New Media Manitoba's Submission to the Government of Canada on the Digital Economy Strategy Consultation Paper

Summary

New Media Manitoba is a non–profit association of industry professionals that provides support and economic opportunities to new media businesses and individuals within Manitoba. Therefore we sought to contribute to just two of the five themes proposed in the paper circulated by Industry Canada. Namely, "Creating Canada's Digital Media Content Advantage" and "Building Digital Skills for Tomorrow."

One of the challenges of new media professionals is to chaperone our sector into maturity. Games existed for thousands of years before video games became de rigeur. Canada's Film and TV Industries are compelled to integrate new media, despite this junior industry's nascent business models. There is much to be learned by those savvy enough to mine wisdom from those who came before.

In this regard, we looked for historical parallels to today's connected environment, both to guide our efforts and to remind us that this is not the first time a dominant business culture was confronted with a disruptive technology.

It is worth noting that there are two constants when wrestling with a disruptive technology:

1. The disruptive technology will not and cannot be suppressed, no matter how fervent the efforts of the paradigm that is being replaced; and,
2. A disruption lays the foundation for a profound shift in culture and technology that is unimaginable to those confronting the disruption.

Gutenberg's printing press suffered a cultural birth marked by religious conflict but brought widespread literacy and education to Europe. Marconi was sued by Vaudevillian performance groups for the invention of the radio because the radio was then deemed impossible to monetize and heard as the death knell of the performance industry. In 1984, it was US Congress' legislation that the VCR's use for home copying was not illegal that eventually earned its opposition, the film & TV industry, billions of dollars in revenue.

Setting the stage for Canada to thrive in today's disruption, the digital economy, is essential if we are to emerge prepared for the cultural evolution we can expect to experience over the next few decades on the other side of this threshold. The opportunity cost of a failure to adequately prepare will be a deprivation of revenue, employment and education as those countries that embrace this shift — even though they may suffer short–term transitional consequences — advance farther than Canada will be able to follow.

Wherever possible, we recommend possible solutions that will not require ongoing federal funding. Our intention was to explore solutions and recommendations initiated by the Government of Canada and sustained by private industry. Our recommendations are not stopgap solutions designed to solve an immediate problem — they emerged from fore–sighting exercises that anticipate consequences 3–5 years from now.

Entrepreneurship will seed our national prosperity. If Canada is to advance its digital content advantage, then Canada needs to be where opportunity may be found. Opportunity is best cultivated in a low–friction environment with as few impediments to innovation as possible.

Submission

Our specific recommendations are below, clustered by theme:

Theme: Creating Canada's Digital Media Content Advantage

1. Improve SME access to loans for labour, not just infrastructure.

The digital economy relies most heavily on knowledge enterprises, yet existing mechanisms cater to mature enterprises like manufacturing or natural resource exploitation. As such, many entrepreneurs observe that start–up loans are available for the purchase of infrastructure but may not be used for labour, which is more critical to success. Talent costs more than computers.

2. Formalize incentives for crowd–funding.

Crowd–funding is a nascent green field that is unrecognized by formal financial incentives like the preferred taxation rates for Canadian–controlled corporation investments or the like. Crowd–funding is a meritocracy, a manifestation of Adam Smith's invisible hand. A like–minded crowd of 10,000 people is vastly more risk tolerant with donations of $10 or $100 than the angel network or venture capital firm looking for a 10x investment on $1M. Should Canada institute financial services that reward participants of Canadian crowd–funded endeavors, we could enjoy an aggregate influx of capital that will help us retain talented entrepreneurs who otherwise might seek opportunity in like Palo Alto. The USA's SEC is considering just such a proposal with the recently submitted No. 4–605.

3. Increase the allocation to the CMF Experimental Stream.

On 1 April 2010, the Canada Media Fund replaced both the Canadian Television Fund and Telefilm's Canada New Media Fund with two streams — a Convergence Stream of $277M and an Experimental Stream of $27M. While the Convergence Stream offers much higher limits for producers, the Experimental Stream caps investment far below the needs of digital media producers, despite those producers needs to develop projects of equal production value and commercialization.

