Canadian Heritage Committee on Nov. 6th, 2012

[Scott Simpson]

Yes.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

What would happen if the corporate tax rate were increased in Canada, say it went to 20% or 25%? Is that one sure way to slow down this virgin industry in Canada?

[Scott Simpson]

Yes. As with anything, the more we're taxed, the less we can do to grow. We'd have to put a lot more into our overheads and do a lot more safeguarding as to how we grow out. The natural answer is yes, for sure.

Again, as I said earlier, we don't see that incentives actually drive our business, but we do look at them as a big offset for what we're doing corporate tax-wise.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

Mr. Lucas, would you agree with that?

[Victor Lucas]

I think there are so many interesting facets to that. I don't make video games, so I don't have the perspective that some of the other panellists do. But I can tell you that I didn't create my production company or my programming, which is purely from the heart...I just wanted to get this stuff out there. I didn't think of tax breaks or tax incentives. If I had, I may not have set up shop in Vancouver, but it turned out to be the perfect place to create my company.

I worry sometimes that Canadian companies think about taxation and the levels of employment they have to deal with first, rather than first thinking of the content they're going to send out into the world. I think we have matured enough as a culturally significant export industry, and that's where I want to see more game companies start. I want them to think about what they're presenting, what they're building, and what they're shipping to the world. It's not just goods; it's art. It's a culturally significant piece of art that they're delivering, and why do they want to build it?

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

Thank you.

How much time do I have left?

[The Chair, Conservative, Rob Moore]

You have two minutes.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

I'd like to pass the floor to my colleague, Mr. Daniel.

[Joe Daniel, Conservative, Don Valley East, ON]

Thank you, Mr. Chair.

Thank you, witnesses.

I'm just going to take a slightly different angle in terms of the discussion here, and that is because I'm on the human resources committee, so I have some interesting things....

This industry is unlike most industries, in the sense that you are only limited by imagination, so your growth should be phenomenal. I think it isn't phenomenal, but in a minute maybe you can tell me what the growth is. What are the skill gaps that are preventing you from developing this into something ten times bigger than it is now?

[Scott Simpson]

Sure, the imagination is a big deal, but that's sort of the case for any business. You want to build creative products and you want to innovate and do different things.

The thing that holds us back is the same thing that holds every industry back, and that is that we need investment, we need talent, and we need everything to grow our businesses.

The thing that actually makes video games unique, as I was saying earlier, is the obvious creative aspect—when you see art and sound and voice actors and everybody doing things that you can see on the screen, more so than what a movie or music or any of the other arts, which most people would commonly associate with entertainment, would have—and video games have a very heavy tech component for what you need to do. You're either going to grow that stuff in-house and take advantage of programs like IRAP, or SR and ED, or something, to do that with your own technology, or you license and build that stuff outside. There is no one size that fits all for whatever you do.

One thing that probably hasn't been noted here is that games are changing a great deal. Games are moving from the larger-scale console games, such as Assassin's Creed or whatever, which Victor was talking about earlier.

And by the way, Mr. Armstrong, I meant to note earlier that I was at the Golden Joystick Awards, which are in the U.K., a couple of weeks ago. It's an awards thing. Canadian games are still well represented. Assassin's Creed was nominated, and SSX out of Vancouver, etc. It's not like it's a regional awards show. It just happened to be that way.

Anyway, that's beside the point. Pardon me. Where was I? Oh, yes, I was talking about technology.

To really try to get there quickly, the point is that the technology—the one-size licence—doesn't move, especially now that we're moving into mobile and social—

[Joe Daniel, Conservative, Don Valley East, ON]

I'm going to cut you off there.

The focus is the skill gap. What are the skills that your industry is missing, and why aren't the colleges, etc., meeting that gap? Are you communicating with them well enough so that they can produce what you need?

[The Chair, Conservative, Rob Moore]

We'll have to have about a 10-second response, because Mr. Daniel is out of time.

[Scott Simpson]

Because the move is to mobile and social—which has a 19% CAGR as opposed to a 6% or 7% CAGR for console games—the skill gap is actually in these different kinds of games and how you monetize and create those.

I'm sorry I went over.

[The Chair, Conservative, Rob Moore]

Thank you, Mr. Simpson.

Mr. Dubé.

[Matthew Dubé, NDP, Chambly—Borduas, QC]

Thank you very much, Mr. Chair.

I feel that the question of copyright in the video game industry is an interesting one. Take a series like Assassin's Creed. You can move units to consumers pretty easily. Unfortunately, we have not been able to hear from small companies so far. I suppose that is normal, given that there are so many amazing studios in Canada, as Mr. Cash was mentioning a little earlier. It is difficult to hear from everyone.

Perhaps I am going to reveal my age by referring to this, but small studios often have websites with Flash games like Newgrounds, for example. A lot of games are getting onto iPhones and iPads. That seems to be creating a kind of grey area for copyright. Is that a problem of modernization and the digital economy that needs to be fixed? Do we need a copyright system for the digital economy?

That question goes to you all. Does anyone want to comment?

Mr. Lucas.

