The document discusses lessons that can be learned from production tax credits supporting the video game industry in various Canadian jurisdictions. It finds that the growth of Canada's video game industry has been driven by a diversity of incentives rather than any single intervention. Specifically, it points to Ontario's multi-pillar approach combining a tax credit with supplemental funds and programs as a model. Finally, it argues that tax credits provide a market-driven approach that can promote the creation of marketable intellectual property.

1. Produc/on Tax Credits for the UK
Video Games Industry:
Lessons from the Canadian Experience
21 January 2010
Delivered to Prepared by
Westminster eForum Nordicity

2. To begin:
 Expenditure tax incen/ves have supported the con/nued
development of the UK’s film sector
 Some Canadian jurisdic/ons have tax credits that support
the video games industry
 The Canadian video games industry is growing
(28% year‐over ‐year job growth*)
Seems simple enough?
* Hickling Arthurs Low, Canada’s Entertainment So0ware Industry: The Opportuni:es and Challenges of a Growing Industry, prepared for the
Entertainment SoWware Associa/on of Canada, March 2009.

3. But things are seldom as
simple as they seem

4. Perhaps a tax credit is just one piece
of a larger puzzle

5. Let us take a closer look at video games support in
three very different Canadian jurisdic/ons:
Quebec (Montreal) Ontario (Toronto) Bri/sh Columbia (Vancouver)
 Long history of excellence in 3D  Up to 40% produc/on tax
 No produc/on‐based tax credit
design and anima/on credit that had been recently
 But, a long‐standing major
 Up to 37.5% produc/on tax expanded
publisher (Electronic Arts ‐
credit (est. 1996)  Numerous suppor/ng
1991)
 Lured UbisoW in 1997 (and programs
 Close connec/on to California
others aWer)  Recently lured a UbisoW studio
 44% of Canada’s games
 37% of Canada’s games  14% of Canada’s games
development industry jobs
development industry jobs development industry jobs

6. Ontario’s mul/‐pillar approach:
 Produc/on Tax Credit
 Interac/ve Digital Media Fund – small investments in
smaller games
 IP Fund – early‐stage investment in prototyping
 Directed investment to ajract a top‐level publisher
 Various training and professional development programs
This approach could also
address the UK’s situa/on

7. Traditional games development vs. emerging
development process
High-cost Games Development Process
Launch of Game
+
Sales B
Cash Flow
Development
A
Costs
-
Emerging (Social/Casual) Games Development Process
Early Signs of More new content
traction, revenue
+
launched
model established
Cash Flow
Launch of new content,
B D spike in revenue
Building new features
A C (new characters, areas,
E game modes, etc.)
More investment in
-
new content for the
Initial Dev’t Cost (few game
game elements)

8. There are also very different production cycles
Traditional Games (and F/TV) Slates
Game 1 Game 2 Game 3
Cost
Time
Downtime, waste due
to overhead
Emerging (Social/Casual) Games Development Cycle
Game 1
(continued Game 2
investment) (no
traction) Game 3
(slow rev.
Cost
growth)
Time

9. Diverse business models require a diversity of
incen/ves

10. Tax credits: Why should they be part of the
support regime?

11. Tax credits offer a market‐driven tool for support
 Alloca/on driven by entrepreneurs rather than financiers
 More likely to lead to market outcomes: the crea/on of
marketable IP
 Predictable; not subject to ra/oning
 Are flexible enough to underpin rights‐op/miza/on
strategies

12. Where to go from here?

13. Summary of Key Conclusion
 The Canadian experience demonstrates that growth of the video
games industry is driven by a number of factors, including
interven;on
 Consider Ontario’s mul;‐pillar approach: a diversity of incen;ves
for a diversity of business models
 Consider the market‐driven approach offered by a tax credit, to
promote the crea;on of marketable IP
 Underline financial performance and encourage op;mal
management of rights

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