Industry Committee on Feb. 26th, 2014

[The Chair, Conservative, David Sweet]

Good afternoon, ladies and gentlemen. Bonjour à tous.

Welcome to the 12th meeting of the Standing Committee on Industry, Science and Technology. Today, pursuant to standing order 108(2), we're continuing our study on the entertainment software industry.

Before us, we have three witnesses from two organizations. One is Execution Labs and Jason Della Rocca, who is the chief executive officer.

We have Ubisoft Entertainment Inc., with Geneviève Poulin, advisor, corporate affairs, as well as Nathalie Verge, senior advisor, corporate affairs.

Welcome, folks.

I take it that you have 10 minutes for your opening remarks. I'd keep them as brief as you can in that window. I just wanted to ask Ubisoft, are you splitting your time, as far as your opening remarks? You are.

We'll begin with Mr. Della Rocca.

Please go ahead with your opening remarks.

[Jason Della Rocca, Chief Executive Officer, Executions Labs]

Thank you very much for having me. It's a great honour to be here.

I've been part of the video game industry for nearly 20 years. Most of that time, in fact, has been in roles that have been supporting and building the game industry, here in Canada as well as abroad.

I was the president of the International Game Developers Association for nearly nine years. That is the industry association that game developers from around the world belong to. I did that from Montreal, although it was a California-based entity. Also, for three years I consulted with governments from around the world, specifically on how to grow and foster their game industry in whatever particular region or country they were. It made for a lot of air miles, but it was interesting to see the globe and the different game ecosystems and challenges that existed abroad, and as a Canadian I was comparing that to what we have here.

More recently, I co-founded Execution Labs. Execution Labs is an incubator where we fund and mentor start-ups in the game industry, specifically making mobile games. It's a completely venture-funded incubator. Although we will eventually take advantage of the tax breaks or tax credits in Quebec, currently it's a privately funded entity. It has gotten recognition globally in terms of being a pioneering and innovative model to support start-ups in the games space.

As a side note, I'm also on the ICT advisory board for the Department of Foreign Affairs, Trade and Development, which has given me an interesting opportunity to see how certain parts of the government support and operate around the game industry. One of the things I noted in advising DFATD was that their metrics for success are limited, meaning they are very much focused on job creation, which of course is wonderful and great, but it's not sufficient in terms of when you're thinking about a content-driven sector, an IP-driven sector. I think that there needs to be a more holistic view of the game industry and the economics around games.

I would like to posit that the true value of the game industry, value in wealth, comes from the creation of new intellectual property, original intellectual property. That IP or intellectual property is made by talented developers, of which we have many in Canada...but that we treat them more so as careers as opposed to jobs. Those creating games are doing so at start-ups so we can take advantage of entrepreneurship within the game industry and grow start-ups.

I'll tell you a story from Finland. While we can beat them easily in hockey, from the game industry point of view, they are really dominating the globe at this point. There is a company named Supercell based in Helsinki, founded in 2010, so less than four years ago. It was created or founded by some game industry veterans with a few other studios in Finland as well as folks from Nokia. Around that time Nokia was going through a lot of trouble, not unlike BlackBerry these days. It was seed funded with around $2 million, give or take, in 2010. About two years after that, its next round of funding was $780 million.

It had two games within its short lifespan, two games that were generating more than $1 million a day of revenue. These are a special kind of games in the sense that that you play the games on your mobile phone and they are free, meaning you can download them and play them for free. But then once you're in the game playing there are opportunities to pay for a fancy sword, or accelerate with some bonuses, etc. But essentially, they are free games. They are making $1 million a day with a free game.

They had about 125 staff working on those two games, and by comparison, Electronic Arts, one of the big behemoths of the game industry in that timeframe, with their over 800-game library and 5,000 or 6,000 global staff, was not generating anywhere near that level of revenue. In less than four years, and this is roughly, I think it was around October-November timeframe, Supercell sold 51% of its shares to some investors from Japan for $1.5 billion.

