Industry Committee on March 24th, 2014

[Martin Carrier]

There are spinoffs. They're not necessarily always apparent but some of the stuff that we do in games, calculating physics for example, can definitely be used in other areas. We're obviously more in tune with creating entertainment. That is what Warner Bros. does. But some of the folks who work with us develop algorithms that can be used for physics or imagery in some of the games. For example, in our game Batman: Arkham Origins, it was a snowy day—it was a Christmas day action adventure game—so we developed a capability to have special snow falling down in the game. Without going into the specific examples, there are often technological advances in imagery, in visuals and graphics, that come through gaming that can then get applied to other industries, such as the medical side of things, as I talked about before.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Mr. Smith, could you possibly tell us about some of the great advances that gaming has done for humankind?

[Dr. Richard Smith]

You could probably take your list of the Hoover Dam, the space program, and automobiles. If anything like that were to be built today, it would be built first in a virtual way, in a 3-D model on a computer screen, and then realized perhaps in miniature with a 3-D printer, and then produced in reality using computer programs. There is almost no human advance these days that would be done without computers and many of the skills and visualization, interaction, and design coming from the video game industry are going to be part of that.

A good example is the Tesla car, the Car of the Year last year from Car and Driver and Consumer Reports, which is effectively a computer with wheels. The interface is a 17-inch...bigger than your iPad and sits between the seats. Building a Hoover Dam or a mine...for example, no mine in this country is built without an advanced three-dimensional schematic that you can walk through long before anybody sinks a hole in the ground. All the exploration is done in computer models and computer games. Health care, construction, all of those things in the material and real world are fundamentally built as models first, even all the production plans and how things are going to be built. Probably the last one I should end with is robots. Robots are—

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Well, I'm going to ask you a question about that, so I'm going to cut you off. But before I do, I want to just switch.

Mr. Schmalz, we're going to talk about something else. I checked your web page. You're offering a job for somebody who has fluency in Chinese. Are there lots of opportunities, is there quite a market in China as well, too?

[Michael Schmalz]

One of the games that we're doing right now, Warframe,is a digitally distributed game, and it's being distributed all over the world. So, yes, we're distributing in China and we need some community support and customer support people to support those games. So we're shipping directly into all countries.

The good thing about this particular model, the free-to-play microtransaction model, is that now for the first time we're able to monetize Asian markets, and Asian markets view intellectual property, particularly digital intellectual property, a lot differently. You can't, and never have been really able to, sell it to them upfront for a fee, but what's been proven lately is that you can provide it as a service. Now the Chinese Internet companies have so much money, they're doing so well, that there are tremendous opportunities in places like China and Taiwan for the video game industry and the Canadian video game industry.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Have I got 10 seconds?

[The Chair, Conservative, David Sweet]

Ten seconds, sure....

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

I just wanted to mention, Mr. Smith, you have a presentation or a lecture on human robot interaction, and maybe we'll have a chance to talk about that.

I think you were going to talk about that as well, too.

Thank you.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Van Kesteren.

Now on to Mr. Masse, for seven minutes....

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

I'm going to give two of my minutes to Mr. Côté, if you can let me know.

I actually am a gamer. I started with Pong, then Intellivision, Sega, and then eventually PlayStation. I have played Batman. I finished it. It's a very good game.

Mr. Schmalz, I've played BioShock. That's a very good game. I actually had a couple of versions of that.

I want to cut right to the question I have in terms of growing our industry. Who is our major competition out there that could prevent us from growth? Who is it that could actually steal some of our business? Is it the United States or is it other jurisdictions as well?

I'd like brief answers from everybody on that, starting with our guest abroad, Mr. Smith.

[Dr. Richard Smith]

I think the competition is global. There is really not much stopping you from building a video game studio in any country in the world, as they are all growing that way.

Canada has an advantage through our ties to the entertainment industry in the United States and Europe, and our connections to really good undergraduate programs, but we can't rest on our laurels by any means. It's a very competitive industry.

[Brian Masse, NDP, Windsor West, ON]

Thank you.

Mr. Schmalz.

[Michael Schmalz]

The competition model for the video game industry is, I think, quite unique. If you build something really great and you do a good job marketing it, you can and will create your own demand. I think the competition here is to be able to attract great companies to locate in Canada. To do so I think it would really be of benefit to have a national strategy around video games regarding how to do that, how to support the video game industry and allow those companies to come here. That's what other countries are doing, and they're starting to get some attention. I think that's what we need to do.

