Prepared By:
DigiBC and
BC Interactive
Task Force
Briefing Note: Digital Media Industry
– Video Games Sector
A Strong Industry Cluster is Born
Prepared For:
Expert Panel on
Business Taxation
in British Columbia
May 3, 2012
Fast Facts – BC Video Game Sector

Early 1990’s Distinctive software sold to EA. EA Canada becomes largest
interactive studio in the world.

In 1990’s to early 2000’s, EA Canada spawns a powerful, leading global video
games sector in BC producing annual growth rates of >20%, higher than the
overall market. Many new studios are formed.

In 2008, global economic meltdown results in several studio closures and job
layoffs. Growth is stalled for first time. Competitive jurisdictions institute tax
incentives to lure prestigious projects and high paying jobs including 5 Canadian
provinces and 21 US States.

In 2010 BC adopts new Interactive Digital Media Tax Credit. Studios start hiring
again including EA, United Front, Slant Six and many others. New studios set up
in Vancouver including A Thinking Ape, GameHouse, Silicon Sisters and many
others.

Today, the 30-year old industry includes marquee global media companies EA,
Microsoft, Disney, Ubisoft, THQ, Activision and Capcom, major local studios
Radical, Relic, Next Level, Slant Six, Blue Castle, Hothead, Piranha, United Front
and Eastside Games and hundreds of smaller studios.

BC continues to be a leading global video games hub in Canada with over 85
studios employing about 5,000 full time highly-paid employees (2X provincial
average) and thousands more under contract in BC. Many top selling games are
produced in Vancouver including FIFA and Need For Speed.

New high growth platforms are starting to attract new investment, studios and
jobs. Smart phones, tablets, online, digital distribution, cloud computing, motion
controllers and social media are transforming the industry.

