Industry Committee on Feb. 24th, 2014

[Ed Holder, Conservative, London West, ON]

Thank you, all.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Holder.

Mr. Côté has the floor for eight minutes.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Thank you very much, Mr. Chair.

I must comment on what my colleague Mr. Holder said. You know, we have to find ways of investing in the economy, of finding new avenues. The quality jobs we can create can allow small businesses, service businesses among others, to survive and to have clients who sustain their activities, whatever they may be. Rather than injuring an industry that is growing and very successful, we should perhaps focus on seeing what we can do that is positive.

In fact, my comments on the specific number of jobs this represents in Quebec are based on data from the Entertainment Software Association of Canada. You referred to this, Mr. Moisan. For 2012, we are talking about 8,750 full-time equivalents. Of course, since this is an area where there are a lot of contracts and projects, it is difficult to talk about permanent jobs, from a traditional perspective.

Mr. Moisan, you talked about the tax credits granted by some provinces. Quebec fostered the creation and support of innovation in this sector, among other things. We could also talk about venture capital.

Quebec is in a very particular situation if you consider the labour-sponsored venture capital funds. These funds have allowed us to sustain several areas of activity, yours among others. The government decided to abolish the long-term credit. One of the very original features of these labour-sponsored funds was that they had a very broad impact. In Beauport—Limoilou alone, approximately 10,000 of my fellow citizens are building their retirement fund while contributing to the creation and growth of businesses like yours.

Do you want to comment on the federal government's abolition of the tax credit and the concerns this may have caused in your sector?

[Pierre Moisan]

There is not a doubt that that fund helped many businesses. I am thinking of QuébéComm, which produced the shows of Madonna and Céline Dion, for instance. QuébéComm received funding from the FTQ Solidarity Fund. There is no doubt that this was a help.

Of course, we could talk about ideology, but at a certain point, we can set that aside and simply observe that from a mathematical point of view, either jobs are created or they are not.

What is going on with the French video game industry? The French video game industry is located in Quebec, and not in France. And yet, the government of France invests often, but it did not invest at all in the video game industry. Consequently, the largest Ubisoft studio is not in Paris or in Montpellier, but in Montreal.

At a certain point, mathematical calculations should be done to determine the consequences of these investments, how many jobs they create and what this really brings in to the public purse, from all points of view. In the final analysis, this is profitable, in my opinion. I am not a government treasurer, but I imagine that some calculations could be done somewhere. You only have to do them to see whether this was a good idea or not. I think it can be demonstrated with figures.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Thank you very much.

I will now put a question to Mr. Lutz, from Electronic Arts.

I would like to talk about the hiring of qualified employees, in particular those who come from other countries. I have heard a lot about this problem. Other witnesses described how complicated this could be in several ways.

I had the privilege of sitting on the Standing Committee on Finance during all of 2013. The former governor of the Bank of Canada, Mr. Mark Carney, told us about the dangers related to the Temporary Foreign Worker Program in more traditional activity sectors and basic services. He indicated that this could in fact exert a downward pressure on salaries.

However, measures to encourage foreign workers to come here may clearly be very beneficial in your sector, Mr. Lutz. Are there assessments of the spinoffs for every employee from another country hired by Electronic Arts? Can you give us some idea of the number of jobs that could be created by specific projects, or in general? Does this type of data exist? Do you think that the Government of Canada, through Industry Canada or Statistics Canada, should carry out that type of assessment?

[Jonathan Lutz]

I can answer with an example, although I don't have a statistical study of my own.

To answer the second part of the question first, yes, I think it would be valuable to do that study.

I have a couple of points. First, we don't hire foreign workers to save money. In fact, we usually end up paying foreign workers above the prevailing wage because they're the most senior and sought after talent. It's also very expensive for us to recruit them and relocate them from abroad. Obviously, we would always much rather hire locally. We have a very, very experienced recruitment team that looks across the industry and would always hire a Canadian first if, side by side, they had the same skills and experience as the foreign worker.

As I said, it's mostly to senior and leadership positions that we're bringing these folks in. If we don't bring them into Canada to help us train our workforce here, they'll go elsewhere. They'll go to the U.S. or they'll go to Europe.

One example is FIFA Soccer, a big franchise that we developed here in Vancouver. It's made up of a very eclectic team all from different parts of the world. It's EA's best-selling franchise. It generates huge revenues, and directly creates, I'd say, about 150 jobs in Canada, which are highly paid and highly skilled. There's absolutely no geographical reason for the development of this game to be based in Canada anymore, but we've been able to bring in the leadership and talent required over the years to build that team and build that beachhead, if you like, here. In order to keep those jobs here, we need it to continue to be easy for us to access that talent we need.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

How much time do I have left, Mr. Chair?

[The Chair, Conservative, David Sweet]

You have 40 seconds.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

I now have a brief question for Mr. Henderson.

When you have an idea, it has to be brought to market. Businesses cannot exist without revenues. Can you talk to us briefly about the challenges the companies that are members of your association face in recruiting marketing experts?

[Donald Henderson]

I believe it was Mr. Moisan who was talking about that. We call that the discoverability challenge. You create your product, but then no one knows about it until you get it into the market. As was mentioned, there's this new model of game development, whereby you give away the core product and then you try to monetize later on. You get them excited about your game and then get them to the point where they want to buy more. It's a fairly new phenomenon. We've seen it in the games industry over the last several years, but it has dramatically changed the way the industry works, especially for digital products like tablets and mobile—

[The Chair, Conservative, David Sweet]

Thank you, Mr. Henderson. I'm sorry, but we've run out of time.

