Ontario's push to become special-effects power centre

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After graduating from Toronto's Academy of Design, Edward Taylor was recruited by California's Industrial Light & Magic, the grand daddy of visual effects companies, to do computer graphics work on Hollywood blockbusters such as Star Wars: Episode 1 with George Lucas.

But after living in the U.S. for more than a decade and working on a trio of "man" films - Spider-Man, Hollow Man, Superman - he missed his family in Oshawa, Ont., and Canada in general. "I wanted to move back to Toronto for a long time but found there wasn't a stable or sizable company to come back to," he said. "That was really frustrating."

Then he heard about Mr. X, a visual effects studio in Toronto, which recently snagged big contracts for post-production work on movies such as Tron: Legacy and The Three Musketeers. After careful consideration, Mr. Taylor took a job there this summer, feeling for the first time that he can work on cutting-edge projects in his home province. "Now Toronto is on the map," he said.

In fact, all of Ontario is. For years Vancouver and Montreal were Canada's visual effects and gaming hot spots, but the country's most populous province is now pushing to replace them as the engine of Canada's digital entertainment economy.

Other provinces are pushing back, leading to a spiralling increase in government incentives aimed at attracting game developers and animation studios, and growing questions about how far governments should go in offering inducements to lure the sector.

Ontario's tax credits and digital media incentives can cut costs for studios by as much as 60 per cent, according to a report put out by the federal government's Invest in Canada initiative. In special circumstances the provincial government will shell out even bigger sums, as it did in July, 2009, when it put up $263-million to convince Ubisoft, the French gaming behemoth, to expand in Ontario.

Other provinces aren't backing down. This past week, British Columbia introduced a tax credit for 17.5 per cent of the labour costs involved in developing digital games. Prince Edward Island is going so far as to subsidize office costs for digital-entertainment firms that set up shop in province. Quebec has a long-standing tradition of offering generous tax incentives to multimedia developers. Manitoba and Nova Scotia also lavish tax credits on the sector.

John Allan, a fellow at Queen's University's Institute of Intergovernmental Relations and a former director of tax policy with the federal government, doesn't see any early end to the interprovincial competition for well-paid digital-entertainment jobs. "If there's a jurisdiction that doesn't have a competitive regime, it is not going to attract the economic activity."

Chris Locke, senior director of product development at Capcom Interactive Canada, a mobile game developer whose parent company is based in Japan, knows first hand about the effects of tax credits. In 2006 his firm acquired Cosmic Infinity, a games developer in Burlington, Ont., lured in part by a tax break on labour costs.

He acknowledges that there are concerns about throwing lump sums at big firms to convince them to locate in the province, but thinks it is too early to make any judgments. "My hope is that [the industry]will kind of feed on itself," he said. "You'll get more experienced people moving to Toronto and other big firms will relocate."

That could cause problems for other provinces. Catherine Winder, president of Rainmaker Entertainment Inc., an animation studio in Vancouver, worries about a shortage of talent. "It's not that huge a pool yet," she said. But she hopes that in the long run a strong national presence, boosted by new Vancouver studios for Pixar, Sony ImageWorks and Digital Domain, will help lure international personnel.

Given Canada's intense internal competition, Ontario representatives have been on the promotional circuit, attending conferences in Germany and San Francisco in a bid to attract digital games developers and animation studios to the province.

Their biggest selling point is Ontario's home-grown talent. "The educational infrastructure has been extremely well developed, " said Gerald Pisarzowski, a vice-president with the Greater Toronto Marketing Alliance. Because Toronto has so many animation programs at schools such as Sheridan College, Humber College, Seneca College and the privately owned Academy of Design, "we've been a net exporter of talent, particularly into the U.S," he said.

Ontario's downside? Costs, even after the tax breaks are factored in. The federal government's report found Toronto has the highest operating costs in Canada, even higher than some U.S. cities such as Austin, Tex.

Mr. Locke thinks the city's global appeal makes up for the cost. "It's a cosmopolitan world city, " he said. "You've never got an issue inviting foreigners or business executives."

Ontario isn't starting from scratch in attracting digital talent. Silicon Knights, which just made Too Human for Microsoft's Xbox 360, has been in St. Catharines, Ont., since 1992, and video game developer Digital Extremes started in London, Ont., a year later. Animation programs such as Autodesk Maya and Houdini were developed in Toronto.

But unlike the big players that dominate the industry in Vancouver and Montreal, Ontario's studios are usually smaller, typically ranging from 50 to 150 people in size. Many tend to specialize in niches as specific as how hair moves or how water flows in video games.

Scott Simpson, president and chief executive officer of Ottawa-based software developer bitHeads, says the hope is that Ontario studios can build on Toronto's reputation as the Hollywood of the North and make a specialty of developing movie-related games. "It's very compelling to say that we can actually make the movie here and make the game at the same time."

Key Players

Now that Ontario is pushing to become a major player in Canada's digital entertainment economy, the competition across provinces is heating up. Popular names in the current landscape already include:

Vancouver Region:

Electronic Arts Canada

Pixar

Rainmaker Entertainment Inc.

Montreal:

Ubisoft Entertainment SA

Gameloft Canada

Artificial Mind & Movement (A2M)

Ontario:

Mr. X Inc.

Starz Animation

Silicon Knights

Why they're in the game

The provinces are vying for market share because they see growth potential in the sector. In 2008, Canadian video game development, just one tenant of the digital economy, contributed:

$1.7-billion in game developer revenue

$2.2-billion in retail sales

14,000 jobs

Source: Entertainment Software Association of Canada