you very much.

I in fact will not be making a long introduction because I am going to repeat many things that have already been said, particularly by the Interactive Ontario representative. We are two sister organizations within the Canadian government, in Quebec and Ontario, and we both belong to the Canadian Interactive Alliance. In short, our missions are very similar and we have virtually the same origins.

Alliance numérique has been in existence for 12 years. It is the result of the merger of three organizations that was conducted in order to make Quebec a centre of excellence for the development of the digital industry for all content, that is for the creation, production and distribution of digital content.

Alliance numérique's mandate is to support businesses and facilitate their development in a variety of ways. We play a major role in unifying the ecosystem as a whole around common issues. I often say that 95% of jobs in the video gaming industry in Quebec are held by Alliance numérique members. That means approximately 8,200 jobs. So we represent much of the video gaming industry.

In fact, Montreal is really the hub of video gaming in Canada because it has nearly 8,000 jobs in the video gaming field. Stéphane D'Astous, the president of Alliance numérique's board, is the general manager of one of the major studios, Eidos-Montréal, which is affiliated with a large Japanese group, Square Enix. That shows you how strong the international structure of the video gaming industry is.

Obviously, Alliance numérique, like many organizations in Canada, sees a connection, a convergence with other sectors, since our members also come from the e-learning, mobility and web services and applications sector. Digital is no longer vertical, but rather horizontal. So our content appears on various platforms and it is possible to consult or access that content.

One thing distinguishes us from other places in Canada, and that is the creation of the Montreal International Game Summit nine years ago. We had a short prospectus to show you but could not distribute it to you since it is in English. I apologize, but we only have English versions. That is just to show you that this summit is the most important event of its kind in Canada and on the east coast of North America. Our competitors are more in San Francisco or Seattle than on the east coast or in the rest of Canada.

I would also like to draw your attention to the fact that Alliance numérique organizes a number of commercial activities or missions around the world. As you will see in the documentation we have submitted to you, we travel practically around the world every year with our companies to help them market themselves internationally, since the earth is only one country in the digital world. As the Quebec and Canadian markets are small, we have to move toward international markets if we want to ensure the success of our businesses.

There is one negative factor, and we would perhaps like to address that at greater length this afternoon. Financing is very difficult to obtain. The tax credits offered by the provincial governments support product creation, but there is very little assistance for commercialization. So we have trouble in many cases, particularly with regard to young start-up businesses that want to launch their own intellectual property. This is more difficult for them because, as we explained, they are often at the mercy of a major publisher or of corporations that corner a large percentage of revenues in exchange for the services they offer to ensure a product penetrates the international market as a whole, an approach that is really difficult and costly to take.

We would like to address three points or see the federal government address them. They are very important points in guaranteeing industry stability.

The first is to shorten the time it takes to obtain necessary immigration permits for our workers. Currently, it often takes 14 to 16 weeks to get an answer, which means that many studios are forced to abandon projects. The project as a whole, which normally requires 40 to 50 people over two or three years, cannot be done in Canadian studios. We deplore this situation.

In addition—and some stakeholders mentioned this earlier—there is not enough support for the proper commercialization and development of Canadian intellectual property in certain fields. An effort should really be made to clarify what it would take to improve assistance and to support businesses developing their intellectual property, in particular, but also to help them in that commercialization effort.

In closing, I would like to raise a third point, which was addressed in connection with the funding granted by the Canada Media Fund.

We talk about considering the video gaming industry as a full-fledged cultural industry in Canada, but funding through other cultural bodies should also be granted in a much more consistent and significant way.

If we round the figures, we can say that approximately 10% of funding from the Canada Media Fund is granted to what is characterized as experimental activities. It goes without saying that we loved the fact that our sector was characterized as experimental. In short, we are talking about approximately $33 million out of the $330 million or more that is paid out annually. That is barely 10%, which is very small, considering the impact, renewal, growth and salaries paid. In the case of the video gaming industry, we are talking about an average of $63,000 for each of the 16,000 people who work in it. That represents an enormous amount of money for the Canadian economy. Furthermore, these people are all good taxpayers, particularly at the federal level. Consequently, you will understand that it is important to provide more adequate support to the industry in this field, which could be a priority.

Now I will hand the floor over to Stéphane. We are here today above all to speak with you.

4:15 p.m.

Stéphane D'Astous Chairman of the Board, Alliance numérique

Thank you, Pierre.

