Jason Bailey, East Side Games | BCBusiness

Jason Bailey, East Side Games | BCBusiness
Jason Bailey sees Vancouver losing in the competition for developer talent.

B.C. is losing out in the battle for game developers.

B.C. is playing a high-stakes game against Ontario and Quebec. The winner gets thousands of high-paying jobs and the losers suffer a costly brain drain that promises to hurt long-term economic development. This game is all about making games, and so far B.C. is losing badly.

According to the Digital Media and Wireless Association of B.C. (DigiBC), the game-development industry in the province has lost approximately 1,400 jobs to studio closures and downsizing in recent years. In the summer of 2012, four major game studios announced either closures or significant cutbacks. The biggest, Rockstar Vancouver, which at one time boasted a head count of 75, merged with Rockstar Toronto in July, moving some of its top talent to an expanded Oakville, Ontario, studio. This follows the shuttering of Ubisoft Vancouver earlier this year, and layoffs at EA Canada’s Burnaby mega-studio dating back to 2009.

One reason for the shrinking industry is a global shift in demand, from complex console games to mobile games requiring just a handful of programmers. But here in B.C., two additional factors are at play: taxes and talent. Nik Palmer, who founded Action Pants Games, the studio that later became Ubisoft Vancouver, explains that the talent follows the money: “There’s obviously a financial incentive somewhere else,” he observes, “and there’s a movement of skill set to somewhere else. You want to be where the skill set is, and that used to be in Vancouver.”

The financial incentives Palmer refers to are tax credits. Many Canadian video-game developers benefit from the federal Scientific Research and Experimental Development Tax Incentive Program (SRED), which lets qualifying companies claim about 35 per cent of “qualified expenditures” as a tax credit. But the provinces sweeten the deal for the video-game industry with additional credits against provincial taxes. Ontario offers a 40-per-cent credit, and Quebec offers 37.5 per cent, with more available if language criteria are met. B.C. lags at 17.5 per cent.

The frightening problem for Vancouver’s game industry is that talent and taxes are intrinsically linked. The expenditures for which the tax credits are claimed consist almost entirely of people, since a video-game company’s costs are designers and engineers, not equipment or space. Vancouver originally attracted this industry because the talent was here, but now the engineers and designers are following the jobs to Montreal and Toronto.

Jason Bailey followed in Palmer’s footsteps, founding Gastown’s East Side Games in July 2011. The 50-person studio eschewed the shrinking console-game market to focus on mobile and social games, becoming Canada’s largest “indie” studio in less than a year. As for the competition, “they’re winning. They’re kicking our ass when it comes to being the place to be to work at a game company in Canada,” he says, referring to Montreal, where Ubisoft has built one of the largest standalone studios in the world, with 2,100 employees – more than twice the size of the 800-and-shrinking EA.

The obvious way for Vancouver to stop this contraction is to match the incentives offered by Ontario and Quebec. But that doesn’t look likely, at least not under the current Liberal government. Pat Bell, B.C.’s Minister of Jobs, Tourism and Innovation, has argued that the province starts to see diminishing returns when tax credits exceed 20 per cent. Minister of Finance Kevin Falcon agrees, and there’s evidence that they’re right. North American cities have a long history of “smokestack chasing,” and the consensus among economists is that the competition leaves everyone but the overfed industry losing in the long term.

Battling point-for-percentage-point with Ontario and Quebec may not even be necessary, though, says industry veteran Matt Toner. At the time of writing, Toner was seeking the provincial NDP nomination in False Creek, partially on a platform of supporting what he calls “the innovation industry.” He thinks that Vancouver has enough going for it that the tide can be turned by at least making a gesture to show digital media companies that B.C. isn’t indifferent to their needs. “B.C. has a lot of good factors here, but right now the numbers are too far apart,” he says, “so we have to close that gap enough that these other great factors kick in: universities, talent base, reputation, lifestyle.”

The consensus among Vancouver game-industry insiders is that all is not lost. East Side Games is an example of the opportunity that remains here. And the province doesn’t necessarily have to perpetuate the tax-break war by promising to match breaks offered in Ontario and Quebec. “It doesn’t have to match,” says Palmer; “it may be that there’s a different strategy. But what it needs is a strategy.” The worst thing the B.C. government can do right now is nothing.