It is the one piece of good news that stands out in an otherwise grim Quebec fall. Video game developer Ubisoft Entertainment SA will invest $373-million over seven years and create 500 positions in Montreal.
In a province that added a dismal 5,000 jobs in the past year, this private investment provides some comfort. But the change in fortune has a price for taxpayers, and it is not cheap.
The Parti Québécois government is extending its already generous aid to the video game industry. The payroll tax credits, which can reach 37.5 per cent of an employee’s salary if the title that he or she is working on is also offered in French, are no longer limited in time. Quebec used to wean video game producers off the tax break three years after a title was released.
This is a reflection of a trend that is changing the video game industry’s business model. Cheap or free online games that cater to a community of players are increasingly popular, be they one-hit wonders by independent producers or spinoffs of big gaming franchises. But video game producers need to use the insight they gain from players’ every moves to tweak their games on an ongoing basis. With this constant update, they can maintain the players’ interest and trigger so-called micro-transactions within the game. As the small transactions add up, the big money is made.
This trend also explains why Quebec is extending its tax credit to the new trades of the game: community and network management specialists, business intelligence analysts, mathematicians and the like.
It is only fitting that Ubisoft would be the first company to profit from these new rules. In Quebec, the French multinational is the one that got the ball rolling in 1997. Its lobbyist, the late Sylvain Vaugeois, convinced then Finance Minister Bernard Landry to grant Ubisoft generous tax credits in a bid to transform the province’s traditional manufacturing base into a creative economy. But local companies who envied the deal protested loudly, so the PQ bought peace by offering incentives to all the Quebec-based producers that qualified.
The program proved wildly successful, and even the Liberals, who had denounced it while in Opposition, kept it when they arrived in power, even if they reduced the scale of the payroll tax credit in 2003.
The video game industry now employs 7,400 people in the Montreal area, according to TechnoCompétences – Ubisoft alone accounts for over a third of them. When other Quebec studios are factored in, the province employs half of the Canadian video-game industry, which gave work to 16,500 people in 2011, according to a survey by Nordicity for the Entertainment Software Association of Canada. These workers, a little over 30 years old on average, earn around $72,000 per year.
There is one drawback, however. Quebec’s success has fuelled the video game’s arms race. Provinces such as Ontario, American states, as well as European countries, like the United Kingdom namely, have sweetened their financial aid in recent years to attract these highly qualified, high-paying jobs. And the province has responded in kind.
One can only congratulate the Quebec government for staying on top of the latest industry developments. According to Denis Langelier, media and entertainment tax practice leader at PricewaterhouseCoopers, no other province has been as amendable, even if some video game producers complain that Quebec bureaucrats are too finicky in the way they administer the incentives on a daily basis.
But at the same time, one cannot help but wonder how far the province will go to nurture its video game industry.
The current program cost taxpayers $128-million in Quebec’s last fiscal year. And from now onward, with the exception of the people who help with distribution, anybody who just so much as touches a video game will earn a subsidized salary, for as long as they are employed on that game. How much will this end up costing Quebec taxpayers? At Monday’s press conference, none of the ministers present were able to provide a figure or a cost-benefit analysis.
And that is ignoring the direct subsidies that Quebec started throwing like a bunch of cherries on top of the cake. Ubisoft, which declared a net income of €66-million in its 2013 fiscal year on sales of €1.26-billion, received a $9.9-million subsidy this time around.
If only Quebec were in good financial shape. The latest figure released Friday indicates that the province’s deficit has reached $1.8-billion in its first trimester. Despite the PQ’s promises, balancing the books for the year now looks elusive.
At some point for the gaming industry, having a critical mass of schools, great talent and studios in a single city with affordable rent should be worth something. At some point for Quebec, enough should be enough.