Tax credit cuts could rattle future of Quebec gaming industry

The city’s second largest video game studio, Eidos-Montréal, say they have found a way to reduce production costs and wean themselves off of tax credits from the Quebec government.

“Tax credits are very useful and allow us to be competitive but last year, I decided the studio should focus on efficiency and stop looking at the tax credit to survive,” said Eidos-Montréal studio head David Anfossi.

“So we decided to adopt a new way to produce games, to be more efficient and competitive and to make sure that, at some point if no tax credits are available, we can survive and be in good condition.”

Anfossi won’t divulge his whole business strategy but says, instead of building developing each game from scratch for a new edition, he focuses the team's efforts on new content, new characters and new story lines.  

That allows Eidos-Montréal to develop a new edition with a maximum of 200 developers, compared to other studios, who use as many as 800.  

Fewer developers mean fewer salaries to pay and less reliance on the tax credit which subsidizes salaries in the industry.

Anfossi says the business model is working: Eidos-Montréal has already seen the costs of the current development of its game Deus Ex: Universe drop by 25 per cent. 

The Eidos-Montréal example is interesting in the context of the recent decision by the Quebec government to cut tax credits by 20 per cent as of the end of August and the subsequent push back from the game industry.

Quebec’s long-running tax credit program for gaming and film studios has lured dozens of game producers to the province, creating thousands of jobs.

The tax credits were considered to be among the most substantial the world, covering up to 37 per cent of labour costs.

But an across-the-board belt tightening on business tax credits announced in the June 4 provincial budget meant that the industry was no longer immune to sector-specific cuts. 

Deal for Ubisoft and Warner Bros. through 2019

Not all game producers are as optimistic as Eidos when it comes to surviving without government help.

Warner Brothers Games Montreal vice-president Martin Carrier said that when the company was deciding if it should invest in Montreal in 2010, they “asked the government to have some guarantees over a certain amount of time – and the same is true with our colleagues at Ubisoft – that we thought were necessary as we were on the verge making a major, major investment.”

So far, through negotiations with Quebec’s finance ministry, Carrier has convinced the government to keep the tax credit for Warner and Ubisoft at the current level through 2019.  

The Minister of Finance's office confirmed that agreement was in place, adding that it is contingent on job creation and will be closely monitored.

Carrier says the agreement means Warner and Ubisoft will face the same tax credit reduction as others in the industry, but will be compensated for the difference for next few years.

Carrier says he’ll continue talks with the ministry over the summer.  

The government is holding hearings on the tax credit reductions this fall.  

Capital needed, not tax credits, developer says

Guillaume Provost says it’s time to think beyond tax credits.

A graduate of St. Stanislas College who started developing games at age 17, Provost now runs the independent studio Compulsion Games, which recently received 10 nominations at the Canadian Videogame Awards for its game, Contrast.

He said the industry has moved beyond the point where it needs government help to lure in the best and brightest.

“Tax credits were important 15 years ago to attract the industry to Montreal,” he said.  

“Now we have a wide talent pool of game developers,but it’s very difficult for an emerging company to get access to capital.” 

Provost thinks it’s in the government’s interest to help companies like Compulsion because more of the revenue from sales stays in Quebec.