Canada's Digital Future

Submission

Vision

1. Now is the most opportune time, and perhaps the only time, for the government of Canada to build a common future around the emerging successes of our digital content and service companies. This alignment of talent, investment, ingenuity and infrastructure will require a strong will and a determination to succeed. There can be no doubt that the global transformation toward digital economy has passed the tipping point and will only continue to accelerate as nations struggle to compete for the economic returns. Though Canada has fallen behind in some respects, in others it has created a forceful momentum and an international reputation for excellence. A new generation of Canadian companies has grown up in the digital media space and their success in part can be attributed to the values that we have forged together as a society: a world–class education system, easy access to healthcare, and the ability to synthesize a diverse set of cultures, values and ideas. We must ensure that, through this process, we create and articulate a strong and vibrant vision of a Canada that leads world in innovation and creativity in the digital economy. We must set aggressive goals. We must be prepared to take action. We can, and already have in many ways, become a beacon to the world as a progressive society that values innovation, fosters creativity and shares in the creation of new opportunities.

The Canadian Interactive Alliance / L'alliance interactive canadienne proposes that the government adopt an aggressive and comprehensive strategy to build on the emerging success of our Interactive Digital Media companies through improvements to policy around talent, investment and marketing.

2. The Internet has made Canada a much smaller place. From Bonavista to Vancouver Island, we live only milliseconds apart. The same can be said for its effects on the global marketplace. For those who create or distribute digital products and services, Shanghai and Sherbrooke are no further apart. This elimination of geographic barriers to market access has undone centuries of disadvantage.

3. We must recognize that digital media, and especially interactive digital media, depends on the unique synthesis of Innovation, Creativity and Enterprise (ICE). We must be cognizant of the silos that have been created around the creative, technological and business skill sets, and seeks to create new opportunities to explore the value that can be created at their convergence.

The Definition of Interactive Digital Media

4. Interactive Digital Media (IDM) is defined by the industry to include:

Digital content and environments with which users can actively participate or which facilitates collaborative participation among multiple users for the purposes of entertainment, information or education, and is commonly delivered via the Internet, mobile networks, gaming consoles or media storage devices. The two essential sub–sectors of the interactive digital media industry include the entities creating the end–user experience (creators) and those designing the applications allowing for the creation or distribution of the content and environments to the user (enablers).¹

5. This definition includes companies in the areas of game design and development, cross–platform entertainment, interactive training, social media and mobile products and services.

About Canada's Interactive Digital Media Industry

6. The Canadian Interactive Digital Media Industry is comprised of over 3,000 companies employing approximately 52,000 digital media professionals. From coast to coast, the industry is comprised of both creators and enablers of IDM content and services. In 2008 companies in the industry generated approximately $4 billion in gross revenue from IDM activities.²

7. The IDM industry is maturing. Although there are many new entrants into the industry every year, the average age of companies is nine years.

8. Canadian IDM companies are net generators of intellectual property with an average of 65% of their projects based in IP that was developed internally.

About the Canadian Interactive Alliance / L'Alliance interactive canadienne

9. The Canadian Interactive Alliance / L'Alliance interactive canadienne (CIAIC) is comprised of seven regional provincial trade organizations which in turn represent over 1,000 Canadian companies involved in the creation of Interactive Digital Media content and services. The CIAIC was formed in 2004 to serve as the national voice of consensus for the industry, and publishes the Canadian Interactive Industry Profile (CIIP) which has served as the nation's only tool to define, segment and measure the industry. The Alliance's members include:

1. Alliance Numerique (Québec)
2. Digital Alberta (Alberta)
3. DigiBC (British Columbia)
4. Interactive Media Association of PEI (PEI)
5. Interactive Ontario (Ontario)
6. New Media Manitoba (Manitoba)
7. SaskInteractive (Saskatchewan)

10. This submission represents the common views of the CIAIC's members. Each member is also free to submit their own intervention to articulate or elaborate on specific items in their own interest.

Canada's Digital Content Advantage

11. According to industry–leading market research firm DFC Intelligence, the global video game industry was worth some $60 billion in gross revenue in 2009. This number is expected to rise to $70 billion by 2015. There are some who predict that the industry will grow even more quickly with the broadening of the accessibility of games through new interfaces as with the Nintendo Wii and Microsoft Kinect, as well as through new platforms like the iPhone, iPad and Android–based mobile smart–phone devices.

12. In 2009 Canada surpassed the United Kingdom to become the world's #3 industry for the creation of video game content, behind only the United States and Japan. Canada is home to two of the largest and best producing studios in the world — Electronic Arts in Burnaby, BC and Ubisoft in Montreal,QC — as well as upwards of 250 other transnational and independent development facilities. In 2007, homegrown Edmonton firm Bioware was purchased be Electronic Arts for approximately $800M. The number of jobs in this segment of the Interactive Digital Media industry has been growing at a rate of approximately 30% per annum.

