:
Good afternoon, ladies and gentlemen.
Bonjour à tous. Welcome to the 12th meeting of the Standing Committee on Industry, Science and Technology. Today, pursuant to standing order 108(2), we're continuing our study on the entertainment software industry.
Before us, we have three witnesses from two organizations. One is Execution Labs and Jason Della Rocca, who is the chief executive officer.
We have Ubisoft Entertainment Inc., with Geneviève Poulin, advisor, corporate affairs, as well as Nathalie Verge, senior advisor, corporate affairs.
Welcome, folks.
I take it that you have 10 minutes for your opening remarks. I'd keep them as brief as you can in that window. I just wanted to ask Ubisoft, are you splitting your time, as far as your opening remarks? You are.
We'll begin with Mr. Della Rocca.
Please go ahead with your opening remarks.
:
Thank you very much for having me. It's a great honour to be here.
I've been part of the video game industry for nearly 20 years. Most of that time, in fact, has been in roles that have been supporting and building the game industry, here in Canada as well as abroad.
I was the president of the International Game Developers Association for nearly nine years. That is the industry association that game developers from around the world belong to. I did that from Montreal, although it was a California-based entity. Also, for three years I consulted with governments from around the world, specifically on how to grow and foster their game industry in whatever particular region or country they were. It made for a lot of air miles, but it was interesting to see the globe and the different game ecosystems and challenges that existed abroad, and as a Canadian I was comparing that to what we have here.
More recently, I co-founded Execution Labs. Execution Labs is an incubator where we fund and mentor start-ups in the game industry, specifically making mobile games. It's a completely venture-funded incubator. Although we will eventually take advantage of the tax breaks or tax credits in Quebec, currently it's a privately funded entity. It has gotten recognition globally in terms of being a pioneering and innovative model to support start-ups in the games space.
As a side note, I'm also on the ICT advisory board for the Department of Foreign Affairs, Trade and Development, which has given me an interesting opportunity to see how certain parts of the government support and operate around the game industry. One of the things I noted in advising DFATD was that their metrics for success are limited, meaning they are very much focused on job creation, which of course is wonderful and great, but it's not sufficient in terms of when you're thinking about a content-driven sector, an IP-driven sector. I think that there needs to be a more holistic view of the game industry and the economics around games.
I would like to posit that the true value of the game industry, value in wealth, comes from the creation of new intellectual property, original intellectual property. That IP or intellectual property is made by talented developers, of which we have many in Canada...but that we treat them more so as careers as opposed to jobs. Those creating games are doing so at start-ups so we can take advantage of entrepreneurship within the game industry and grow start-ups.
I'll tell you a story from Finland. While we can beat them easily in hockey, from the game industry point of view, they are really dominating the globe at this point. There is a company named Supercell based in Helsinki, founded in 2010, so less than four years ago. It was created or founded by some game industry veterans with a few other studios in Finland as well as folks from Nokia. Around that time Nokia was going through a lot of trouble, not unlike BlackBerry these days. It was seed funded with around $2 million, give or take, in 2010. About two years after that, its next round of funding was $780 million.
It had two games within its short lifespan, two games that were generating more than $1 million a day of revenue. These are a special kind of games in the sense that that you play the games on your mobile phone and they are free, meaning you can download them and play them for free. But then once you're in the game playing there are opportunities to pay for a fancy sword, or accelerate with some bonuses, etc. But essentially, they are free games. They are making $1 million a day with a free game.
They had about 125 staff working on those two games, and by comparison, Electronic Arts, one of the big behemoths of the game industry in that timeframe, with their over 800-game library and 5,000 or 6,000 global staff, was not generating anywhere near that level of revenue. In less than four years, and this is roughly, I think it was around October-November timeframe, Supercell sold 51% of its shares to some investors from Japan for $1.5 billion.
A couple of guys starting up in Helsinki in 2010, with two games and original intellectual property, were able to flip themselves after a round of $780 million for another $1.5 billion. They were so proud of themselves and the revenue they generated. It should be noted that Finland does have various government supports, R and D funding mechanisms, etc. They put an advertisement in the newspaper with their tax bill of $345 million. They were proud to give back their share of taxes from their proceeds to their country.