[Victor Lucas]

There absolutely is a problem with copyright, and not only copyright but piracy as well. There is a lot of rampant stealing at the consumer level and at the developer level. But with the Internet there is a pretty sophisticated way that things get self-policed, and people are outed quite readily when assets or game systems are stolen.

The key to success in video games, when you're at a small stage, when you don't have vast sums for marketing, is to create an Internet community, and it's to create a really sophisticated structure of love around your product before you ship it. On games like Sword & Sworcery, Superbrothers did a fantastic job with that, and with Sound Shapes. It did a fantastic job.

I have to give a shout-out to the teams out of Toronto, the small indie developers out of Toronto. Really, it's as if they jumped on a surfboard, as we all shifted to iPads and iPhones and went to these smaller-scale things. They really saw that and they really embraced it, and they've created these really significant cultural works without huge budgets. I think the rest of Canada and the guys who made the Super Stickman Golf game in Saskatchewan also embraced the idea of a small team but found their own identity out there.

So yes, copyright is a problem. I don't know if we should be investing huge sums of money in infrastructure around that at this stage, but it is absolutely a problem.

[Stephen Waddell]

Mr. Chair, could I address Mr. Dubé's question?

Yes, intellectual property and strengthening intellectual property is critical in this industry, as it is in all of the content industries.

I would like to quickly make a pitch for the federal government signing the Beijing Treaty on Audio Visual Performances, which was just passed at WIPO in June this year. It would help very much to strengthen the intellectual property rights of both performers and producers of video games if the federal government would sign that treaty.

Thank you.

[Matthew Dubé, NDP, Chambly—Borduas, QC]

Mr. Nantel asked you questions about the growing place for actors given that these things now look more and more like movies. You said that the need was not necessarily for Canadian content requirements, but for tax credits. This is a growing Canadian industry. Can something be done to increase the present of Canadian talent in the games?

[Simon Peacock]

I think that comes down to what we were talking about on training and education. We have the talent in Canada. The ACTRA community has 22,000 members throughout Canada, so we have the numbers. The problem is that most of them haven't had any experience working in games, so it's simply a matter of bringing them in, training them, and teaching them the techniques that are appropriate. It's something that is very attainable.

[The Chair, Conservative, Rob Moore]

Thank you, Mr. Dubé.

We'll go to Mr. Armstrong for about two minutes.

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

I'll be very quick, Mr. Chair.

One of the themes we've heard about is speed. Your industry seems to move so quickly and government moves slowly. That's where the problem with tax credits and other things comes in. We also talked about the speed of bringing talent in from other countries when you need it. A few of you mentioned that.

Does anyone want to talk about the immigration aspect of this? I am one who believes that we should try to train our own people at home and try to hire our own people first. What we've heard from other witnesses is that we need to bring experts in as mid-level managers, as more experienced people, to train people on the job. I'm having trouble reconciling that.

Mr. Simpson, can you discuss that?

[Scott Simpson]

Sure.

As much as the industry is growing and as much as it has a very high compound annual growth rate, folks like Mr. Acosta are providing enough talent for us to actually keep up with demand. That will not be there for much longer. In fact, I think, depending on where the studies go, you'll find that there's a bit of a brain drain still happening. A lot of those graduates are going down to work in California and elsewhere to actually ply their trade, because until recently, we haven't had enough of an industry to actually employ them all. That is changing rapidly and greatly, and it's probably already passing. A couple of years ago, there would have been a much bigger problem than there is now.

We're now at a place where we're looking for talent to do different things, because the industry changes a lot, as we were saying earlier. We're moving from consoles to the mobile and social side, and we need experts in those places. You need to bring in people from wherever who have the right experience. The good news for Canada is that we're finding most of those folks out of province as opposed to out of country. So we bring a lot of people from Montreal or B.C.—sorry, Lucas—to do whatever.

That is going to become a great problem as the industry grows. It's not as if we're plateauing or seeing a peak in what is happening. As was mentioned earlier, we are not bound by a lot of things. It is a software product. We're not trying to build bigger factories to do something. The limit depends on how much we can actually sell and on finding the right markets for what we do.

What's interesting is that what we find is that the biggest talent drain is not in the creative industries. It is actually more in marketing and sales and how we put our product out. We still need to import a couple of those guys.

[The Chair, Conservative, Rob Moore]

Great.

Sorry, Mr. Armstrong, we're out of time for this round.

I want to thank our panel for being here. You've been very helpful and informative.

We're going to take a three-minute recess to allow this panel to leave the table and the next panel to come up.

[The Chair, Conservative, Rob Moore]

We'll resume our meeting.

In our new panel from the Department of Foreign Affairs and International Trade, we have Grant Manuge, acting assistant deputy minister of international business development, innovation, Asia, and chief trade commissioner. That's quite something to have on your business card.

Also, we have Scott Fraser, director general, Global Business Opportunities Bureau; and David Hartman, acting director general, Invest in Canada Bureau.

From the Canada Media Fund, we have Stéphane Cardin, vice-president of industry and public affairs, and Nathalie Clermont, director of program management.

Welcome to all of you. We're looking forward to your testimony.