A couple of guys starting up in Helsinki in 2010, with two games and original intellectual property, were able to flip themselves after a round of $780 million for another $1.5 billion. They were so proud of themselves and the revenue they generated. It should be noted that Finland does have various government supports, R and D funding mechanisms, etc. They put an advertisement in the newspaper with their tax bill of $345 million. They were proud to give back their share of taxes from their proceeds to their country.

That's just one example of a start-up made from some entrepreneurs creating original IP and generating tremendous wealth. Of course, that's an exception. Not every start-up is going to result in the same things, but we have to ask ourselves, how do we take the experience and the momentum that we have built in Canada and ensure that we can continue to grow, succeed, and create the next big thing?

Canada is vulnerable. We have been doing well, but if we look at Vancouver, in 2008-09 Vancouver lost about half of its workforce because of hard economic times and because many of the studios there were focused on big budget, big console games. The industry there was decimated from about 5,000 workers to roughly 2,000 to 2,500 workers.

In general, when you talk to folks in Silicon Valley, they often look at Canadian entrepreneurs as not being ambitious enough, not being entrepreneurial enough. We need to think about that. How do we not be counterproductive towards entrepreneurship?

Here are some examples. We need more seed funding and early-stage funding opportunities for young and start-up studios. We need to embrace systems that enable failure to occur, but that failure to occur quickly and inexpensively, and to think of failure more so as the process to discover success. We need to think about the educational system and not just training for jobs, but training for entrepreneurship and nimbleness and giving students outlets to be entrepreneurial. We also need to focus on retaining talent and investing in talent, and thinking of talent as workers, as people we want in the industry for long-term careers, not just jobs. More importantly, we need to think about new metrics in terms of how we think of success in the game industry, new metrics being: what's the volume of new intellectual property that's created; how many new start-ups are being created, as well as investment dollars and venture capital dollars?

I'm very surprised that DFATD does not consider VC dollars as a foreign investment. So if you're able to win some VC dollars from the valley, they don't count that as FDI, as foreign direct investment. Foreign direct investment only counts if a foreign company comes, like a Ubisoft, and sets up in the studio. I thought that was particularly bizarre.

These are just some quick thoughts. I think from a “key message” point of view, we really need to think about how we create new intellectual property, because that's where the true value and wealth comes from in a content-driven industry. How do we build that IP with talent that we retain on the long term, and think of them from a career point of view? As well, how do we support start-ups to drive and build that IP?

In closing, I would say, I would be happy to sign a cheque for $345 million to pay my taxes, if such an event were to occur.

Thank you very much.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Della Rocca.

I would imagine that you would be very happy to do that.

Now we will go to Ubisoft. Is it Ms. Verge who's going to begin?

[Nathalie Verge, Senior Advisor, Corporate Affairs, Ubisoft Entertainment Inc.]

Yes.

[The Chair, Conservative, David Sweet]

Okay. Please go ahead.

[Nathalie Verge]

Good afternoon, everyone.

Mr. Chair, ladies and gentlemen, we are pleased to be here today. We will talk about the good things we are doing at Ubisoft, in Canada, and about what we could do better for our industry. We will tell you a bit about Ubisoft and our presence in Canada, locational and growth factors we consider to be positive, and, briefly, our challenges. Geneviève and I will make our presentation together, and she will begin.

[Geneviève Poulin, Advisor, Corporate Affairs, Ubisoft Entertainment Inc.]

Ubisoft is a French company. It is a leader in video game and interactive software development, publishing and distribution. We are present in 28 countries, and we have 9,200 employees, about 3,350 of whom are here in Canada. We have offices in three Canadian cities—Quebec City, Montreal and Toronto. The Canadian studios are working on high-profile projects, referred to as AAA projects, which have large budgets and involve our leading brands. You may be familiar with Assassin's Creed, Tom Clancy's Splinter Cell and Far Cry.

Ubisoft is the biggest employer in the video game sector in Canada. The industry is extremely competitive. In order to develop games that meet players' very high expectations, we absolutely have to focus on a key consideration—the talent of our creators, artists, designers, technicians and programmers. That is the real key to success. We also have to maintain a balance between more and less experienced employees in our work teams to ensure the quality of our games. Here are some more details on that.

