Source : National Post

'How come funds made available to produce culture are not equally made available to new media?': Shortcomings endanger status as a leading global industry player

Canada's new media industry is a paradox. On one hand, it is hailed internationally as a model for building a content-production sector. This is true even though the industry is under-financed, fragmented and lacking a common voice to lobby for much-needed government support.

These shortcomings are now putting Canada in danger of relinquishing its status as a leading new media player -- and of diluting Ottawa's ambitious New Economy agenda.

"This could be the old Avro Arrow thing repeating itself," says Andreas Ua 'Siaghail, a spokesman for the New Media Business Alliance, an Ontario trade association, referring to the cutting-edge Canadian supersonic jet shelved after the federal government cut off funding in 1959. "If you don't support an industry, it dies."

The new media industry's biggest challenge is that it falls into a funding no-man's land between a cultural activity and a software business. As a result, it is unable to attract as much government support as television, film and other "culture industries." At the same time, the sector remains immature, with unclear business models, making it difficult for firms to draw support from private investors.

It does not help that there is no consensus on what constitutes new media production. The term tends to cover anything from education and entertainment Web sites to video and online games, CD-ROMs, DVDs and interactive consoles.

All this leaves the industry scrambling to figure out how it can get the money it needs to thrive at a time when it is struggling to keep its head above water.

According to Toronto-based Fad Research Inc., the industry tumbled 30% in 2002 to $1.9-billion, from $2.6-billion a year earlier, while the number of employees dropped to 20,000, from 27,000.

The lack of funding from the public and private sectors has forced many firms, particularly smaller ones, to consolidate operations and outsource a lot of work to contract employees.

One of the few sectors to see an influx of capital is the video game development, highlighted by Electronic Arts Inc.'s decision to open a new studio in Montreal that will eventually employ 300 to 500 programmers.

Despite the industry's struggles, the new media industry could be more viable, as the Web continues to become a more widely used medium for education, entertainment, e-commerce and education.

According to Washington-based Corporation for Public Broadcasting, a non-profit funding organization, children today spend as much time online as they do watching television.

In Canada, the new media industry has received about $17-million a year from the federal government. This consists of $9-million from Telefilm Canada and $7.5-million from the Bell Broadcast and New Media Fund. There is also the $5-million Canada-Telus New Media Learning Fund, which has finished its investment activities.

In contrast, the film and television sector is flush with cash. The film industry receives $100-million through the Canada Feature Film Fund, while the television industry pockets $230-million through the Canadian Television Fund.

David Ellis, president of Toronto-based consultant Omnia Communications Inc., who earlier this year wrote a report for Telefilm Canada on the new media industry, said it is essential the federal government cough up more dollars for the industry. In his report, for example, he recommends the Telefilm New Media Fund be boosted fourfold to $36-million a year.

Mr. Ellis said the $36-million figure is based on a several factors. First, he used an assumption that a reasonable budget for a new media project should be doubled to $1-million, from $500,000.

Second, he believes that the portion of a project's budget supported by Telefilm should be higher than the 50% level currently in place.

Third, he believes Telefilm's 85% rejection rate needs to decline to a level comparable to the television and film sectors.

However, he notes that Ottawa needs a different approach than the one it applies to film and television. Rather than impose constraints, such as Canadian content rules, on new media developers, Mr. Ellis said it is more important to have an industrial policy that makes sure most of the work is done in Canada by Canadians.

According to Mr. Ellis, one of the industry's biggest challenges is the bureaucratic divide between Industry Canada, which is responsible for economic development and high-tech businesses, and Canadian Heritage, which oversees content.

Neither is fully aware of the other's activities and goals, he says.

Other businesses might well ask the question: Why should for-profit companies be supported by taxpayers? The answer is whether the federal and provincial governments believe it is important to nurture new businesses and create high-paying jobs to the point they can support themselves.

Andra Sheffer, executive director of the Bell Broadcast and New Media Fund, says the new media industry is not seeking hand-outs but rather a boost to get companies to level of viable business.

"This is an industry that has to be subsidized and underwritten because business models are evolving and [that] takes time" she says. "The TV and film industries are heavily subsidized, they do not generate revenue from international sales, none of them are making profits and none of them could exist without subsidization. Why is the expectation different for new media, which is way more entrepreneurial than the film industry?"

Frustrated new media entrepreneurs echo those sentiments. "It is absolutely fair and appropriate for the new media community to say, 'How come funds made available to produce culture in this country are not equally made available to new media as to other forms of production and distribution?' " says Keith Kocho, chief executive of ExtendMedia Inc., a Toronto developer of interactive-television technology.

Despite the financial challenges, a number of success stories suggest the potential is real. As the industry struggles for business models, one avenue may be to serve as marketing tools for firms in sectors such as broadcasting.

Snap Media Corp. has scored a huge hit with its Degrassi.tv Web site, which supports the DeGrassi Next Generation television series. The site, which was financed CTV and Epitome Virtual Reality Inc., has almost 300,000 registered users in Canada and abroad.

Snap Media CEO Raja Khanna says Degrassi.tv would be difficult to replicate because it cost $1-million to develop and good Web sites are expensive to create.

Another Web site attracting wide acclaim is Angela Anaconda Online, created by Toronto-based DeCode Entertainment.

It was launched in German, three months before the debut of a children's show of the same name. When the program hit the air, it was popular because of the buzz created by the Web site.

So, how can new media get the money it needs? For starters, it needs to do a better job of marketing itself.

Earl Hong Tai, director of Telefilm's western operations, says the industry has to attract more attention from policy makers by playing up its successes, coordinating its lobbying efforts and sending the message that its cultural content it is as important as film and television.

Some efforts are being made. At a conference in Charlottetown last month, a panel of executives and government officials hashed out ideas for improving the industry's financial stability and lobbying effectiveness.

Ian Kelso, head of the New Media Business Alliance, says the meeting's primary goal was to get different groups to agree on priorities in financing, business development, distribution and regulatory directions.

When it comes to lobbying Ottawa, he says, "they do not like to hear from multiple voices."

There is a growing sense of urgency to raise new media's profile.

Earlier this year, the industry was dealt a setback when the Canadian Radio-television and Telecommunications Commission took $3-million out of the $7.5-million Bell fund and put it toward fostering local television.

While that may sound insignificant, it matters in an industry where many companies are small, with limited access to private equity.

Even the few large firms need to supplement their new media projects by balancing interactive projects with commercial work.

The industry is anxious to see what directions Prime Minister Paul Martin will set. In a speech made to the Board of Trade of Metropolitan Montreal last September, Mr. Martin said research and investment is crucial to make Canada a leader in the new technology economy. "What is important is to create the necessary conditions for sustainable, long-term economic growth -- the kind of growth that can create new jobs year after year," he said.

One key issue that new Heritage Canada Minister Helene Scherrer will have to address is whether the three-year Canada New Media Fund, which expires in March, will be extended.

Sam Punnett, president of Fad Research, says if the federal government really wants to develop a New Economy sector, it needs to create a long-term vision and then act upon it.

"The federal government talks innovation and knowledge-based economy but they spend more money on infrastructure and putting stuff in the ground," he says.

"We could own the application side better if we invested in R&D. This stuff is a great export once you got it figured out."

© National Post