Good afternoon, everyone. As a good Montrealer, I'll be speaking some franglais, so I'll be giving the translator some difficulty.

Thank you for giving us some time to provide our testimony and express our thoughts about our great industry. It's a great success story.

I am wearing several hats today. As Pierre mentioned, I'm the proud president of Alliance numérique and also a proud GM of a major studio in Montreal.

Just last week I was invited by the federal government to participate on a panel in Seattle for Invest in Canada. The three chosen industries were aerospace, green energy, and digital media.

This summer I went to the Olympics and was at Canada House in August for an Invest in Canada work session with potential foreign investors. I'm going to preach for my neighbourhood. Obviously, digital media was high level and received the most questions after the panel, and was the most interesting, I think, in the eyes of the investors.

Video games are a serious business involving serious money and serious jobs. I will use my studio as an example. We opened up barely five years ago and we have created 500 great-paying jobs. Our first game took 4,000 man-months. Think about that. That's about 100 people for 40 months. We're very far from two guys working out of a basement. Don't get me wrong; that still happens in some aspects, but the maturity of the industry is there for sure.

As Pierre also mentioned, what the investors are really looking for, after talking to them, is that the talent is there. Yes, the subsidies and incentives are truly important, but if you have money without talent, it's a short-term goal. The pool of talent has to be there. Yes, the schools play a part. We're working hard in every province, but we sometimes need to go outside Canada, unfortunately.

Two years ago my staff was composed of about 24 different nationalities, about 15% and now two years later, about 20% of my workforce. Sometimes we need to go outside because there's such a demand. When we go outside, we need some help from the government. As Pierre mentioned, the delays have been increasing. Two years ago we were looking at maybe eight weeks. Now we're looking at 16 weeks. That really hurts a project. When we invest in HR people to scan the globe to find the right talent, the right specialist, it takes four to five months before that person comes to our workplace to help us produce international high-quality games. It really hurts. Sometimes we need to cancel a couple of mandates because of that.

This is obviously something that is very close to our hearts.

As Pierre mentioned, we would like the video gaming product to be recognized for what it is. Last year, I believe, the U.S. Supreme Court said it officially considered video gaming a cultural product. That acknowledgement made south of the border was very welcome. I do not know why we could not do the same. As you know, most Canadian products in this field are of high quality, internationally recognized and well received. I believe we have reached a level of maturity in this area that deserves some recognition.

As regards intellectual property, a number of international publishers are established in Canada, more particularly in Montreal. To help the pendulum swing back the other way, it would be a good idea to stimulate the Canadian intellectual property associated with our products.

Thank you.

4:20 p.m.

Conservative

The Chair Conservative Rob Moore

Thank you to our panel for their very informative opening remarks.

Now we're going to move to our question and answer period. This is the first round, at seven minutes. Just so members know, I'm going to be sticking, pretty strictly, to the seven minutes.

Our first questioner is Mr. Armstrong.

4:20 p.m.

Conservative

Scott Armstrong Conservative Cumberland—Colchester—Musquodoboit Valley, NS

Thank you, Mr. Chair.

We've seen some trends develop over all of your testimony. One has to do with exports and distribution, another with training versus immigration and some problems with immigration, and the yet another is the concerns regarding capital, the Canadian Media Fund and some barriers to capital. I'm going to try to touch on all three.

First of all, Mr. Hilchie, you said that in Canada the industry is worth about $1.7 billion. Do you know how much of that percentage is exported?

4:20 p.m.

President and Chief Executive Officer, Entertainment Software Association of Canada

Jayson Hilchie

In our survey in 2011, 50% of the companies said that 90% to 100% of their revenue was all export. A good percentage of it, almost half, would be a good estimate.

4:20 p.m.

Conservative

Scott Armstrong Conservative Cumberland—Colchester—Musquodoboit Valley, NS

That's a significant amount. The industry really is international.

4:20 p.m.

President and Chief Executive Officer, Entertainment Software Association of Canada

Jayson Hilchie

This is a global industry, absolutely.

4:20 p.m.

Conservative

Scott Armstrong Conservative Cumberland—Colchester—Musquodoboit Valley, NS

All right. With its growing worldwide by 2016, I think you said, to $83 billion from a current level of $67 billion, would you see Canada's industry continuing to grow at about the same amount it is growing worldwide?