Ubisoft has been present in Canada for about 17 years. We first set up shop here in 1997, when we founded a Ubisoft studio in Montreal. That is Ubisoft group's largest studio and among the largest video game studios in the world. The Ubisoft studio in Montreal currently employs 2,650 people. You may have heard the announcement made last fall that we are planning to create 500 new jobs over the next 7 years.

Our workforce demographics are the following: about 80% of our employees are Canadians or permanent residents, and about 20% of them are foreign nationals with a work permit.

We opened our second studio in Canada in Quebec City, in 2005. It has about 325 employees, 90% of whom are Canadians and permanent residents. Last month, the Quebec City studio announced that 100 new jobs would be created over the next three years. In addition, more than $30 millions will be invested to upgrade equipment and produce even more modern new generation games.

The Ubisoft family opened its last Canadian studio in Toronto, inaugurated in 2010. That studio has 300 employees, and that number is eventually expected to reach 800. We are pledging to bring the total to 800 employees by 2020. At the Toronto Ubisoft studio, 80% of the employees are Canadians and permanent residents, and 20% of them have a work permit. Ubisoft Toronto just launched its first AAA game this summer, after it opened.

[Nathalie Verge]

I will tell you about factors that helped Ubisoft take such strong root in Canada and that explain our company's significant growth. In 17 years, we have rather quickly created just over 3,000 jobs in a fledgling industry.

I assume that we will all tell you the same thing—that the main factor is workforce availability and skills. When Ubisoft made the gamble of coming to North America, it set up shop in Montreal because the city had a pool of artistic talent. The large number of artists was a very important factor.

Bilingualism was also a factor. For a French company that was operating on every continent and decided to set up in North America, it helped to have people who could speak French and English with ease, so that we could work with other studios.

Montreal also had a pool of telecommunications and software development companies. At the time, Softimage and Téléglobe were leading Montreal companies. The potential was good. Those were the key factors behind our decision to come to Canada.

Over time, we developed talent. In 2005, we realized that there were less junior resources than we had thought. We needed to train a lot more people to continue to grow. As a result, we built the Ubisoft campus. When I say built, I don't mean to say that we built something from scratch. We partnered with colleges and universities, so that our employees would directly provide their students with information on some of our realities, such as production areas and the multidisciplinary teamwork between artists and programming engineers. Through that initiative, we have trained over 400 new workers, 50% of whom have come to work for Ubisoft. The other half found jobs throughout the industry, either in Montreal or elsewhere in Quebec. So that helped increase the junior workforce pool, which is made up of recent college graduates.

In addition, we launched Academia, a competition where a number of universities from Canada and abroad compete, make prototypes and work in teams to build the best possible game. Ubisoft has been organizing Academia for a few years. We have also hosted immersion camps, where young people learn what goes into making a video game. The camps are also designed to show their parents that a career in video games is lucrative and promising. As Mr. Della Rocca was saying, this is not just a job, but a long-term career.

In Quebec, there is also a sectorial committee on workforce called TECHNOCompétences. That committee provides professional development, especially for small and medium-sized companies. Its goal is to provide continuous training and increase the workforce's skill level. In brief, it's a matter of never losing the edge.

Tax incentives are obviously another factor that convinced Ubisoft to set up in Canada and continue to grow here. In 1997, it was very risky to give a company a 50% tax credit on payroll. However, the challenge was accepted, and so the growth continued. Companies came to set up in Canada and Quebec. In addition, all the other provinces have followed suit by developing their own initiatives. The research and development tax credit also contributes to success and innovation in our industry. Governments have always been responsive to our company's modernization and growth projects.

The business environment is the third factor. Financial institutions and governments understand us well. We are a high-risk industry, an entertainment industry, and there is always some risk involved. We are storytellers. That's what we do. However, our industry is now fairly well understood, and that helps growth.

Finally, the last factor is the global ecosystem. That includes educational institutions, research centres that are always pushing us to take things further, the presence of many start-up studios and others.

Those are all factors that contribute to our growth.