We'll go to Mr. Wilks, for eight minutes, please.

[David Wilks, Conservative, Kootenay—Columbia, BC]

Thank you, witnesses, for being here today.

It would be interesting to see if one of your companies could come to the House of Commons and get wireless for us, because we don't even have that yet.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

It's pretty pathetic.

[David Wilks, Conservative, Kootenay—Columbia, BC]

That being said, there has been some very interesting stuff mentioned here today.

Mr. Moisan, you spoke about increased wages. It's interesting, because there are a lot of other areas across Canada that are fighting for the same thing. In my part of the world, in southeast British Columbia, we can't find enough tradespeople, and then you can't pay them enough, because even if you do pay them enough, another company, for example in Fort McMurray, will come along and rob you of them anyway. It's a challenge.

That being said, from the perspective of getting qualified people, is there a limit beyond which your company can't pay and you just have to say, “We lose”?

[Pierre Moisan]

Yes. One of the things we're confronted with, for example, in Quebec City, is that there's Activision, which is the number one video game developer in the world, and Ubisoft is across the street. They have much deeper pockets than we do. We create an environment in which we get free fruit in the morning; we get massages during business hours; we are flexible. We have all sorts of ideas like that, all sorts of treats, and a climate that will compensate. You can always compensate so much, but right now that's the way we treat our manpower, and that's very important.

For the rest, for sure there's a challenge. If those with deep pockets decided to attack us for real by offering 40% more, they could do that. It's a threat we have, but so far, so good. We've thrived and we've grown.

[David Wilks, Conservative, Kootenay—Columbia, BC]

Mr. Shariff, at the beginning of your talk you mentioned that IT leaders and start-up companies need to help each other. I wonder if you could expound upon that for a couple of minutes before I move on.

[Khaled Shariff]

I'd say that's the key to everything. We wouldn't need tax credits if there were venture capital money. We wouldn't need government funding if there were venture capitalists waiting in the wings to take on investment in Canadian companies, to make Frima 10 times larger, to make Project Whitecard 10 times larger. That's what we really need.

[David Wilks, Conservative, Kootenay—Columbia, BC]

Can you give me an example of that?

[Khaled Shariff]

I'll give you an example, and it speaks to everything across the board, including what Judy talked about.

If you go down to Palo Alto, they're creating IT. In Palo Alto there were people from all over the world. I sat in on a pitch session and I pitched as well. Each one of these people from around the world had a unique idea that they pitched to billionaires from around the world, and everybody was going to work in Palo Alto. Any individual idea that was funded for $10 million or $100 million then hired all of those people.

Part of the conversation today was about skilled people. If you could hire them as Pierre would like to do or as Electronic Arts would like to do, and there were no impediments.... They talk about the same thing in California. Why are there impediments to bringing in skilled IT? It's about those key personnel. Those are unique people in the world. You want them to choose Canada to live in. That's what brings the industry.

[David Wilks, Conservative, Kootenay—Columbia, BC]

Thank you.

Mr. Lutz, you alluded to Bill C-11, our government's bill that was brought in last year, and you said it was a good first step. You went on to say that SR and ED was imperative. I wonder if you could elaborate on that, please. Then I'll come back to Mr. Moisan and another question.

[Jonathan Lutz]

Yes, absolutely.

Obviously our intellectual property is the lifeblood of our industry, and so we welcome any legislation that continues to help us, along with all creative authors, to protect our copyright from any copyright infringement. We were happy to see that Canada is taking the issue seriously and beginning to put some steps in place that help us to enforce that.

In terms of the SR and ED credits, we do apply for federal SR and ED in pretty much every jurisdiction we're in, and it's a key incentive for us to be able to accelerate our company's research and development investments in Canada. One of the things we do in EA, given our global nature, is to actually have a stack rank list of every location in the world in which we have studio operations, ranked by cost per staff month and next by any tax credit benefits or any other financial incentives available in each jurisdiction.

What I was alluding to earlier on is that more and more it's becoming a document we refer to when we decide where we want to green-light production of the next big project. One example of a big loss to Canada happened two years ago when we moved our basketball franchise out of British Columbia and down to Orlando, Florida, where we felt we would have equally good talent, as we already had a studio there, but the incentives were much better in Florida than they were in British Columbia.

[David Wilks, Conservative, Kootenay—Columbia, BC]

I just wanted to remind you that the Raptors did beat Orlando last night, just so you know.

[Jonathan Lutz]

Yes, anyway, those are the points I'd like to make.

[David Wilks, Conservative, Kootenay—Columbia, BC]

Thank you.

Mr. Moisan, you mentioned at the beginning of your speech, with regard to marketing access, that many countries are coming into play. That seems similar to a lot of other industries. How does Canada continue to stay on the upper hand? As you mentioned with wages, where, for argument's sake, a company in India starts up and says, “Here's the money,” how do you keep those people here? I understand it's a challenge, but where do you see yourself?

[Pierre Moisan]

The danger is real and it's increasingly present. We can feel it. Before, we used to say that the salaries were low in China and India, but they were not creating.... You know the kinds of prejudices we can have. Nowadays, it happens more and more that I lose a contract because I was too expensive compared to them. Now my technology has to be superior, my workforce has to be more productive and creative, and I have to be on the cutting edge because otherwise, ultimately, I will lose the cost war.