INDU Committee Report

NDP Supplementary Report – Entertainment Software Industry in Canada            May 2014

The entertainment software industry in Canada is an important job creator in its own right, while also producing major economic spinoffs in the services and communications sectors. In this climate of fierce international competition, the federal government should support this innovative Canadian industry to help it flourish and create middle-class jobs.

NDP members of the committee would like to make recommendations in the following areas, to contrast those in the main body of the report. 

1. Offsetting SR & ED tax credit cuts and supporting innovation:

The entertainment software industry is an important driver of innovation in Canada. In a context of international competition, we must support small start-ups in the video game industry and help them grow into larger, more competitive businesses to keep innovation and high-skilled, middle-class jobs in Canada. Instead of supporting our industry, the Conservative government has cut 500 million dollars from research and development tax credits. This is a big setback for the Canadian economy.

Jonathan Lutz (Vice-President, Chief Financial Officer, Electronic Arts Inc.), Geneviève Poulin (Advisor, Corporate Affairs, Ubisoft Entertainment Inc.), Nathalie Verge (Senior Advisor, Corporate Affairs, Ubisoft Entertainment Inc.), and Mr. Carrier (Vice-President and Studio Head, Warner Bros. Games, Montreal) highlighted the importance of the SR & ED program for their product development. Pierre Moisan (Vice-President, Strategic and Business Affairs, Frima Studio) noted that the cuts to this program contributed to the abandonment of some projects that may otherwise have gone forward, while Ms. Verge warned that if the program lost its competitiveness, Ubisoft may reconsider developing projects in Canada. Mr. Carrier also pointed out that this program helps make Canada more attractive to Warner Bros, thereby encouraging product development in Canada. Furthermore, according to the Entertainment Software Association of Canada, the new design of the tax credit program creates disincentives for smaller firms to pursue R&D activities, and incentives for international corporations to outsource their R&D activities outside of Canada.

Cuts to the SR & ED program have clearly harmed the vitality of the entertainment software industry in Canada. The NDP recommends that the government should immediately consult with businesses, to find solutions to offset the negative impacts of the cuts to the SR & ED tax credit in Budget 2012.

Jocelyn Benoît (École des arts numériques, de l’animation et du design, who appeared as an Individual), explained that basic research also plays an important role in supporting the entertainment software industry. Therefore, the NDP recommends that the government appropriately fund basic research alongside applied research to support the entertainment software industry.

2. Examine boosting the Canadian Media Fund to support innovative start-ups:

Multiple witnesses indicated that that the Canadian Media Fund (CMF) was well-placed to support the video game industry, especially to help the entry of new studios and developers into the market place. These include Mr. Moisan, Khaled Shariff (Chief Executive Officer, Project Whitecard Inc.), Jason Della Rocca (Chief Executive Officer, Executions Labs), Deirdre Ayre (Member, Other Ocean Group Canada, Canadian Interactive Alliance), Julien Lavoie (President, Chief Executive Office, Canadian Interactive Alliance), and Mr. Carrier. 

As Mr. Della Rocca eloquently states:

Particularly for a start-up like that one, working on games for the mobile devices, tax breaks aren't terribly relevant… In those cases, whether or not it's through the federal government, they need more early-stage opportunities, such as venture-oriented funding or programs like the Canada Media Fund that are providing dollars to actually produce stuff at the start.

Throughout the study, witness testimony underscored the interdisciplinary nature of the industry. For instance, when speaking on behalf of the industry as a whole, Jayson Hilchie, president and chief executive officer of Entertainment Software Association of Canada, stated that “[the] industry comprises a unique mix of artistic and technological professions, and the collaboration of these two areas is what produces truly innovative products.”

The NDP recommends that the government should examine whether the CMF could be expanded to increase the eligible number of projects in the entertainment software industry to help smaller companies with marketing and development costs. The collaborative nature of the industry makes it critical that support through the CMF not come at the expense of other media sectors currently supported by it.

3. Access to financing and Venture Capital to support job creation and growth:

Labor sponsored venture capital funds like the Fondaction, and the Fonds de solidarité FTQ play a critical role in supporting innovative small businesses in the province of Québec. Industry innovators like Mr. Della Rocca and Mr. Carrier, expressed the importance of the support Labor Sponsored Venture Capital funds provide for both entertainment software newcomers and industry leaders. The sector will likely see a drop in the amount of capital available because of the Conservative government’s ill-advised decision to withdraw the tax credit that supports these investments. This means innovators will have fewer funds to grow their businesses into larger ventures and create quality, middle-class jobs.

The NDP recommends that the government reverse its decision to phase out the Labor Sponsored Venture Fund tax credit.

4. Training a high quality Canadian workforce to ease reliance on the Temporary Foreign Worker Program (TFWP):

NDP members of the committee recognize that the entertainment software industry, like other highly technical and skilled sectors, faces unique labor market challenges. Industry representatives have underscored the importance of having the option to bring in temporary foreign workers to train workers in Canada in their specialized fields. However, Citizenship and Immigration Canada, and Employment and Social Development Canada should only permit recourse to the TFW program when there are no Canadian citizens or permanent residents available to fill these senior positions.

Conservative mismanagement has left the Temporary Foreign Worker program open to abuse resulting in the firing of qualified Canadian workers, lower wages and the exploitation of temporary foreign workers. By permitting widespread abuse of the program, the Conservatives have undermined its reputation and eroded public trust, even for employers who are using the program properly for short- term skills shortages that Canadians are not able to fill.

Therefore, the NDP recommends that the government request an urgent audit of the TFW program by the Auditor General.

Given the highly technical nature of the work performed in the entertainment software industry and the added-value of these middle-class jobs for the Canadian economy, we must ensure that we are training young Canadian creators to foster the next generation of Canadian talent. We must ensure we are taking steps for Canada to have the highly-skilled and experienced workforce for the industry to remain competitive in the long-run. As one expert witness notes, how the industry will adapt to overcome its reliance on foreign workers is one of the sector’s long-term challenges:

“In the coming years, the industry will have to face a number of challenges. One of them is access to labour, from less experienced employees to experts. Demand will be strong in the coming years. To allow for the hiring of highly qualified people, it would be desirable to encourage companies to free up employees so that they can teach in a university setting. It can often be difficult for companies that focus on profits and income in the short term to free up their best employees so that they can teach. But we have to think in the long term.” (Mr. Benoit)

In order to alleviate long-term reliance on the TFW program, the NDP recommends the government work with the provinces and territories, post-secondary institutions and the entertainment software industry to train a highly-skilled Canadian workforce capable of filling present and future quality, middle class jobs in this industry.

The NDP also recommends that the government work with the video game industry to promote mentoring and internships to help young Canadians gain valuable job experience in the industry.