gaminginc TORONTO GAMING INCUBATOR FEASIBILITY STUDY

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1 gaminginc TORONTO GAMING INCUBATOR FEASIBILITY STUDY 1

2 PROJECT LEADER Luigi Ferrara, Director, Centre for Arts & Design, GBC REPORT AUTHOR Paul de Freitas GRAPHIC DESIGN Tom Short Melissa Medwyk CHARTS AND GRAPHICS Paul de Freitas RESEARCH SUPPORT Jean-Paul Amore Margaret Stagg George Brown College, 2010 All rights reserved No part of this work may be reproduced or transmitted in any form or by any means electronic or mechanical, including photocopying and recording, or by any information storage and retrieval system without written permission from the publisher except for a brief quotation (not to exceed 200 words) in a review or professional work. CONTACT For more information please contact: George Brown School of Design 230 Richmond Street East Toronto, Ontario, M5A 1P4 Tel: ext

3 ACKNOWLEDGMENTS Particular thanks to Luigi Ferrara for his overall guidance of this report and for his vision and commitment to the concept of a Toronto gaming incubator; Cynthia Lynch (OMDC), Scott McKinnon (OMDC) and Judy Dunstan (City of Toronto Economic Development & Culture) for overseeing the development of the report; and, Michael Williams (City of Toronto) for spurring greater interest in incubation in the city of Toronto. The author would also like to acknowledge all those who participated directly in this study for their time and insight and to the following in particular: Centre for Social Innovation, Devencore Realties Corp. Canada Ltd., Interactive Ontario, Toronto Business Development Corporation, Niagara Interactive Media Generator (ngen) and MaRS. Sincere thanks to all those who participated in interviews and surveys and deep gratitude to: Jean- Paul Amore (Coordinator, Game Design and Development Programmes, GBC) for sharing his extensive knowledge of the gaming industry and general input; Margaret Stagg for providing her design survey data; Tom Short and Melissa Medwyk for the layout of this report; Jane Weber for her keen editing eye and Priscilla Li for all her project support. Paul de Freitas [email protected] Support for this study was provided by George Brown College, the Ontario Media Development Corporation and the City of Toronto. Any opinions, findings, and conclusions or recommendations expressed in this material are those of the author and do not necessarily reflect the views of George Brown College, the Ontario Media Development Corporation or the City of Toronto. 3

4 CONTENTS 01 SUMMARY 6 02 INTRODUCTION OVERVIEW 14 Industry Overview - National 15 Provincial/Regional Industry Overview 16 Gaming Clusters 19 Toronto Cluster Analysis 29 How the Toronto Region Rates 31 Key Recommendations for the Toronto Region INCUBATOR ENVIRONMENTAL SCAN 42 National Scan 43 Toronto Region Incubators 47 Essentials for Incubator Success FEASIBILITY OF TORONTO GAMING INCUBATOR 60 Demand Analysis 62 Stakeholder & Partner Analysis 95 Real Estate Analysis 105 Financial Feasibility 116 Assessment 120 4

5 06 GAMING INC Conclusion 146 Sample Model 148 Key Recommendations 150 Next Steps 152 Concluding Note References Appendix 156 Incubator Models 157 Incubator Selection Criteria 158 Incubator Operations Criteria 164 5

6 6 SUMMARY

7 Toronto is a region with a vibrant and emerging digital gaming sector. The region is blessed with first-rate talent and is home to the largest creative cluster in Canada which is an invaluable source of ideas, content and innovation. Although the Toronto gaming sector is growing in size and complexity the sector s growth rate is projected at a very robust 31% over the next three years (ESAC 2009) it has many barriers to surmount in becoming the global gaming cluster that it has every right to aspire to. In various reports on improving the competitiveness of the Toronto digital industry, better linkages and cluster development are among two of the strategic recommendations that repeatedly emerge. The success of the Toronto gaming industry relies on the joint efforts of industry, government and academia and while a gaming generator or incubator would not have the scale to resolve structural issues on its own, it would have the capacity to implement key parts of best practices and recommendations as its contribution to the development of a successful digital gaming cluster. One of the key challenges in Ontario s gaming sector is the over dominance of small companies which leads to the sector s scale imbalance 1. Start-ups are expected to be a continuing major source of the sector s growth; however, smaller and emerging companies tend to have less stability and capability. Their smaller scale means they are less likely to invest in newer or expensive technologies, have limited resources to put into research & development and have difficulty competing with larger firms for talent and funding. A gaming incubator can support the gaming sector and, primarily, emerging and smaller-sized gaming companies with the type of infrastructure, services and technologies that could most advantageously serve the needs of those companies. Small gaming companies express a strong demand 2 for business planning, financial and professional services. Respondents revealed an extremely strong demand for pre-qualified and affordable human resources. The incubator, with its academic partner(s), would offer its clients access to a ready-to-go labour pool of short-term student resources to help companies overcome their current struggles in finding and affording specific human resources. The strongest identified demand was for programmers and designers. In regards to technology, respondents identified the value of access to servers and software especially advanced development kits which can be expensive or hard to attain for smaller firms. The study further confirms the relationship between small company size and reduced technology investment. Respondents showed limited interest in advanced technologies (e.g., motion capture) revealing that, for reasons of practicality, smaller gaming companies focused almost exclusively on the technologies that served their 1. The sector is overly dominated by small companies (90% of Ontario gaming companies have less than 30 employees) followed by a smattering of medium-size companies and only one company with more than 100 employees though this is expected to change in the short-term with the arrival of Ubisoft. 2. Demand based on interviews and surveys with small and early-stage gaming companies. 7

8 immediate needs. They have limited time, financial or technical resources to investigate or invest in other tools and technologies. One of the identified causes behind the recognition that small market size and the small scale of Ontario firms can make it difficult for them to grow into internationally competitive players (OMDC 2008) is the challenge smaller firms have investing in advanced technology 3. An effective incubator must support more than just the basic tools that companies need for their day-today operations. In order to support innovation and growth, it needs to have the ability to also expose its clients to the diverse and advanced tools and technologies that those firms cannot access on their own. A gaming incubator that can support emerging companies stands on its own merits but, secondarily, it can also have a role in helping to close the gaps in the Toronto gaming sector. It can serve as a catalyst or hub in the development of a larger cluster and the creation of a stronger gaming ecosystem. A lack of a fully realized gaming ecosystem is one of the primary reasons that Toronto has not yet become a leading player in the gaming industry. While the underlying ingredients are abundantly there for Toronto to lead in this sector they have not yet been arranged in such a way that the sum of the ingredients are greater than the parts. 3. Typical Ontario companies lack the scale to enter the console market as it requires substantial investment and resources and are, instead, focused on online and mobile platforms which are rife with competition and come with highly challenging monetization issues. 8

9 A sustainable and effective Toronto gaming ecosystem should contain the elements listed below. Though a gaming incubator cannot solve all the problems facing the gaming sector, it can make major and minor contributions to the gaming ecosystem specifically in the items highlighted (n). n n n n n n n n n n n n n n A technology playground ; exposing gaming companies to advanced technologies and tools Strong support for research and development Vibrant companies of various sizes Better support for emerging and small gaming companies which are currently underserved in business services and financial assistance helping SMEs (Small and Medium Enterprises) become MNEs (Multi-National Enterprises) Large companies with global scale and leadership; larger companies attract resources and serve as management schools (they produce qualified managers and producers with global perspective and understanding of industry best practices these skills are strongly lacking in Toronto and are difficult for academic institutions to produce on their own) Greater participation from and with console manufacturers (particularly since the three largest have Canadian headquarters in the Toronto region); access to hardware Improved access to technology A more concentrated cluster; more hubs and catalysts around which to grow and focus the cluster Academic institutions committing to greater integration with the cluster industry; more collaboration between academic institutions and elimination of silos Academically-driven incubators; academically and industry-led research centres Strong brand with global visibility Room to grow and coalesce; both buildings and districts Direct links between the art and design community and the gaming sector Access to the diverse content sources in the region (all languages) Coordinated government policy in support of the sector; regional strategy A focus on innovation and potentially disruptive future technologies Collaboration between all sector players (industry, academia, government, customers ) Access to multiple sources of capital, both private and public Retention of top talent Greater involvement of women in the gaming sector Firm ties to other incubators in the region Integration with compatible key 4 Toronto clusters such as design, film & television and ICT. Integration with other City of Toronto-identified key clusters such as aerospace; biomedical and biotechnology; business services; fashion/apparel; financial services; food & beverage; and tourism in pursuit of new products and innovations 4. Identified as key clusters by the City of Toronto. 9

10 The gaming incubator, as proposed, is a hybrid facility that can provide space, services and technologies for the support and growth of emerging and small digital and gaming companies, providing its clients with: Stable and affordable rents Improved physical space and amenities Access to shared services (business, financial, marketing) Access to technical resources (personnel, equipment and software) Business advisory support (e.g., mentoring and coaching) Incubation and research & development support A hybrid facility delivers support and services for smaller companies while also providing market-rate space for compatible digital and gaming companies (small to mid-sized or larger anchor tenants). The key challenge for any incubator is how to pay for the development and operation of the facility. Canadian incubators only recover one quarter of their annual costs from internal operations and are dependent on government and outside sources for the rest of their operational funding (Statistics Canada 2006). This report strives to maximize the facility s long-term sustainability and proposes the hybrid model with key service and technology partnerships as a way to increase internal revenue while decreasing delivery costs. Fundamental to achieving long-term sustainability is identifying a financially appropriate building or property that is also large enough to accommodate the hybrid model (20-50,000 sq. ft.). Toronto s real estate market is uniformly priced to a remarkable extent and this report highlights increasingly critical concerns around real estate and future sustainability of space for growth of Toronto s creative sector. A gaming incubator should ideally be located within a purchased building or under a long-term lease (15+ years) to ensure sustainability. Critical to the proposed model is an academic partner(s) with a shared vision for the Toronto gaming sector. George Brown College (GBC) has agreed to be a founding stakeholder in the development and operation of a Toronto digital gaming incubator and can provide gaming sector expertise, pre-qualified student resources, access to shared technologies, support for research and development along with stability as a key tenant. The relationship between the facility and GBC would be arms-length. 10

11 A Toronto gaming incubator is necessary, feasible and financeable 5. There is currently no facility that can support the wide spectrum of digital and gaming companies in the research and early stage of development with the business, technical and resource supports required to create more mature and stable enterprises which can, in turn, add to the growth of the overall industry. Key next steps in the evolution of a gaming incubator would involve the creation of a comprehensive business plan primarily focused on detailing the financial sustainability plan and identifying appropriate facility locations. 5. Private investors indicate that the proposed hybrid facility with GBC as a stakeholder or with anchor tenant(s) (e.g., industry associations, other incubators, government institutions, large digital companies or service providers ) would be attractive and financeable. 11

12 12 INTRODUCTION

13 As part of an ongoing commitment to excellence in teaching and applied learning, George Brown College has experimented with Living Labs over the forty years of its existence. These labs have been used as both practical training grounds for students and have also been run as real businesses contributing to the social, cultural and economic life of Toronto. George Brown College s School of Design has, over the last seven years, experimented with such Living Labs in its StudioLab (Graphic Design program) and at the Institute Without Boundaries in its think tank activities and charrettes. These labs include participation from industry partners who interact with students and work on real world challenges. The net result has been a fertile exchange between the design industry and students to benefit clients. The interaction between students and industry has helped students understand professional skills and helped industry become current with emerging trends in technology and society. As well, four new graduate certificate programs and a new advanced diploma program have curricula that encourage students to develop major projects that respond to societal needs and generate social, economic and cultural innovation. The new digital media programs such as Game Design, Advanced Digital Design, Game Development and the very unique Design Management program are graduating students who have developed comprehensive projects with an intellectual property component. The students who have created these projects have increasingly begun to start their own businesses or have taken their ideas to industry to help them secure employment. Overall, there is a sense that the employment market that students are entering is made up increasingly of contract positions, freelancing or virtual clustering for special projects as has been the case traditionally in the film industry. Building on this vision of stronger relationships between industry and education, the School of Design has investigated models for unique partnerships forming in places like Finland, Austin and Singapore. Schools are increasingly taking leadership roles and are getting involved in the incubation of new companies and working on special projects with economic and social development repercussions. At the School of Design there has been a nascent vision of the school being situated within a complex or cluster to serve and interact with industry and the public. The School is currently colocated in two separate buildings that share space with two leading GTA companies Starz Animation and Autodesk and sits within Toronto s overall media design cluster. This allows the School of Design to increase connections, to network, initiate field placements and to work on special joint projects. It allows staff from those companies to become involved with the school as advisors, guest critics and occasional teachers. To create a dynamic hub for an emerging industry with the school as an integral player we developed a vision for a new kind of hybrid incubator that combines human resources, business affairs support, technology resources and innovation; plus physical space that can mix large, mid-sized and small companies together to help generate an amplifier for the success of our digital media companies. We decided to focus especially on gaming companies as we are leaders in gaming education and to build links to the types of related companies that could assist in developing a healthy ecosystem for the region. We sought out the support of the Ontario Media Development Corporation and the City of Toronto for a more detailed research study of the proposed vision to understand its feasibility, to test it financially and to verify and plan the resources required to facilitate such a project. To be successful such a project will need the support and assistance of many parties and this study goes a long way towards identifying who should be involved and what role the College, industry and government could take in such an endeavour. Luigi Ferrara, Director, Centre for Arts & Design, George Brown College 13

14 14 OVERVIEW

15 INDUSTRY OVERVIEW NATIONAL Digital media is seen as the next technology boom, with a potential global market of US$2.2 trillion by (2009. Fields of Dreams. Financial Post Magazine, December) Canada is home to many well known companies and global gaming studios. The Canadian gaming industry is an important segment of the national knowledge or creative economy. Though a nascent industry, it is already a significant contributor to the Canadian economy and has tremendous growth potential. Today, The Entertainment Software Association of Canada s report (ESAC 2007) claims that Canada is one of the top three countries globally in terms of video game development with most jobs in the developer space. It is expected that Canada will continue to be one of the world s leaders in both gaming production and consumption as the industry grows. The Canadian gaming industry is currently dominated by Quebec and B.C. which contain large and highly established gaming hubs. Even though Canada has significant global gaming hubs the industry s speed of growth and constant evolution make it challenging to meet the on-going demands of the industry in terms of support and responsiveness. As a prime example, aggregation of data on the size of the Canadian gaming industry was first measured only as recently as 2007 (ESAC 2007). ILLUSTRATIVE DIGITAL GAMING LANDSCAPE # OF DEVELOPMENT JOBS Eastern Europe India China Korea Australia Scandinavia Mass. Texas Florida France B.C. UK Japan California Washington Quebec New Entrants Contenders Hubs INDUSTRY MATURITY Source: SECOR 2008 QUICK FACTS Total employment: 14,043 Estimated revenue: $1.7 B Past annual growth: 23% Expected annual growth: 29% Source: ESAC

