Canada’s video game industry takes a hit
Programs that could have helped power through global challenges are drying up.
First announced in last year’s budget, Quebec has begun scaling back a tax credit video game companies could use to cover 37.5% of employee salaries, which will hit 27.5% by 2028. And local developers are none too pleased.
The credit now seems to be geared towards attracting executive talent instead of building up entry-level staff. Lower portions of salary are no longer covered, and a cap on how much of an employee’s salary is eligible has been removed.
That is more likely to benefit big, international studios, rather than home-grown ones getting off the ground.
Elsewhere, Alberta reportedly shelved plans to reinstate a similar credit it had scrapped back in 2019.
Background: A lot of major game studios have Canadian offices, and while some serve support roles for bigger locations or work on relatively unknown games, others are major players. Ubisoft’s biggest studio is in Montréal, producing series like Assassin’s Creed, Far Cry, and Rainbow Six. Edmonton’s BioWare makes Mass Effect and Dragon Age. EA Vancouver produces some of the company’s most popular sports series, namely NHL and FC (formerly FIFA).
Canada’s contribution to the $400 billion-plus global video game industry is nearly entirely in development. In markets like the U.S., Japan, and China, they are also designing and producing things like components for consoles and PCs, accessories, controllers, monitors, and the discs/SD cards games are stored on.
Big picture: Globally, the economics of video game development are in a precarious place, leading to numerous layoffs and company closures over the last two years. Big budget “AAA” games have more impressive graphics, expansive worlds, and intricate gameplay possibilities than ever, but that has made them incredibly expensive to make. Studios have to shoulder costs that put Hollywood blockbusters to shame for years before they pay off — and that’s assuming that their game doesn’t flop. Tax credits are one thing that makes those costs easier to carry.
One of the biggest PR hits Microsoft took last year was shutting down numerous studios that it had spent years acquiring, including several in Canada.
According to the Entertainment Software Association of Canada, 78 Canadian video companies closed between 2020-21 and 2023-24. The number of full-time jobs also dropped by 1,250, or 3.5%.
Small picture: Games made by independent studios are faring better than ever. Digital storefronts have not only made the logistics of distribution easier to handle, but made games easier to discover by would-be fans (not to mention a growing media network of podcasts, websites, and social accounts giving little guys a chance).
Canadian indie games that have achieved a level of prestige and/or a cult following include Celeste, Cuphead, 1000xResist, Nobody Saves the World, and Rogue Legacy.
Balatro, developed by a single anonymous developer in Saskatchewan, was a surprise hit last year, and downloads surged further after it picked up nominations at the Game Awards.
But indie games are not without their own challenges. Exposure is easier to get, but a flood of new developers also means it is harder to stand out. Unlike other tech sectors, video games don’t have a strong culture of venture funding, so developers who want to turn a passion project into a working company have to go for more traditional investment and loans to slowly build up staff — again, the kind of thing a tax credit geared towards entry-level talent could theoretically help with.
On the other hand: The moves in Quebec and Alberta might not send game development out of Canada — it could just go to other provinces. This month, British Columbia boosted its Interactive Digital Media Tax Credit from 17.5% to 25%. Ontario’s Interactive Digital Media Tax Credit covers 40% of wages (plus certain marketing expenses), while similar funds exist in Manitoba, Newfoundland and Labrador, and Nova Scotia.