East coast emerging as newest digital media hotspot, but survival may depend on ongoing gov’t support

Atlantic Canadian new media companies seem to be doing better than the national average, according to a recent report. But this east-side industry is also in flux, and some say what happens with the provincial governments and their support for the sector could make or break the fledgling scene. “This really is a fast-growing sector,” says Mark Sandiford, head of the Interactive Media Alliance of PEI (IMAPEI), and producer at film/animation/software development house Telos Productions Inc. in Charlottetown. “All of the companies are looking to expand. There have been other companies sniffing around to move here as well. But all of that could really slow down and dry up.” According to the Canadian Interactive Alliance’s (CIAIC) Canadian Interactive Industry Profile published this June, Atlantic Canada is hopping. Small new media firms there (those generating less than $250,000 in annual revenue) seem to be among the country’s best revenue generators, raking in an average $110,000 per year. Small businesses in the Prairies collect closer to $70,000. And among large businesses (revenue between $1 million and $10 million), east coast companies pull in just over $4.5 million, besting businesses in B.C.’s well established digital economy, where the big firms land approximately $3 million. The CIAIC says Atlantic Canada has 50 to 70 interactive digital media companies and more than 1,000 people working in the sector, generating gross annual revenue of $100 million. The average company is 6.7 years old – younger than businesses in Quebec (9.8), Ontario and B.C. (tied at 8.4) and the Prairies (8.2). Overall Canada has 2,960 interactive media companies and 52,000 employees in the sector. Annual revenue is $4.7 billion. How do the east coast firms do so relatively well? Representatives from new media companies say provincial government tax credits and funds provide the start-up support required to help young businesses thrive. In PEI, new media companies could access an Innovation and Development Tax Credit, which amounted to a 52.5% rebate on eligible labour costs. “It made a huge difference,” Sandiford says. “We’ve seen an explosion in the new media industry here on the island, and it’s largely due to this program and other programs they’ve had in support of the industry.” But the Innovation and Development Tax Credit program is winding down – and the province hasn’t announced a replacement mechanism, Sandiford says. “It’s a little bit of a worry for us, but I don’t think we’re going to see anything like 52.5% again... It really worked well, especially for getting things started up.” The PEI government didn’t respond to requests for comment – but Sandiford certainly has some suggestions for whatever the province is considering. “One of the things we’ve been quite keen on is the idea of making it more corporate-based instead of project-based, so once a company qualified for the tax credit, they wouldn’t be able to stay on it forever, but they could stay on it for a couple of years. I think they’re going to try to implement something like that.” It could be an important move. Lately the Atlantic provinces – often viewed as a single economic region – seem to be battling each other for new media companies. Games developers in New Brunswick recently told the New Brunswick Business Journal that the province’s tax credits for digital businesses didn’t measure up to those in other eastern provinces, making it difficult for the companies to stay in Fredericton and Moncton. In another case, PEI-based games developer Other Ocean Interactive Ltd. opened a new studio late last year – but not in PEI. The firm opted for Newfoundland instead. Deirdre Ayre, the company’s studio head, says the Newfoundland government provided start-up support for employee recruitment and relocation expenses, training and education, and tradeshow passes so the company’s employees could participate in useful workshops and networking opportunities. But Ayre doesn’t see this as a fight for new media dominance. Newfoundland’s gain isn’t necessarily PEI’s loss. “I’d say I think there’s plenty of room for various provinces to be involved,” she says. “As far as our company goes, the sky is the limit in terms of how big we can get... We see it as growth in the region.” Sandiford says each eastern province could operate as a puzzle piece in the region’s new media economy. “In PEI, there’s a focus on video games...whereas in Nova Scotia, it’s been convergence – things done in conjunction with the television industry, because the television industry there is stronger compared to anywhere else in the Atlantic region.” Echoing Sandiford, Ayre says uncertainty about government commitment is a constant concern. “They’ve been awesome, but the one thing companies like ours need is, our business model includes help from the government... You need to know they’re in it for the long haul. You don’t build an industry in three years or five years.” As for New Brunswick, the government is stepping things up, announcing in its recent budget a plan to create the most company-friendly tax system in the country. “It bodes very well for attracting business to the province,” says Ryan Donaghy, spokesman for Business New Brunswick, the province’s economic development department. He also points out that new media companies have been able to apply for a tax credit initially designed to support the film industry, but now expanded to include digital media houses as well. All of the changes swirling about the sector do have some industry insiders worried. “We’re all feeling a little bit edgy right now, the whole video game industry,” Sandiford says. “It’s a little bit like there was a whole bunch of enthusiasm behind getting this industry going here...but for some reason the spotlight seems to have shifted to biotech, and everybody’s feeling like, ‘Why have you forgotten about us? What happened to all that enthusiasm?” But there’s still plenty of hope for the east coast’s fast-growing new media industry, he says. “It’s a good opportunity for Atlantic Canada. A lot of individual entrepreneurs in the province of PEI have identified it as something that has the potential to grow really fast. You don’t have to be in a major centre to have success. It does require a little bit of critical mass, but not huge. It requires an investment in R&D, to give companies a bit of a runway to take off from. But otherwise it’s tailor made for regions like this.” Stefan Dubowski is a freelance writer in Ottawa. You can reach him via sdubowski@rogers.com.

East coast emerging as newest digital media hotspot, but survival may depend on ongoing gov’t support

Broadcast | June 15, 2009

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