16 PROVINCIAL/REGIONAL INDUSTRY OVERVIEW The Canadian gaming industry is established across nine provinces but is not equally distributed. The industry is highly concentrated in two provinces British Columbia and Quebec together made up more than 80% of the industry in 2007 (by employment). BC, which is home to most of the country s largest game developer studios, accounts for over half of the industry s total employment (ESAC 2007). Ontario: The Scale Problem Interestingly, Ontario accounts for over 40% of all the gaming firms in Canada but represents only 16% of total industry employment (ESAC 2007). This indicates that Ontario has substantially more smaller-sized firms then the national norm. The issue of scale is relevant in terms of both firm and market size. Smaller firms have less stability and less capability to respond to market changes. In turn, the small Canadian market cannot, on its own, sustain growth over time the Canadian industry must be able to compete globally in order to grow and achieve larger economies of scale 6. The scale problem is compounded for creative media industries because it means they can t pay as much for their key resource: talent (OMDC 2008) which is also the case for the gaming industry. Though late entrants to the global market, British Columbia and Quebec have developed the appropriate scale and/or competitive advantage to position them on the international scene. (SECOR 2008, 4) Ontario has not yet developed the same scale as BC or Quebec. Ontario s digital game industry is subscale though highly diversified and is predominantly composed of small companies...over 90 per cent of Ontario s digital game companies have fewer than 30 employees...and only 1 company is larger than 100 employees. (SECOR 2008, 21) SECOR (2008, 21) further notes that with the emergence of new technologies, Ontario has seen an increase in the numbers of development studios with the vast majority being small studios focused on lighter platforms, with particular emphasis on mobile and online gaming. In terms of console development, no large-sized console developer currently operates in the province; Ontario console developers are mid-sized only. This may change in the near future with Ubisoft s recent establishment of a development studio in Toronto. Console games make up half of the global digital gaming market a competitive market that smaller companies do not have the scale to enter as console game development requires substantial investment and resources. Many Ontario companies focus, instead, on lighter gaming platforms such as PC, online 6. Smaller firms and firms with smaller domestic markets have higher unit costs than firms which can spread their expenditures (including distribution costs and investments in new technologies) over larger production runs and across larger consumer markets. Small market size and the small scale of our firms can make it difficult for them to grow into internationally competitive players. 2008, Ontario Media Development Corporation: Towards a Strategic Plan Helping Ontario Firms Compete in the Global Creative Media Market 16

17 and mobile which have less onerous investment and resource requirements. These companies may, over time, develop capacity and climb up the gaming value chain towards more complex platforms. The ability of a developer to successfully compete in a particular platform market over the long run is a function of its organizational size and capacity. Some developers in Ontario have demonstrated a tendency to pursue advanced projects before obtaining the required scale and capability. While many developers are able to succeed in the short term with this strategy, the pressure this model places on infrastructure, human resources and capital makes it difficult to achieve long-term sustainable growth. (SECOR 2008, 22) CANADIAN DISTRIBUTION OF THE ENTERTAINMENT SOFTWARE INDUSTRY Employment % of total Firms % of total % OF NATIONAL TOTAL BC QC ON AB NS Source: ESAC

18 Employment in Primary Clusters (% OF TOTAL) GTA 9% G GTA (9%) VAN M Montreal (32%) MTL V O Vancouver (42%) Other (17%) H OTHER Source: ESAC

19 GAMING CLUSTERS Geographically, much of Canada s entertainment software industry is remarkably concentrated in three urban regions: Vancouver, Montreal and the Greater Toronto Area. (ESAC 2009, 7) The Canadian gaming industry is highly concentrated in three urban clusters. Vancouver, Montreal and the GTA make up 83% of the entire Canadian industry. Seven secondary urban clusters make up the remaining 17% of the industry. 7 The categorization of the GTA as a primary cluster is immature. The reality is that the Canadian industry is really clustered in two cities Vancouver and Montreal, together, make up three-quarters of the entire industry and deserve to be considered primary clusters. The GTA, at 9%, should really be classified, at this time, as a key secondary cluster. The other seven regions would more realistically fall somewhere between minor secondary and major tertiary clusters. Today, only Vancouver and Montreal have the scale to compete globally and attract the required resources to continue to grow and compete. Both these regions also have highly concentrated clusters. The majority of British Columbia s gaming companies, for example, are located within a few blocks from one another in downtown Vancouver. This degree of co-location suggests that the industry exhibits distinctive clustering tendencies similar to other innovation intensive science and technology based clusters from which the concept of an industry cluster was developed. (ESAC 2009, 7) Along with being highly concentrated, Vancouver and Montreal are also greatly integrated into nearby post-secondary institutions, and both benefit from anchor companies that are global leaders in gaming Vancouver with EA Canada and Montreal with Ubisoft and, recently, EA Mobile. 7. Quebec City, Edmonton, Calgary, Charlottetown, Winnipeg, Ottawa and London. (ESAC 2009, 8) 19

20 VANCOUVER CLUSTER ANALYSIS Vancouver companies are among the most innovative, relying more on new products for revenue generation. An average of 72% of revenue is generated from products and services introduced in the last three years, the highest level of the three primary clusters. Its most critical resource, the talent pool, appears to be under strain given current growth rates. (ESAC 2009, 10) Vancouver benefits from its location and is well connected and integrated to the film, animation and game development industry that stretches down into the US west coast. Vancouver sees itself as an integral part of this creative region and as an important film and game development centre. In its own right, Vancouver is well-positioned to benefit from opportunities in related sectors. Until recently, however, Vancouver s gaming sector was receiving minor provincial government tax credits and financial support in comparison with other Canadian regions. 8 As well, as a smaller centre, Vancouver is highly dependent on talent from outside the region to sustain its cluster. Increasing access to a talented workforce is the Vancouver cluster s greatest challenge. In 2007, Electronic Arts announced a $1 million grant to the Masters of Digital Media program (MDM) in collaboration with four of BC s leading educational institutions: University of British Columbia, Simon Fraser University, British Columbia Institute of Technology and the Emily Carr Institute of Art and Design. 8. In February 2010, the BC government introduced the BC Interactive Digital Media tax credit of 17.5% for the interactive gaming sector. 20

21 EMPLOYMENT LEVELS Employment 0 Levels No data No data FIRM SIZE Firm Size Very Small Very Small Small Small Medium Medium Large Large Very Large Very Large NOTABLE VANCOUVER COMPANIES: Notable Vancouver companies: EA EA Canada Propaganda Games Radical Entertainment Radical Entertainment Deep Fried Entertainment Next Deep Level Fried Games Entertainment Next Level Games Source: ESAC 2009 Source: ESAC

22 MONTREAL CLUSTER ANALYSIS In Québec there is a talented and creative workforce. Leading developers, world-class software publishers and innovative studios all play a central role by creating a dynamic gaming environment. Also, the industry can count upon the presence of 32 professional training colleges, 34 private technical colleges and seven universities offering multimedia programs that promote creativity that send more than 4,000 computer science and multimedia-related programs graduates on the labour market every year. Luc Carignan, Director of Investissement Québec s London office While Vancouver is the largest Canadian gaming cluster by employment, Montreal, in many ways, is the model for the rest of Canada. It has seen its cluster grow from almost nothing to an internationally recognized gaming hub in a space of just over ten years. The seed for the Montreal gaming cluster was the pool of talent that evolved from Montreal s success in 3D software and animation that goes back to the establishment of Softimage in the late 1980 s. The strength of the region has helped Montreal attract two of the largest global gaming companies to the area Ubisoft and EA. In fact, Montreal has the largest average firm size, a reflection of the fact that it is home to the majority of large (12) and very large (2) firms in Canada (ESAC 2009, 12) and is considered to have the most stable cluster due to size and number of companies it contains. Montreal has benefitted from the concerted effort of the provincial and local governments to establish and maintain a globally competitive gaming industry. Other Canadian provincial governments have mimicked the Quebec governments generous labour tax credit that is credited with having attracted Ubisoft and helped support the creation of the Montreal cluster. Though Montreal has access to more local talent than Vancouver, it is nonetheless, a victim of its own success the ongoing growth of the industry has lead to a shortage of programmers and artists. The challenge is recognized by all the cluster partners industry, government and academia and is being met head on with new investments. The Quebec government is now focussing its support for the industry by committing to new training initiatives (ESAC 2009, 12). Three key industry players, plus universities, colleges and specialized schools are investing their money in the creation and expansion of training programs. In 2005, Ubisoft created the Ubisoft Campus in partnership with the Cégep de Matane and the Université de Sherbrooke. EA and Artificial Mind and Movement (A2M) later followed with their own announcements of multi-million dollar investments in training. 9. Assistance can reach up to 37.5 per cent of labour costs. 22

23 EMPLOYMENT LEVELS Employment 0 Levels No data No data FIRM SIZE Firm Size Very Small Very Small Small Small Medium Medium Large Large Very Very Large Large NOTABLE Notable MONTREAL Montreal COMPANIES: companies: A2M A2M Ubisoft Ubisoft EA Mobile EA Eidos Mobile Interactive Eidos Gameloft Interactive Gameloft Source: ESAC 2009 Source: ESAC

24 TORONTO CLUSTER Remarkably, several of the most prominent firms in Ontario are located outside the GTA, including Silicon Knights (St. Catharines) and Digital Extremes (London). (ESAC 2009, 13) The Toronto cluster differs from the Vancouver and Montreal clusters in two very distinct ways. There are more gaming companies in Toronto despite the fact that it has a third of the employment levels of the other two clusters. This indicates that Toronto gaming companies while more numerous, are more likely to be small or even very small by comparison. Until recently, the most obvious difference between the three clusters was Toronto s lack of a large global studio such as Ubisoft and EA which dominate the Montreal and Vancouver clusters. The government of Ontario recognized the value of large global studios serving as cluster anchors and worked hard to attract Ubisoft to Toronto. Ubisoft is still in the early days of establishing itself in Toronto and its effect on the cluster is yet to be determined but, historically, anchors have the powerful ability to boost a cluster s international profile; increase its ability to attract talent and resources; and accelerate the development of new companies. A less obvious difference is the Toronto cluster s lack of a cluster. That is, Toronto s cluster is extremely dispersed especially when compared with the concentrated clusters found in Vancouver and Montreal. While Quebec has other secondary clusters such as Quebec City, its industry is highly concentrated in Montreal as is BC s in Vancouver. Ontario, however, has a broadly distributed industry. SECOR (2008, 22) points out that while Toronto remains the largest digital game hub (in Ontario), over 60 per cent of Ontario development jobs are headquartered outside of the region 10 and the largest firms are located outside of the Toronto cluster. Surprisingly, even within the City of Toronto itself, the gaming industry finds itself dispersed. Only three sets of three development studios are within the same postal code region, indicating that the development jobs in the Toronto region are broadly distributed throughout the city. (SECOR 2008, 22) The benefits of clustering are now well-known: Innovation performance among clustering firms can be enhanced as a result of benefits that stem from being in close proximity to market leaders, from being able to access a pool of highly skilled and talented employees, and from the learning and knowledge sharing that comes from being in a community where social interactions can take place inside and outside of office hours. (ESAC 2009, 7) 10. Niagara, Ottawa, and London, with 20 per cent, 18 per cent and 13 per cent of the development jobs in Ontario respectively, can be considered secondary industry hubs, although Niagara s large developer population is largely attributable to a single studio in St. Catharines. (SECOR 2008, 22) 24

25 The high rate of change in the gaming industry makes exposure to innovative market leaders and technology an important factor in the continuing success of the overall industry. In an ESAC survey (2009, 7) half of respondents report generating all their revenue from new products and services introduced in the last three years. The ESAC report goes on to note that, unlike other technology-based industries, the gaming industry relies primarily on non-technological innovations and inputs particularly creative content and talent. Vancouver has taken advantage of its film industry and proximity to the creative cluster that runs down the US West coast to feed content into its gaming cluster. Toronto s creative cluster (film, television, design, fashion, publishing, advertising, music...) is, by far, the dominant creative cluster in Canada and is a major global cluster. Toronto has the potential to match or surpass Vancouver s success in integrating its creative cluster with the gaming industry. Among the unique, but untapped, elements of the Toronto cluster is the existence of key console manufacturers (Microsoft Canada, Sony Computer Entertainment Canada and Nintendo Canada) with Canadian headquarters in the GTA; and the large amount of multimedia cultural content (non-english or French) produced by the diverse communities in the region. By far the greatest advantage of the Toronto cluster is its deep creative talent pool. Only the Toronto cluster comes close to satisfying its talent requirements from within 93% of GTA employees were reported to come from within their cluster, compared with 73% for Montreal and 59% for Vancouver (ESAC 2009, 10). Toronto s talent pool is also broad it extends to related creative talent such as artists, designers and animators, that are key elements of the gaming industry. The ability to sustain talent requirements from within the region may be stretched as the local cluster grows or anchor studios get established but, today, Toronto is a key talent supplier to other clusters and the growth and evolution of its own cluster may help retain talent that would have otherwise left, draw back talent that left originally to more evolved clusters, or attract new talent as the profile of the cluster grows. 25

26 EMPLOYMENT LEVELS Employment 0 Levels No data No data FIRM SIZE Firm Size Very Small Small Very Small Medium Small Large Medium Large Very Large Very Large NOTABLE GTA COMPANIES: Notable GTA companies: Bedlam Games Dream Catcher Games Koei Canada Koei Canada Rockstar Toronto / Take 2 Interactive Rockstar Silver Birch Toronto Studios / Take 2 Interactive Silver Birch Studios Source: ESAC 2009 Source: ESAC

