No Canadian digital retailers for billion dollar video game industry

Lack of Canadian entrants could dim industry's benefit to our economy.

(Photo: Gregor Schuster/Getty)

“I can tell you this: there are more retailers interested in being in this space than not.”
—Stephen Turvey, VP & GM of Sony Computer Entertainment Canada, on physical retail

Data trends indicate the video game industry is moving toward digital distribution. DFC Intelligence is forecasting boxed retail will have declined from $29 billion in 2011 to $24 billion in 2016. Meanwhile, the market for digital distribution will grow $15 billion, to US$39 billion in 2016, up from US$24 billion in 2012. Apparently, Canada isn’t interested. That’s the message sent by the fact that across North America and Europe, there are over 20 retailers and services whose primary or major business is digital delivery of premium video games. Not a single one is Canadian-owned and run.

You could possibly count EB Games, which has over 300 outlets in Canada, but that’s a subsidiary of U.S.-based GameStop (which does operate a download service). It’s perhaps just emblematic of our storied branch-plant economy and the complacent mentality that seems to come with it. Even as “our” video game industry is lauded, the fact is none of the publishing that matters—the EAs, the Sonys, the Ubisofts, etc.—is Canadian. They’re American, European and Japanese, so the decisions, the IP and the bulk of the profits ultimately return there. That’s a nut Canada is unlikely to crack, but the rise of digital distribution could present an opportunity to bring home some of the retail business, especially given that digital is a relatively new and immature channel.

If you accept the trends indicating digital is the future, while physical retail is in decline, Canada could find itself shut out entirely—as in, not even the branch plant benefits—from the retail part of the value chain. But people in and around the video game industry tend to raise issues of economic scale as a deterrent to entry.

That’s the line offered by the Entertainment Software Association of Canada and others like Mike Kerr, developer with Vancouver’s Slant Six Games. “I’m just not sure it’s all that viable to try and have a storefront that would compete with the likes of [Steam] or a GameStop,” says Kerr. The problem in doing that is we have a total of 35 million potential customers.”

But it’s a debatable argument to be making given that, by the very nature of the product, a digital retailer can (and many do) sell to a world market.

Some still can’t be much bothered. Jonathan Mak, founder of Toronto-based Queasy Games, which currently has a development deal with Sony, says he doesn’t see the point. “Unless there’s some crazy law passed where Canadians can no longer deal with the U.S. across the Internet.  As it is now the Internet is sort of boundless—when I go into Steam I don’t really think, ‘Oh, I’m going into an American store to buy something.’ I’m just going to this web site, whatever that means.”

Sure, it’s seamless to the end user, but as a business proposition, Canada is leaving money on the table. Remember that services and e-tailers like Steam and Apple take as much as a 30% cut of the retail price.  A Canadian who orders from Steam, for example, contributes nothing through the retail channel to the Canadian economy because the transaction is not taxed and none of the purchase price goes to pay a worker or any other service in Canada (publishers/developers, who may be Canadian, are of course paid). If she walks into a local EB Games store and does the same, there are a variety of economic benefits to the economy that come as a result of the retailer having a physical presence in the country. But if the future is dimming for places like EB Games, where does that leave Canada?

On shaky ground at best, says Tracey Jennings, Canadian entertainment & media leader at PricewaterhouseCoopers. “The concern we’ve communicated from a Canadian standpoint is … when you’re looking at intellectual property in general, we’re moving into an era where it’s much more different that bricks and mortar. Fourteen percent of our sales are really digital—what does that mean for a country in terms of enhancing our overall competitiveness when you can buy your goods and completely avoid the Canadian tax net? That’s really an area where we think the Canadian government can address ways of ensuring that our Canadian companies can compete in the future, especially when there’s no more need for bricks and mortar.”

Of course, that presumes those companies exist in the first place. But, hey, If Sweden (population 9.4 million) can do it with digital retailer Spelbutiken, there’s no reason Canada can’t do the same. There are 15 billion reasons to try.