4. Increase accessibility to the SR&ED Tax Credit.

We already enjoy federal initiatives like the Scientific Research & Experimental Development (SR&ED) tax credits that demand participants achieve a high standard of innovation. Unfortunately, while this helps greatly with satisfying a financial structure, it does not pay back until after the project wraps and the company's financial year concludes. SMEs lacking cash–flow cannot find interim financing because financial institutions either charge prohibitive interest rates or are risk averse to the innovative quality that the SR&ED credits demand in the first place. We propose three measures to mitigate this particular Catch–22:

• Evolve the definition of innovation required to access SR&ED credits from its current scientific zenith to one that permits entrepreneurial access;
• As other jurisdictions are considering with their respective sector tax credits, allow SR&ED credits to be accessed as an advance for the purposes of payroll by qualifying applicants; and,
• Permits qualified applicants to log billable hours where a labour exchange between two entrepreneurs of complementary skills makes sense. This could be an extension under the recently–introduced invitation for self–employed persons to voluntarily pay into E.I. to receive benefits.

5. Reward SMEs that adopt co–work environments to reduce overhead.

Offer financial incentives for the adoption of co–work or other aggregate spaces for SMEs to compound their skills while incurring a minimum of overhead which siphons away revenue that is better spent on attracting and retaining talent and labour.

6. Reduce taxes on SME service producers for later investment.

Many SMEs' conventional path to prosperity is to perform service production until they earn enough capital that they may then begin to slowly invest in their own original IP (intellectual property). We propose that revenue from hours billed in service production could perhaps be taxed at a preferred rate with the difference held in trust or escrow for the company to access at a future date when it needs additional funding for the production of original IP.

7. Adopt open–government solutions.

Proprietary hardware and software is expensive. We hope Canada's government might follow the lead by some other federal governments that are beginning to recognize the value in switching to open source solutions like the free operating system Linux. The cost of training public employees to use new, safer systems and interfaces will ultimately be less expensive than he perpetual upgrading on proprietary systems.

Grassroots innovation will be spurred if the federal government adopts open–gov policies whereby layers of federal information are available for citizens to map, visualize, manipulate and combine and in transformative ways.

8. Institute a private patronage fund.

One radical solution that we discussed was a modification and expansion on the structure that had been used by the Canadian Television Fund whereby broadcasters paid 5% of their revenues into the CTF, which then disbursed funds to TV producers who made more content to be licensed by broadcasters.

We propose an opt–in corporate program whereby any Canadian–controlled corporation could voluntarily opt into a content creation fund by paying a percentage of their revenues. In return, they would receive a number of additional financial advantages for investing in Canadian industry and the ability to access content created by SMEs who subscribe to the fund as recipients.

The creative SMEs that subscribe to the fund would have access to the pool of capital generated by the investors but would be obliged to service the investor companies as content producers at reduced rates (subsidized by the investor fund) from what they would charge a non–subscriber client. The content creators would offer à la carte services from their core competencies that are in demand by the investors — marketing, advertising, advertainment, promotional games, etc.

Each stakeholder would be required to maintain membership in good standing to participate in the benefits of the fund with the ability to opt–out if deemed of insufficient value. Ultimately, the fund would be completely privately funded, regulated by government only with regard to qualification and without evaluating applications by the content creation companies.

9. Recognize innovation depends upon autonomy.

Our final recommendation for preserving Canada's digital content advantage is one of policy and legislation.

The 2009 consultation on copyright saw over 8000 submissions near–unanimously declare that artificial protection for DRM (digital rights management) and TPMs (technological protective measures) hurts innovation, does nothing to protect the rights of content creators and criminalizes the daily activities of millions of Canadians. This is a critical flaw in Bill C–32. It is paramount that Bill C–32 be amended in this regard and the government demonstrates resolve in the face of negotiations on ACTA (Anti–Counterfeiting Trade Agreement).

Theme: Building Digital Skills for Tomorrow

This was a challenging theme for our group to address because of the decentralized role the federal government plays in education. It was the consensus of our group that there is, quite simply, no problem on Earth that is not ameliorated by better public education.

