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Toronto scores points in video game sector

Ontario Premier Dalton McGuinty, left, Sandra Pupatello, Minister of Economic Development and Trade, and Yannis Mallat, CEO Ubisoft, appear at a Toronto press conference on Monday, July 6, 2009, announcing a new video game studio in Toronto, to create 800 jobs in Ontario.

Derek Oliver/The Canadian Press/Derek Oliver/The Canadian Press

Dalton McGuinty badly wanted a big-name video game publisher in Ontario. Although the province has had a significant tax break for video game makers in place since 1999, and increased it in 2006, Ontario still lagged British Columbia and Quebec, two provinces where the industry flourished around the hub of a large company - Electronic Arts Canada in the Vancouver region and France's Ubisoft Entertainment SA in Montreal.

Beginning two years ago, Premier McGuinty and Economic Development Minister Sandra Pupatello aggressively courted Ubisoft, which was expanding rapidly around the world. In between numerous meetings, the Premier visiting Ubisoft in Montreal and Ms. Pupatello flying to Paris to see executives there, Ontario introduced even more subsidies. A $1.15-billion "next generation" jobs fund was established last year for "innovative" companies and, this year, the digital-media tax credit was increased yet again.

It was finally enough to win Ubisoft, which announced in July it would open a Toronto studio, invest more than $500-million and hire 800 people. Between the jobs fund and the tax credit, Ontario is paying $263-million over the next decade, $328,750 per job.

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Although economists and professors debate the true value of such subsidies, Ontario's push to win Ubisoft promises to radically redraw the video game map in Canada and directly threatens Vancouver's status as the industry's Canadian capital.

Vancouver still has the advantage of incumbency - the talented long-established game development work force - but the mood in the city is not positive as Montreal is poised to eclipse Vancouver and Toronto hustles to catch up.

B.C. does not offer the industry special incentives, which has irked local developers for years.

"If I was to start a new video game development company, I wouldn't start it here. I'd start it in Toronto," said Douglas Tronsgard, chief executive officer of Vancouver's Next Level Games Inc. "The government knows what's going on and they're choosing not to act. It's dumbfounding to me."

The Vancouver video game business began organically. Distinctive Software Inc. was founded in the early 1980s and scored success, and in 1991 was bought by Electronic Arts. From this foundation, about 60 companies - employing 6,000 or so people - now call the city home, according to numbers from an industry association report published in March.

Video games aren't a particularly big business, with about $1.7-billion in annual revenue in Canada, a fraction of what Royal Bank of Canada or Research In Motion Ltd. generate. However, the industry captures the imagination of politicians, who see high-paid, high-tech jobs. Ontario has been specifically inspired by the "creative cities" thesis of Richard Florida, a University of Toronto professor and consultant to Queen's Park.

The success of Vancouver in the 1990s attracted attention elsewhere. Like Ontario today, Quebec in 1996 introduced significant subsidies to spark growth and, with the tax breaks, lured Ubisoft in 1997. Electronic Arts arrived in 2004. There are now about 4,400 people working in the business at more than 40 firms in the Montreal area. Quebec City has another 600 people at five companies. Ubisoft, with 2,200 employees in the province, mostly in Montreal, plans to add another 800 in the next four years.

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Toronto, even with specialized video game education at colleges like Humber and Seneca, has only about 1,300 people working in the business, though at more companies, 65. A plane ticket to Vancouver, Montreal or California after graduation in Toronto isn't unusual.

The video game industry works in two parts. There are publishers, like Electronic Arts, Ubisoft or Nintendo, large firms that put out games under their name. Then there are independent developers, like Next Level in Vancouver and the many companies in Toronto, which make games for the big publishers.

The Ontario government was convinced it needed the centrifugal force of a publisher if the industry was going to grow in the province. With a global competition to attract the likes of Ubisoft to open shop, Ontario knew it had to put big dollars like the $1-billion-plus jobs fund on the table.

"When you get into the 'B' range, companies open their ears and eyes," Ms. Pupatello said. "It gets us a seat in the boardroom to have a conversation."

B.C. is terse on the subsidy issue. An interview request with Finance Minister Colin Hansen was passed to the Tourism, Culture and Arts Ministry, where Minister Kevin Krueger issued a brief statement through a spokeswoman, saying B.C.'s existing industry and experienced work force were the province's competitive advantage.

B.C., however, does subsidize the film business - another area where Ontario recently massively increased its tax breaks - and also digital animation. In May, Walt Disney Co.-owned Pixar - maker of this summer's hit Up - said it will open its first studio outside California in Vancouver and hire 100 people, attracted by the tax break, the city's proximity to Pixar headquarters and the local work force.

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The province's video game business is in a "precarious position," said Warren Franklin, chairman of New Media BC, an industry group.

"I don't think people really understand what we built here, and how hard it was to build, and how easy it will be for it to dissipate if we don't take care of it," Mr. Franklin said. "Other parts of the world really want this business and will be aggressive to get it."

The threat of a vibrant business withering is clear with what's happened at Electronic Arts. The company, which had a $1-billion (U.S.) loss in fiscal 2009, has its largest Canadian operation in the Vancouver suburb of Burnaby. Last December, it shuttered its Black Box studio downtown, which it had bought several years earlier, moving employees to Burnaby, and shelved plans to open a separate development studio in trendy Yaletown downtown, home to numerous game makers.

"We've been here for a long time and we're not going. But [Vancouver]is no longer the cheap place to do business," said Pauline Moller, the general manager at Electronic Arts Canada in Burnaby.

Ubisoft itself staked a toehold in Vancouver early this year, buying upstart Action Pants Inc., which has about 115 employees - but the Toronto news, by comparison, dims the earlier acquisition, which was seen as a positive for Vancouver after the bad news from Electronic Arts.

For Ubisoft, it says tax breaks are an important part of its business and, as Mr. Franklin said, jurisdictions everywhere vie for the industry's attention. Ubisoft opened in Singapore this year and other recent expansion has included Brazil and a second studio in China.

Tax breaks aren't the only factor, said Ubisoft spokesman Cédric Orvoine, but it has become standard part of the business.

"It's more than common. It's part of the equation."

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About the Author
National correspondent, Vancouver bureau

David Ebner is a national correspondent based in Vancouver. He joined The Globe and Mail in 2000 and worked in Toronto and Calgary before moving to Vancouver in 2008. He has reported on a wide range of stories – business, politics, arts, crime – and has covered sports since 2012. More

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