We'll first have our five to seven minutes of opening remarks, if you can keep it to that, and then we will have our time for questions and answers. This meeting will go until 5:30.

We will start with the Department of Foreign Affairs and International Trade. The floor is yours.

[Grant Manuge, Acting Assistant Deputy Minister, International Business Development, Innovation, Asia and Chief Trade Commissioner, Department of Foreign Affairs and International Trade]

Good afternoon.

Mr. Chair and members of the committee, today, I am acting on behalf of Peter McGovern, Assistant Deputy Minister for International Business Development, Innovation, Asia, and Chief Trade Commissioner, Department of Foreign Affairs and International Trade. I am accompanied by my colleagues Scott Fraser and David Hartman.

It is our pleasure to represent the Trade Commissioner Service and speak to how it helps Canadian firms of all sizes, including those in the Canadian entertainment software industry, to create and sustain jobs for workers in all regions of the country by engaging successfully in international business.

Let me begin by speaking briefly about the broader operating context for international business, since it continues to evolve rapidly and shape everything we do. Trade or integrative trade is now shorthand for a whole range of international business development activities, such as exporting and importing final or intermediate goods and services, attracting investment, making strategic investments abroad, licensing technology, partnering for research, and recruiting skilled workers.

The big battleground, of course, is firm-level knowledge: knowledge of where to go, who is buying, who to trust, how to build relationships in different cultures, and how to improve your ability to innovate, produce effectively and efficiently, and find new buyers in new markets. If competitors from other countries are better supported and can find the opportunities faster and manage risk better, then our firms face serious challenges.

This is why the government's global commerce strategy makes trade promotion one of its key thrusts. The Trade Commissioner Service, the TCS, working through its domestic network and 150 points of service around the world, seeks to bring real value to companies by supporting our firms wherever and however they most need us and making sure they're not at a disadvantage to their international competitors.

Though we work with all sizes of companies, we are particularly sensitive to the barriers faced by small and medium-sized enterprises, or SMEs, as they seek to grow through international business. Simply put, the costs of acquiring market intelligence and investing in relationship building are relatively higher for SMEs. In fact, many Canadian SMEs in the information and communications technology sector and the entertainment software sector are export driven and describe themselves as 5/95 firms, with 5% of their business in Canada and 95% abroad.

The TCS supports Canada's entertainment software industry in a number of different ways. To help illustrate how we do that, let me describe some of the activities we are involved with each year at the Game Developers Conference in San Francisco, the GDC. It's considered the key global event in the industry. Over 200 Canadian SMEs attend to access international market opportunities and pursue business with leading global firms, such as Nintendo, Disney, Google, Sony, Apple, and others. While the TCS helps to coordinate provincial and industry partners to position Canada as a leader in this industry, it also facilitates business-to-business meetings for Canadian companies, introducing them to key buyers and partners in the global value chains. In 2012, over 300 such meetings were organized by the TCS.

We also use this venue, which is rich in business influencers and decision-makers, to promote the competitive advantages of establishing operations in Canada. It is important to say that we do not operate alone in this regard. We work with colleagues from Export Development Canada, Canadian Heritage, Telefilm Canada, and other departments and agencies, and we have excellent partnerships with the provinces, municipalities, and key industry clusters across Canada. Our work with centres of excellence, such as the Canadian Digital Media Network and the Graphics, Animation, and New Media Canada program, also helps to strengthen our messaging.

Of course, the beneficiary of our efforts is the TCS client. We tailor our service to the capacity and needs of each firm, whether it is introducing them to the possibilities opened up by our trade agreements, finding a reliable partner for licensing agreement, or facilitating introductions to key government decision-makers.

Canadian clients in the entertainment software industry tend to use the TCS most often to find credible distribution partners and gain exposure in international markets. The TCS has also helped many foreign-owned companies establish and expand their presence in Canada.

Last year we served about 14,000 Canadian firms, mostly SMEs. That was almost a 3% increase over the year before. Many have become repeat customers, as they see our services as saving them time, money, or risk. Companies from Canada's information and communications technology sector represent the largest group of these companies, over 2,300 last year. We're working hard to help Canadian businesses become more aware of our service, through our domestic network and our in-Canada partnerships, and we are reaching out to Canadian firms that are ready to use us and need to grow internationally in order to succeed.

How are we doing? Research demonstrates that every dollar spent on the Trade Commissioner Service generates $27 in increased exports, and that firms accessing our services export 18% more than comparable firms that don't. Currently, our clients have indicated that they are 80% satisfied or very satisfied with our services, and as for outcomes, about 58% of our clients are actively pursuing business in markets where they obtained a TCS service.

At specific events such as the Game Developers Conference, 20 Canadian SMEs surveyed this year responded that they anticipate a combined total of $25 million in sales over the next 12 months as a result of their participation in the conference.

Canadian clients in the entertainment software industry tend to use the TCS most often to find credible distribution partners and gain exposure in international markets. The TCS has also helped many foreign-owned companies to establish and expand their presence in Canada.

My colleagues and I would be pleased to respond to any questions you or members of the committee may have about how Canada's Trade Commissioner Service has supported, and will continue to support, the entertainment software industry.

Thank you.