1. Modernize school access to skills and software.

There is a substantial problem with those schools that have antiquated computer systems and lack teachers with the skills to teach those systems. Many urban schools tend to be better than rural schools at finding the funds necessary to upgrade the school's ICT needs but there are two immediate consequences. The first is that funding is often sourced through the cannibalization of other programs like arts, music, theatre, varsity sports and the like, which is untenable. The second consequence is that while infrastructure may be upgraded, skills upgrading is routinely overlooked. We propose three immediate recommendations:

• Institute software expiry dates on curricula and assist with upgrading;
• Improve funding of regional secondary schools in order to become centres/hubs where recent modern technology can be implemented for surrounding schools to access; and,
• Expand government support of industry associations that have the agility to swiftly provide train–the–trainer courses or current–need courses for industry and government.

2. Improve online access for low–income families.

Online access for families of all incomes will be improved through two measures:

• The first is ubiquitous broadband connectivity. While we recognize the significant investment required, we cite Finland's forward–thinking in this regard to make universal high–speed internet access a human right and urge Canada to follow. It may seem a frivolous "human right" but in the early 20^th century, potable drinking water was seen in exactly the same light. This is the cost of progression. Considering Canada's extreme geography, perhaps this objective is best achieved through investment in upgradable wireless hi–speed systems; and,
• The second measure is a subsidized (or encouraged) minimum tier of connectivity through an existing ISP. This minimum tier would be absolute basic access to high–speed data at bare–minimum cost on the scale of $3/month and would not actually provide hardware — citizens would have the right to access, but would not have their hardware subsidized.

3. Invest in research into serious games and interactive learning.

Increased research into the pedagogy of serious games and interactive learning may successfully blend the honey and the medicine of teaching and learning. This could promulgate a familiarity with ICT systems without sacrificing course hours needed to learn other important subjects.

4. Permit teachers to deduct expenses incurred for up–skilling.

Those teachers willing to undertake the time and expense of up–skilling or investing in better hardware/software find they do so at personal expense. Many other careers permit professional development expenses as legitimate tax deductions yet teachers are prohibited from taking advantage of this. Since school systems lack the capital for this up–skilling, teachers should not be penalized for taking the initiative themselves.

5. Lead by example with Universal Access.

Universal Access (UA) for software development for the physically or mentally impaired is a labyrinthine procedure for software developers to follow. Widespread adoption of UA in all Canadian software/web development is not profitable except for some few specialized vendors who cater to these sectors.

Encouraging the worldwide development community to clarify the W3C (World Wide Web Consortium) rules for this process would be a first step but government cannot expect private companies to engage this process without first seeing a commitment for the extensive federal government to lead by example with its own websites.

6. Promote the evolution of the work–week.

Among Henry Ford's achievements as an entrepreneur, one aspect of his production that revolutionized labour practices was the controversial decision to offer workers the then–indulgent work–week of merely 40 hours per week.

His declaration, based on study, that exhausted workers ultimately perform poorer than relaxed, productive workers was seen as exorbitant, with workers likely to take advantage of this luxurious labour practice. Google, one of the most profitable businesses on the planet, permits its knowledge economy employees up to 20% discretionary time to pursue their own ideas during their time at work. We acknowledge that The Government of Canada is not in a position to federally mandate this strategy, but funding studies that could promulgate its value would likely bear fruit in Canada's knowledge industry workplaces and augment employee–retention strategies.

Conclusion

The digital economy is a densely interwoven system of stakeholders. The system is complicated, competitive and fragile. As a community, we recognize many of the sectors competing for the Government of Canada's resources, and see the massive, coordinated modernization that is unfurling in arenas of privacy, copyright, telecommunications and anti–spam. The Digital Economy Strategy will need to mesh, in a harmonious way, which necessitates evolution over revolution. It is critical that there is collaboration between industry, academia, and government throughout this process.

Change is never easy but since the lesson of disruptive technologies is that change becomes inevitable, we urge our readers to think of the Digital Economy Strategy as an opportunity to pave the foundation of the world Canadians want to see in the middle of the 21^st century. This is a time for leadership, and we applaud the Government of Canada's decision to undertake this initiative.

New Media Manitoba appreciates this opportunity to respond to Canada's Digital Economy Strategy and would be open to discussing our recommendations in person in greater detail.

Thank you.