27 TORONTO CLUSTER ANALYSIS The CONCERT (2008) report 11 rates Canada s gaming industry as a leading region with strong niche areas. Where the Canadian industry lags is in its lack of MNEs or transnational corporations. While Canada is an important producer for other MNEs (EA, Ubisoft) it has yet to produce its own global gaming company with multinational operations. Canada s international rating is really a reflection of Montreal and Vancouver s success. While Toronto shows growth potential it rates behind these two clusters due to the small size and still emerging nature of its industry. CONCERT s (2008) SWOT analysis focussed on the digital media industry as a whole but is still useful for revealing strengths and weaknesses applicable to the gaming industry. Toronto strengths are related to talent, the broad nature of the area s digital and related industries plus the diversity of content sources. The Toronto region s truly unique advantage is that while it is not a global leader in any one particular digital media sector, it has strengths across all five of those sectors (i.e., gaming, mobile & wireless, film & TV, animation and next generation internet). (CONCERT 2008) The analysis reiterates the issue of the lack of large firms and reveals the issues of talent retention and the lack of collaboration. Utilizing the opportunities that reside in the convergence potential between creative industries, content and academia gives Toronto the possibility of competing globally as a leader or strong niche player in a variety of digital industries including gaming. 11. Consortium on New Media, Creative, and Entertainment R&D in the Toronto Region (CONCERT), a partnership of universities, colleges and industry that developed a comprehensive regional innovation strategy in 2008 regarding the game and digital media cluster and the convergence of content, services and platforms. 27

28 TORONTO REGION DIGITAL MEDIA SWOT ANALYSIS Strengths Weaknesses Size - largest in Canada, 3rd largest in North America Diversity - across digital media market segments; across content, services and platforms: cultural and ethnic International leadership in animation and microelectronics for display technologies Research base Human resources Design, advertising, and other enabling sectors are strong in Region Access capital Firm size and sustainability - the sector is largely comprised of SMEs. Noticeable lack of large firms in some segments, e.g. console games Stakeholders work in silos with little collaboration Not retaining top talent No overall regional strategy for digital media Lack of competition in some segments, i.e., wireless communications Regional lifestyle Opportunities Threats Market is rapidly growing Innovation is creating new market segments, such as alternative realities New opportunities based on convergence content, services, and platforms Increased leverage of region s strengths in creative industries, design, information and communications Technology (ITC), and academic research Traditional business models in creative industries are challenged by disruptive technologies Other regions in Canada and abroad have identified digital media as a strategic sector and are designing and implementing proactive strategies Foreign digital media companies are capturing Canadian customer base, e.g., Google Source: CONCERT

29 AREAS OF OPPORTUNITY AND TORONTO REGION GLOBAL COMPETITIVENESS Digital Media Growth Areas Potential for Global Competitiveness Products High: Global Leader or Strong Niche Player Limited Presence but Niche Player Games Mobile and Wireless Digital Cinema and Digital TV Animation Production and Digital Special Effects Next Generation Internet Gameware, new casual/ serious games Mobile content and applications AV hardware and digital special effects Software for animation and special effects User-experience design, interactive narrative and niche on-line content, alternative realities, on-line communities and visualization Mobile, online, and console games Mobile handsets and components Digital TV and services Animation and special effects services, animation production Source: CONCERT 2008 HOW THE TORONTO REGION RATES Digital Media Sector Toronto Region s Competitiveness Rating vs. Rest of Canada Canada s Competitiveness Rating vs. Rest of World Games C B Mobile and Wireless B C Digital Cinema and Digital TV A B Animation Production and B B Digital Special Effects Next Generation Internet B B A dominates sector, internationally-recognized SME and MNE firms, and significant employment. B among leading regions in sector, dominant in niche areas, and strong SME base but limited number of MNEs. C sector demonstrates growth potential, but is not currently a dominant in markets, and a limited number of innovative SMEs recognized for leadership in their niche areas. Source: CONCERT

30 KEY RECOMMENDATIONS FOR THE TORONTO REGION In order to achieve its potential, Toronto needs to focus on minimizing its deficiencies and maximizing its opportunities. A variety of reports have made specific recommendations on what is needed to grow Toronto s digital cluster or Toronto s innovation in general. The OECD (2009) lists as one of its key recommendations that Toronto boost its innovation 12 by focusing on niches; better linkages between firms and universities; and cluster development. In analyses and reports on improving the competitiveness of the Toronto digital industry, better linkages and cluster development are among two of the strategic recommendations that repeatedly emerge. The success of the Toronto gaming industry relies on the joint efforts of industry, government and academia and while a gaming generator would not have the scale to resolve structural issues on its own, it would have the capacity to implement key parts of best practices and recommendations as its contribution to the partnership developing a successful digital gaming cluster. The following best practices and recommendations are essential if Toronto s digital gaming industry is to achieve global success: Cluster Development (Critical Mass) In an era of global competition, proximity provides significant competitive benefits, such as increased productivity, better access to skilled employees, improved networking, and overall market knowledge. The pressure of operating in close proximity to competitors creates constant pressure to innovate and differentiate. Regions that have successfully implemented a digital game growth model have often done so around a major urban cluster concentrating efforts and investments in a single area. (SECOR 2008, 20) A cluster of creative enterprises needs much more than the standard vision of a business park next to a technology campus. A creative cluster includes non-profit enterprises, cultural institutions, arts venues and individual artists alongside the science park and the media centre. Creative clusters are places to live as well as to work, places where cultural products are consumed as well as made. They feed on diversity and change and so thrive in busy, multi-cultural urban settings that have their own local distinctiveness but are also connected to the world. (Creative Clusters Ltd.) 12. Innovation is of particular concern for the Toronto region. OECD, on its website ( Toronto Must be More Competitive ), states that the region s GDP per capita and GDP growth are lower than the Canadian average and its annual economic and labour growth are lower than average compared to other metropolitan regions in the OECD. A major manufacturing hub, with automotive, biomedical, computer/electronics and entertainment companies, Toronto is nonetheless facing strong competition and losing manufacturing jobs. 30

31 Attracting a multinational publisher to open a studio in Ontario in the short term would be highly beneficial; in particular, the greater scale, capital influx, and legitimacy that a large publisher would bring to Ontario could considerably shorten the industry s development timeline to achieve critical mass. (SECOR 2008, 13) It is now well documented that creative entities flourish in the presence of like-minded enterprises. In Toronto, there are clear examples of clustering in such industries as fashion, new media, film and biotechnology. As clusters grow and become more visible they achieve critical mass and develop into concentrated centres of activity. Unfortunately, clusters cannot be manufactured by decree. They can, however, be encouraged and nurtured by understanding the needs of the specific cluster. In gaming, Toronto is strong on the production side (many smaller-sized companies plus a large talent pool) but is much weaker on the consumption side (i.e., large companies, publishers and global markets) which is consistently identified as a key brake on the cluster s growth. The Toronto gaming cluster needs major global publishers; better networking and collaboration opportunities; larger-scale companies; incubation of small-scale companies; industry/academia partnerships; technology transfer and R&D support; and further talent development. In the near-term, the Toronto cluster is not yet large or sophisticated enough to grow its own anchor companies. The attraction of Ubisoft to Toronto is a critical accelerator of the cluster s critical mass as talent, which is highly mobile and tends to gravitate to centres of consumption. Without large studios and global publishers as potential consumers of local production, Toronto talent will always be susceptible to moving out of the cluster. Clusters that achieve critical mass produce enormous dividends. Critical mass is a factor of size and reputation. Once a cluster has international visibility and credibility it in turn attracts more talent, capital and opportunities leading to the self-sustainability of the cluster. 31

32 Creative Clusters There is a substantial literature analysing clusters which broadly agree that clusters confer competitive advantage on their constituents because: proximity sharpens competition and drives up standards proximity encourages collaboration and diffusion of good practice between firms a sophisticated local market can develop around a cluster, stimulating innovation and improving marketing clusters can develop place-based branding, benefiting all firms in the cluster proximity enables small companies to band together into alliances and networks, giving them some of the advantages of larger ones for example, by giving them better access to suppliers and resources an infrastructure of specialized professional support services is encouraged to develop clusters become a focus and a magnet for outside investment Creative clusters are hard to develop (and perhaps harder to define), but the characteristic features of successful clusters are widely agreed: connectivity to the world: creative entrepreneurship thrives where local and global cultural forces interconnect cultural diversity, free trade and free expression: openness and a through-flow of new people, new ideas and new products production and consumption: the beginning and end of the supply network (maybe not the middle); more than business: art, education, culture and tourism Policies for the creative industries are relevant to all sectors of the global economy: places without strong creative clusters will lose their creative people and businesses to places that have them locally rooted creative clusters are highly resilient to global competition building creative clusters requires that cultural and economic development come together and act in concert cultural diversity is an economic asset and a source of competitive advantage Simon Evans, Creative Clusters Ltd. 32

33 Gaming Cluster Collaboration In a rapidly changing industry such as digital media, collaboration is a key requirement for the efficient exchange of innovative ideas and technologies. However, the lack of collaboration within the digital cluster is consistently listed as a key barrier to growth and innovation in the industry. Further, there is a lack of collaborative environment at two levels: within industry, within academia, within government and between industry, academia and government 13. Toronto s gaming cluster is much too quiet for its size and there is a need for more networking, communication and collaboration which can lead to more innovation and coordinated regional strategies. SECOR (2008, 24) notes that Ontario s development studios have tended to remain relatively isolated from each other and from potential partners in the many complementary industries located in Ontario. Both SECOR and the OECD which claims that Toronto can boost innovation by encouraging greater collaboration between the region s industries, small businesses and universities and strengthening links between firms (OECD 2009 website, Toronto must be more competitive ) identify the need for greater collaboration at multiple levels. Greater collaboration needs to occur not only within the gaming industry itself but, also, with complementary sectors and with GTA academic institutions. GTA universities and colleges offer more than 80 ICT-related educational programs and run over 100 ICT research centres 14 (e.g., Human Computer Interaction Lab, Centre for Learning Technologies, Cognitive Robotics Group, Mobile Experience Innovation Centre...) and are a key and continuing source of innovation. Branding For a region to become truly competitive, it must be recognizable on the world stage as a destination for content and expertise. (SECOR 2008, 20) Toronto is a city without a brand in gaming; no one would see it as a game centre... only after the Ubisoft announcement did European companies start to notice Toronto. 15 Ian Kelso, Interactive Ontario 13. CONCERT (2008, 13) refers to industry and academia alone but the same argument can be made for different orders of governments that may be tackling digital issues with overlapping or even cross purposes results. 14. Greater Toronto Marketing Alliance; does not include the 70+ ICT programs run by private GTA institutions. 15. From October 2009 discussion regarding the state of gaming in Toronto with Ian Kelso, Luigi Ferrara and Paul de Freitas. 33

34 While Montreal and Vancouver have global gaming brands, Toronto is struggling even with its regional brand which is still competing for dominance with London, Ottawa and Niagara. The highly dispersed nature of the Toronto cluster further adds to the weakening of its gaming brand. The brand is minimally visible even within Toronto itself with no physical cluster, centre of gravity or signposts to signal its existence unlike other industries (e.g., pharmaceutical with the MaRS incubator, fashion with a designated city district...). Scale is also an issue as Toronto s high number of smaller sized companies makes visibility for those companies challenging. With its low-key brand, it is not surprising to find industry stakeholders indicating that the global games community is generally unaware of Ontario s digital game industry (SECOR 2008, 24). This lack of awareness makes it difficult to attract resources and to compete globally. In response to lack of branding and scale, Ontario worked hard to attract Ubisoft to Toronto as an anchor company. The strategy behind attracting anchor companies (which has clearly worked for Montreal and Vancouver) is that they help brand the city as a gaming centre which in turn helps attract more talent, finance, studios and publishers. Convergence (Cross-Sector Collaboration) Establish a network of Digital Media Convergence Centres (DMCC) to cut across silos hampering the development of digital media in the Toronto region. (CONCERT 2008, 13) Increasing and facilitating opportunities for cross-sector collaboration in Ontario s media industries and clear communication by the industries of issues of importance to municipal, provincial and federal governments will strengthen companies competitive position in the marketplace. (OMDC 2008, 14) Governments could build on and expand laudable initiatives like the MaRS Discovery District, where technological start-ups in life sciences are assisted with work space and services, allowing for inter-linkages between sectors. (OECD 2009 website. Toronto must be more competitive ) 34

35 Strategic investments alone will not create global leadership. Industry, academia and government must also innovate in the way they collaborate... The opportunity exists for digital media to establish new models for working together; creating a model for an innovation climate that cuts across traditional sectors and builds on the region s broad strengths. (CONCERT 2008, 1) Some of the identified strengths of Toronto s digital media cluster are: Size 3rd largest in North America Breadth and depth of its digital industries film and TV, publishing, design, advertising, animation, gaming, new media, software, hardware... Diversity across digital media market segments; across content, services and platforms; cultural and ethnic (CONCERT 2008, 4) Convergence is the ability to connect distinct sectors and technologies to create new products, services or efficiencies. The breadth and diversity of Toronto s digital industries offers a tremendous opportunity for convergence which could become a key comparative advantage 16 for the region. There are clear convergence opportunities between closely complementary sectors such as gaming and film but unique opportunities can exist between related but less complementary sectors (i.e., gaming and fashion, gaming and advertising) or even unrelated sectors (i.e., gaming and healthcare). For the gaming industry, more and improved collaboration with other sectors allowing for the convergence of content and platforms gives Toronto a stronger position in which to maximize innovation and compete globally. However, creating an environment in Toronto, where convergence can thrive is especially tricky due to the breadth of the industries in its digital and creative clusters and the large number of industry, government and academic institutions operating in the region. The difficulty of the task as challenging as it might be is disproportionate compared to the value and magnitude of any potential success. 16. The advantage of some nations or regions to produce goods better and more cheaply than less favoured nations or regions. (Geographical Dictionary, answers.com) 35