That's just one example of a start-up made from some entrepreneurs creating original IP and generating tremendous wealth. Of course, that's an exception. Not every start-up is going to result in the same things, but we have to ask ourselves, how do we take the experience and the momentum that we have built in Canada and ensure that we can continue to grow, succeed, and create the next big thing?
Canada is vulnerable. We have been doing well, but if we look at Vancouver, in 2008-09 Vancouver lost about half of its workforce because of hard economic times and because many of the studios there were focused on big budget, big console games. The industry there was decimated from about 5,000 workers to roughly 2,000 to 2,500 workers.
In general, when you talk to folks in Silicon Valley, they often look at Canadian entrepreneurs as not being ambitious enough, not being entrepreneurial enough. We need to think about that. How do we not be counterproductive towards entrepreneurship?
Here are some examples. We need more seed funding and early-stage funding opportunities for young and start-up studios. We need to embrace systems that enable failure to occur, but that failure to occur quickly and inexpensively, and to think of failure more so as the process to discover success. We need to think about the educational system and not just training for jobs, but training for entrepreneurship and nimbleness and giving students outlets to be entrepreneurial. We also need to focus on retaining talent and investing in talent, and thinking of talent as workers, as people we want in the industry for long-term careers, not just jobs. More importantly, we need to think about new metrics in terms of how we think of success in the game industry, new metrics being: what's the volume of new intellectual property that's created; how many new start-ups are being created, as well as investment dollars and venture capital dollars?
I'm very surprised that DFATD does not consider VC dollars as a foreign investment. So if you're able to win some VC dollars from the valley, they don't count that as FDI, as foreign direct investment. Foreign direct investment only counts if a foreign company comes, like a Ubisoft, and sets up in the studio. I thought that was particularly bizarre.
These are just some quick thoughts. I think from a “key message” point of view, we really need to think about how we create new intellectual property, because that's where the true value and wealth comes from in a content-driven industry. How do we build that IP with talent that we retain on the long term, and think of them from a career point of view? As well, how do we support start-ups to drive and build that IP?
In closing, I would say, I would be happy to sign a cheque for $345 million to pay my taxes, if such an event were to occur.
Thank you very much.
:
Ubisoft is a French company. It is a leader in video game and interactive software development, publishing and distribution. We are present in 28 countries, and we have 9,200 employees, about 3,350 of whom are here in Canada. We have offices in three Canadian cities—Quebec City, Montreal and Toronto. The Canadian studios are working on high-profile projects, referred to as AAA projects, which have large budgets and involve our leading brands. You may be familiar with Assassin's Creed, Tom Clancy's Splinter Cell and Far Cry.
Ubisoft is the biggest employer in the video game sector in Canada. The industry is extremely competitive. In order to develop games that meet players' very high expectations, we absolutely have to focus on a key consideration—the talent of our creators, artists, designers, technicians and programmers. That is the real key to success. We also have to maintain a balance between more and less experienced employees in our work teams to ensure the quality of our games. Here are some more details on that.
Ubisoft has been present in Canada for about 17 years. We first set up shop here in 1997, when we founded a Ubisoft studio in Montreal. That is Ubisoft group's largest studio and among the largest video game studios in the world. The Ubisoft studio in Montreal currently employs 2,650 people. You may have heard the announcement made last fall that we are planning to create 500 new jobs over the next 7 years.
Our workforce demographics are the following: about 80% of our employees are Canadians or permanent residents, and about 20% of them are foreign nationals with a work permit.
We opened our second studio in Canada in Quebec City, in 2005. It has about 325 employees, 90% of whom are Canadians and permanent residents. Last month, the Quebec City studio announced that 100 new jobs would be created over the next three years. In addition, more than $30 millions will be invested to upgrade equipment and produce even more modern new generation games.
