Canadian Heritage Committee on Nov. 6th, 2012

[The Chair, Conservative, Rob Moore]

Thank you, sir.

Next, we have the Canada Media Fund.

[Stéphane Cardin, Vice-President, Industry and Public Affairs, Canada Media Fund]

Mr. Chairman, committee members, thank you for inviting us to appear before you today.

Mr. Chair, in closing, we in the TCS believe that there is no question that the growth of the entertainment software industry has helped to invigorate the economy economic health and dynamism of communities across the country, injected thousands of professional and high-paying jobs into local communities, and raised Canada's profile as a significant force in the gaming industry.

Our comments today will be focused on the CMF's role in the industry and how we currently support it, including a description of a few examples of successful projects we've funded to date.

The CMF's mandate is to champion the creation and promotion of successful, innovative Canadian content and software applications for current and emerging digital platforms. We do this, first and foremost, through our funding programs. With the continued support of our funding contributors, the Government of Canada and Canada's cable and satellite distributors, the CMF was able to contribute $358 million to Canadian television and digital media projects in 2011–12, triggering no less than $1.3 billion of industry activity across the country.

As such, we are pleased to be playing a pivotal role in supporting the growth and evolution of an industry that is an integral part of Canada's digital economy.

[Nathalie Clermont, Director, Program Management, Canada Media Fund]

Our support is delivered through two funding streams: the convergent stream and the experimental stream. Through the convergent stream, the CMF supports the creation of television programs and related digital media content for consumption by Canadians any time, anywhere, on the platform of their choice. By making content available on multiple platforms and creating value-added digital content to further increase viewer engagement, the objective is to ensure that this content is seen by as many Canadians as possible.

In 2011–12, the CMF supported over 500 television and related digital media projects through this stream. As games are a natural extension of television properties, approximately 20% of the related digital media projects were in fact games—mobile games and social games.

For example, the digital media component of the popular VRAK.TV youth show Mixmania is an extraordinary example of the way to add value by adopting a transmedia strategy. Produced by Zone 3 and Turbulent Media in Montreal, the show is now in its third season. The website has had more than 1.3 million viewers and almost 14 million hits. The mobile game has been downloaded 100,000 times from the App Store. The songs in the musical section of the site have been heard 3.5 million times and Mixmania's Facebook page has more than 40,000 members.

[Stéphane Cardin]

Through the experimental stream, the CMF encourages the creation of leading-edge, interactive digital media content and software applications. The primary objective of this program is to drive innovation in terms of content, technology, or business models. Funding is allocated using a selective process, with the selection of projects determined by a committee composed of Canadian and international specialists with recognized expertise in the field of interactive digital media.

In 2011-12, the CMF supported 90 innovative and interactive digital media projects through this stream, including 15 games. The games sector being a leader in terms of creative and technological innovation, it stands to reason that many Canadian games, from console games to casual games, have been supported through this program.

Since its launch in April 2010, approximately 47% of projects funded through this stream have been games, and CMF funding support has triggered approximately $50 million in production activity for independent Canadian-controlled game companies, for an average budget of approximately $1 million per project.

Given typical production schedules, only a handful of projects supported through the program have made it to market, and although the primary objective of the program is not commercial success, we are pleased to report that some projects have already done rather well. For example, Guacamelee, produced by Toronto's DrinkBox Studios, is an action-packed downloadable video game for home consoles. It has won a number of awards, including best of show at the Penny Arcade Expo 2012 and best downloadable game at E3 2012. DrinkBox has recently signed a deal with Sony for a substantial guaranteed royalty payment for the game to be released on their PS3 and PS Vita platforms.

Another example is Big Win Soccer, produced by Vancouver's Hothead Games. It was one of the first freemium sports games built for iOS and Android. It reached number one sports title in 25 countries on iPhone. To date, over 200 million soccer matches have been simulated. The CMF anticipates fully recouping its investment in Big Win Soccer over the game's commercial lifetime.

In addition to providing financial support to projects, the CMF seeks to further enable the success of the projects it funds by disseminating industry intelligence to its stakeholders, entering into partnerships with industry events, and promoting Canadian content and talent at home and abroad.

With respect to industry intelligence, the CMF commissions research on emerging topics, often in partnerships with other Canadian or international organizations. For example, this year, the CMF partnered in a study that Mr. Kelso mentioned, New Directions for the Financing of Interactive Digital Media in Canada, which examined the financing landscape for Canadian-owned companies in the interactive digital media industry. The findings of this study may be of particular interest for the committee's examination of potential incentives for the growth of this industry.