[Brian Masse, NDP, Windsor West, ON]

Thank you.

Mr. Carrier.

[Martin Carrier]

I'd say, product-wise to Mr. Smith's point, it is global. But talent-wise, which is another part of our business, it's mostly the U.S. That's where people would have the most facility to move to.

[Brian Masse, NDP, Windsor West, ON]

Mr. Schmalz and Mr. Carrier, I'll have you answer this question, and I'll have another quick one for Mr. Smith before I sign off here.

With regard to brand protection, how serious an issue is it? Say for example, if you have a Batman game that doesn't perform, how does that affect the overall brand of Batman and what could be a potential risk for a video game industry?

I don't think people understand the consequences, but there's nothing worse than buying a video game that sucks. I'd like comments on the exposure of brand and how important it is to protect that.

[Martin Carrier]

Obviously we work—in the case of Batman and all our other superheroes—closely with DC Comics, which is based in L.A., and they have us on a short leash to make sure we respect the canon of Batman. It's important for us to respect that brand.

[Brian Masse, NDP, Windsor West, ON]

Thank you.

Mr. Schmalz.

[Michael Schmalz]

We're a hit-based industry and having intellectual property, in particular franchises, is very important. Once you've developed a title that has some “stickiness”, you definitely want to protect it. That can definitely help develop the business. I think that's something the video game industry is encouraged to do just by the internal economics of how it's run. Having a bad game can destroy that.

[Brian Masse, NDP, Windsor West, ON]

Thank you very much.

Quickly, Mr. Smith, I noted that when you were talking you said that two-thirds of your graduates come from outside of Canada. Are they then leaving Canada for good, or are they actually getting some jobs in Canada, or are they going overseas and competing against us there?

[Dr. Richard Smith]

Amazingly, they almost all stay in Canada. It's an incredible story.

I think this was part of the plan of the B.C. video game industry: we hoped to attract people and keep them here. We've been very successful at that. This is a great country and people come here from China, for example, but also from the United States, and they're eligible for what I think is called the provincial nominee program so they get sort of a kick-start on their permanent residency. A great number of my students stay on in Canada.

[Brian Masse, NDP, Windsor West, ON]

I toured Ubisoft in Toronto and EA in Vancouver, and they work hard to keep them; that's for sure.

Mr. Côté.

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

I thank my colleague Brian. He is very generous in offering me some of his allotted time.

My question is for you, Mr. Carrier, because of Quebec's very particular context.

I have not taken the time to study the investment problem. Of course for the sector to develop, money is crucial. In the course of our work, and Montréal International in fact established this in 2012, it has become clear that the FTQ labour-sponsored fund is an investment partner in information technology enterprises, as is Teralys, a venture capital firm created in partnership with the FTQ.

Mr. Jason Della Rocca spoke to us about the Real Ventures fund; the FTQ also participates in that. Real Ventures contributed to launching his firm, Execution Labs.

As you know, the government has abolished the FTQ labour-sponsored fund's tax credit, although this was a very important fund in Quebec. As a partner, do you think that the withdrawal of that credit could have an adverse effect on the development or work of your sector?

[Martin Carrier]

Happily, this is not a concern at Warner Brothers.

However, as the president of Alliance numérique, I will answer that access to funding is very important for the member companies, especially for very small ones. In fact, think that the emergence of small players is actually the dominant feature of the Quebec video game industry. The industry also has some large players.

Let's take the example of a mall where you have a Walmart at one end, or a Zellers; they can be compared to Ubisoft or EA. In that mall you will also find small boutiques that represent small players who need access to funding.

The Canadian Media Fund is one example of a funding source. Without wanting to get onto the slippery slope of politics, there is no doubt that access to funding is very important for the small players who are part of the ecosystem and its wealth. This is very important development in Quebec, but elsewhere as well, for instance in Vancouver.

Some of these small players, who at the outset have two, five or ten employees, become champions in the industry. These are homegrown businesses, businesses that emerge from the Canadian territory.

Take Hibernum, for instance, a Montreal firm. We started working with that company in 2010 when it only had 15 employees. Today, it has 140. That is a good example of the success of a company that had access to funding.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Côté.

Now we move on to Mr. Warawa, for seven minutes.