How subsidies helped Montreal become "the Hollywood of video games"

[peekay]

 

https://www.npr.org/sections/money/2022/01/04/1068916102/how-subsidies-helped-montreal-become-the-hollywood-of-video-games

 

 

How subsidies helped Montreal become "the Hollywood of video games"

 

January 4, 20226:31 AM ET

COREY BRIDGES

 

Genshin Impact is an award-winning role-playing game created by Chinese video game developer miHoYo. A year after its September 2020 release, the game managed to amass a total revenue of more than $2 billion. That kind of revenue makes Genshin Impact one of the most profitable video game releases ever and easily miHoYo's most successful project in the company's nine-year history.

After seeing such success, it was only natural for the company to expand. The question for miHoYo was: where to go? That question was answered in November when the Chinese developer announced they were setting their sights on the west and establishing an office in Montreal, Canada.

At first glance, this may seem a little odd. Montreal? Why not Tokyo or San Francisco or other cities that have traditionally dominated the tech industry? However, over the past few decades, Montreal has arisen as one of the most attractive cities for video game developers. So attractive that Montreal's economic development agency, Montreal International, estimates that, as of 2021, more than 200 studios have set up shop there.

The secret to Montreal's success? Tax credits. The province of Quebec — of which Montreal is the largest city — attracts multimedia companies by offering them subsidies for employing people in the province. Quebec taxpayers pay a large percentage of the salaries of local multimedia workers. These subsidies have undoubtedly helped Montreal become a leading hub for video game development; however, Quebec may have created a system that will perpetually rely on taxpayer dollars to maintain this position.

The lobbyist who helped launch Montreal's video game industry

Montreal's rise as a video game capital can be traced back to the early 1990s. Its chief industries at the time — textiles and manufacturing — were declining. The city was hemorrhaging jobs. Officials in Quebec wanted to develop a plan to reverse this trend.

Enter Sylvain Vaugeois, a politically connected consultant and lobbyist in Quebec. One publication described him as an "iconoclastic entrepreneur with a cocaine addiction." Vaugeois devised a plan that he believed would strengthen the multimedia industry in Montreal. His idea, known as Plan Mercure, was to provide tax credits to a large video game company willing to establish an office in Montreal. More specifically, government investment of up to CA$25,000 per employee every year for five years of employment with a company located in the city.

The provincial government in Quebec at first refused to support this plan because they viewed it as an unnecessary and large burden on local taxpayers. Vaugeois brushed the rejection aside and sought out a potential suitor on his own accord. He traveled to Paris and arranged a meeting with the French video game company Ubisoft, which is behind the popular Rayman series.

Executives at Ubisoft were already moving to expand globally after their IPO in 1996. Establishing a studio in Quebec was particularly interesting to Ubisoft because of the province's predominantly French-speaking population and its proximity to the large U.S. gaming market. So when Vaugeois — ignoring the fact that Quebec had just rejected his plan — proposed his tax subsidy idea to Ubisoft, the gaming company quickly sent out exploratory representatives to Montreal, assuming that the government had already made a deal.

Ubisoft was shocked when they arrived in Montreal and learned that the government did not approve these subsidies. A crisis of confusion ensued, and Ubisoft began to consider establishing a studio somewhere else. When news of this broke, the local media was not kind to the Quebec government. Hundreds of new jobs were on the line.

Meanwhile, other places in North America began trying to lure Ubisoft. And Quebec leaders were faced with a decision: give Ubisoft the taxpayer money that Vaugeois had proposed or risk losing their shot at gaining hundreds of new tech jobs and growing the city's multimedia industry. Quebec and Ubisoft began a long process of negotiations that ultimately led to an agreement that amounted to CA$25,000 in subsidies per employee for 500 Ubisoft employees over five years, as was originally devised in Vaugeois's Plan Mercure. Unlike the original plan, however, Quebec now provided Ubisoft CA$15,000 per employee and, with some prodding, the province convinced the federal government to pitch in an additional CA$10,000 per employee.

But this generous deal only applied to Ubisoft, and other companies protested the favoritism shown to one company. So, in 1996, Quebec officially established a new tax credit called "Crédit d'impôt remboursable pour la production de titres multimédias," or the Refundable tax credit for the production of multimedia titles. The credit covers a maximum of 37.5% of eligible labor expenditures if a multimedia title is available in French and up to 30% if a title is not. In 2021, the multimedia tax credit cost Quebec an estimated CA$253 million.