36 Research and Development (R&D) Establishing global leadership requires the region to understand the trends and influences shaping markets of the future and to build the resources that enable industry in the region to lead with innovative content, services and platforms. (CONCERT 2008, 14) Investments in infrastructure and R&D: The digital game industry places a premium on technological innovation, but the cost of technological innovation can be prohibitive. Developing companies lack the scale to invest in infrastructure and the resources to invest in research and development. For a region to achieve a strong market position, it must have affordable access to infrastructure such as modern development space, broadband internet communications channels, and state-of-the-art equipment. (SECOR 2008, 19) In particular, companies in the creative sectors need assistance to evolve their business models to capture new revenue streams, repurpose content, create content for new platforms, distribute through new channels, ensure that their product is discoverable by new customers across a widening array of digital platforms, and respond quickly to rapidly emerging new technologies. (OMDC 2008, 13) Creative clusters like gaming are dependent on continuously evolving technology and need to constantly understand what is coming and what is possible. By knowing what is coming, the cluster can compete with others on the new content, platforms and technologies. By sensing what is possible, the cluster can produce its own new content, platforms and technologies making it a market leader. Both these aspects require up-front R&D with the latter requiring the most support (R&D on new technologies require substantially more support with a corresponding potential for greater return). Being able to understand the upcoming challenges and opportunities of the industry allows the cluster to adapt better business models and strategies and to place it at the forefront of competition and leadership in the industry. Access to Capital Public funding of content: The digital game industry requires significant investment in the early stages of its development process. As publisher interest is the initial requirement for a game s success, developers in growing regions must be able to progress their concept to the point where it appeals to publishers. Government support for content creation is a typical way that these kinds of incubation activities are facilitated for development studios, typically through such mechanisms as grants, tax credits, support for expenditures that indirectly lead to content development (including talent, R&D, and infrastructure), and encouragement of foreign investment. (SECOR 2008, 19) 36

37 Private investment incentives: Government funding alone is not enough to spur industry growth and reliance on publishers makes it difficult to retain and leverage intellectual property (IP) for future projects. Supplementing these two sources with private investments lowers the overall cost of capital and provides additional resources for digital game developers. Successful digital game regions are typically supported by an available pool of knowledgeable and informed private investors who are aware of the risk/reward profile of the digital game industry. (SECOR 2008, 19) Creative industries face greater challenges than other industries when it comes to funding. Creative enterprises tend to have most of their assets invested in talent and intellectual property assets that are difficult to leverage for further funding. The quickly evolving nature of the industry might also mean that companies may not be able to leverage past work for new projects which when coupled with long development cycles and up-front investment requirements makes cash flow an on-going and critical issue for many companies. These capital risks lead many companies to rely on publishers as a primary source of capital, making those companies more developers than creators. Developers may end up publisher-dependent and find themselves chasing funding on a project-by-project basis. Creators, on the other hand, have greater flexibility in that they own their own products and IP and have the opportunity to become self-sustaining. The catch-22 is that developers need capital support to be able to remove themselves from the publisherdependent treadmill so they may have the opportunity to become creators. In the long term, creators are the companies that bring the most value to the cluster attracting other developers and capital and developing into potential cluster anchors. Talent Pool & Training Establish committees in each Ontario hub (Toronto, Ottawa, London and Niagara) for academic institutions and industry representatives to discuss digital gaming issues (effectiveness of curricula, use of new technologies, gaming research, retraining, etc.). (SECOR 2008, 28) The Toronto region does a fairly good job of training those who are directly involved in the creation of games (e.g., developers, software engineers, animators, artists...) and is a key supplier of talent to other gaming clusters. Though there is always a need to better train and expand that talent pool it is equally important to remember that there are other skill sets critical to the success of the cluster. 37

38 The lack of mid-level talent such as project managers, producers and team leads is constantly mentioned as an industry-wide need. As one of its seventeen recommendations, SECOR (2008, 35) highly recommends that the gaming industry provide resources and hold regular training sessions concerning game management and professional development. Equally important is stronger entrepreneurial and management training to ensure that companies are run efficiently, economically and innovatively. Until Toronto can staunch the flow of outgoing talent and, instead, becomes a net attractor of talent, emphasis on training will be especially critical. Government Support The digital game industry receives direct support from all levels of government. Federal, provincial and municipal bodies currently provide support to the industry using a number of innovative mechanisms, including repayable investments, game competitions, tax credits, and funding grants. (SECOR 2008, 23) Each level of government has its own objectives, and each ministry has a unique mandate to achieve. In recent years, government stakeholders have increased their level of collaboration in developing common objectives regarding the digital games industry. (SECOR 2008, 24) Government support for the gaming industry is critical for its success but it is important that the support not be counter-productive. Each cluster has unique comparative advantages and firms cluster in particular regions for very specific market-driven reasons. Governments should tailor their support to work within these parameters and resist the temptation to spread their support too thin across too many clusters or industry segments; try to pick winners ; or create artificial clusters that bear little relation to a region s comparative advantages or market conditions. Government support should be highly targeted and focussed on improving and increasing industry: infrastructure and capacity; training; R&D (private and academic); commercialization and global branding. 38

39 In terms of funding, government support must always encourage private investment and never supplant it. Governments must also be wary of tying up all their support in tax credits as that strategy is easily replicated in other parts of the world and may be unsustainable over the long-term if challenged. A 2008 report by the UK government calls for potential action against Canadian incentives to the gaming industry, specifically: The UK must take the lead in opposing practices that unfairly distort competition. That is why, for example, we will be working with our European counterparts to determine whether the incentives offered by Canada to video games companies contravene World Trade Organisation (WTO) rules. If they do, we will pursue this vigorously through the WTO. (DCMS 2008, 65) Incubation This can be further facilitated by establishing incubation facilities on university campuses... In addition, several regions have established large scale research and education centres which create direct linkages between students and future employers. (SECOR 2008, 20 & 37) SECOR (2008, 27) recommends investing $6 million over 3 years to establish a technology incubator to support the development and commercialization of market-ready game technologies. CONCERT (2008, 14) suggests that Digital Media Convergence Centres (DMCC) could provide physical locations and resources for: collaborative, fast-tracked R&D projects; test beds for prototyping ideas from small and large companies; commercialization support services; incubator space and services for new companies; training and development activities. Universities and colleges with digital and gaming programs are particularly well suited to incubation if they have: established industry partnerships; a history of collaboration across complementary digital industries; students with industry-ready skills; technical infrastructure or expertise; access to technical and financial partners. 39

40 40 INCUBATOR ENVIRONMENTAL SCAN

41 According to the National Business Incubation Association (NBIA), there are approximately 4000 business incubators worldwide and 1500 in North America. There is no standard definition for an incubator, as they can vary widely in their service offerings and targeted industries or communities. The definition adopted for the purposes of this report is as follows: Business incubation is a support process that provides space, expertise, networks, services and tools designed to accelerate the growth and success of new (start-up) and growing (early-stage) firms 17. NATIONAL SCAN As of 2005 there were more than 83 operating business incubators in Canada attracting over $45 million in funding Within these incubators, 900 client businesses raised revenues in excess of $93 million, created full - and part-time employment for over 13,000 people 2,958 client companies generated revenues at the end of that year Demand for incubation services exceeds supply (Statistics Canada 2006) TYPES OF INCUBATOR, BY PRIMARY FOCUS Business Incubation 88% 12% Technology Incubation According to Statistics Canada, 88% of Canadian incubators report a primary focus on business incubation services and 12% on technology incubation. 17. An amalgamation of NBIA, TBDC and Statistics Canada definitions 41

42 Business Incubation services most in demand Help with business basics Marketing assistance Help with accounting or financial management Links to angel or venture capital investors Office space Library % of incubators describing service as highly utilized Source: Statistics Canada 2006 Sponsoring Institutions In the US, incubators are primarily sponsored by private enterprises or by academic institutions. US government sponsors the remaining 16% of incubators which is in high contrast with the situation in Canada. According to the Canadian Association of Business Incubation (CABI), Canadian incubators are primarily sponsored by governments and economic development organizations for a whopping 70% of incubator sponsorships. Canadian academic institutions trail their US counterparts as incubator sponsors by a factor of three. INCUBATOR SPONSORING INSTITUTIONS 29% 29% N F 5% H A G 16% 25% E 15% 8% 8% 4% F H A 12% N E 28% G 40% G E A H F N Government Economic development organizations Academic institutions Hybrid (combination of) agents) For-profit entities No sponsor or other US CANADA Source: NBIA & CABI 42

43 Partners & Funding Statistics Canada s (2006) review of Canadian business incubators shows the same patterns. In a survey of main partners participating in the operation of an incubator unit (multiple partners were allowed), government is again the leading partner at over 60% with universities and colleges making up 15% of the partnerships. Canadian incubators draw from a variety of sources for their financing and operations. Government grants, at all levels, are the main source of funds accounting for almost 40% of all funds. Rents and fees account for less than one quarter of funds. Overall, Canadian incubators are dependent on external sources for operational funding (government grants, partner funds, and loans) which account for over 60% of funding and only contribute a quarter of their operational funds from internal incubator sources (rent, fees from clients, sponsorships and cashed-in-equity). This means that Canadian incubators only recover one quarter of their annual costs from internal sources and are dependent on outside sources for the rest of their funding. While external funding is to be expected and supported, a case may be made that if incubators wish to assure long-term stability and flexibility then they need to reduce their dependency on the potential unpredictability of external funding and increase the amount of internal revenue they generate 18. The proposed hybrid incubator model which combines aspects of colocation, incubation and business development (see Appendix A1: Incubator Models) allows for greater development of internal revenue. 18. According to NBIA, only 19% of business incubators in North America are fully supported by their own revenuegenerating efforts. 43

44 Sources of Incubator Operating Funds Amount in C$ % of total Federal government grants 10,161, Provincial government grants 5,671, Municipal or regional government grants 1,779, Operating funds from parent organization 1,386, Rent from clients 7,163, Fees from clients 3,619, Sponsorship from private companies 851, Loans 8,852, Cashed-in equity from current or former clients 567, Other 4,946, Total 45,001, Source: Statistics Canada 2006 Key Incubator Partners or Stakeholders Number % of total Federal Government Provincial Government Municipal Government University Private Non-profit Organization Other Private Company (for profit) Community College Regional Government Lending Institution No Partners Total Source: Statistics Canada

45 TORONTO REGION INCUBATORS In order to get a firm perspective on the current state of Toronto area incubators, the authors of this report met with many Toronto region incubator operators (including CSI, TBDC, ngen...) and representatives from the City of Toronto who work closely with city-supported incubators. The issues they faced in setting up incubators and the ongoing challenges that they may continue to face were explored in order to learn from their experiences and derive various lessons that a new incubator should be paying attention to in its business plan phase. Incubators Supported by the City of Toronto The City of Toronto currently supports three incubators in the areas of fashion (Toronto Fashion Incubator), food (Toronto Food Business Incubator) and business (Toronto Business Development Centre). These incubators are all run by not-for-profit boards. The City provides a range of support including strategic planning and other services. The City also provides core funding applied to the operational needs of the incubator which is backed by an agreement tied to the use of funds. Each of the incubators supported by the City of Toronto has its own unique challenges in terms of space, marketing, funding and growth. 45

46 TORONTO FASHION INCUBATOR Made to measure business solutions for new and established fashion designers, entrepreneurs, professionals and students. Offering members professional studio space, industrial equipment and up-todate resources. Space 8,100 sq ft consisting of three 2,700 sq ft pods. Located in the Music Building at Exhibition Place. Services Professional + creative environment with business support readily available Access to the luxurious Members Lounge with satellite TV Access to meeting rooms Co-branding with TFI to build a competitive marketing and promotional advantage Exclusive promotional and marketing opportunities Invitations to industry parties and events TFI Resource Centre in-house, self-serve resource centre with information on local contractors, sample makers, suppliers, preparing a business plan, lists of local sales agencies to contact, press kit samples and latest trend forecasting publications Central reception Rent From $275/month - Shared Day Studio with access to full production and sampling facilities 2.5 days/week From $400/month - Private Studio with 24/7 access (perfect for any creative entrepreneur such as a jewellery designer, illustrator or publicist who does not need professional sewing machines) From $500/month - Private Studio with 24/7 access to full production and sampling facilities (perfect for companies requiring use of sewing equipment such as a fashion designer or stylist) Support In 1990, an operating grant and some administrative support was provided by the City of Toronto through its Business Incubation program. Since then, the City of Toronto has provided TFI with an annual grant. TFI generates additional revenues through corporate sponsorships, fundraising, workshops, consulting, membership fees, rental fees for studio space, equipment and facilities. Model TFI is governed by a volunteer Board of Directors, advised by an Advisory Committee and staffed by the Executive Director and Office Assistants. Sponsors Founding Sponsors: City of Toronto Project Sponsors: Industry Canada; Ontario Trillium Foundation Corporate Sponsors: Proctor & Gamble, Elle Magazine, Rowenta The Toronto Fashion Incubator has been affected by development pressures. At its previous location, the TFI was an important part of the Queen West creative cluster but rapid redevelopment along this trendy corridor forced TFI to quickly secure a new location. 46

47 TORONTO FOOD BUSINESS INCUBATOR TFBI supports small entrepreneurs interested in starting a new food company. The TFBI contains a fully licensed industrial kitchen available for rent to small food processing businesses and provides, together with its partners, food business expertise, food science and research assistance, business fundamental training, and mentoring. Member companies share TFBI s network of industry contacts. Rent TFBI clients pay a tiered program fee for business advisory support and shared kitchen time with additional fees for kitchen time beyond the specified program hours. Members are able to participate in the program (up to nine entrepreneurs at a time) for up to a maximum of three years. Space 2,000 sq ft facility in northwest Toronto. Services The TFBI facility offers the following: a 24-hour fully equipped, commercially certified kitchen business plan analysis and feedback assistance in developing business plan; accounting; market research; business promotion; product and service pricing; employee recruitment; and financial advice Equipment available at the TFBI includes: walk-in cooler, freezer and Ice-Omatic machine Garland 8-burner stove and ovens; Garland grill and flat grill MCO convection oven; Cleveland gas kettle industrial capacity dishwasher deli-style meat cutters; Varimixer 20 qt. mixer various packaging machinery Support Opened in July Set up with three-year funding from the federal government and the City of Toronto. Model TFBI is a registered, stand-alone, not-for-profit organization with a volunteer board of directors comprised of experienced food industry executives. Sponsors The TFBI is supported in part by the City of Toronto and the Can- Adapt Program through Agriculture and Agri-Food Canada. 47