Foreign media companies in the US and Asia are again looking at BC for
investment and high caliber talent. There are many opportunities for growth but in
a highly competitive market with many jurisdictions competing for jobs,
investment and prestigious entertainment projects. Result, BC is
underperforming today compared to overall market and in jeopardy of losing its
leadership position.
2
Briefing on Video Games Industry
Introduction
DigiBC, the digital media and wireless association of BC, and the BC Interactive Task Force (BCI)
were formed by industry leaders in the digital media industry to address the increasing
competitive threats to this important innovative sector of the BC economy. BCI has conducted
extensive research and produced several reports over the last two years evaluating BC
competitiveness in the video games sector. The video game businesses that make up DigiBC
and BCI are united in their desire to build a competitive, sustainable leading world class digital
media hub in British Columbia.
The global video games industry and current trends in digital media provide a significant
opportunity to attract new investments and create 5,000 new long-term sustainable jobs in BC
by capitalizing on our natural competitive advantages in a rapidly -growing global industry. Ours
is clearly an industry of the future. However, the global industry has also become increasingly
competitive and many other jurisdictions throughout the world have instituted tax incentives to
lure new jobs to their territory. The playing field is no longer level and as a result, BC is losing
thousands of jobs and large new investments to other jurisdictions. Our industry leaders are
passionate about protecting our competitive position and keeping our existing talent in BC as
well as capitalizing on new opportunities to create thousands of new family-supporting jobs
over the next five years.
BC Industry Today
British Columbia has established itself as one of the top video game hubs in the world over the
past 30 years. Simply put, BC has become a digital powerhouse. The video game industry in BC
has grown dramatically over the past three decades increasing at an average 20% growth rate
and now contributing to other industry sectors such as mobile, education and health care. The
industry now consists of over 85 interactive studios employing an estimated 5,000 full time
high-tech workers who earn double the average annual provincial salary. The industry also
creates thousands of additional indirect jobs and supports countless contractors.
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The industry is estimated to generate GDP of $855 Million. BC is ranked second in Canada
behind Quebec and top 10 in the world.
BC boasts several marquee video game publishers including Electronic Arts, Nintendo,
Microsoft, Activision, THQ, Ubisoft and Disney. The Electronic Arts studio is one of the largest in
the world, Club Penguin is the leading online studio for Disney, and Pixar has located its only
studio outside its primary California complex in Vancouver.
In addition, BC is home to a thriving and growing entrepreneurial community of small video
game studios looking to capitalize on these new trends in smart mobile devices, social media,
digital distribution and increasing broadband penetration. In 2011, BC hosted the world’s
largest computer graphics conference, SIGGRAPH, the first time held outside the US and is
coming back to Vancouver 2014. For the past three years, Vancouver has hosted the Canadian
Video Game Awards. Canada is the third largest country for production of video games behind
US and Japan.
Global Industry Outlook
The digital media industry is in the midst of a digital revolution and represents a huge
opportunity for the BC’s economy. The rapid evolution of smart phones, tablets, social media,
broadband, motion controllers, digital distribution and cloud computing is driving exceptional
growth. Facebook, which only started in 2004, has over 900 million users. The 100+ million
users of iPhones and Android-based phones have spawned an industry that has already
produced over 600,000 software apps. Compare this to the evolution of radio which took 37
years to reach a mass audience.
Digital media is projected to grow at 11% per year with higher growth rates in emerging
markets over the next five years, far outpacing traditional media’s 3% growth. The $59 billion
global video games sector is forecast to grow at 8% per year with online and mobile increasing
at significantly higher growth rates. Software apps are projected to grow from a $7 billion
industry today to $35 billion sector within 5 years.
The new BC Interactive Digital Media Tax Credit, which went into effect on September 1, 2010,
has already started leveraging BC’s natural competitive advantages. This policy is one of the
best structured tax incentives in North America, due in large part to government’s collaborative
work with the digital media industry. As a result of this new tax policy, hundreds of high-paying
digital jobs have been protected at companies including United Front Games and Slant Six
Games. More importantly, the tax policy directly led to the creation of new jobs at companies
including A Thinking Ape, Exploding Barrel Games, Microsoft, GameHouse and was critical to
4
the inception of a number of new start-up studios. Unfortunately, these gains were partially
offset by job losses at other companies.
Competitive Challenges
Since the recession of 2008, the BC video games industry has been hit hard with studio
closures, studio downsizings and lost out on almost all new large video game opportunities.
Studio downsizings and closures in BC have contributed to over 1,190 lost jobs. Opportunities
to attract new video game investments to BC have been lost to other jurisdictions. This resulted
in losing 3,850 potential new jobs in BC. The total combined economic impact is a loss of 5,040
jobs or $.9 Billion in GDP. Our workforce is mobile and many BC trained and educated
employees and families have moved out of the province to other regions. If this trend
continues, BC will have lost its competitive advantage in the global market and it will be difficult
to recapture. Consider these facts:
 BC has lost its number one ranking in Canada to Quebec by a wide margin and Ontario is
pushing hard to beat BC.
 BC has the lowest digital media credit in Canada. There is a $4 million cost benefit per
console title by moving a console title to Quebec, all due to the tax incentive difference.
 The BC digital media tax credit net of provincial SR&ED, which must be forfeited, is only
5% on average. This is not enough to attract new investment or encourage expansion.
 EA, our anchor company and major contributor to our cluster, has been downsizing in