[Geneviève Poulin]

Despite the favourable environment in Canada, some issues should be pointed out. We will highlight three of them, starting with the main one, which is often talked about—labour mobility. I think it's very important to mention that our company—and the industry as a whole—is investing a great deal of time and money to develop the skills of young Canadians, students, and of our own workforce. We are really working hard on recruiting in Canada. Despite that, we are experiencing a significant labour shortage, especially at intermediate, senior and expert levels.

Given that reality, we have to seek new employees abroad, even though that costs our company a lot of money. Hiring people abroad is the only way to ensure the quality of our games and to meet consumers' very high expectations. However, international recruitment does have one benefit. The experts we bring in provide training for Canadians, here. So our workforce can be developed here and acquire expertise that is not available in Quebec or Canada.

We face some obstacles in the international recruitment process, including long delays in obtaining labour market opinions—especially since the expedited process was suspended—proposed constraints to the intra-company transfer program, a four-year limit for work permits, delays and unequal treatment in embassies, and so on. All that greatly complicates the process used to find those resources, which are really essential for us.

The second point has to do with the research and development tax credit, which is clearly more beneficial for Canadian companies than for foreign ones. It would really help if the difference in treatment between Canadian and foreign companies could be reduced.

[The Chair, Conservative, David Sweet]

You're way over time at the moment.

We're now going into our rotation round. If you have more points you'd like to make, I think you'll have a lot of opportunity to fill in the gaps as my colleagues ask you questions.

This is the second execution of our new program of time. It will be eight minutes for everybody all the way down the line.

We'll start with Mr. Lake for eight minutes.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Thank you, Chair.

You know what? I'll do something a little different and offer you the opportunity to finish your comments, if you have a few more comments to make. We have lots of time to ask questions, so you can use the beginning of my time to just go ahead and finish what you were saying there.

[Nathalie Verge]

In closing, you can see that many very different factors promote company growth and location. We have talked about labour, research, training, international mobility, workforce renewal, tax credits, taxation and business partnerships.

Since those factors are all present but are very diversified, we think it would be beneficial to establish a more comprehensive and long-term strategy that would take those factors into account. That would help us see where we are going and which areas require an upgrade. Such a game plan would help establish a long-term perspective, and ensure sustainability and company growth. That national strategy would complement the strategies that already exist and are working in the provinces. A more comprehensive long-term perspective could greatly benefit the industry.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Okay. Now I have some questions for you, if I may.

I actually had the opportunity in July to visit the office in Quebec City. That was a pretty cool experience. It was neat to see not only the jobs that were created there but the environment in which people work; very open, very collaborative. It seems like it would be a pretty cool place to work. It makes me wonder why you would have trouble finding good people to work. There's no shortage of young people with experience in playing video games. You would think it would be an environment that would be pretty exciting to work in for a young person with the skills that young people have nowadays.

What is the challenge? What would you say leads to the challenges in terms of finding those young people who are interested in going out and getting the education required to work for a company like Ubisoft?

[Nathalie Verge]

Yes. Well, you're right.

The environment is indeed very interesting.

However, we are competing with many other industries involved in the programming and computer fields. Telecommunications and information technology industries are huge. They are much bigger than the video game industry. The level of competition is high.

Moreover, few people think of enrolling in skilled trades such as the level designer program, which is fairly specialized. Those who want to enrol in such programs are not necessarily accepted. We are talking about highly sophisticated professions, which are experiencing a shortage, especially at intermediate, senior and expert levels.

Canada's industry is young; it's perhaps 15 years old. It's difficult to find talented employees with 10 or more years of experience who are experts in their field. There aren't too many such individuals in Canada. Some junior employees with 10 years of experience are currently coming up. They are found in a growing number of companies. We are no longer alone in the area. There are so many other companies. Many of those experienced individuals decide to start their own business. So companies are competing for those talented employees' services. All those factors—professional specialization, competition and experience—are contributing to the current shortage.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Jason, do you want to weigh in too?

[Jason Della Rocca]

Let's put it in context there. Imagine we were sitting in Hollywood, and you were talking to some studio executive, and he said, “Hey, there are kids who love watching movies. How come you have trouble finding people who are going to make movies with you?" It's true, it does drive a certain volume of bodies into the industry, but as you go up the pyramid of the people involved in very high-level tasks, you wouldn't take a kid that likes watching movies and ask him to be your cinematographer. It's a very specialized, very—let's call it—high-end role that you have to have years of experience in designing shots and making movies to do that.

