GameON Finance 2009: Ontario flashes cash, but VC industry warns more is needed to grow industry

Ontario video game developers might find it easier to beef up their business skills, market their wares, and find funding now that the Ontario government is pumping $605,000 into Interactive Ontario, the new media industry association. Judging by comments at the group’s GameON Finance 2009 conference in Toronto last week, government support is just one of the pieces that the sector needs if it’s going to kick growth into high gear. In a presentation at the event, where developers, publishers and investors gathered to share information and shake on new deals, Ontario minister of Economic Development and Trade Sandra Pupatello said the funds would support three Interactive Ontario programs: · OntheEdge, offering business-skills training for video-game entrepreneurs; · GamesID, providing market intelligence, marketing and promotional support for game companies; and · the Ontario Video Game and Digital Media Investment Network, connecting game and digital-media developers with Canadian and international investors. The tools and funds should help Ontario “tell the world that we’re making the best games in the world,” Pupatello said. Ontario has been on a digital-media spending spree lately, investing in an industry that seems to have a lot of potential. Ontario’s colleges churn out hundreds of digital media experts every year, and the province’s dense population helps seed the ground for a vibrant business community. But industry observers say the region lags other regions such as B.C. and Quebec, where the mobile and interactive-entertainment industries are booming. Atlantic Canada is vying to be a go-to location for game development. As if trying to catch up, Ontario has proposed a host of funding mechanisms designed to support the new media sector. In its Fall Economic Statement released Oct. 22, the government said it would introduce a 35% tax credit on wages for game developers that incur $1 million in annual labour expenses. The government is also enhancing the Ontario Interactive Digital Media Tax Credit, boosting it from 25% to 40% for companies developing their own intellectual property, and up to 35% for companies working in fee-for-service arrangements. In a press statement, business consulting firm PricewaterhouseCoopers (PwC) said the improvements "position Ontario to become a centre of excellence for the development of digital media." GameON participants were positive about the province’s moves. “It’s a good ecosystem,” said Brad Giblin, technical project officer of Film Victoria, a government investment fund in Australia. He said Ontario’s support systems seem designed to help all sorts of digital-media companies – content producers, technology developers, small shops and large studios. Yannis Mallat, CEO of game maker Ubisoft in Canada, said tax credits do help attract large companies like his. Already employing 2,200 in Montreal, Ubisoft is set to open a Toronto studio soon. (Mallat wouldn’t specify when because the company is negotiating for a location.) But he added that human resources are even more important than government incentives. “Yes, tax credits are part of the decision. But if there’s one thing that had us stay in Montreal, and I’m sure will have us accelerate or stay in Toronto, it’s the talent that we will find.” In the past, Ontario lacked the right mix of industry, government support and talent to attract large video game developers, said Paul Lee, a partner in VanEdge Capital – a game-focused venture capital (VC) company based in Vancouver. He used to work at Electronic Arts (EA), the game maker with studios in Burnaby, B.C. and Montreal. EA avoided Toronto because the city didn’t have any major games publishers, Lee said. “It’s not just sales and marketing. The art of the publisher is picking the right products.... We just didn’t find the right scene of people that we could trust.” John Albright, founder and managing partner of VC companies JLA Ventures and BlackBerry Partners Fund, said provincial funding systems are all well and good – but they don’t necessarily sway his companies’ decisions about where to invest. A sound investment is a sound investment, regardless of public funding – and no amount of provincial or federal support will hide a bad business case. “I’m happy to have them.... But I’d never invest because of the credits.” Still, a shortage of VC means governments are one of the few financial aids available for developers these days. According to an August report from the Canadian Venture Capital & Private Equity Association (CVCA), VC deal activity continued to slow in the second quarter of 2009, with $179 million invested nationwide, down 42% from the $309 million invested at the same time last year, and 34% below the first quarter ($272 million). “In nominal dollars, Q2 2009 saw the lowest per-quarter result in 14 years,” the CVCA said. So what can developers do to attract what little private funding is available? Lee said VanEdge needs to hear how a game is different. “If you can’t really explain why your product is unique... it’s probably not going to be funded.” Albright said developers also shouldn’t be married to one revenue model. Micro-payments, advertising, service-based or packaged – they all have the potential to bring in the money. “I’d like to make a bet that doesn’t rely on just one of them.” In short, if he can’t imagine that the game will attract 10 million users, “I don’t want to play,” Albright added.

GameON Finance 2009: Ontario flashes cash, but VC industry warns more is needed to grow industry

Broadcast | November 2, 2009

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