Vancouver's video-game execs issue warning

Vancouver is home to some of the world's most successful video-game companies, but two executives claim that the local industry faces a difficult future if the B.C. government doesn't nurture this sector. In an interview at the Georgia Straight's offices, Action Pants Inc. executives Nik Palmer and Simon Andrews pointed out that the Quebec government offers far superior incentives to video-game developers than the B.C. government does. The pair, both former game developers at Electronic Arts Canada, suggested that if the B.C. government doesn't create a "level playing field" with other provinces, this region will lose investment and jobs in this sector to Montreal's burgeoning video-game industry.

Palmer, chief operating officer of Action Pants, said that his company employs 85 to 90 people, and is developing three games at its Yaletown studio. Palmer noted that it costs "tens of millions" of dollars and requires between 800 and 2,000 "staff months" to create a video game for next-generation consoles, such as Sony's PlayStation 3, Microsoft's Xbox 360, and Nintendo's Wii. Many new companies, including Action Pants, have been created in Vancouver over the past 18 months to develop games for the new consoles.

"If we don't get a level playing field, the growth will stop," Palmer predicted. "It's starting to slow down now. As soon as it stops, then it will start going backwards. The games industry will get smaller and smaller and smaller, and then it will disappear. That's what you're really looking at over the next five years."

Action Pants CEO Simon Andrews explained that Quebec offers video-game developers tax credits, which can account for 37.5 percent of a company's labour costs. A tax credit is a refund that goes directly to the video-game developer to offset losses or fatten the bottom line.

Andrews said that the B.C. government, on the other hand, provides no refunds to offset developers' operating costs. Instead, B.C. provides a 30-percent tax credit to venture capital companies making investments in this sector. This tax credit is limited to $60,000 per year and is designed to help small investors.

"Say it takes $15 million to make a game," Andrews said. "That's probably too high a risk for a venture capital company to invest in. What they're typically looking at is the $500,000 to $2 million level of investment."

Andrews said it leaves Vancouver video-game developers in an uphill battle against their counterparts in Quebec, who enjoy generous government subsidies. "For us to be competitive means we have to be very clever in the way we allocate staff and resources, and we also need to make sure we're getting the best bang for the buck possible," he said.

New Media BC, an association representing the digital-media industry, estimates that between 4,000 and 5,000 people work in the B.C. video-game industry, mostly in Greater Vancouver. The world's largest video-game publisher, Electronic Arts, generates $1 billion in sales per year from games created by its campuses in Vancouver.

Palmer said there is a risk that U.S. controlled companies such as Electronic Arts could decide to make future investments in other jurisdictions, including Quebec, because of the lack of tax incentives in B.C. Officials at Electronic Arts did not return a message from the Straight by deadline. The B.C. Ministry of Finance declined the Straight's request for an interview.

Recently, Premier Gordon Campbell announced the extension of a tax-credit program for the film industry to 2012. Andrews said government officials have concluded that there is no need to provide tax credits to the video-game industry. "They don't realize that things are changing," he said.

Palmer claimed that the B.C. government could undermine the chance of a local company developing a blockbuster game, such as Halo 3 (see page 41), which could generate hundreds of millions of dollars of income and huge employment in Vancouver. "There is the talent to do that here," he said.

Vlad Ceraldi, president of Vancouver-based Hothead Games, told the Straight in a phone interview that the Quebec government's tax incentives are "very attractive", but added that Vancouver has enough going for it that it will continue to attract talented video-game developers. However, he also noted that Ubisoft, a major publisher, expanded its operations in Quebec rather than opening an office in B.C.

"I think the games industry in B.C., never mind in Vancouver, could do a better job of just marketing the successes that we've had in our province, and in Vancouver specifically, with the games that we've created," Ceraldi said. "You would think that Montreal is the hotbed for development in Canada the way they talk. Quite frankly, [from] the last report I saw from New Media BC, they're half the size of the development capacity and talent pool that's in Vancouver."

Ceraldi noted that the rising Canadian dollar imposes new business challenges because local companies on contract to produce a game for a U.S. company in U.S. dollars have suddenly seen their incomes shrink after converting the currency into Canadian dollars. In addition, Ceraldi said local companies will have to sell more units in the U.S. market to meet sales targets that have been set in Canadian dollars.

In a paper written in 2004, University of Western Ontario media-studies professor Nick Dyer-Witheford stated that "lavish tax credits support Montreal's Cité du Multimédia", which is a cluster of high-tech companies. He noted that some analysts have suggested that the Quebec government subsidizes one-quarter of the cost of developing a video game. Dyer-Witheford added in his paper that no other province matches this level of support, though many developers obtain federal tax credits for research and development.

Links: Action Pants official site
Hothead Games official site
New Media BC official site
BC Ministry of Finance official (if unresponsive) site