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In praise of video game subsidies

Peter Nowak on why Canada has shown rare foresight by supporting the industry


 

Zach Dill/Flickr

Oh that Jesse Brown. He’s at it again. Regular readers probably remember our spirited back and forth recently about Apple’s relative level of importance to technology over the past decade. Now, with his latest post, Jesse has me frothing over another topic: video games.

In his post, Jesse takes issue with the big tax breaks and other financial incentives that video game companies have received in many countries to set up shop there, especially Canada. As Jesse puts it, it’s a highly profitable industry that’s also one of the most subsidized:

The health of the industry is inarguable—sales of video games reached $15 billion in the U.S. alone last year, eclipsing the music industry, if that still means anything—and it would likely do just fine without the charity. So why the corporate welfare?

He goes on to argue that the hundreds of millions in tax breaks that provinces have been “seduced” into giving the likes of Ubisoft and Electronics Arts are just being used to pay coder grunts. When developing countries have enough people to do the same jobs, the multinationals will eventually outsource that work to them and get it done at a fraction of the cost:

When developing workforces in, say, Bangalore train enough skilled code-monkeys to undercut local coders, the jobs will quickly migrate to India, leaving little of the creative economy behind.

I have the same concerns over the current subsidy battle going on not just between countries, but also between provinces. Ultimately, it’s a race to the bottom where whoever provides the biggest carrot wins—but, as is at the heart of Jesse’s concern, do they win in the long run?

The answer for Canada, both empirically and anecdotally, is yes. According to a recent study compiled by SECOR for the Entertainment Software Association of Canada—to which I contributed some input—the games industry here employs 16,000 people and will generate $1.7 billion in economic activity this year. That’s not revenue, it’s the amount of dough it contributes to the national economy. At that rate of return, the hundreds of millions the provinces have doled out in subsidies will be repaid in short order, if they haven’t already.

Moreover, the Canadian industry is growing quickly and is expected to expand by 17 per cent over the next two years. That means even more employees and more contribution back to the economy.

The economic impact was at the core of the Pushing Buttons series we did back at the CBC almost exactly a year ago. In one of the series’ stories, I discovered the more ground-level impact of the video game industry—that the production companies often revitalize the neighbourhoods they’re based in. With the average age and salaries of game employees being 32 and $68,000, respectively, that means there’s a whole lot of well-paid young people running around town. Such workers tend to want to be close to the action so they live downtown rather than in suburbs, so they buy condos. They’re also conspicuous consumers who eat at restaurants a lot, go to movies and concerts and buy the newest plasma screens and other expensive gadgets.

In Montreal, this has meant the revitalization of Mile End, a part of town that was quite sketchy prior to Ubisoft’s arrival in 1997. The same happened to Yaletown in Vancouver. It’s already happening in Toronto; one of the first things I noticed when I attended Ubisoft’s studio opening in the Junction area last year were the high-end condos going up right across the street. I went to high school near the Junction, so I’m particularly looking forward to that area getting cleaned up.

Jesse’s characterization of the types of people who work in video game design is off quite a bit. While the “coder monkeys” are indeed the people needed to ultimately make a game go, they’re only a small piece of the overall puzzle. And indeed, much of the simple coding work is already being outsourced to the likes of Singapore and Romania.

One of the more fun things I did for Pushing Buttons was put together a video on the making of a game, in which I talked to the many creative types—those highly paid young people—involved in design. Here’s the video:

Anyone who thinks games are made by interchangeable coder monkeys really should watch this because it underlines the fact that you can’t just plop a studio into any geography. The locale needs to have a smart and creative ecosystem in the first place, with the proper schools and skills around to feed the likes of Ubisoft and EA.

While the race to the bottom in subsidies is concerning, the good news is that Canada has a big head start. The ball is now rolling quite well and it’s going to take a lot for other countries to catch up, if they ever can. Video games are created through the confluence of creative and technological ability, which is something Canadians have proven to have in spades. Our governments shouldn’t be criticized for supporting the development of this industry, they should instead be praised for showing rare and uncharacteristic foresight.

Unfortunately, much of the media still lacks that same foresight. As I’ve written before, video games are still woefully misunderstood at best and discriminated against at worst. Alas, it’s a generational thing and eventually, gamers won’t just rule the world, they’ll rule the media too.


 

In praise of video game subsidies

  1. Thank you! It seems that in the race to slam all “tax incentives” people have left their brains at the door. The case in favour of staying competitive relative to other jurisdictions should be clear.

    It’s not just about attracting a couple firms here and there. It’s critical mass we should be interested in.
     
    When you attract multiple firms you start to see the formation of linkages between these firms. These linkages include suppliers, subcontractors, or new firms spun off from the parent company. There are a many stages of development of any given product and contracting firms often specialize in certain areas and handle projects from multiple buyers. The larger the cluster, the more likely you are to draw more firms and the existing firms become more rooted in the region.

    Further more, the longer you have such a cluster in a region, the larger the talent pool becomes as local colleges start training more and more of them and become better at training them over time.

    Ontario for example is in a good position to do that, with its existing special effects, animation, film and technology industries supplying many of the skills and other ingredients for a successful video game industry.

    For a new cluster to really take off however, you need a video game publisher to act as an anchor, and jurisdictions like Ontario and Quebec have had the foresight to lure in firms like Ubisoft, EA, Lucas Arts etc..

    It’s simply not true to suggest there aren’t spin offs and that it doesn’t benefit a regional economy considerably to compete for these firms.There’s a reason they’re competing after all, and it’s not just for PR reasons, but substantial economic ones more so.

    • Good-bye “natural hubs” hello “critical mass”.  Boo-ya!

      • Oh for crikey’s sake! LOL

  2. “Discriminated against”?
    You mean like blacks, LGBT, jews, & etc. are discriminated against?  That is really serious.  Now I see why they have to get subsidies.  This isn’t an economic issue…

    This is a human rights issue!!!

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