48 TORONTO BUSINESS DEVELOPMENT CENTRE TBDC is committed to nurturing the growth of new and emerging businesses. Business development support is delivered through channels including business incubation, business consulting and community outreach. In addition to its core business incubation programs, supported by the City of Toronto; TBDC offers a range of entrepreneurial training programs with funding from the provincial and federal governments. Space TBDC has two locations in Toronto. Rents flexible space ranging from 100 to 1,200 sq ft. Services Toronto Business Development Centre provides help in all phases of business development through the following channels: Services: Business Incubation Business Planning & Consulting Access to Financing Entrepreneur Forums Advisor On Call Mailboxes Central Reception Features of the Business Incubation Program: Business advisory support Meeting room facilities; Lunchroom facilities Photocopier and fax services account; storage lockers Available on-site parking; Visitor parking Programs: Ontario Self-Employment Benefit (OSEB) Ontario Works Self-Employment Development (OWSED) BIZ Futures Summer Company Canadian Youth Business Foundation (CYBF) Community Outreach Rent Rental prices vary dependent on size of space but are at or over market rates. Support The Toronto Business Development Centre was established in 1990 as an initiative of the City of Toronto and the Ontario Ministry of Economic Development and Trade. Model Toronto Business Development Centre is a not-for-profit organization. Sponsors City of Toronto; Ontario Ministry of Training, Colleges and Universities; Government of Canada; Ontario Ministry of Community and Social Services; Ontario Ministry of Economic Development and Trade. 48

49 APPLICATION OF FUNDS / SOURCES OF FUNDING 11% T 12% I 11% C E I Entrepreneurial training programs Incubation activities 18% C E 59% 32% I E 57% C T Community-based programs City of Toronto SOURCE OF FUNDS USE OF FUNDS Source: TBDC 2007 Report to Stakeholders The Toronto Business Development Centre has been successful in diversifying its revenue sources by extending its services to external clients. TBDC offers a range of affiliate business incubation, outreach and entrepreneurial training programs which generate over three-quarters of the Centre s total revenue. These programs help support the Centre s internal incubation services and allow the Centre to serve a higher number of businesses beyond those that are in-house. An interview with TBDC regarding their previous location revealed how the high cost of rent and building related operating expenses, especially in an older building, can be key challenges to long-term sustainability. TBDC should be commended for its past success 19 and its efforts to ensure long-term sustainability by relocating to a more cost-effective location. 19. TBDC was the winner of the CABI 2009 Business Incubator of Year Award in the Multi Purpose category. 49

50 RYERSON DIGITAL MEDIA ZONE The Ryerson Digital Media Zone (DMZ), officially opened in April 2010, is designed to help take any digitally-inspired concept and make it real - whether the idea is part of a project or event, or a marketable product or service, or a business plan. The DMZ is a fully wired, multidisciplinary environment with 24-hour access for participating students. Participants should be beyond the early development phase and come with a business plan and prototype to develop, one that is of commercial or social value. MODEL The DMZ s application process requires participants submit a proposal, present in front of a committee, and once accepted companies are entitled to a four-month stay in the DMZ s space, which can accommodate up to 70 participants at a time. Companies are given approximately $1,800 per month in services, from the space and amenities and services. After four months in residence the entrepreneurs are re-evaluated to see if they need additional time. SPACE Currently occupies about 6,400 sq ft of space and is expanding to a second space at the same location. The space is run by a steering committee which includes SIFE President and undergraduate students in the Ted Rogers School of Business Management. SERVICES Entrepreneurial counselling through StartMeUp (provided by Students in Free Enterprise) Sources: Ryerson University, CNW Group Ltd., blogto Advice on business planning, presenting, funding, patents and marketing Support and advice from entrepreneurs, investors and industry leaders Mentorship & Networking Industry showcasing Flexible workspace Technical equipment 50

51 TECHNOLOGY INCUBATORS IN GTA REGION Niagara Interactive Media Generator s (ngen) goal is to create a Niagara region cluster for digital media by bringing together industry, academia and economic development offices. ngen has leveraged funds and resources from government and its academic partners to jump-start new enterprises. It encourages its partners to bring projects in-house and is currently operating three partner-supported projects: 1812: Interactive Niagara (an educational game about the War of 1812) backed by Brock University Noise in Niagara ( a social networking application for Niagara s music scene) is backed by Niagara College Investment Attraction Tool (ODIME) backed by St. Catharines Economic Development and Tourism Services HAMILTON INCUBATOR OF TECHNOLOGY (HIT) Established in 1994, the facility is operated by the City of Hamilton Department of Economic Development and offers flexible space, parking and meeting space. The facility currently has 19 private sector tenants, and also houses the offices of the Economic Developers Association of Canada. Space 40,000 sq ft facility. Services Rent Charges full market rates for incubation space. It has been essentially full for the past few years. Funding/Support The centre is not quite financially sustainable, and requires external operating subsidies. Source: Millier Dickinson Blais Experienced mentorship Networking opportunities Access to capital through introductions to financial institutions and venture capital Training solutions on topics including team building, staffing and exporting In-house services including accounting (with expertise in R&D tax credits), web design, corporate identity and technical computer services 51

52 NIAGARA INTERACTIVE MEDIA GENERATOR (NGEN) ngen fosters synergies between creative and enabler enterprises, local arts and culture industries, as well as the educational programs, research and development expertise, and infrastructure at Brock University and Niagara College. It facilitates networking, collaboration, prototyping, production and business development in St. Catharines and the Niagara region. ngen s main activities revolve around tenancy, mentorship, access to technology, projects, seminars, and networking. Space 2,000 sq ft (expanding soon to 10,000 sq ft); 2-3 person offices (approximately 160 sq ft). Services Provides rentable space, access to technology and seminars Provides mentorship (organizational/operations consulting) plus legal, banking and subject matter experts Overflow space Rentable workstations (e.g., for rendering) Access to Brock University and Niagara College students (internships and co-ops) Motion capture; 3-D and multi-use studio; and presentation theatre are currently being added to facility Funding/Support Initially funded through a grant from the Ontario Media Development Corporation s (OMDC) Creative Cluster Partnership Fund. Expansion is being funded by a $3 million grant from the Federal Government s Community Adjustment Fund (announced in September 2009). Model Not-for-profit organization with a volunteer board of directors consisting of a representative each from five of the founding partners, plus a legal representative. Partners ngen s founding partners include Brock University (Faculty of Humanities), Niagara College, City of St. Catharines (Economic Development and Tourism Services), Silicon Knights Inc., Niagara Economic Development Corporation, Niagara Enterprise Agency and Interactive Ontario. ngen s community partners include: Heelis, Williams, Little & Almas; Advanced Office Solutions; Wormal Masse Keen Lopinski LLP; Autodesk; Microsoft Canada; Dell; and Furi Enterprises. Rent Market rent is in the teens similar to full market rent ($10-$15 per sq ft) in downtown St. Catharines. 52

53 WATERLOO RESEARCH & TECHNOLOGY PARK ACCELERATOR Opened in May 2006, the Accelerator is designed to encourage the growth of high tech firms, and to act as a catalyst for the creation of new technology products and services. The Accelerator a green roof building also houses a range of business support organizations including the Canadian Innovation Centre, the Industrial Research Assistance Program, and Communitech, the region s technology business association. Rent Fully leased, with some 19 tenants. Approximately 47 off-site businesses pay as much as $500 per month to access the incubator. Source: Millier Dickinson Blais Space 22,700 square feet. Services Professional, flexible office space with movable walls, with units ranging from 230 to 892 sq ft Free basic office furniture Meeting rooms A 1700 square foot networking space A shared kitchen and food services area Free parking Janitorial services High speed Internet and dedicated phone lines Business advice Mentoring services Administrative support Education programs Networking opportunities Access to university research and experts A series of non-resident or virtual incubation programs for offsite clients programs, creating significant additional revenue for the facility. 53

54 Essentials for Incubator Success 1 Incubators require a visibility consistent with their industry. As much as possible, location can be an important determinant in the success and growth of the incubator. Certain industries benefit from being located close to their industry cluster. Creative companies benefit from the exposure to other complementary creative clusters. 2 Incubators require consistency of space every move requires new retrofit costs which are substantial and a drain on capital. This can be achieved by maximizing the security of the location either through a real-estate purchase; or, through a solid long-term lease with a significant termination period that allows the incubator to transition to another location with minimum effect. 3 Incubators should strive to maximize the recovery of their costs from their incubator clients or they may limit the ability of the incubator to grow, to introduce new programs, or to take on new risks. Diversifying revenue sources can be the key to financial sustainability provided that those revenue sources are compatible with overall goals and do not distract from the incubator s mandate. 54

55 4 Incubators need to diversify sources of revenue in order to support their viability. 7 Incubators and their partners can combine their resources in order to create new projects or companies. Partners can offer their assets (IP, HR, funding) and combine with the Incubator s resources (space, business services, technology) to create new enterprises that might not have happened on their own. 5 Size matters. Though an incubator can over-reach by trying to be too big, too fast, an opposite danger may exist in being too small, too long. Incubators must determine a minimal starting size that is manageable yet sufficient enough to be relevant in terms of generating visibility and future growth. 8 Cheap client rents are not critical for the success of an incubator. Incubators can function with market rates for rents. TBDC, ngen and HIT are known to charge at or above market rates for their rental space. The goal of an incubator should be to charge reasonable rates while offering key services and opportunities to their clients. 6 Garnering industry visibility must be a key part of an Incubator s blueprint. A key incubator function is to market itself to not only entrepreneurs but also to the industry they are serving. Incubators must strive to create industry partnerships from the outset to gain both visibility and to create the important two-way feeder system between industry-incubator and incubator-industry that maximize the potential for both incubator clients and the industry which in turn maximizes the opportunity for innovation, networking, collaboration, technology transfer and commercialization. 9 Incubators need to have a clear picture of property tax rates in any facility of interest and should budget for this item with validated values (including the accommodation for future increases) in order to avoid surprises Millier Dickinson Blais (2007) mentions that some incubators struggle with the amount of property tax that they must contend with annually (this issue came up repeatedly in our meetings with incubator operators). For example, in its 2007 report, the TBDC was stated to have an annual $90,000 property tax bill (note: refers to previous facility as TBDC has since moved), while the Hamilton Incubator of Technology was paying approximately $50,000 per year. 55

56 56 FEASIBILITY OF TORONTO GAMING INCUBATOR

57 Incubation is a technique that is being used successfully in a variety of industries throughout the greater GTA region. It is also a key recommendation in numerous reports as a specific support mechanism for the digital media industry and, in the region, is being put into practice in places such as Waterloo s Accelerator Centre and St. Catharine s Niagara Interactive Media Generator (ngen). This section assesses the viability and potential of a Toronto gaming and digital media incubator by validating the opportunity with the following as key determinations and outcomes: Confirm the demand for space and services Gauge partner/stakeholder interest Verify the availability of suitable real estate Determine financial feasibility The feasibility review focussed principally on qualitative data, backed up by quantitative data as a secondary confirmation for market demands, industry trends and business conditions. This is the approach recommended by the National Business Incubation Association (NBIA) 21. Qualitative and quantitative data was gathered from many sources including: Workshop with gaming instructors and academic partners Focus group with small gaming companies Extensive personal and telephone interviews with gaming companies and individuals Meetings with stakeholder and potential partners Interviews and on-site visits with other incubators (digital and other) Consultation with industry representatives and associations Information gathering with real estate experts Survey results from the Centre for Social Innovation s comprehensive tenant survey This data was augmented with extensive research from existing studies and sources regarding the digital and gaming industry and the business of incubation. 21. Boyd, Kathleen Developing a Business Incubation Program. NBIA. 57

58 DEMAND ANALYSIS The demand analysis assesses the potential demand for incubator space and services. The assessment is based on a variety of collected data in order to get a balanced picture of the incubator s potential market. The key sources of data were collected from interviews with industry representatives, academia associated with gaming instruction, existing incubators, business service providers (legal, financial) and, primarily, from emerging and small Toronto-area gaming entrepreneurs and companies. ENTREPRENEURIAL POOL The principle determinant of a good analysis is the examination of the entrepreneurial pool that an incubator aims to support. First and foremost, is there enough activity to both support the creation of an incubator program but also to sustain it over the long term? Reports from SECOR and ESAC clearly identify Toronto as having the third largest digital gaming cluster in Canada representing 10% of the Canadian market s employment. GROWTH BY PROVINCE BC Alberta Ontario PEI Quebec Manitoba NS NB (3 year expected compound annual growth rate) EXPECTED GROWTH RATE, SUB-SEGMENT Game Ware Game Services Game Production 16% 20% 25% 31% 24% 30% Past annual growth (3 year) Future annual growth (3 year) 0% Source: ESAC 2009 Source: ESAC 2009 ESAC (2009) estimates a growth rate (based on future employment) for the Canadian entertainment software industry of 29% over the next three years an increase from the 23% annual growth rate of the past three years. Ontario has a projected growth rate of 31%. Within the gaming sector, the game production segment is expected to have the greatest growth rate and will continue to be the largest gaming segment by employment. 58

59 Breaking down growth further, ESAC (2009) states that industry growth will be driven by start-ups that are often led by ex-employees of established companies, multinational publishers expanding their capacity in Canada, as well as independents that are expanding, or are themselves establishing new studios. This was verified in our detailed interviews where the majority of the newly established companies were led by individuals who had recently left a previous company to start their own studios. In terms of the scale of growth, it is important to recognize the distinct nature of the Toronto cluster which has a substantial amount of smaller-sized companies ESAC (2007) reports that Ontario with 16% of total industry employment accounts for over 40% of all the gaming firms in Canada and SECOR (2008) reinforces that by reporting that over 90 per cent of Ontario s digital game companies have fewer than 30 employees. The recently established Ubisoft studio in Toronto should have the long-term effect of increasing the share of growth related to larger companies but in the immediate future most of the growth in Toronto will continue to come from smaller-sized companies. The on-going supply of smaller-sized companies in the Toronto cluster fits well with the size of companies that the incubator seeks to attract. Finding Companies One of challenges of dealing with smaller-sized companies is finding them. Factors such as size, newness or an inconsistency of location can lead to companies being off the radar. They may even be hidden from industry associations as these companies may not have made their existence known or, sometimes, because of their short life spans (it is not uncommon for companies at this stage to disappear or for them to break-up and then re-emerge under different names). This report had varying degrees of success in finding small gaming companies from the following sources: Industry associations such as Interactive Ontario can be a good source for identifying some small companies but are, generally, more aware of slightly bigger or more established companies. Conferences or other events some companies can be encountered at larger events such as IO s Game ON Finance but better success was had by attending smaller network events and conferences such as the Vortex Game Competition. Identified geographic clusters when small clusters develop (such as the one at Queen and Spadina in downtown Toronto) they tend to attract smaller companies and are good sources for connecting to informal networks. Faculty at gaming-related academic institutions that are well connected to their graduates and the industry are an excellent source in connecting to small companies and new gaming entrepreneurs. Word-of-mouth was by far the most successful method for connecting to new and small companies. Key industry players who are well connected or who are at the centre of gaming networks (industry associations, industry partners, academia...) were approached to suggest small companies they were aware of. These companies were then contacted and asked to further suggest the small companies they were aware of. 59