13. Of course, the IDM industry is comprised of many other fast growing and award–winning companies in cross–platform, social media and mobile media entertainment, information and education sectors. Xenophile Media of Toronto won both International and a Prime Time Emmy Awards for their work on two different interactive projects associated with television programmes. Canada has spawned global successes in the social media space with such well–known names as flickr, Club Penguin and Webkinz.

Transformation and the Canada Media Fund

14. Canada's traditional media industries have been supported over the years by regulation and have become primarily domestic market players. New programmes like the Canada Media Fund have begun the path toward transformation and are providing new tools for interactive content creators while incenting new digital platform product development from broadcasters. The government should be congratulated for its bold and innovative approach to the creation of this new programme.

15. There is a danger though that the current caps for maximum investment are not high enough, and the rules not yet clear enough around investment, to incent support the kinds of projects that will ultimately deliver the largest ROI.

Talent is our Best Natural Resource

16. There is nothing more important to the growth and success of a digital economy strategy than access to the best available talent.

17. The digital knowledge industries depend almost entirely on brainpower and economic scalability to produce success: our people are our natural resource. Canada has a long history as a centre for immigration. It has been a land of opportunity for those looking to gain access to new opportunities for their families, and increase their standard of living. Canada should continue to keep its doors open to the best and the brightest in the digital media industries. As well as ensuring that we develop highly attuned academic training programmes, we should ensure that companies have easy access to the quality and kind of labour they require, no matter where they come from.

A Question of Capital

18. Though Canadian companies excel in creative and technological development, they have been hampered by a significant market failure in our ability to capitalize companies. Firms that create digital media products and services have been challenged to get access to the financial tools they require to grow, often resulting in a premature relocation to clusters where the appropriate form of capital is more available. Silicon Valley and the San Francisco Bay area have continued to grow on the virtuous cycle of access to start–up capital, and new educated investors are created with each successful exit of the owners and senior managers of those ventures.

19. We must continue to remove barriers to investment, both domestic and foreign, and at the same time create innovative new public–private tools to incent the availability of new forms of capital.

20. Aside from equity financing, we must find new, creative and flexible tools that allow companies to project finance recognizing that the fact that they do not create or own significant tangible assets puts them at a disadvantage for fulfilling their cash requirements.

Recommendations

21. Access to Talent

1. Understanding workforce convergence — The ICT and cultural skills are inherently related in creation of interactive media content and services, and significant support should go to the sector councils to underwrite activities that research, document and promote these relationships and convergences.
2. The government should support programmes that promote common industry standards for training outcomes for specific competencies in close consultation with the industry.
3. Canada should remove barriers to the entry of foreign workers with the necessary education, training and experience.
4. Canada should foster creative training programmes that allow for "outside the box" business, creative and technological skills development.

22. Access to Capital

1. The government should use all the tools at its disposal to foster a diverse and healthy marketplace for capital at all stages of growth including seed, angel, micro–VC and VC.
2. The government should use the tax system to incent further activity and reinforce momentum by extending film and television tax credits to interactive digital media products and services.
3. The government should mandate the Canada Media Fund to increase its percentage of expenditure in Interactive Digital Media content and services significantly on a year over year basis, whilst continuing to raise the maximum investment caps.
4. The government should simplify the SR&ED tax credit and ensure it is open to all digital media companies.

23. Marketing

1. Canada's reputation in the eyes of the world can be tarnished by the effort it puts into the conveyance of its image at market events. The government should support industry to build strong Canada brand and the necessary sector–specific extensions to be used at major events and build a collaborative strategy for presence and visibility.
2. Canada should ensure its ability to attract investment and talent by ensuring that it has the capability to produce world–class market events within its own borders. The government should work with industry to create programme funds to assist industry organizations to stage high–value domestic trade events.
3. Marketing efforts should be government supported but industry–lead with the tacit recognition that existing trade programmes may not be suitable for Interactive Digital Media industry trade organizations due to the emerging nature of the industries and participating companies.

Conclusion

24. Canada is extremely well positioned to grow at a faster pace and build on its leadership in the creation of Interactive Digital Media content and services. We should adopt an approach similar to our "own the podium" programme at the 2010 Olympic Winter Games, to challenge all Canadian companies to strive for excellence whilst ensuring they have access to the tools they need to succeed.

¹ 2008 Canadian Interactive Industry Profile, page 20

² 2008 Canadian Interactive Industry Profile