The game industry is very similar in that way with the level of experience, the level of specialization, and the mix of science and art. It's not just, “Hey, there's a bunch of kids that love playing video games, let's just throw them into the studio.”

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

I think that what I was getting at, though, is that the pool that you're drawing from would be larger than a pool for—I'm not going to even name an industry because I don't want to go down that road—some other industries that might not be as exciting or seen to be as exciting.

I worked for the Edmonton Oilers before I got elected. We had a much larger pool of people to draw from because people wanted to work for the Oilers. They thought that would be pretty cool. We still wanted the best, but our options were a lot broader because there were more people interested in doing that. I would imagine the same would exist in your industry.

[Jason Della Rocca]

You're absolutely right. I think to a certain extent it's a question of the recognition of games as a potential career. Certainly, I think, there are parents that would pressure their children if they said, “Yeah, Mom, I want to go to university to learn how to make games.” I certainly hear that from people, where they have to struggle against social pressure to not go into a frivolous industry like the game industry, because people don't fully understand the weight and economic size of the industry.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

I want to elaborate on the second part of what Nathalie was saying.

You talked about the real challenges being at the mid-level and senior management side. I'm just going to take a guess that part of the challenge is that people who are really good at designing games, once they get up to that level, need some business experience as well. You're talking probably about management, human resources, and some of those things. They may not have those same skills. Is that part of the challenge? Do you need a much more comprehensive skill set at that point?

[Nathalie Verge]

At some point, we realized that our managers were not really managers, but rather game developers who were leading increasingly large projects. With studios around the world, everything was becoming businesslike for our company. So we have been working with institutions like HEC Montreal to provide customized MBA-type training to our most promising managers. The idea was to achieve the level of a 3,000-employee company and maintain leadership of our games—our brands—in Canada.

As Mr. Della Rocca was saying, this is very relevant. In our industry, the value of a company, game or industry is in the brands. Whenever we are able to maintain the leadership of a large brand, we become something of a small headquarters for that brand. We provide work for branches around the world. The work is no longer provided by the head office, but rather by the studio itself.

Therefore, we need leaders and managers. We are working within the company and with HEC Montreal to train our future managers.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Lake.

Now on to Mr. Harris.

[Dan Harris, NDP, Scarborough Southwest, ON]

Thank you very much, Mr. Chair. Thank you everyone for coming here today.

Following up on the conversation about the difficulty with the high-level talent. There is that limited pool, and they're very sought after. It does happen from time to time that someone will get snatched away at a critical moment in a project.

Jonathan Lutz from EA was commenting on it Monday. When you have certain high-level games, like a franchise game like NHL or FIFA where you have a specific calendar—or in Ubisoft's case, Assassin's Creed—you lose one of those high-level people and it can derail the entire project and potentially cost the company millions of dollars if they can't find someone to replace them in a very short period of time.

In a company like Ubisoft that operates around the world, they might have that talent located in one of their other offices that's elsewhere, not in Canada, but then they're having difficulty actually bringing that one person over at that critical juncture.

I just wanted to ask because there are some changes coming to the programs where employees might have to be employed for three years instead of one. Does Ubisoft see that as something that might help or hurt your ability to bring talent from elsewhere?

[Geneviève Poulin]

That's certainly something that could hurt. We use the intra-company transfer program a lot. Our three Canadian studios use that program for about 50 projects a year. That's a lot because it accounts for almost half of our projects.

Our industry sometimes views one year of experience in a specific technology as extensive because the technologies are changing very rapidly. If we can find someone abroad with a year of experience and bring them to Canada quickly, that really helps with our projects. Extending that period to three years would definitely limit our flexibility. We actually told CIC about this issue recently. The constrains are a concern for us.

[Dan Harris, NDP, Scarborough Southwest, ON]

Is access to talent a factor that influences Ubisoft's decision on where to launch a project?

[Geneviève Poulin]

If we see that it's very difficult to bring people into certain countries, we may call some projects into question.