60 DEMAND FOR SPACE The reality of the growth and scale of the Toronto cluster makes it hard to argue that there will not be enough activity, now or in the future, to make it a limiting factor in the pursuit of an incubator program. The next level of evaluation, then, should be in regards to the demand for space. Is there a demand for space today and will there be sufficient on-going demand in the future to justify an incubator program? Interviews with gaming companies and entrepreneurs suggest that demand for appropriate space is strong. What the interviews revealed was that companies that are still in the basement or garage-phase had already been actively looking for space or were preparing to do so. The primary reason to seek out space was related to growth as companies enlarged their employee base but the demand for more professional facilities was a strong secondary reason, especially for more client-facing companies. There was a distinction between companies producing their own games and those producing for others. Companies producing their own games have a more standard growth curve depending on the success of the game being produced and have more standard expansion needs; whereas, companies producing for others might have a demand for flexible space that can expand or contract based on the current project especially if there is a lag time between projects. Many interviewees identified having more than four employees as the trigger for looking for space. For example: once you get to a certain size, about four employees, then look for space ; we have three guys in the basement which is fine for us but as soon as we start growing we need more room. Many of the gaming companies interviewed identified that their current facilities were not appropriate for meeting clients and were challenged whenever they brought in part-time employees. Almost all the companies consulted had a mix of full-time, part-time employees and contractors. Part-time employees and contractors were largely utilized for specific shorter-term tasks and many worked off-site. It wasn t fully clear whether part-time employees worked off-site for reasons beyond the lack of space but it was clear that companies wished they had the ability to have closer access to part-time employees or freelancers when needed. All this fits well with the initial incubator concept which is focussed on flexible space for companies with less than 6-8 employees. Flexible space entices companies to leave the basement earlier in their life cycle One company shut down their small production office when too much time passed between the completion of one project and the commencement of another. This made it hard to justify the office expense and the company moved back into the founder s home office. Subsequently, when a new project came in, the founder was back looking for space but was reluctant to sign on to a long-term lease based on his previous experiences and, instead, continues to utilize his home office even though that space is too small for the current company. The founder suggested that his preference would have been to keep his original production office if he had had the flexibility to reduce the size of his space until circumstances changed. 60

61 then they might have otherwise. Companies with less than 6-8 employees, typically, derive the most benefit from an incubator program and in general, though it is not a steadfast rule, digital companies that reach a size greater than 6-8 employees are a good size to graduate from an incubator and seek out stand-alone facilities. Other Toronto incubators connected to the digital cluster validate the demand for space. MaRS has limited in-house space where it incubates a number of digital companies but it also works virtually with over 80 digital media companies or individuals. The Centre for Social Innovation reports that it has a waiting list of over 40 organizations and 100 open source programmers who are seeking space. CLUSTER DEMAND There is a clear demand for general space in Toronto from digital and gaming companies but is there interest in the kind of space that an incubator might offer as a stand-alone feature. Do companies want to be close to other digital companies; is there a desire to cluster in one facility? One of the recognized advantages of an incubator is that having the same kinds of companies close to each other exposes companies to new technologies and innovations; encourages collaboration and can lead to the multiplier effect (where an event starts a chain reaction that generates more activity than the original event). The Centre for Social Innovation has collected quantitative data validating this cluster effect; the following results were recorded in the first five years of the incubator: 35% of tenants have generated revenue by doing business with other tenants since moving into CSI; on average, these relationships have generated around $5,000 per respondent Approximately 50% of tenants have purchased products / services from other tenants since moving into CSI; on average, these relationships have involved spending approximately $2,900 per tenant 45% of organizational tenants indicate CSI has helped to generate more revenues for their organization, primarily by virtue of access to new people and increased profile Approximately 50% of tenants have collaborated or done business with outside contacts referred to them by other CSI tenants 85% of tenants at CSI have had at least one collaboration with another tenant Approximately 50% of tenants have had more than ten collaborations with other tenants 70% of tenants have engaged in at least one joint project /initiative with another tenant 61

62 CSI s results show how strong the cluster effect can be in producing an economic multiplier effect. Interviews revealed that this effect was in play even in small, organic clusters such as the one found around Spadina Street in Toronto. One company at that location revealed that a neighbouring company had approached it to do a joint bid for a project that neither could have done on their own due to the fact that each was expert in a different technology both of which were required for the project. When asked about preferred areas of the city to locate to, a few companies mentioned the Spadina area and Liberty village specifically because they already knew other companies in the area or we ve got some friends there indicating that some companies have a strong desire to interact with other like-minded companies. In general, interviewees desire for clustering ran from neutral to strongly positive with the clear caveat that it not be at the expense of a company s privacy. Privacy was of paramount concern with a majority of companies and a gaming incubator s design needs to provide a balance between private office space and public spaces or zones. COST DETERMINATIONS One of the most surprising results from the interviews was the issue of what small companies were prepared to pay for space. Contrary to our initial assumptions, companies were not looking specifically for cheap or subsidized rent. While companies certainly were wishing to spend as little as possible, price was a secondary factor which did not supersede their desire for good space (as defined by each company). Companies interviewed which were currently looking for or had recently acquired space, were all looking for or had found spaces at costs which were well within the range of market rates for the spaces considered. This does not necessarily apply to individuals who do not yet have more formalized companies such as one-person shops or new entrepreneurs. If these individuals are looking for space they are looking for very small space and access to shared space such as bookable meeting rooms or boardrooms. New entrepreneurs who are still prototyping concepts generally do not have resources for facilities and are used to working out of informal spaces such as home offices or at schools. These entrepreneurs would like to be in an incubator but would likely require space that was subsidized or below market rates Rates for very small spaces can appear skewed in relation to market rates for larger spaces since; in general, smaller spaces have higher per foot rates than larger spaces. 62

63 CAPACITY ANALYSIS The challenge is whether there will be a new batch of qualified entrepreneurs every two to three years as companies graduate from the program. (Boyd 2006) Part of a thorough demand analysis should include an analysis of long-term demand capacity. An incubator can expect to immediately satisfy any existing pent-up demand but is there enough activity to sustain an incubator over the long-term. Various factors indicate that there will continue to be strong long-term market demand in the Toronto region. Overall industry growth in Ontario has a three-year projected growth rate of 31% and the scale of the Toronto region should help smooth out any potential growth hiccups. The establishment of a Ubisoft studio in Toronto has short-term implications in that it might absorb a lot of available developers or poach those from smaller firms; however, the long-term pattern is that large studios also spin off a lot of entrepreneurs, are a market for new companies and expand the cluster by attracting resources. Other key indicators are the growth of gaming programs such as the one at George Brown College which continues to be unable to meet demand even after two program and facility expansions in the last three years the latest program expansion is already oversubscribed. This, along with the continuing unmet capacity as indicated by other digitally-related incubator programs and the emergence of small local gaming clusters, is evidence that a continuing stream of new entrepreneurs and businesses should be an expected attribute of the Toronto cluster and a validation for potential sustainability of an incubator program. Add to that the potential for in-house demand in the incubator from potential partners (e.g., academic R&D and industry-partner projects run through the incubator). One other consideration for an incubator program is whether a community has the capacity to absorb companies graduating from the incubator. Ideally, incubators should strive to graduate their clients after 2-3 years. This is only possible if the region has enough capacity, in terms of talent and affordable commercial space, to support growing companies. Interviews with companies with 6-10 employees (roughly the anticipated size at which incubator clients would be too big for the proposed gaming incubator) show that, though they may not always find the perfect space, they do find appropriate space. 63

64 OVERVIEW OF DEMAND FOR BUSINESS SERVICES, TECHNOLOGIES AND PARTNERSHIPS BUSINESS SERVICES (p 69) Business Planning Financing/Funding Marketing Small gaming companies were asked if they were interested in the following services, technologies or partnerships Very Yes Maybe Advisory Mgmt Assistance Human Resources Training Accounting Legal Office Management Small gaming companies show a strong demand for professional services (accounting, legal) and help with accessing financing. Lower demand for long-term strategic and operational planning (advisory, management assistance) is consistent with evidence that small creative companies do not fully appreciate the value of external business expertise. TOOLS & TECHNOLOGIES (p 79) Motion Capture 3D Printer 3D Scanner Gesture Capture Surface Computing Project Natal Development Kits Studio or Audio Tools Servers or Other HW Other Software Small gaming companies are most interested in the tools that they are already accessing and show less interest in the more advanced technologies that are far removed from their immediate needs. There is value in exposing smaller gaming companies to advanced tools in order to increase potential innovation and to accelerate their preparation for future or disruptive technologies. An incubator needs to find a balance between demand and benefit in determining what services and tools to offer. PARTNERSHIPS & STUDENT RESOURCES (p 92) Industry Partnerships Student Resources There is a very strong demand for pre-qualified student resources that are available short-term and at below market rates. 25% 50% 75% 100% 64

65 DEMAND ANALYSIS OF BUSINESS DEVELOPMENT SERVICES Another significant part of a demand analysis is the assessment of whether gaming companies have unmet business services needs and, if so, are the companies willing to pay for those services? Statistics Canada (2006) evaluated the various incubator service offerings and identified the following services as the ones most utilized by their clients: SERVICES OFFERED % OFFERING Management/business support Help with business basics (developing business plan, refining business concepts, etc) 61 Marketing assistance (advertising, promotion, market research, market strategy) 47 Help with accounting or financial management 39 Equipment and technical support Office space 34 Library 22 High-speed Internet access 18 Networking and training Business training 18 Linkages to strategic partners 16 Networking activities among incubation program clients 15 Financing Linkages to angel or venture capital investors 22 In-house investment funds 17 Help accessing specialized non-commercial loan funds or loan guarantee programs 12 Legal support and regulatory compliance Assistance with applying for government grants and tax credits 10 General legal services 2 Intellectual property management 2 Commercialization Technology transfer 5 Business management process, customer assessment service, inventory management 4 Source: Statistics Canada 2006 Since many incubators are focussed on very early-stage businesses, it is not surprising to see demand skewed to services related to the fundamentals or ABCs of business. 65

66 The types of business development services offered vary by incubator but, overall, our analysis focussed on the following commonly provided services: Business basics and planning Assistance in obtaining funding and access to sources of capital Marketing and communications/pr services Management coaching and mentoring/advisory programs Human resources support Training programs and specialized seminars Access to providers of specialized services such as accounting and legal professionals Administrative services Interviewees were asked their level of interest for each service with the following allowable responses: not interested; maybe or somewhat interested; interested; and very interested. The very interested response was added in order to capture services which interviewees were highlighting as being of great interest or which had particular immediate value for them. Note: All tables in the demand analysis sections are based on the results of 25 extensive one-to-one interviews with gaming companies. 66

67 BUSINESS PLANNING SERVICES (% interested) Yes Maybe No Very 0% Note: Following charts are based on the question: Would your company be interested in the following services? BUSINESS PLANNING SERVICES Many interviewees were interested in having access to a service that would help with the preparation or assessment of their business plans: Huge when you re getting started, we rewrote our plan nine times in six months it doesn t matter how good you are at games you need a solid plan to make money. Would be useful to have someone to review or make recommendations; value would depend on the quality of the individual and knowledge of the industry. Some interviewees had some concerns about privacy: I d be wary of power of business planners; would we use the same guy who our competitors use? The above table shows the results of our business services survey sorted by service and level of interest. 67

68 FINANCING/FUNDING SERVICES (% interested) Yes Maybe No Very 0% MARKETING SERVICES (% interested) Yes Maybe No Very 0% ADVISORY & STRATEGIC PLANNING SERVICES (% interested) Yes Maybe No Very 0%

69 FINANCING/FUNDING SERVICES Along with legal services, demand for assistance in obtaining funding or access to sources of capital was the service with the highest level of demand (counting full or partial interest) which is not to be unexpected for small companies. Some of the comments from interviewees were focused on when best to trigger financing assistance: As a new business, we can t get money through banks or access to angel investors. Too many of the younger companies get too depend on outside funding and aren t ready for it; when a company is ready for high growth then that is the time for funding help. MARKETING SERVICES Some interviewees recognized the value of marketing and its challenges: The problem with getting your games out there is you need some help marketing my company is spending a lot of time on marketing. While others viewed marketing as the job of a publisher or even a costly frill: Marketing is too expensive for us. We don t have a publisher so we could use it. After further probing, it appeared that companies which valued marketing were limited in their ability to plan and execute a marketing strategy and, therefore, were interested in marketing assistance. Other companies seemed to be fully focussed on the creation of their product and had not paid much attention to the product s future promotion and distribution needs. These companies were in danger of succumbing to the build it and they will come attitude that is a risk factor for creative companies. ADVISORY & STRATEGIC PLANNING SERVICES Services that can assist a company with long-term strategic planning had a high negative response. In the companies and individuals surveyed, there appeared to be a high level of suspicion that someone was qualified enough about the industry or their business to be able to assist them: I would get help with a business plan but not vision or advisory; I would prefer tactical versus strategic. Tough to supply - would need strong generalist; they would have to have strong experience. I would take business planning over advisory If you had experienced industry people associated with the centre who could come in and give occasional feedback, I would be interested. 69