An enduring system?

The generous government support for multimedia companies helped Quebec establish itself as what's been called the "Hollywood of Video Games." Ubisoft Montreal is now Ubisoft's largest studio and one of the largest video game production studios globally, with more than 4,000 employees. Just last year, Amazon Games, Quantic Dream, and the previously mentioned miHoYo all announced plans to set up studios in the city.

But the policy of subsidizing multimedia companies has had its share of critics. Those critics often argue that the tax credit mainly helps foreign corporations, which come in and set up satellite offices to take advantage of generous taxpayer support. Labor activists accuse the gaming companies of treating many workers poorly. Even more, critics argue, the subsidies are distortionary, arbitrarily giving multimedia companies an unfair advantage in recruiting local talent. Local tech companies complain they're having a hard time recruiting skilled workers because so many of them are going to work for the subsidized multimedia sector.

Supporters of the subsidies respond that the policy attracts employers from around the world and creates thousands of great jobs that wouldn't otherwise be created in Quebec. Those workers pay taxes and spend their paychecks at local businesses, which makes Quebec's economy stronger. In 2017, a spokesperson for the Quebec government told The Gazette that the multimedia sector creates so much economic activity that "the tax revenue for the government of Quebec generated by the sector is greater than the expenditure related to the tax credit."

The tax subsidies may be distortionary, giving an arbitrary advantage to one industry over others. But, at the same time, they seem to have worked in helping to establish Montreal as a video game hub. Over the past couple of decades, a whole gaming ecosystem has sprouted up around the city. Local universities now have programs dedicated to game development (Concordia University, for example, has an official partnership with Ubisoft to provide a course on game design). This offers a consistent local talent pipeline to the more than 200 studios with roots in Montreal, and it may draw more game developers to the city. Game executives often cite Quebec as having the most attractive combination of labor subsidies, a specialized workforce, and a thriving ecosystem of like-minded gaming entrepreneurs and vendors.

With this ecosystem now thriving in Quebec, the natural question is whether the government can begin scaling back its generous subsidy program. Quebec tried to do this back in 2014, amidst a broader effort to reduce spending and balance its budget. Policymakers wanted to cut the multimedia tax credit by 20%. But even this relatively modest proposal faced a swift backlash from gaming studios. Some studios — including Ubisoft — threatened they'd leave the city. Quebec ended up backing down. The tax bill on creating video games in the province has ballooned even more since then. It seems the "Hollywood of Video Games" may continue to be built on a foundation of generous taxpayer support.

[Né entre les rapides]

il y a 40 minutes, peekay a dit :

How subsidies helped Montreal become "the Hollywood of video games"

(full text quoted by @peekay above) 

 

I have had similar questions all along, with still no definitive answers.  What is certain is that the City of Montreal has benefitted from this support; the Rest of the Province?  -- Not directly, but perhaps, just perhaps, yes on a net basis, given the improved prosperity of Montreal.   The federal government as a tax collector: definitely.  

The lingering question: to what extent is this industry footloose ?  The fixed (immovable physical investments) are insignificant, unlike for example a steel mill or an oil refinery.  But what about the employees,  and what about the "whole gaming ecosystem"?  These cannot all be moved indifferently somewhere else.  These non monetary advantages, which were built up gradually, most certainly have an intrinsic value,  sufficient, to a certain extent, to counterbalance hypothetical superior monetary incentives that could be offered in other jurisdictions having no comparable ecosystems  -- in other words: by how much could the current level of subsidies be lowered without seriously compromising Montreal's prominent position?    

Don't just  ask the companies only.  Also ask the employees.  After all, this is an industry where human resources are by far the single most important factor.  In the financial industry, New York City and London, to name a few, occupy the top positions not because they are cheap (quite the opposite), but because of their dominant ecosystem of global firms and top edged specialists.

Maintaining Montreal's position while lowering the fiscal cost involves treading a thin line.  Which leaders can rise to the challenge?  (and don't do this on the eve of an election).  

[KOOL]

Thanks Peekay, article super intéressant et détaillé. 👍

[peekay]

On 2022-01-05 at 1:26 AM, Né entre les rapides said:

(full text quoted by @peekay above) 

 

I have had similar questions all along, with still no definitive answers.  What is certain is that the City of Montreal has benefitted from this support; the Rest of the Province?  -- Not directly, but perhaps, just perhaps, yes on a net basis, given the improved prosperity of Montreal.   The federal government as a tax collector: definitely.  