The Ubisoft family opened its last Canadian studio in Toronto, inaugurated in 2010. That studio has 300 employees, and that number is eventually expected to reach 800. We are pledging to bring the total to 800 employees by 2020. At the Toronto Ubisoft studio, 80% of the employees are Canadians and permanent residents, and 20% of them have a work permit. Ubisoft Toronto just launched its first AAA game this summer, after it opened.
:
I will tell you about factors that helped Ubisoft take such strong root in Canada and that explain our company's significant growth. In 17 years, we have rather quickly created just over 3,000 jobs in a fledgling industry.
I assume that we will all tell you the same thing—that the main factor is workforce availability and skills. When Ubisoft made the gamble of coming to North America, it set up shop in Montreal because the city had a pool of artistic talent. The large number of artists was a very important factor.
Bilingualism was also a factor. For a French company that was operating on every continent and decided to set up in North America, it helped to have people who could speak French and English with ease, so that we could work with other studios.
Montreal also had a pool of telecommunications and software development companies. At the time, Softimage and Téléglobe were leading Montreal companies. The potential was good. Those were the key factors behind our decision to come to Canada.
Over time, we developed talent. In 2005, we realized that there were less junior resources than we had thought. We needed to train a lot more people to continue to grow. As a result, we built the Ubisoft campus. When I say built, I don't mean to say that we built something from scratch. We partnered with colleges and universities, so that our employees would directly provide their students with information on some of our realities, such as production areas and the multidisciplinary teamwork between artists and programming engineers. Through that initiative, we have trained over 400 new workers, 50% of whom have come to work for Ubisoft. The other half found jobs throughout the industry, either in Montreal or elsewhere in Quebec. So that helped increase the junior workforce pool, which is made up of recent college graduates.
In addition, we launched Academia, a competition where a number of universities from Canada and abroad compete, make prototypes and work in teams to build the best possible game. Ubisoft has been organizing Academia for a few years. We have also hosted immersion camps, where young people learn what goes into making a video game. The camps are also designed to show their parents that a career in video games is lucrative and promising. As Mr. Della Rocca was saying, this is not just a job, but a long-term career.
In Quebec, there is also a sectorial committee on workforce called TECHNOCompétences. That committee provides professional development, especially for small and medium-sized companies. Its goal is to provide continuous training and increase the workforce's skill level. In brief, it's a matter of never losing the edge.
Tax incentives are obviously another factor that convinced Ubisoft to set up in Canada and continue to grow here. In 1997, it was very risky to give a company a 50% tax credit on payroll. However, the challenge was accepted, and so the growth continued. Companies came to set up in Canada and Quebec. In addition, all the other provinces have followed suit by developing their own initiatives. The research and development tax credit also contributes to success and innovation in our industry. Governments have always been responsive to our company's modernization and growth projects.
The business environment is the third factor. Financial institutions and governments understand us well. We are a high-risk industry, an entertainment industry, and there is always some risk involved. We are storytellers. That's what we do. However, our industry is now fairly well understood, and that helps growth.
Finally, the last factor is the global ecosystem. That includes educational institutions, research centres that are always pushing us to take things further, the presence of many start-up studios and others.
Those are all factors that contribute to our growth.
:
Despite the favourable environment in Canada, some issues should be pointed out. We will highlight three of them, starting with the main one, which is often talked about—labour mobility. I think it's very important to mention that our company—and the industry as a whole—is investing a great deal of time and money to develop the skills of young Canadians, students, and of our own workforce. We are really working hard on recruiting in Canada. Despite that, we are experiencing a significant labour shortage, especially at intermediate, senior and expert levels.
Given that reality, we have to seek new employees abroad, even though that costs our company a lot of money. Hiring people abroad is the only way to ensure the quality of our games and to meet consumers' very high expectations. However, international recruitment does have one benefit. The experts we bring in provide training for Canadians, here. So our workforce can be developed here and acquire expertise that is not available in Quebec or Canada.
We face some obstacles in the international recruitment process, including long delays in obtaining labour market opinions—especially since the expedited process was suspended—proposed constraints to the intra-company transfer program, a four-year limit for work permits, delays and unequal treatment in embassies, and so on. All that greatly complicates the process used to find those resources, which are really essential for us.