70 MANAGEMENT ASSISTANCE SERVICES (% interested) Yes Maybe No Very 0% HUMAN RESOURCE SERVICES (% interested) Yes Maybe No Very 0% TRAINING RESOURCES & SERVICES (% interested) Yes Maybe No 0%

71 It was not unexpected to find that over 40% of interviewees had no interest in strategic planning. This is consistent with the evidence that many small creative businesses do not understand or access business support or external business expertise (DCMS 2008, 45). This effect plays out strongly within the creative industry and is further examined later in the report but, in essence, an incubator program needs to find a balance between service demand and service benefit in determining which services to offer. MANAGEMENT ASSISTANCE SERVICES The same pattern emerged in terms of management assistance services. Again, there was a mixed response to services such as business coaching or assistance with running a business. Some companies recognized their lack of management expertise and the value of assistance: A lot of us are just developers we don t know much about management. Very interested in operations and business development services: negotiating contracts, finding publishers While other companies saw little value; again, common for small firms focused on creation instead of operations: Once you get going you don t need it (management assistance) HUMAN RESOURCE SERVICES There was a high positive response for human resource services and support. Many interviewees showed a particularly keen interest in understanding contract requirements and employee obligations Still too small but useful when ready to grow. Help with understanding overtime; contractors versus salaried employees; and performance reviews tied to achievables. Understanding benefits. Need HR contract templates. Useful to have help finding and recruiting new people. The entire industry needs HR services. They don t put a lot of importance on HR they don t realize the critical impact. I ve worked at three gaming companies (including one with 60 people) and none of them had an HR department. 71

72 ACCOUNTING SERVICES (% interested) Yes Very No 0% LEGAL SERVICES (% interested) Yes Very No 0% OFFICE & ADMINISTRATIVE SERVICES (% interested) Yes Maybe No Very 0%

73 TRAINING RESOURCES & SERVICES Companies showed an interest in training-related services but most had a generic interest as they had not thought too much about the kind of training that would be most useful to their businesses. Would be nice to have some presentation skills. Seminars on new technology or hardware. Most of the training we could use would be on the stuff we work on platforms, software... ACCOUNTING SERVICES The only companies that had no interest in accounting services were those that already had accounting systems in place. All interviewees recognized accounting as an unavoidable need and quite a few talked about accounting as if it was a mysterious black box the strong demand for accounting services reflects that reality: Gamers have no concept of accounting. I already have that but if price and quality is right I would review. LEGAL SERVICES Along with financing, legal services showed the greatest demand as a desired service. Largely, this is because, similar to accounting, legal services are viewed as cryptic and unavoidable but, additionally, they are recognized as an expensive essential and any assistance in reducing cost or complexity is favorable: bulk contracts review (a lot of our clients have their own contracts needing a quick review). Would want access to experienced lawyers Canadian and US; or incubator could recommend lawyers. Useful to have less expensive lawyers for the generic or less complicated stuff; or legal templates. One of the things that I m more keyed into since we don t have an idea of what s needed on the contracts we re either spending too little or too much. OFFICE & ADMINISTRATIVE SERVICES The demand for office and administrative services came up in a focus group discussion with gaming companies and was added to the incubator survey where the demand for the service was validated. Some of the interest was for shared office services such as office maintenance and upkeep. Remarkably, more than a few companies (with office facilities) were spending inordinate amounts of time on cleaning and were being distracted by problems with garbage removal (some individuals were taking garbage home to dispose of it). Others were interested in office management services where someone could help with simple but time-consuming tasks such as ordering supplies or booking travel: 73

74 Real problem with cleaning and garbage it takes us 2 hours to cleanup and we can t find anyone to do it. extremely useful to have someone to arrange travel or order paper that would be useful (general office support person); doesn t go away; painful. Not critical but useful. SERVICES COST RECOVERY There is sufficient demand for a variety of business development services that an incubator could provide if it so chose. However, an incubator is limited by the services it can provide based on its available resources and its ability to recover the costs of any prospective service offerings. Costs can be recovered in a variety of ways, not all or which come directly from the pockets of entrepreneurs or incubator clients. In our interviews, it was clear that companies had already factored for certain unavoidable costs such as accounting and legal services as normal costs of business. An incubator s role in this case might be more focussed on increasing client awareness, education and offering recommendations to professional providers of those services all of which could be delivered at minimal cost through the use of partners who could provide seminars and make client presentations. Companies were less clear on how to pay, or who should pay, for the other kinds of business development services (e.g., business planning, financing...) the kinds of services that have the greatest potential benefit for small businesses. In this case, the incubator needs to be innovative in how it can both supply and recover the costs of these beneficial programs. Interviewees assumed correctly that any incubator shared costs such as office and administrative services would be recovered through rents and office fees. Ultimately, an incubator cannot deliver all the services that entrepreneurs need or want it is unlikely to have the capacity or expertise to deliver such a wide range of services independently. Neither can an incubator ignore the service needs of its clients. The solution is to identify other providers of those services who are interested in extending their range of products to the incubator s clientele. Many of these services can be obtained at a lower cost, or for no cost, through partner arrangements or service agreements than what could be produced in-house. At the end of the day, an incubator program will supply or provide access to a variety of services, based on its capacity and client needs, with a mix of cost recovery means. Some will be paid for predominantly through clients and others will be subsidized through partner arrangements and participation (see Stakeholders section). 74

75 DEMAND ANALYSIS OF TOOLS & TECHNOLOGY A gaming incubator needs to assess the demand for more than business services. A key offering of any incubator is the availability of tools and technologies specific to the industry the incubator is hoping to serve. An incubator should focus on supporting the tools that would be most productive and of value to its clients but it must also keep an eye on upcoming technologies that may affect their industry. An incubator may also aim, as part of its mandate, to expose their clients (and, as much as possible, the cluster itself) to new technologies as a method to increase innovation and to prepare them for potentially disruptive technologies. It is important to first understand what part of the gaming cluster the incubator might serve. The gaming space is constantly evolving and facing new challenges and a successful incubator program cannot fully serve all aspects of the industry. ESAC (2009) identifies three main sub-segments of the industry: game production, middleware, and game services. Game production includes: major publishers, most of whom develop games in-house and finance external game development; third party game developers who develop games under contract with publishers; independents who develop and market their own games; and console manufacturers, most of whom typically have only sales and marketing personnel in Canada. The middleware category includes firms that make the tools, applications and software for game developers. The third category, game services, comprises firms that directly support the entertainment software industry by, for example, offering custom advice to players of on-line games. Other Business Services Two other beneficial items that had not been explicitly listed in the survey were revealed in the more detailed interviews. Though both are a subset of legal services, they are worth examining further as a potential offering for a gaming incubator program. One company mentioned the growing trend of lawsuits against game companies particularly against creators of violent games. They wanted assistance in understanding product liability and how to insure against potential lawsuits. An incubator program could, at a minimum, arrange a seminar on the issue to inform gaming companies of the issue. Tax credits were an item where many companies identified frustration. There remains a large knowledge gap between available tax credit programs and those who could benefit most from them. Many companies are either unaware of the programs or do not know how to access them. The confusion and complexity of securing tax credits has led to the creation of a small cottage industry of tax credit consultants. Companies depend on these tax credit consultants to identify and procure tax credits on their behalf. In exchange, companies forfeit about one-quarter of any tax credits they are qualified to receive (some companies had even signed exclusivity agreements preventing them from using other tax credit services). Interviewees questioned about their desire for help with tax credits overwhelmingly signalled a high level of interest in such a service. An incubator program should, at least, have the capacity to inform their clients and other gaming companies about the tax credit programs. 75

76 EMPLOYMENT BY SUB-SEGMENT Game ware 14% Game production 85% Game services (1%) Source: ESAC 2009 The incubator is targeted to small and emerging companies. Those companies will typically be involved in game production; developing games for themselves and for third-parties (game ware development and console games generally involve greater scale). The incubator will predominantly focus on the game production segment; however, there is no one platform that the incubator can focus on. Gaming platforms evolve rapidly and make it challenging to determine which specific technical resources an incubator should offer. It is anticipated that games running on console, handheld and PC platforms will make up close to 60% of the global market in 2011; down substantially from just seven years previously when its market share was 85%. There has been a surge in lighter mobile and online gaming platforms which have moved from representing 15% market share to a predicted 40% of the digital gaming market in While the console market has decreased and its growth slower than other segments, it is still the most profitable piece of the gaming market and cannot be ignored by a gaming incubator program. 76

77 GLOBAL DIGITAL GAME PLATFORM MARKET SHARES ($US B) CAGR* Total 9.2% 6% 9% 15% 70% 18% 24% 8% 50% Wireless 27.6% Online 26% PC Games -1.0% Consoles /Handhelds 4.2% *CAGR: Compound Annual Growth Rate Source: PricewaterhouseCoopers 2007, Global Entertainment and Media Outlook: Video Games The ultimate objective for most emerging companies in the digital games industry (in Ontario and elsewhere) is to produce next-generation console games. However, developers in other regions have recognized that the capability to withstand the inconsistent funding of more complex platforms increases gradually as scale, expertise and catalogue breadth is developed. Instead of jumping directly into this challenging and competitive sector, many have chosen to implement high-deal flow growth models, developing a portfolio of games that gradually evolves from online and mobile to handheld and console. This allows companies to develop the skills, capabilities and reputation required to succeed in the console market, while at the same time offsetting their investments with the frequent release of lighter-platform games. Emerging studios, those with less than 50 employees, generally cut their teeth in the mobile and 77

78 online industries because of the minimal capital investments required. (SECOR 2008, 22) Even though small and emerging companies are likely to be focussed on mobile and online platforms, this does not mean that a gaming incubator should be solely focussed in that direction. In terms of technology and tools, a gaming incubator s mandate should include the objective of exposing its clients to new technologies in the areas that they are currently working in and in areas that they may eventually evolve towards. In fact, a major ambition for a gaming incubator should be to expose companies to next-generation technologies and technologies they could not otherwise afford or access. This encourages innovation; accelerates the rate at which companies can expand to other platforms and technologies; better prepares them for industry changes and positions them for new and future opportunities. There are endless technologies that could be beneficial for gaming companies, especially when looking at the industry from a multi-segment, multi-platform perspective. This report set out to evaluate the interest in some potential incubator tools and technologies based on feedback from George Brown College s gaming and design faculty, as follows: Motion Capture Suit and Cameras captures motion data for 3D animation Rapid Prototyping Machine 3D Printer which recreates physical 3D models 3D Scanner scans 3D surfaces and imports images as models GestureTek or Emotive products gesture recognition allowing the control of computers through hand movement Microsoft Surface Computer table top computer with multi-touch capabilities Project Natal Development Kit Microsoft controller-free gesture recognition PS3 Development Kit licensed development kit from Sony XBOX360 Development Kit licensed development kit from Microsoft Wii Development Kit licensed development kit from Nintendo It wasn t surprising to find responses for the above list to be all over the place since that list contains technologies typically used by more advanced games (motion capture, console platform development kits...) and future technologies (surface computer, Project Natal...) but the report, nonetheless, wanted to determine if any patterns existed in terms of demand for tools and technologies. 78

79 MOTION CAPTURE Motion capture technology is associated with larger console games so a large negative response was expected. However, more than 40% of all respondents had a positive response (very, yes or maybe) based not on current needs but on where they saw their companies headed. Haven t used it yet but would play with it if there are support people who know how to use it and know how to clean up data. We re not at that level yet. One company was already using the technology utilizing a parent company s resources: We do our motion capture in California right now. 3D PRINTER/3D SCANNER & GESTURE CAPTURE The response to 3D printers, 3D scanners and gesture capture products was similar with a high level of nonresponse or an unsure level of interest. The comments related to these tools and technologies ran the gamut from I d love that to nobody needs it. The majority of companies had difficulty seeing how motion capture tools tied into their needs, so these tools which are typically used as part of the same process are, not unexpectedly, even of less interest. SURFACE COMPUTING & GAME CONTROLLER TECHNOLOGY Respondents also showed little interest in technology that wasn t on their immediate radar. Surface computing and Microsoft s future hands-free game controller (Project Natal) are upcoming technologies that have not yet reached the consumer market. The small companies interviewed were more focussed on their current needs and had little capacity to stretch their resources into technologies they do not yet utilize or need. However, a few respondents did show interest in the technologies: I m looking forward to playing with multi-touch things like touch surfaces. DEVELOPMENT KITS The greatest level of interest of all the tools and technologies surveyed was for development kits. The interest in development kits was measured as a whole and not separately for each kit (i.e., PSE, XBOX360 and Wii Development Kits) since respondents were responding to all the development kits as a whole. The majority of respondents were well aware of the challenges and expense in becoming a certified developer for any of the major platforms: 79

80 MOTION CAPTURE (% interested) ns/nr Yes Maybe No Very 0% Note: Following charts are based on the question: Would your company be interested in the following tool? Note: ns/nr represents a response of not sure or a non-response D PRINTER/3D SCANNER (% interested) ns/nr Very Maybe No 0% GESTURE CAPTURE (% interested) ns/nr Yes Maybe No 0%

81 high cost of entry; very expensive; very specific licensing. I don t know how easy it is to make them available; have to be a certified developer; they look at your company and determine if you qualify; only works if companies can be certified users. Dev kit access would be huge hard to get and difficult to set-up. For example, Nintendo requires strict barriers to entry; money is an issue; not allowed unless you re a licensed developer. Great if you could help a company become a licensed developer, each (platform) has different requirements. or set up key technology partnerships with Microsoft/Nintendo. One of the reasons I m going with mobile is the barrier to entry on dev kits. My former company started with iphone first and then eventually moved to PlayStation. Based on demand and benefit, development kits look to be key tools that a gaming incubator should pursue. However, the respondents identified the clear challenges in doing so. Further exploration would be required to determine how an incubator could take potential advantage of its academic partners (which may have academic licenses) or, ideally, direct technology partnerships with the licensers of the development kits allowing the incubator to have agreed upon preferential licensing. OTHER TOOLS & TECHNOLOGIES Interviewees were asked to identify if there were any other tools and technologies that would be of current or future value to their companies. Among the most common response were audio tools, computer hardware and a variety of software. Note: no specific response was required for other categories so data may be skewed towards no response (ns/nr). Audio would be useful recording studio, voice and music. Renting sound studio and software is very expensive so we outsource. We deal with audio contracts; outsourcing is costly single studio and workstation plus recording talent. Server farm; secure backup. Server space for rendering and file storage as long as it is virtualized and protected. Not enough Macs & PCs. Developing for iphone is Mac specific, PS devkits run on PC we re always passing around the Mac. Many respondents mentioned the value of having access to a variety of computer hardware for use in rendering, storage and backups. Maintaining privacy and security of information was of paramount concern. 81