The lingering question: to what extent is this industry footloose ?  The fixed (immovable physical investments) are insignificant, unlike for example a steel mill or an oil refinery.  But what about the employees,  and what about the "whole gaming ecosystem"?  These cannot all be moved indifferently somewhere else.  These non monetary advantages, which were built up gradually, most certainly have an intrinsic value,  sufficient, to a certain extent, to counterbalance hypothetical superior monetary incentives that could be offered in other jurisdictions having no comparable ecosystems  -- in other words: by how much could the current level of subsidies be lowered without seriously compromising Montreal's prominent position?    

Don't just  ask the companies only.  Also ask the employees.  After all, this is an industry where human resources are by far the single most important factor.  In the financial industry, New York City and London, to name a few, occupy the top positions not because they are cheap (quite the opposite), but because of their dominant ecosystem of global firms and top edged specialists.

Maintaining Montreal's position while lowering the fiscal cost involves treading a thin line.  Which leaders can rise to the challenge?  (and don't do this on the eve of an election).  

These are all relevant points and questions. I am sure it is beneficial to the city to have all those employees establishing here and paying their living expenses here even if part of that money is paid for by the province.

A curious question I have:

It was Bernard Landry and the PQ government that gave their blessing to this project. I assume CAQ will not change it. How do they feel about all those studios setting up shop here, knowing they take advantage of a loop hole in bill 101 where French predominance at the workplace over 50 employees must apply.

The vast majority of those companies are small studios that only hire 49 people because of this law. The rest could easily claim that their main clientele is international so the rules do not apply. I would argue that these same companies are the main contribution to the problem of the decline of the usage of French in the core city.  Kind of ironic that the PQ government created this issue.

[jesseps]

So, what's the problem? Are the Americans going to put tariffs on video games produced in Canada now, LOL

[Né entre les rapides]

il y a 12 minutes, peekay a dit :

These are all relevant points and questions. I am sure it is beneficial to the city to have all those employees establishing here and paying their living expenses here even if part of that money is paid for by the province.

A curious question I have:

It was Bernard Landry and the PQ government that gave their blessing to this project. I assume CAQ will not change it. How do they feel about all those studios setting up shop here, knowing they take advantage of a loop hole in bill 101 where French predominance at the workplace over 50 employees must apply.

The vast majority of those companies are small studios that only hire 49 people because of this law. The rest could easily claim that their main clientele is international so the rules do not apply. I would argue that these same companies are the main contribution to the problem of the decline of the usage of French in the core city.  Kind of ironic that the PQ government created this issue.

I find your question to be rather more serious than merely curious.  I shall not be expected to provide a full proof answer, but just my own take  on this matter.

The Parti Québécois (PQ), like other mainstream political parties, is a coalition of individuals and groups sharing some (more or less) converging interests.  For some, the primacy of the French language was and/or remains the  most important; for some others it is political independence (or somewhat less radical versions of it); and for others, it is economic strength and prosperity.  In the first two elections (in 1970 and 1973), the PQ attracted a fair number of electors for which language was the paramount issue, along with "social' issues; unfortunately for them, they only won six, and then five seats at the National Assembly.  Then, as you know, they won the 1976 elections, probably aided by the fatigue of the Liberal government under Robert Bourassa.  Bill 101 (on language)  was one of their first major initiatives.  An exodus of Anglophones and Montreal-based headquarters of Canadian companies followed.  A little later, the economic consequences of the restrictive monetary policy conducted in the US hit the Quebec economy very hard. 

I believe that this paved the way for a renewed focus on the economy  -- and the policies and programs aiming at reviving it, albeit in a context which was vastly different from the days when Montreal was still Canada's metropolis.  New industries would have to emerge.  Compromises over the language issue might have to be made, at least for a time.  -- That's my take. 

[Rantanplan]

C'est pareil incroyable qu'on est les seuls sur cette planète à se faire reprocher notre langue et qu'on serait tellement pauvre sans l'anglais. L'Allemagne, le japon, le Danemark, l'Italie etc pour en nommer que quelques un ne se font jamais reprocher de parler leur langues sur leur lieux de travail.  Le multiculturalisme canadien est cool tant que tu parle anglais 🤪 btw je suis dans le monde du jeu vidéo, dans toute les compagnies que j'ai travaillé on est 85% de francophones, mais on doit parler absolument anglais, c'est d'une tristesse.