The second point has to do with the research and development tax credit, which is clearly more beneficial for Canadian companies than for foreign ones. It would really help if the difference in treatment between Canadian and foreign companies could be reduced.
:
Yes. Well, you're right.
[Translation]
The environment is indeed very interesting.
However, we are competing with many other industries involved in the programming and computer fields. Telecommunications and information technology industries are huge. They are much bigger than the video game industry. The level of competition is high.
Moreover, few people think of enrolling in skilled trades such as the level designer program, which is fairly specialized. Those who want to enrol in such programs are not necessarily accepted. We are talking about highly sophisticated professions, which are experiencing a shortage, especially at intermediate, senior and expert levels.
Canada's industry is young; it's perhaps 15 years old. It's difficult to find talented employees with 10 or more years of experience who are experts in their field. There aren't too many such individuals in Canada. Some junior employees with 10 years of experience are currently coming up. They are found in a growing number of companies. We are no longer alone in the area. There are so many other companies. Many of those experienced individuals decide to start their own business. So companies are competing for those talented employees' services. All those factors—professional specialization, competition and experience—are contributing to the current shortage.
:
Thank you very much, Mr. Chair. Thank you everyone for coming here today.
Following up on the conversation about the difficulty with the high-level talent. There is that limited pool, and they're very sought after. It does happen from time to time that someone will get snatched away at a critical moment in a project.
Jonathan Lutz from EA was commenting on it Monday. When you have certain high-level games, like a franchise game like NHL or FIFA where you have a specific calendar—or in Ubisoft's case, Assassin's Creed—you lose one of those high-level people and it can derail the entire project and potentially cost the company millions of dollars if they can't find someone to replace them in a very short period of time.
In a company like Ubisoft that operates around the world, they might have that talent located in one of their other offices that's elsewhere, not in Canada, but then they're having difficulty actually bringing that one person over at that critical juncture.
I just wanted to ask because there are some changes coming to the programs where employees might have to be employed for three years instead of one. Does Ubisoft see that as something that might help or hurt your ability to bring talent from elsewhere?
As Mike was saying, he had fun going to Quebec City. I got to go to Montreal last year, to the studio there, the fantastic things.... I mean the 3-D studio in particular. Ubisoft attracted 3-D design folks from Industrial Light & Magic, which is seen as the top of the industry.
It's just great to see the depth that's going on in gaming nowadays. For anybody who does play video games, it's incredible the level of detail and the depth of games nowadays, and how realistic they look and feel. That's something. Those are skills that are also transferable into other industries when you're looking at 3-D modelling, when you're looking at simulators, whether you're talking about aviation or others.
I'm going to move over to Jason now because the incubator effect...and you're part of a company now that helps to bring along small companies. Of course, we need to have a lot of start-ups and have a lot of entrepreneurs and have a lot of people developing games in order to continue to grow the industry, because you're going to have to have a lot of different companies before one of them actually breaks out.
How important is it that we actually foster that entrepreneurship and give the opportunities for new companies to form?
:
If we had a crystal ball, well, that would be a whole other story. I think what's interesting from the game industry point of view is that it's not just about technology. I really view games and the game industry through three lenses. One lens is technology, which is chips and hardware and all that kind of stuff, and the prediction is it'll be smaller, cheaper, and faster, just sort of an upward, Moore's Law type of trajectory.
Another filter or lens that I look through is the business lens. I think the game industry in particular has massive amounts of innovation with regard to business models. Following this discussion we were having about free games and so on, look at the movie industry, which has completely collapsed based on the shift that has occurred because of digital and online, whereas the game industry has embraced that and has created billion-dollar companies on the backs of those kinds of evolutions.
Then the other filter is from a design point of view, the design and cultural aesthetic. We are really at the forefront of human expression of interactivity, of immersion, and of telling stories through systems that you can play with. So it's not just about guns, race cars, and stuff, but there are games now that touch on a myriad of subjects, essentially, every element of the human condition. So to me the really interesting innovation comes from there. Think of where films were 100 years ago and what they meant to culture, humanity, and society, and we're on the cusp of that from a game point of view.
