Madam Chair, good afternoon, and thank you to the committee for the opportunity to participate in this study.
My name is Jayson Hilchie, and I'm the president and CEO of the Entertainment Software Association of Canada. We represent a number of leading video game companies with operations in this country, from multinational publishers and console makers to local distributors and Canadian-owned independent video game videos.
Canada's video game industry is one of the most dynamic and prolific in the world. It employs close to 22,000 full-time direct employees while supporting another 19,000 indirect jobs. Our industry's contribution to the Canadian GDP is close to $4 billion. That is not revenue but the salaries of our employees and those who our industry supports with their collective economic impact. Our impact is considerable. The average salary of a video game employee in Canada is $77,000 per year, which is more than double the Canadian average. To put all this into perspective, with 10% of the U.S. population, Canada's video game development is roughly half the size of the U.S. industry, which is the world's largest.
Of the 600 studios that span this country from St. John's, Newfoundland, to Victoria, British Columbia, and all points in between, approximately 85% of them are Canadian-owned. But the Canadian industry is a mix of large multinational publishers and developers and Canadian-owned companies. This mix helps to diversify and strengthen our industry. I cannot stress enough how important Canada is within a global context with respect to the production and creation of video games. We attract investment from our industry's leading multinationals. They are the largest employers in the Canadian industry. Some of the most successful games globally are created by them right here in Canada.
Video game production is one of the fastest-growing industries globally, estimated to generate close to $140 billion in revenue in 2017. Canada is a creation powerhouse supporting this booming industry. However, you don't generate $140 billion in global revenue without being focused on commercial viability, and we are very much a business.
Our industry has matured and our products have evolved. Technology and user preferences have diversified our revenue streams. What used to be an industry that developed a game, put it on a cartridge or disk, packaged it in a box and then put it on a store shelf is now one that offers many different types of products and services in as many different forms. While physical retail still represents close to two-thirds of our revenue, direct-to-consumer digital sales have quickly grown to more than a third of all our revenue, and they continue to grow. Advances in broadband technology and processor speeds make it possible to transmit large files directly onto a PC, console or mobile device, giving consumers options on how they choose to consume our products.
Games are not necessarily finalized anymore when they are published for sale. Many games now live on long after the initial launch, with multiple updates, add-ons, expansions and improvements that allow players to extend their engagement with their favourite games beyond the traditional single-player campaign.
With the rise of the smart phone and its ubiquity, and the business opportunities that came with it, the video game industry went through somewhat of a renaissance that allowed small independent video game studios to develop a game and self-publish it on the App Store or Google Play. This resulted in a boom of new and innovative companies that were suddenly able to take large creative risks.
The business model for many of these mobile games was quite different from what consumers had been used to. While it took a lot of experimentation by many companies, ultimately the free-to-play model of games became most prominent. In this model, games are given away for free in some capacity with the option for players to enhance and customize their experience by purchasing different types of virtual items. In-game transactions that allow players to enhance and customize their experience are now becoming a major source of revenue for our industry. They are also creating more customized and personalized experiences for our players, and this is why they work.
It's important to note that the vast majority of mobile video games are not profitable. Discoverability remains a huge issue for many of these games. While the App Store has created the means for independent studios to self-publish their games, most do not have the resources to then promote them and market their games like the many you see advertised by using celebrities on television. In addition to in-game transactions, downloadable content that offers additional game content post-release is another way our industry has diversified its revenue stream. This content may include new maps, levels, characters, missions and storylines that allow players who love a certain game to continue their experience in all new ways.
As we continue to innovate and look for new ways for our players to enhance their experience, we've also had to pivot for other reasons. Some of the changes we implemented over the years were the result of consumer demand but also the growing necessity to combat piracy.
Piracy has evolved over time and for the most part now resides in an online digital form. One of the ways we have combatted piracy is to move to a model where most of the games we produce have some sort of online component, whether this involves simply creating an account that enables content to be downloaded from a central server or, more commonly, including a multiplayer mode in a game.
These types of games link all players through central servers and require players to be logged in through an account in order to access the online functionality. This is very effective in limiting the ability of counterfeiters to flourish, as pirated games are not able to access the online functions. In most cases, the only content the player accessing a pirated game will be able to use will be the single-player mode, which in our industry is becoming less and less common.
In addition to making games that have this online functionality I just spoke about, our industry uses technological protection measures to combat piracy, both in the form of software encryption technologies and physical hardware found in video game consoles.
These technological protection measures essentially do two things: They work to encrypt the data on a game, which thwarts copying it, and they make copied games unreadable on a hardware console. While in many cases these measures do eventually fall victim to committed pirates who work to crack the game, they do provide a window for a company to sell legitimate copies during a period of most demand, which is often the first 90 days.
As encryption technology improves, it's taking longer and longer for the pirates to crack the game, which improves and lengthens the window the company has to recoup their investment in their product. In some cases, those who sell what we refer to as “modchips” offer their services online with the promise to allow your console to circumvent the protections found within it and play pirated games. These circumvention devices were made illegal in Canada in 2012 as part of Canada's modernized copyright legislation.
In fact, just last year, Nintendo used Canada's copyright law to successfully challenge and sue a Waterloo, Ontario, man who was selling circumvention devices online. After a lengthy process, Nintendo was awarded over $12 million in damages, and multiple media outlets reported that the ruling in Federal Court confirmed Canada's copyright law as one of the strongest in the world.
In order to maintain its effectiveness, the law must continue to provide protections to content creators in the video game industry by maintaining the provisions that make circumvention devices illegal. As our economy moves increasingly to one that involves digital goods and services, those protections such as TPMs must remain.
Even in the face of challenges, our industry continues to innovate and experiment with even more novel revenue models and more choices for our consumers to engage with our products. Most recently, there have been moves toward subscription-style models that allow consumers to pay a monthly fee for access to hundreds of games, both recent and back-catalogued, that can be downloaded or directly streamed over the Internet.
An example of a streaming service is PlayStation Now, which for a monthly fee allows customers to access over 650 video game titles over the Internet through a central server. While PlayStation offers multiple subscription options for its service, in Canada you can subscribe for about one year for about $100.
Just recently, Microsoft announced its new Xbox All Access service, which is different from PlayStation Now in that it offers a bundle of items that includes the Xbox console itself, an Xbox Live membership that enables online and community functionality and an Xbox game pass that offers access to more than 100 games available for direct digital download. Microsoft is offering this service for a monthly subscription fee in a variety of forms.
As you can see, the video game industry is constantly evolving the way it engages with its consumers by working to find the best ways to give players the ability to choose, because it really is all about choice when it comes to commercial success. There is a direct connection between remuneration models in our industry and how consumers want to access our content. Video game consumers don't want the industry to tell them how to access our products. We have learned over the years to listen to them and to successfully adapt our products accordingly.
While there is still more to learn, our industry is proud of the way we put our players first, and this has certainly helped create gameplay experiences that are what the players want, as well as remunerative models that work for our industry.
Thank you.