BC over the past several years while increasing in other regions
 Many of BC’s video game companies have been weakened by closures and layoffs while
Quebec and other regions are thriving
 BC video games industry is growing at a much slower pace than the rest of the world
Many jurisdictions have responded in the last several years with digital media tax incentives to
attract high paying jobs and investments. Six Canadian provinces, 21 US states, Australia,
France, Singapore, UK and Korea have all launched tax incentive programs aimed at luring video
game and digital media companies. This has contributed to the creation of an uneven playing
field in a tough economic environment in which cost has become one of the deciding factors.
This was not so true before 2008.
What Industry Could Have Looked Like Today
Our original tax incentive proposal in 2009 had requested 40% tax incentive, which was over
double the rate approved and announced at the 2010 Winter Olympics. If our request had been
5
approved, our industry would have been twice the size today at over 10,000 employees,
number one in Canada and a top five centre in the world with an estimated $1.7 Billion in GDP.
This proposal made sense since we would have been treated similar to animation companies
which participate under the film credits. Our industries are converging and we hire from the
same creative labour pool. In addition, our proposal created a net positive economic benefit to
BC in each of the five years being forecasted. However, the current digital media tax credit is
only 17.5% while the animation companies receive an average of 51%. The animation industry
is doubling in size and projected to be the largest in the world next year. The BC video games
industry is now under performing and losing its competitive position compared to the rest of
the world.
Potential for Tomorrow with a more Level Playing Field
The potential for tomorrow with a more level playing field is to double the size of the industry
in five years to over 10,000 full time employees generating an estimated $1.7 billion in GDP.
This will reinvigorate the industry and create jobs for students graduating from university in
software engineering, game design, art, production, audio, special effects and other creative
fields. Global companies will respond by investing in BC. BC will benefit with a strong global
leadership position and robust economic environment for our future employees and families
who want to continue to live in BC.
6
Recommendations
We are not in favor of tax incentives in general. We wish they did not exist. However, digital
media jobs are considered highly desirable in the global market and many jurisdictions have
responded by targeting these jobs with tax incentives and promotional campaigns. These
competing jurisdictions have been effective in luring away talent from BC. Our companies want
to stay in BC and compete based on their talent strengths, creative capabilities and BC’s natural
advantages. This is an industry worth saving and tax neutral based on a five year economic
impact study conducted in 2009.
We need to leverage these advantages to protect current jobs, create new jobs and attract new
investment from opportunities in global markets. We recommend only slight changes to
existing policy. No new legislation is required.
1. Increase the Interactive Digital Media Tax Credit from 17.5% (ave 5% net of BC SR&ED)
to 30% (17.5% net impact) to provide a stronger incentive to attract larger investments,
bigger projects and more jobs.
2. Include BC contract labour in the digital media tax credit policy to encourage the
conversion of contract positions into full- time employees. This policy change would be
more similar to Ontario and Quebec
3. Harmonize the Small Business Venture Capital Program with the Digital Media Tax Credit
to allow all entrepreneurial companies to participate in the program. Today, many small
studios are not permitted to participate in the program
4. Utilize AdvantageBC (formerly IFC) to provide a tax holiday for five years for senior
digital media executives who immigrate to BC with plans to establish a permanent
business and hire staff
7
Selected BC Video Game New Job Opportunities – 2012 to 2014
Company – Page 1 of 3
Current
Staff in
2011
Potential
New Jobs
Estimate
All
1,200
150 - 500
All
175
300 - 600
Vancouver
Console;
online
140
25 - 75
Vancouver
Mobile
40
20 - 60
Victoria
Social;
Mobile
30
15 - 50
Japan; CA
Social;
mobile
0
25 - 50
Japan
Social;
mobile
0
25 - 50
California
Web/
mobile
25
25 - 100
California
Victoria
Online;
mobile
0
25 - 75
Location
Burnaby
Vancouver
Game
Platforms
Victoria
Mozilla App
8
Selected BC Video Game New Job Opportunities – 2012 to 2014
Company – Page 2 of 3
Game
Platforms
Location
Current Staff
in 2011
Potential New
Jobs Estimate
California
Web/mobile
0
0 - 100
California
Online/Social
0
0 - 200
California
Mobile
0
0 - 250
China/
California
Mobile/Social
0
0 – 150
China
Web games
0
0 - 100
Vancouver
Mobile Games
10
35 - 90
Victoria
Comics
Web/
mobile
2
2 - 50
Vancouver
Mobile
25
10 - 25
9
Selected BC Video Game New Job Opportunities – 2012 to 2014
Company – Page 3 of 3
other start-ups
All other game companies
Game
Platforms
Location
Current Staff
in 2011
Potential New
Jobs Estimate
CA;
Vancouver
All
140
20 - 100
Kelowna
Online
400
25 - 100
Vancouver
Mobile
200
25 - 100
Burnaby
Console
100
25 - 100
Vancouver
Social/Mobile
5
20 - 40
Vancouver
Interactive
books
8
10 - 25
Vancouver
Social/Mobile
Healthcare/
education
25
10 - 25
BC
All
500
50 - 100
BC
All
1,975
100 - 300
5,000
942 – 3,415
Total Employment
10
New
Opportunity
Downsize
Closure
Company
Location
Comments
EA
Vancouver
Closures/downsizing
Moved NFS console and NBA Live
EA
Montreal
New Studio Mobile/other
750
Ubisoft
Toronto
New Studio
800
Ubisoft
Vancouver
Closure
THQ
Montreal
New Studio
Disney
Vancouver
Closed Propaganda Games
Eidos
Montreal
Two new studios
450
Funcom
Montreal
New Studio
150
Warner Interactive
Montreal
New Studio
100
Radical entertainment
Vancouver
Downsized
65
Nexon
Vancouver
Closed Studio
100
Slant Six Games
Vancouver
Downsized
50
Relic Entertainment
Vancouver
Downsized
50
Next Level
Vancouver
Downsized
25
VMC
Montreal
New Quality
Assurance/Localization
Total ( 5,040 Jobs Lost)
600
100
400
200
1,200
3,850
1,190
This schedule summarizes total jobs lost in BC since Fall 2008 from studio
closures, studio downsizing and new opportunities lost to other jurisdictions
when British Columbia was being actively considered. Total new jobs lost are
3,850 from new market opportunities and 1,190 from studio closures and
downsizings for a total of 5,040 jobs.
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BC Video Games Industry Snapshot
Overview
Benefits