In summary, the study found that the future growth of the sector relies on a supportive business environment, ensuring access to the right forms of financing at the different stages of corporate growth. Given the dominance of small and medium-sized companies in this sector, most of which achieve revenues of less than $1 million annually, the study points to a generalized need for early-stage investment capital, particularly through venture capital and angel investment, as well as financing of operating cashflows.

Another priority for the CMF this year has been to partner in supporting the update of the Canadian Interactive Industry Profile, which Mr. Kelso also mentioned, which was last published in 2008. The study is now under way and should be completed in 2013.

[Nathalie Clermont]

In terms of partnerships, the CMF will partner this year with a total of 38 industry events across Canada and internationally. For example, the CMF partnered with the Canadian Videogame Awards and conference in Vancouver, the Digital Alberta Awards, Interactive Ontario's X-Summit, GameON and Inplay, the Montreal International Game Summit, and many others. Last month we showcased some of the best Canadian digital media projects, including games, to an international audience at Metcom, the world's largest audiovisual market, where positive feedback was received on the quality and innovation of Canadian digital production.

In closing, I will say a few words about our promotion initiatives.

Last June, we launched the Canada on Screen website. The goal of the site is to feature and celebrate Canadian creative talent and productions. They run the gamut from television productions to games, from web content to software and applications funded by the CMF. Visitors to the site can find a lot of information on the projects, including information on the producers, the prizes and distinctions they have received and their overseas sales. There is also a photo gallery, a video overview and a selection of media coverage.

As of today, the site has about 60 digital projects and we add new ones each month. The three projects that we mentioned a little earlier are on the site too and we invite you to view them.

Mr. Chairman, committee members, thank you for affording the Canada Media Fund this opportunity. We would be pleased now to answer your questions.

[The Chair, Conservative, Rob Moore]

Thank you.

We will start our question and answer time with Mr. Young.

[Terence Young, Conservative, Oakville, ON]

Thank you, Mr. Chair.

Thank you, everyone, for coming here today. We really appreciate your giving your time to help us with the study.

Mr. Cardin, can you tell the committee about the experimental stream of the fund? In other words, how many companies might access that fund annually, and how many projects are funded? How much money might they get for a project?

[Stéphane Cardin]

Given that the program is designed to support innovation and projects that might be of a riskier nature, less of a commercial nature at first blush, the amount of funding that CMF provides can be up to 75% of eligible expenses, up to a maximum of a million dollars per project. We have two rounds per year. We support approximately 45 to 50 projects annually, and the program has been quite successful if we measure it in terms of demand, because since its launch in April 2010, on average, the level of demand to projects selected has been about 3:1, so there is substantial oversubscription.

[Terence Young, Conservative, Oakville, ON]

So you're taking projects that are a little riskier because they're more innovative. How are they defined as more risky?

[Stéphane Cardin]

As I said, it's innovation in terms of the content itself—new narrative approaches—either in terms of technology that is being developed or in terms of business models. For example, if someone has come in with a franchise game and they're doing an update, something like that probably has more of a guarantee of commercial success. We're looking for things that haven't been tried before.

[Terence Young, Conservative, Oakville, ON]

We've heard from a lot of people in the industry, and a number have mentioned what is termed as early-stage capital. For these little, tiny companies that have something really clever going on, but they don't have money to pay the rent and buy the equipment and all that kind of thing, does your organization fill that gap for early-stage financing?

[Stéphane Cardin]

We do to a certain extent. What we have found, especially after running the program for a few years and the research that we've conducted, is that there is a need for us to work hand in hand with the venture capital sector. That's something we've done starting this year. We're trying to create partnerships with venture capital organizations, accelerators, and incubators across the country in the hope that the CMF might assist in bringing companies to a stage where venture capital organizations might be interested in coming in at a later stage.

[Terence Young, Conservative, Oakville, ON]

How many times does that happen? How is that working?

[Stéphane Cardin]

That's something we just started this year.

[Terence Young, Conservative, Oakville, ON]

Is that the digital media performance measurement framework, or is that just a measurement tool?

[Stéphane Cardin]

The digital media performance framework has to do with measuring audiences for the content we support. That's an entirely different thing.

[Terence Young, Conservative, Oakville, ON]

Would you mind telling the committee about that? Who was consulted on that, and how does the framework impact the experimental stream of the fund and the software entertainment industry?

[Stéphane Cardin]

Let me start with this. The CMF, for a number of years now, has documented the support of the projects it funds in terms of audiences, critical acclaim, and international sales. We've been doing this for a number of years on the television front using the standard in the industry, which is BBM Canada figures. That's how we measure the success of television programs.

In the digital space, there is yet to be a sort of industry standard. There are a number of companies operating in the country, such as comScore, for example. We created an industry advisory committee to try to come up with a framework to measure the audience success of the digital content we fund. That framework was launched last May, and results are just starting to come in during this fiscal....

