KEVIN CARMICHAEL
Who sets rules in digital world?
Last week’s fan email included condemnation for a “piece that seems more like propaganda from a boomer.” I was born in 1974.
But I concede, growing up in the no-man’s land between the prosperity-is-us boomers and the digitally native millennials means some of us Gen-Xers aren’t always with it.
Recently, Rémi Racine, one of the pioneers of Quebec’s video-game industry, was talking to me about the events that put his company, Behaviour Interactive Inc., on its current growth trajectory.
Last year, Behaviour bought out a partner for US$16 million and took full control of its most popular title, Dead by Daylight, a multiplayer game that matches a homicidal stalker against desperate survivors.
The purchase freed Racine to make a tweak to the game that his former partners at Stockholm-based Starbreeze had been resisting.
“A lot of games have their own stores within the game to sell cosmetics and all sorts of things,” Racine said in an interview at Behaviour’s main studio in Montreal this month. “We felt our audience would love it, the way we’d do it.”
Starbreeze didn’t, so it sold. That might have been a mistake.
“Literally, almost 50 per cent more revenue since the day we have a store, on a monthly basis,” Racine said. “It’s amazing.”
I was amazed too. The most serious gaming of my life took place on a Commodore 64 playing Frogger and Asteroids. Now, you’re telling me that you can stop mid-game and order some merchandise? Cool.
“No, no, no,” Racine said. “We’re selling virtual stuff within the game. Stuff to differentiate you from others within the game. Cosmetics. We call it cosmetics.”
Oh. Cosmetics generate about a third of the revenue from Dead by Daylight, as much as Behaviour makes from signing up new gamers on the cloudbased platform. “There is a store where you can buy a T-shirt of the game,” Racine said. “That’s a tiny, tiny, tiny business. That’s not even profitable.”
We project what we know. That matters because men and women who grew up in an analogue world are setting rules for a digital one.
The new North American free trade agreement was a fight over old industries such as automobile fabrication. And the oil-and-gas industry is routinely characterized as the backbone of the Canadian economy, even though professional services firms employ roughly five times more people (983,140 in August) than mining, quarrying and oil combined (201,775 in August), according to Statistics Canada’s latest payroll survey.
Last year, new investment in data, databases and data science might have been as high as $40 billion, according to a separate StatCan study, based on experimental methods because statisticians still are developing techniques to value digital assets.
That’s more than companies spent on industrial machinery, transportation equipment and research and development,
StatCan said. For perspective, in 2017, the value of the data, databases and data science was worth about $200 billion, while the reserves of crude bitumen that year were valued at about $300 billion, StatCan said. That gap will narrow because investment in data is growing significantly faster than spending on tangible assets.
None of these observations means dairy, auto-making and bitumen mining are unimportant. But given how difficult it is to make policy, and given how sticky policy can be once it gets made, we should check what we think we know about the world against the world that actually exists. That means developing an intuitive understanding of companies such as Behaviour Interactive.
They aren’t service providers in the traditional sense.
They don’t require makers of tangible goods for contracts, nor do they rely on well-paid factory workers to drive demand for their products.
Behaviour, which employs 600 people and is looking to hire about 100 more, is as much an exporter as Suncor Energy Inc. or Magna International Inc. Non-Canadian buyers represent more than 95 per cent of Racine’s revenue, mostly players of Dead by Daylight and contracts from bigger gaming studios, which outsource work to Behaviour the same way automakers outsource parts to Magna.
What do companies such as Behaviour require to succeed?
Leaders with a tolerance for risk, for sure. Racine is currently investing millions of dollars in research and development to come up with a second hit title.
“It costs a fortune to create a game,” he said.
And because there’s so much at stake, digital companies will be drawn to places where the governments are willing to offset some of the risk.
Racine was running a small business of about 40 employees in the late 1990s when the Quebec government decided it would subsidize the labour bill of international gaming companies that set up in the province.
Ubisoft Entertainment SA and others took the bait, expanded, and local outfits such as Behaviour grew with them.
The leaders of some homegrown tech companies dislike seeing their taxes used to bolster companies with which they compete for scarce talent.
Racine said Montreal’s booming tech scene wouldn’t exist without the subsidies, and that his province would be foolish to jeopardize a good thing.
If not direct subsidies, then governments at least need to spend heavily on education, or something else that creates a catalytic effect.
Canada’s oil industry required decades of public backing before it became a going concern, the data-driven economy will be no different.
“There needs to be something to kick-start something,” Racine said. “A tax credit, research and development from a university, there needs to be something.”
(Digital firms) will be drawn to ... where the governments are willing to offset some of the risk.