 Leading Global Industry Cluster
o
o
o
EA anchor tenant almost 30 yrs and
largest EA studio
2nd in Canada
Top 10 in World
 Over 85 Game Companies
o
o
o
o




5,000 employees
All platforms; full capability
Art, engineering, production, audio
Active entrepreneurial community
 High profile marquee companies
BC
Video
Games
o Leading global games

o Large staffs
o Excellent training
o Large investment in infrastructure
 Expanding to other industries
o Use of game technology

GDP Est $855 Mil
High paying jobs (2X Ave)
Employee 85% Canadians
High growth rate for new hires
o Annual average – over 20%
Hire local University graduates
Long term sustainable companies
Environmentally friendly
Highly skilled foreign talent prefers
to stay in BC for quality of life
Strong connections to California,
Washington and Asia
Game technology being applied to
healthcare, education, film, books,
marketing and software applications
Video Games
Developed in BC
12
Global Market Outlook for Video Games and Digital Media
Golden Market Opportunity
32%
CAGR
1.2
1
0.8
2010
0.6
2015
0.4
0.2
Global Outlook for Mobile and
Online Games is 2X media
industry average
Key Global Market Drivers
40
30
20
2010
10
2015
0
0
Software Apps
$ in Bil
Smartphone/Tablet Devices in Bil
Advertising
Smartphones
Digital
distribution
14.9%
CAGR
30
New Games
New app stores
25
Broadband
Demographics
20
15
2010
10
2015
3
2.5
2
1.5
1
0.5
0
5
0
Online Rev
in Bil
$
38%
CAGR 5X
15
10
5
0
2010
2015
Ad Rev
$ in Bil
2010
2015
10.0%
CAGR
11.0%
CAGR
Mobile Rev
$ in Bil
Average CAGR 5.7% all media and entertainment
The Opportunity is Digital Media
Media & Entertainment
Global Sales & CAGR% Next 5 yr
413
13%
10
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SWOT Analysis – BC Video Games Sector
BC Strengths
BC Weaknesses
 Leading global centre
 Lower growth than
global industry
 Marquee companies
 Loss of big projects to
other markets
 Large labour pool
 Highly skilled/educated
 High % small studios
 Gov’t policies
 Lowest tax incentives
in Canada
 Proximity to US/CA
 Gateway to Asia
 Quality of life