[Terence Young, Conservative, Oakville, ON]

Thank you.

I'd like to ask Mr. Manuge a question, please. How do you prepare businesses for future investment in and trade with companies in other countries at the first meeting or at the first couple of meetings?

[Grant Manuge]

At the heart of our service offering are four key services that are tailored to the interests and requirements of each client. Each client is unique. Each client has different requirements, so we offer four services.

The first one is called preparation for international markets. The second, closely related one is an assessment of market potential. The third and fourth, I'll mention in passing, are qualified local contacts and problem solving, which we hope in most cases our clients won't require.

I'll come back to preparation for international markets and assessing market potential. This is where companies are new to us or are new to a market. They may be active in one market but are looking at other markets. We will work with them to identify what their interests are. We'll identify a range of options we can bring to their attention in terms of potential business partners, potential business agents, potential clients, and business facilitators, such as lawyers, accountants, local chambers of commerce, and others. Essentially, we seek to understand their needs, and, based on their needs, as articulated to us, to identify a range of options, such as qualified contacts we can introduce them to and the programs and other services available to help them into a market.

[Terence Young, Conservative, Oakville, ON]

What advice would you give somebody who had a video game and wanted to market it in Asia? What would you advise them that is specific to Asia?

[Grant Manuge]

Mr. Chair, the Asia market is very dear to our hearts in a branch that's also responsible for the Asia-Pacific.

It's difficult to offer general advice in terms of such a broad range of markets. I'm not trying to be cute here. We have very extensive consultations every year on developing our proactive promotional activities. We have very active consultations with stakeholders, with industry stakeholders, and, in addition, with our partners in other government agencies and departments.

Essentially what we try to identify are the key priorities that will give us the biggest bang for the resources we have available. We draw heavily on the input we receive from our stakeholders, especially industry, in terms of identifying where we should focus.

For a company that is new to us and is looking at Asia more generally, we would have a very in-depth discussion with that company to identify what their strengths are, what markets they've already been active in, in other parts of the world, and what type of support they're looking for. Then, drawing on that, we would try to drill down within our network to identify where we could make the introductions. It might be that China might not be the best market for them, but perhaps Taiwan, on the other hand, would be. Alternatively, Japan would be an interesting entry point, and India might be something for further down the road.

Given that each client is unique, I think that's probably the best summary I could give you on that account.

Perhaps I could ask my colleague, Mr. Fraser, who has just returned from an assignment in Asia, to speak to that one as well.

[The Chair, Conservative, Rob Moore]

I have to thank you, Mr. Manuge. We have to wait for that, because now it's someone else's turn to ask a question.

That might get included in her round, but now we have Ms. Sitsabaiesan.

[Rathika Sitsabaiesan, NDP, Scarborough—Rouge River, ON]

Thank you, Mr. Chair.

You know when he says “her round” that it's me, the only female on this committee.

Thank you to all of you for joining us here.

My question is for Monsieur Cardin or Madame Clermont.

You mentioned earlier in your presentation about the small piece of the Canada Media Fund that is directed towards the gaming industry through their experimental stream. We had other witnesses who appeared before who mentioned the same thing. They also mentioned that it's not very much, considering the way the industry has boomed and grown, and maybe they would like to see it grow.

I'm curious to know what you think, if you think we should actually increase the fund in order to allow for more funding towards indie operations in the gaming industry, or maybe perhaps even create a new separate fund that would be available for the gaming industry. Would that be more useful? What would be the best way to expand the digital side of the Canada Media Fund?

[Stéphane Cardin]

Well, first, I'd just like to point out that, as we said in our presentation, we support games through both streams, both convergent and experimental. On the convergent side, it'll be more like casual games and social games that accompany the television properties that we also fund. But we do fund games in that stream, and we've provided over $20 million in funding this year alone in terms of digital media content in the convergent stream.

The experimental stream, again, is one that is focused on innovation and applies to a very wide range of products, in fact, not just content, but even software applications. So we've funded web series, we've funded interactive web content, we've funded interactive books, we've funded apps, we've funded software—for example, Moment Factory's X-Agora software, which is used for interactive installations in different cities. So it's quite broad.

We have significantly increased the funding to that stream just over the few years that it's been in place, starting off from a standpoint of $27 million in 2010, increasing it to $33 million, and now to $36 million in the current fiscal year. It's the area of the CMF, I would say, overall, that has experienced the largest growth. But as I mentioned before, with a 3:1 ratio of demand to available funding, clearly there is a demand for more funding, particularly in the games part of it, which, as we've said, has accounted for almost half of what we've supported so far since 2010.