Game over, man
Canada's video game studios lose a power-up; CoreWeave's IPO could be the AI industry's nightmare.
Hello. For over a decade, Troy Hunt has operated Have I Been Pwned?, a website where people can enter their email to see if their data has been leaked in any known security breaches. He also publishes a regular blog/newsletter with personal cybersecurity advice.
Well, Hunt’s mailing list was compromised after he fell for a phishing attack. And while he admittedly feels foolish, if anything, this reinforces the best practices he regularly preaches — he says tiredness caused him to be less alert and not follow much of his own advice.
So if you ever get hacked and feel stupid about it, just remember: even the best meet their match eventually.
CONSUMER TECH
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.
IN OTHER NEWS
My Neighbor ChatGPT. OpenAI upgraded ChatGPT’s image generation with the GPT-4o model, but as you can see above, it still has trouble knowing how many fingers to put on a hand. People have been highlighting the copyright issues inherent in these kinds of tools by generating images in the style of The Muppets, Dr. Suess, and Studio Ghibli — the latter of which references the time founder and legendary animator Hayao Miyazaki called an AI demo an “insult to life.” (TechCrunch)
Italy hits Meta, X, and LinkedIn with hefty, precedent-setting tax bills. Italy is asking Meta to pay €887.6 million, with X getting charged €12.5 million and LinkedIn €140 million. This would be a pilot case claiming that social media sign-ups should be subject to value-added taxes in Europe, with Italian authorities arguing they count as a transaction — a membership in exchange for a user's personal data. (Reuters)
The Atlantic publishes Signal attack plan group chat. The outlet decided to publish the full chats that accidentally exposed plans for an attack in Yemen to its editor-in-chief after Trump administration officials spent days downplaying the severity of the leak and claiming no confidential information was shared. (The Atlantic)
Seriously, delete your 23andMe data while you still can. After filing for Chapter 11 bankruptcy, the company’s assets — including the genetic data and test samples from its customers — could be sold off. If you don’t want that in the hands of the highest bidder, here are some instructions on how to wipe it from existence. (TechCrunch)
ARTIFICIAL INTELLIGENCE
Why everyone is watching CoreWeave (nervously)
Billions in debt and waning demand? What could go wrong!
AI infrastructure company CoreWeave is expected to make its initial public offering on Friday. The company is expected to price its shares somewhere between $47 to $55, raising a total of up to $2.7 billion and valuing the company around $26.5 billion.
The IPO market has been ice cold, so there aren’t a lot of great comparisons, but Reddit priced its shares at $34 when it went public last year, valuing it at $6.4 billion. Cybersecurity firm Rubrik was priced at $32 for a $5.6 billion valuation.
Background: CoreWeave began as a crypto mining company called Atlantic Crypto in 2017. After the 2018 crypto crash, it pivoted, using its data centres and stock of GPUs — including many soon-to-be highly sought-after ones from Nvidia — to provide other companies with computing power, which would be in high demand as AI training took off in the subsequent years.
CoreWeave now boasts over 250,000 Nvidia GPUs, giving it the biggest stock that isn’t owned by one of the Big Tech companies.
Why it matters: As the first IPO from a significant AI company, CoreWeave is being considered a litmus test for how other startups born out of the AI boom could fare. But as the company has made the customary financial disclosures, more people are starting to think that CoreWeave is actually going to test if the markets can stomach a company that represents the albatross hanging off the AI boom: overspending, huge debt burdens, and uncertain prospects for future revenue.
The red flag: According to its filings, the company currently has $8 billion in debt, with some analysts suspecting there may be even more off the books. Those came from hefty loans it took out at interest rates of up to 14% to build out data centres. Interest payments on those loans could reach as high as $2 billion annually by the end of next year.
Given that CoreWeave lost $863 million last year despite bringing in $2 billion in revenue, there is very reasonable concern that the company could default.
Technically, it already did, though not due to a missed payment. CoreWeave breached terms when it mistakenly used a loan that was to be exclusively spent in the U.S. to expand in Europe, leading it to ask lender Blackstone to amend the terms of the deal.
This debt could also hit CoreWeave’s demand. Like any piece of technology, GPUs are a depreciating asset — their value goes down over time when Nvidia and other chipmakers are develop new, more powerful chips. With its debt load and balance sheet, CoreWeave is not in a great place to invest in the hardware clients are going to want.
The other red flag: Even without that debt, CoreWeave’s sales prospects put it on shaky ground. That nearly $30 billion valuation means it would expect to grow revenue at a 30% annualized rate for seven years. That seems…ambitious for the best company, let alone one in CoreWeave’s position. CoreWeave’s filings showed that upwards of 60% of its revenue comes from a single customer: Microsoft.
New analysis published yesterday suggests Microsoft has been walking away from more data centre expansion projects after already reportedly pulling out of contracts with CoreWeave.
A few months ago, betting on AI infrastructure demand might not have seemed like a bad idea — even AI skeptics would recognize that companies were willing to pump cash into the industry, especially if you were selling computing power. But things changed with DeepSeek putting the need for buying all these chips into question.
It’s not just Microsoft. Chinese tech giant Tencent said last week that it had slowed down its GPU rollout — with most of what it is spending on new GPUs not going to AI, but its gaming and advertising divisions.
A new report claims that many data centres in China are sitting idle, with local reports suggesting as much as 80% of computing power is going unused in some areas.
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