Market Threats
 Quality of living/lifestyle
Market Opportunities
 Large global industry
 Global economic
instability
 Above ave growth
 Shift to new platforms
 High growth in
emerging markets
 Growing competition
 New technologies
require retraining
 Many new high
growth platforms
 Many competitive tax
incentives
 Expansion to other
industries/education
14
Worldwide Digital MediaTax Credit Landscape
ALASKA
UK
Canada
BAFFIN
ISLAND
YUKON
NUNAVUT
NORTHWEST
TERRITORY
6 Provinces
France
NEWFOUNDLAND
NEWFOUNDLAND
BRITISH
COLUMBIA
QUEBEC
ALBERTA
Korea
VANCOUVER
ISLAND
MANITOBA
Prince Edward
Island
NEW
NOVA
BRUNSWICK
SCOTIA
ONTARIO
SASKATCHEWAN
MAINE
WASHINGTON
NORTH DAKOTA
Singapore
NEW
VERMONT HAMPSHIRE
MINNESOTA
MONTANA
OREGON
NEW
Y0RK
WISCONSIN
MASSACHUSETTS
RHODE ISLAND
CONNECTICUT
SOUTH DAKOTA
IDAHO
MICHIGAN
WYOMING
PENNSYLVANIA
IOWA
NEVADA
NEBRASKA
ILLINOIS
INDIANA OHIO
WEST
VIRGINIA
VIRGINIA
Pacific Ocean
UTAH
COLORADO
CALIFORNIA
KANSAS
KENTUCKY
MISSOURI
TENNESSEE
Australia
OKLAHOMA
ARIZONA
NEW MEXICO
NEW JERSEY
DELAWARE
MARYLAND
NORTH CAROLINA
SOUTH
CAROLINA
ARKANSAS
United States
MISSISSIPPI
GEORGIA
HAWAII
Atlantic Ocean
ALABAMA
TEXAS
21 States
LOUISIANA
FLORDIA
Yellow – Digital Media Tax Incentive
Green – Recent increase to Tax Incentive




Digital Media companies have become more cost conscious as a result of the severe
recession in 2008
Jurisdictions around the world have increased digital media tax credits to attract jobs and
video game projects in a more competitive world
Texas, Florida, Louisiana and Australia have increased their tax credits in the last 12
months
Tax credits are an important factor in deciding where video games are produced
especially larger video game projects. Tax credits are not the only factor.
15
BC
New
Digital Media
Direct Labour
Contract Labour
Refundable
Fed SR&ED*
-Corp
-CCPC only
-Refundable
CCPC/corp
Other
Programs
Quebec
17.5%
Ontario
Manitoba
Nova
Scotia
35%-40%
100% incl
Yes
40%
50%
Yes
37.5%
50% incl
Yes
Yes
Yes
35% of
150%
Yes
20% exp
35%/20%
20%
35%/20%
20%
35%/20%
20%
35%/20%
20%
35%/20%
20%
35%/20%
Yes/No
Yes/N0
Yes/No
Yes/No
Yes/No
Yes/No
Invest Tx Cr
IFC
Inclusion
Invest cr
Tx Holiday
Training
Recruiting
Jobs Credit
Marketing
<$100K
3 yr limit
Max
$.5M/title
Max
<25% exp
Marketing
<$100K
Regional Cr
2 yr limit
*-Credit on qualified R&D expenses only including direct labour, capital and OH factor
Tax Credit Program Comparison
Net Cost
21.4
21.4
21.4
21.4
21.4
21.4
3.1
3.6
4.0
18.3
17.9
17.4
Non CCPC
BC before
IDMTC
Prince
Edward
Island
CCPC
BC before
IDMTC
Tax Credits
20.8
20.8
21.5
21.5
24.9
23.3
24.9
23.3 22.0
22.0
0.0
7.1
5.0
8.4
5.7
13.7
16.5
14.9
16.3
Quebec
Ontario
Michigan
Georgia
24.9
BC - after
IDMTC
California
16