Province’s game developers give new equity funding mixed reviews
While Creative Saskatchewan is trying to support video game developers with a new equity fund program, some wonder if it’s the right move to grow the industry in the province.
“It’s almost kind of like the typical thing you see on Dragons’ Den or Shark Tank that Kevin O’leary always tries to do, where he’ll invest in a company for an equity position, but he also will take a royalty back to minimize his risk,” said Jordan Schidlowsky, who heads Noodle-cake Studios, the province’s largest dedicated game development company.
The digital game and gamified e-learning equity fund will invest in up to half of a project’s development and production costs, to a maximum of $100,000. Once Creative Sask.’s original investment is repaid, the organization returns half its stake back to the developer.
Creative Sask. said it did extensive consultations prior to launching the fund this month and collaborated with the Saskatchewan Interactive Media Association, a group that advocates for the industry. In a survey filled out by 22 participants, 16 said they were interested in Creative Saskatchewan taking an equity stake in their project.
Despite that, three of four active game developers in Saskatchewan contacted by the Leader-post said they would not apply for the fund, and some, like Schidlowsky, expressed grave concerns about it.
Kai Hutchence, an independent game developer based in Regina, said he was “tremendously disappointed,” by the Oct. 8 announcement. Hutchence, who advocates for ways to grow game design talent in Saskatchewan, also runs Massive Corporation Game Studio. He’s currently developing a video game set in Regina. Despite his company’s name, Hutchence is a small, independent developer, and those are the people he believes Creative Saskatchewan is not serving with this equity fund.
One of Hutchence’s main concerns with the fund is that any costs incurred prior to the date of application are not covered. This is a problem, he explained, because costs in game development have to be covered up front. Developers often have to create a prototype for their game to see if it’s viable, which could take six to 12 months of work.
For a small gaming studio that has a dozen employees, that’s not an issue — except Saskatchewan isn’t there yet.
According to a report by the Entertainment Software Association of Canada (ESAC), the games business contributed $3.7 billion to Canada’s GDP in 2017, but the industry has yet to develop any major footprint in Saskatchewan. Aside from Saskatoon-based Noodlecake Studios, which employs 13 dedicated game development staff, there are no well-established game development studios in the province.
Most are small indie startups with just a couple of people working on projects.
For those types of developers, Hutchence says a grant program would be more useful. That’s where he believes the province needs to start if it wants to grow the industry here.
“We need small, individual people to work and get that experience, and they just need small grants so that they can keep a roof over their head while they do it. They’re going to be very small projects, but they’re critical to getting that industry experience,” he said.
Those indie teams don’t appear to be who Creative Sask. is targeting.
Greg Magirescu, CEO of Creative Sask., said the goal of the equity fund is to invest in “serious game developers” who already have some kind of track record.
“We’re investing in business people here, not people who are just tire kicking or dipping their toe in the water,” said Magirescu.
Due to funding limitations, Magirescu said Creative Sask. has to be selective and can’t fund a game developer who is still at the idea stage of their project.
As for Hutchence’s proposal of using grants instead of equity funding, Magirescu said Creative Sask. is an economic development agency, not an arts granting body. Surprised to hear the concerns from developers, Magirescu said the organization got plenty of positive feedback from community members who were engaged during consultations.
Thomas Archer, the CEO of the Sask. Interactive Media Association, described the fund as a way to help game developers get off the ground, and that equity is a common funding structure in the technology industry. He admitted it might not be the right fit for everyone, but is a good model for the province and potentially the industry.
“It’s a kind of a nice way to say, ‘Hey look, these are public dollars and the government’s going to recoup these public dollars, and we’re going to feed it back to grow more economic development within that sector,” said Archer.
Schidlowsky, CEO and co-founder of Noodlecake Studios, called the program a good first step.
However, he doesn’t agree with the equity model, and said he would not use the program if he were an independent developer. He said equity is a very complicated type of funding model, and one usually only seen in the private sector. Support for the games industry from governments in Canada typically comes in the form of grants or tax breaks.
Schidlowsky said he would never agree to the terms Creative Sask. is putting forward.
“If you actually care about the company and growing a sustainable company, you’re not taking a royalty out when you can use those revenues to build growth,” he explained.
But Dwayne Melcher, who runs an interactive production studio in Regina that employs 17 people, thinks the fund is a good idea and plans on applying. He said the studio has been developing a couple of games on the side, and may look to the fund to hire a few extra staff to finish them.
Melcher appreciates the fund’s terms of not having to pay back Creative Sask. until a project is released and bringing in revenue, as well as not having to pay interest on equity like he would with a bank loan.
“I think for smaller companies, it’s a very good sort of kick-starter to help them out,” he said.
Michael Berger, who co-founded the Regina-based independent game studio Bitcutter in 2017, isn’t opposed to the equity model, but said it would be hard for a small studio such has his to take advantage of it.
“I think something like this is good. I think as it is right now, it’s not going to get a lot of traction, and it’s not going to really help the smaller studios that need the help,” said Berger.
Bitcutter only has two full-time employees, including Berger. Because of that, the studio doesn’t typically have projects completely budgeted or planned out from the beginning.
Bitcutter’s style of game development is very fluid. The scope and costs of its projects are constantly changing based on the market and feedback from players. Berger said the fund is probably better suited to a larger studio that has cash in the bank, and well-planned projects.
Berger and Hutchence both expressed concern about Creative Sask. recouping revenue from a project if their company were operating at a loss. Magirescu clarified that Creative Sask. only starts recouping its investment when the project begins turning a profit. If that never happens, he said the fund essentially becomes a grant.
Magirescu is still confident Creative Sask. made the right choice. He understands the program isn’t going to be for everyone, but it wasn’t designed that way. He emphasized it’s also a pilot project, and Creative Sask. annually re-evaluates its programs.
“This, if it’s successful, could potentially be one of our more successful or one of the most successful projects that we’ve launched,” said Magirescu.
The deadline to apply for the program is Dec. 18.