:
Thank you, Mr. Chairman.
I don't have a lot of hands-on experience playing these games myself, Mr. Chairman, but I do have a constituent, a local app developer, Red Barn Games, which recently launched What a Wonderful Word on the App Store. I may, for the purposes of research, investigate this. They're down in a very rural and farming community called Westmeath.
I guess you have as many four- to nine-letter words as possible, using jumbled letters and so on. They're actually selling this, as opposed to offering it for free and then charging more as you want to get it faster, such as we heard about in previous testimony.
We've heard a bit about the need for tax credits. In what ways can the government promote the video game industry in Canada, other than through tax incentives? Are there any barriers to new development?
I'll hear from each of the companies.
:
That's a very difficult question to answer with any degree of certainty. There's a great book, however, called the
The Innovator's Dilemma, that was written by a Harvard professor about 10 or 12 years ago. It has nothing to do with games. It's about innovation and technology.
The summary of The Innovator's Dilemma is that the very things you do to succeed today are the things that prevent you from succeeding tomorrow. It's your own success that blinds you to those shifts and disruptions that are occurring. The best way to counteract the innovator's dilemma is to have and support start-ups that are not encumbered by the rules of success of yesterday; that can explore and experiment and fail; that can become the new big thing. To the extent that all of the resources and all of the attention goes into supporting the current paradigm, we will be completely lost when the paradigm shifts.
Sorry for the cheesiness of “paradigm shift”, but I mean, it's true.
We have to balance supporting and extending and benefiting from the success that exists today by not being blind to the disruptions and all the things that are coming. The best way to do that is to not predict it but to let the market predict it by providing early-stage capital, by providing entrepreneurial opportunities, by supporting start-ups.
For all the success that Ubisoft has had, they're not necessarily going to be the ones who will discover the quasi new thing. It will be somebody else who just comes out of nowhere, who's not encumbered by the same budgets and constraints. They will find the next big thing.
That's true of everything, not just games. As a nation we have to be able to support that kind of exploration process. That's done more so at the start-up level, with early-stage funding and entrepreneurship. Tax breaks are not relevant to do that kind of exploration—
Mr. Jean-François Larose: At that level.
Mr. Jason Della Rocca: —at that level.
To our guests, thank you for your testimony thus far today. I must apologize that I missed the first hour. I'm sure it was scintillating. If I cover a bit of ground that's already been covered, please forgive me. It's my way to try to understand a little bit more.
I've decided, Chair, that this committee is all fun and games as a result of this.
The Chair: [Inaudible--Editor]
Mr. Ed Holder: It is.
We have two very different types of organizations, and I'm trying to understand a little bit more. I'd like to go back and forth, if you'll allow me, so that I can understand better.
Mr. Della Rocca, according to what I've read about your organization, Execution Labs—“execution” is an interesting word—you're a hybrid game incubator and a go-to-market accelerator. You probably already covered this in your opening comments, but perhaps in just a line or two you could tell me exactly what that means.
:
Just on a quick note, some of you have mentioned visiting different studios and such. If any of you are in Montreal, by all means you're welcome to look up and visit Execution Labs and see our workspace.
Also to the clerk, I can make an introduction to GRAND, which a few of the members were quite interested in learning about.
Games are an amazing business, an amazing art form, and really it is rare that we have the opportunity to witness the creation of a new art form, of a new form of human expression. Games in many ways will become the most dominate art form of the 21st century—it's considered by some that they already are.
Canada does have a leadership role today, and I certainly hope that we can all work together, industry, academia, and government, to ensure that's the case.
It is a complex industry. It's exciting. There's a lot of stuff going on. There are no magic bullets. There's no one solution that is going to fix everything, and it does require understanding the space and understanding the economics. I think it's wonderful that you're asking us from the industry to provide input and insight, and I'm honoured that I've had the chance to do so.
Thank you.