Thank you, Mr. Chair. For those of you who aren't familiar with us, the Entertainment Software Association of Canada is the association that represents companies in Canada that develop, publish, and distribute games for all sorts of platforms—from consoles to computers to the Internet to mobile devices to handheld devices. Our members collectively account for about $1.8 billion in entertainment software and hardware sold in Canada in 2010 and billions of dollars more for what's sold worldwide.
Generally, when people think of video games, they tend to think of games that are played on dedicated consoles like the Xbox or the PlayStation. Those of us of a certain vintage may think about arcade games. But the industry is actually going through a fundamental shift. The combination of broadband access and new mobile and online platforms for games are causing all sorts of tectonic changes. New consoles and PCs are now connected to the Internet and are always on.
As a consequence, a variety of online services like Xbox LIVE or PlayStation Network or Steam or Origin have emerged that not only permit users to purchase and download full games or other downloadable content directly to their devices but also offer enhanced value-added features like online multiplayer where players can play cooperatively or competitively against each other, automatic updates, additional add-on content, remote saving of games where you actually save your game on to the Internet, and community features like LiveChat and other kinds of functions.
While console games still represent the majority of the Canadian games market, the fastest-growing market segments are mobile games, played on smart phones like BlackBerrys and iPhones, and tablets such as the iPad or RIM's Playbook. There are also online games, which include everything from massively multiplayer online games like World of Warcraft, where literally millions of people play together in a persistent virtual world, to games on social networks like Facebook or FarmVille or the Sims Social. These types of games are driving new demographics and also driving new and innovative business models such as free-to-play, where we actually distribute the game for free and then earn revenue through subscriptions in app purchases of virtual goods, game advertising, and in other ways.
These types of games also reflect a growing trend away from older-school product-based business models that we see in conventional retail towards more service-based models in which users access the games they want online, where they want, how they want, to a device they want. The most robust example we see of this is the emergence of what we call “cloud gaming”, where the game resides entirely on the Internet, that is, services provide an entire library of games on the Internet. Literally, you connect and it streams directly to your PC or your television, much like you're watching a movie on Netflix, except it's doing it in real-time game play.
With all of these digital options available, it's little wonder that we're seeing a rapid shift away from a kind of a packaged goods model towards online distribution services and platforms. In fact, according to NPD, over one-third of all games obtained in Canada in 2010 were acquired digitally. Major companies are reporting that over 20% of their Canadian sales are online and project that Canadian sales will be over 50% online sales by 2013.
Similarly, the smaller developers are benefiting even more from the efficiencies and cost savings that digital distribution affords them. Over 75% of their sales in Canada are through online means. So the e-commerce market in Canada for games is clearly developing very rapidly, and there are a number of policies needed to support this.
First and foremost, modernizing Canada's aging copyright regime for the digital age is critical for success. A robust regime is going to be necessary to adequately protect works in the digital environment. In particular, it's critical to understand that these new and emerging platforms rely on sophisticated, technological protection measures, or TPMs, that facilitate online distribution of content. From streaming radio and music services like Spotify or Rdio, to film and television platforms like Hulu or Netflix or UltraViolet, to gaming platforms like Xbox LIVE or PlayStation Network, all of these services are supported by a wide range of TPMs that not only prevent piracy but also provide viable revenue streams for their creators and also enable a range of value-added features and flexible purchase options all the way from rental to purchase to subscriptions and everything in between.
While these TPMs are often dismissed as digital locks and considered solely in the context of legacy physical media, like music CDs or movie DVDs, they facilitate the development of new digital products, services, and distribution models, allowing creators to determine for themselves how their works will be exploited and providing consumers with a wide array of differentiated products, services, and models to choose from. However, if consumers can circumvent these TPMs and appropriate the works as they see fit, these models are fundamentally undermined.
The video game industry makes extensive use of these kinds of sophisticated TPMs to protect its works and enable new models, which are completely destabilized by circumvention. We applaud and strongly support the anti-circumvention provisions in the recently reintroduced copyright bill. We urge the government to implement the technical changes we recommended on the bill and to move expeditiously to introduce it.
Copyright is by no means the only important legislation affecting e-commerce in Canada. In order for Canada to flourish, we need smart, well-considered regulations that grasp the realities of an increasingly digital and global marketplace, to reflect the dynamic pace of change in knowledge-based industries, build consumer confidence, and foster new forms of high-value commerce. The Canadian digital economy is highly dynamic in its early stages of development. Consequently, government must be very cautious when introducing new regulations that will impact the digital industries.
Furthermore, given the reality of increasing global competition, any owner's regulatory burdens will simply drive companies to other jurisdictions. Accordingly, any form of regulatory intervention should primarily support Canada's growing e-commerce marketplace by encouraging innovation, investment, and consumer choice. We must carefully weigh the potential impact of any regulation on digital industries in consultation with affected stakeholders.
Lastly, cost-effective access to a first-class wireline and wireless broadband infrastructure is a critical component to e-commerce in Canada's digital economy. Access to advanced broadband is essential for online games, games with online functionality or features, and digital delivery of games. The cloud gaming services I mentioned in particular are very bandwidth-intensive.
Government policies that encourage more affordable, accessible, and faster broadband will be not only vital for the future growth of our industry, but it also has the additional value of fostering job growth within our industry. At the same time, it will foster consumer interest in the online games industry and digital delivery platforms, helping in turn to drive demand for further broadband infrastructure.
I would like to thank the committee for the opportunity to express our views. We welcome any questions.