82 SURFACE COMPUTING (% interested) ns/nr Yes Maybe Very 0% PROJECT NATAL (% interested) ns/nr Yes Maybe 0% DEVELOPMENT KITS (% interested) ns/nr Yes Maybe No Very 0%

83 If equipment is to be shared it should be virtualized so that each company can configure the virtual server as they need and their usage is fully separated and isolated from other users. Others identified the value of having temporary access to computers loaded with different operating systems since some specific tasks may require a specific OS occasionally, someone will need a machine with the Windows, Mac or Linux OS for short-term work or testing purposes. OTHER SOFTWARE Access to software was specified as a highly desired item. There are two notable reasons behind this demand; one is cost (expensive software) and the other is having to invest in software that is only needed for a short-term period. These are similar to the reasons behind the demand in computer hardware (expensive equipment and short-term need). Companies may not have the resources to invest in a particularly expensive piece of software. In that case, a company will use a less useful option, do without, or pirate the software: other expensive software like 3D studio Max and Maya 23. Getting access to 3dx Max 2010 it s quite expensive at about $5000 also, Photoshop and Unity Pro 24. It would keep the pirating down to a quiet roar. Software like Adobe Creative Suite we have many licenses; all the Microsoft programs Office, Digital Studio, Visual Studio, OS or educational licenses. Could use every-once-in-a-while tools such as lesser used software that are not used every day or are infrequently used like 3D modeling or Mudbox. Software like Microsoft Office; don t assume needs like real basic stuff. Access to operating system licenses Windows 7, XP for testing. Testing was another commonly mentioned item. Companies may need to test on a variety of platforms and equipment and the challenge becomes the range of platform versions or equipment that may be needed to do useful testing. Online games may need to be tested for a variety of OSs or a variety of browsers and versions. Mobile game companies may need to be tested on a variety of handsets. Some companies even need to test for different mobile carriers: I d love to see a test studio. iphones for testing Test phones would be huge for both Canadian and US carriers most of our customers are in the US. Mobile handsets and platforms for testing instead of emulators ds Max and Maya are 3D modeling, animation, rendering, and visual effects software. 24. Unity Pro is a multiplatform game development tool 83

84 SOUND STUDIO OR AUDIO TOOLS (% interested) ns/nr Yes Maybe No Very 0% SERVERS OR COMPUTER HARDWARE (% interested) ns/nr Yes Maybe Very 0% OTHER SOFTWARE (% interested) ns/nr Yes Maybe Very 0%

85 DEMAND ANALYSIS FINDINGS As part of the tools and technology demand analysis, companies made pitches for technologies that they were interested in or that were beyond their current technical or financial capabilities; but, at the end of the analysis, these particular respondent comments stood out: I don t have a need for A, B or C (survey options) but if we had access to them then I might schedule projects that do. I d love being exposed to new technology anything expensive or that needs space. I m self-limiting in terms of technology I use what I have. These comments identify a need that may not be obvious from a tools and technology analysis but that points to an important role that an incubator may play in advancing innovation and value for gaming companies. For reasons of practicality, smaller gaming companies are focussed on the technologies that match their current needs and have little opportunity to discover or play with technology that may improve their current products or define their future ones. It is difficult for smaller companies to see value in technologies such as motion capture or prototyping (typically associated with more advanced or console games) when these companies are focussed, today, on mobile and online games that rarely require them. So while an incubator should dedicate much of its energy to supporting the basic tools and technologies that companies need for their day-to-day operations and success, it in no way suggests avoiding the addition of more advanced tools. Part of an incubator s function should be helping small and medium-sized enterprises get access to technology that they may not otherwise have access to. Companies have good reasons to be selflimiting in the kinds of technology they use if they don t have the time or the financial or technical resources to investigate other tools. In order to encourage innovation, an incubator needs to have the ability to expose its clients to different and new tools and technologies. 85

86 In September 2009 the Federal Government s Community Adjustment Fund announced that it was providing ngen (Niagara Interactive Media Generator) with over $3 million for expansion. The goal of the funds is to strengthen the sustainability of the St. Catharines and the Niagara Region s digital interactive media cluster. The funding is allocated to the creation of a state of the art facility with the following technologies and may provide a useful template for a gaming incubator s long-term technology strategy: Data Centre Infrastructure A proposed 500 sq ft facility to house state of the art Internet servers, communication equipment, processing power and data storage under strict security. The large capacity of the centre would allow for bulk Internet delivery allowing for enticing discounts on bandwidth to local companies. The centre s security structure would appeal to all who are concerned with privacy and intellectual property issues. To support the high tech needs of the digital interactive media cluster, it is necessary to include computers specialized in handling of audio/video, communication network, data storage and data processing needs. The servers and cloud-computing cluster provides the proper infrastructure to support the community as it grows. This specialized equipment would be available to the community to provide a low entry cost of technology, thus speeding up economic development of the cluster. Render Farm The render farm will enable tenants to render complex visual effects and animations in a short period of time. The render farm s computing power can also be used by other interested clients. The render farm will also help our R&D lab to pre-visualize complex scenarios and simulations in a short period of time. Render times will be cut by an approximate factor of 30 or more. VOIP Services Installation Security System High-End Editing and Compositing Suite The high-end editing and compositing suite will also be an integral part of the cluster. Standing at the important end of the production workflow with many medium and large scale projects, it will again help companies by not making it necessary to go to Toronto or out of the country with their projects. The effect on efficiency for these companies will be projected straight into their projects budgets. Production Studio The proposed production studio is one-of-a-kind outside the GTA due to its multi-use functionality. The studio is important in the live action video industry; creating ideal space for producing sets and designing elaborate shooting scenarios. It also creates a huge incentive for attracting usage from all over Ontario and surrounding US states. Tenants and area businesses will use the facility for 3D design, video game production, 3D film and video production, and R&D in new technologies that create hybrid mediums involving all or several layers of interactivity and design. This is another key to the cluster s financial sustainability plan as revenue can be generated from space rental as well as usage fees for the service. Audio Recording Facility This state of the art recording room will allow for companies specializing in fields such as 3D design, Video Games, Simulations, Live Action, Web Design and Audio Engineering all to create original Foley Art, Music, Voice Over Narration, Sound Effects and much more. The room also opens doors for Research and Development of future interactive audio platforms. Motion Capture System The motion capture system will be an integral part of the cluster. Its unique setup will be instrumental in the exposure of St. Catharines and will have a major impact on the Niagara Region. Furthermore, the monetization structure of motion capture usage will have a large effect on the financial sustainability of the cluster. As not many motion capture studios exist that provide motion capturing as a service, St. Catharines and Niagara will become an important player in the North American market with an ability to attract limitless business and investments. High Definition (HD) Screening & Presentation Theatre The proposed office theatre is an essential component to a functional interactive media complex. A great deal of media consumption relies on presentation. A state of the art theatre allows all tenants to present, showcase, engage, and interact with clients, stakeholders, and press. The theatre can be used for private, public and webcast presentations perfect for any company with a product that needs exposure. R&D Tool Set-up In order to be able to model complex geometries quicker and create prototypes faster and more accurate, 3D scanners and printers are very interesting for the games and film industries. We are planning to use both in our R&D labs to develop new ways of production that are more economic and efficient. This cannot only be used by the tenants for their own projects, but also for selling services to clients from many different industries, such as manufacturing, entertainment, media or health. 86

87 TOOLS & TECHNOLOGIES COST RECOVERY Capital Costs An incubator should endeavour to provide tools to its clients that are normally out of their financial or technical scope. The tools should be selected on their ability to unlock maximum potential in terms of enabling innovation, efficiency (time and costs) and the advancement of new products and ideas. In order to manage the capital costs of these tools, the incubator needs partners. There are a variety of potential partners that can assist in reducing the capital costs of equipment and technology, including: Government partners providing financial support for the purchase or subsidization of equipment. Academic partners offering access to shared equipment and technical resources. Technology partners donating, sponsoring or supplying reduced-cost hardware, software or licenses. Technology partners offering exposure to new technologies (donated or lent out). The gaming incubator has already secured the commitment of an academic partner (see Stakeholders section). Operating Costs An incubator should try to minimize operating costs as much as possible (through partnerships or subsidies) but, ultimately, it should strive towards a model where all remaining operating costs are captured through internal or external fees. Our interviews showed that of course companies preferred free tools but it also revealed that companies were more than willing to pay for tools that would be of benefit to their companies, as long as the cost of those tools were reasonable. Companies are already comfortable paying for basic equipment, software and communications services and, where it made sense, would continue to do so within an incubator. For more advanced tools, companies were looking for reduced fees and technical assistance. Companies were comfortable with the idea of shared costs for office equipment (printers, copiers...) and communications (high bandwidth internet, VOIP). Wherever possible, incubator tools and technologies that also serve the needs of the Toronto cluster can be rented out to help drive revenue and reduce costs. 87

88 DEMAND ANALYSIS FOR INDUSTRY PARTNERSHIPS Many companies are already serving as gaming studios where they are predominantly focussed on supplying gaming services to third-party companies. Some are primarily focussed on the creation of their own games but leave room to do third-party work as a way of driving company revenues which, in turn, support the company s game creation. An incubator has the potential to act as catalyst for connecting those with development needs or ideas to those who can bring them to fruition. Furthermore, incubator partners may also bring business development opportunities in-house allowing the incubator to provide matchmaking services between industry and incubator clients. There is particular potential with academic partners which are already connected to industry and are already doing R&D and other work for their industry partners. Our results show that companies are definitely interested in doing work for other companies: Will want to work on our own games but will need to work on contracts to pay bills. Would be useful outsourcing; trend towards a service studio. We would do more outsourcing but we don t have the space. DEMAND ANALYSIS FOR STUDENT RESOURCES By far, the strongest positive reaction to any topic we surveyed was that of giving incubator clients access to a pre-qualified pool of student resources. The proposal is that all academic partners who wish to participate can provide students to an incubator resource pool. The academic partners are responsible for pre-qualifying their students and supplying only those who are ready to provide value to enterprises (for short-term projects only). The students, in turn, would be paid by those enterprises but at a rate substantially below market rates. Companies liked the idea of having access to a ready-to-go labour pool, both for cost reasons and because of the difficulty and effort in finding resources: Absolutely, would make a project so that I could use the student labour. Depends on the quality; we know where to look for programmers (U of T, Waterloo ) and artists (Seneca, OCAD, Sheridan ) but we don t really know where to look for designers they are hard to find. 88

89 Those surveyed were also asked which skills they were principally interested in: Programmers/Developers Designers Artists Other skill sets Could definitely use concept artists. No problem with artists; could use some game designers really need project managers or producers. Trouble identifying the best developers so pre-qualified is huge. All would be useful. We have good programming skills but could use artists. The bulk of our work is art-based. Artists outnumber programmers 3:1, even 12:1. In terms of programmers; C++, scripting languages and Flash. Definite yes for programmers (C, C++); artists I can find a ton of. Sometimes we only need a designer for one day or a flash programmer for a week this would help a lot; we know we re paying more than we need to because we don t have the time to find better or cheaper resources. It is interesting to see that for some skill sets such as artists, some companies have no problem finding those resources while others have the completely opposite experience. There appears to be an industry mismatch here and there might be a role for the incubator to play in providing matchmaking (beyond the student pool) between those with valuable skill sets and companies seeking out those services. 89

90 INDUSTRY PARTNERSHIPS (% interested) ns/nr Yes Very Maybe 0% Note: Following charts are based on the question: Would your company be interested in the following resource? Note: ns/nr represents a response of not sure or a non-response STUDENT RESOURCES (% interested) ns/nr Yes Very Maybe 0%

91 STAKEHOLDER & PARTNER ANALSYIS For an incubator to succeed, it needs to have key stakeholders in place. Stakeholders can supply financial, technical or business resources along with expertise and critical mass. It is important to identify potential partners as early in the process as possible in order to gauge the kind of support an incubator has or can count on. Potential partners can come from academia, government, industry, industry-related organizations, the business community, service providers and even other incubators. The ultimate goal is to gather long-term commitments of support. Critical stakeholders are those that can provide financial or in-kind resources (e.g., equipment, commitments for space, in-house projects, service offerings...) that either increase funds available to the incubator or reduce its costs. If stakeholders can be made to feel that it s their project too, you re more likely to get the funding you want. It may be difficult, however, to get commitments of support before the feasibility study and business plan are complete, because stakeholders will first want a thorough understanding of the project they are supporting. (Boyd 2006, 41) Networking has already begun, in parallel to this study, to gauge the potential stakeholder interest in a Toronto gaming incubator. As mentioned above, partners are normally wary to commit until the process has evolved further. Nevertheless, earlier than predicted progress has been made on this front as the incubator has already secured a strong commitment from George Brown College as its academic partner and a founding stakeholder, plus initial interest from a government partner, two business service providers and a financial institution. It also has an understanding of cooperation with four other incubators for services and knowledge sharing. These early and broad commitments are key indicators that there is strong community and stakeholder support for a gaming incubator. Though the incubator is ahead of schedule in the process of securing commitments there is still much to do to reach out to other potential stakeholders. A successful longterm incubator is a hub for its clients and its cluster. To get to that level the incubator needs to be fully integrated with all the parts that support the cluster including the industry itself, technology firms, investment networks, the business community, academic institutions and government. Moving forward, the incubator needs to continue to solidify the interest from potential stakeholders or partners from all supporting parts of the gaming and digital cluster. 91

92 ACADEMIC PARTNERS In the US, incubators are primarily sponsored by private enterprises and academic institutions. US academic institutions see real synergy and value between their needs and that of an incubator and are the primary sponsors of fully one-quarter of all US incubators. In contrast, only 8% of Canadian incubators are sponsored by an academic institution (70% of Canadian incubators are dependent on sponsorship from government or economic development organizations). George Brown College (GBC) is bucking this trend by committing to be the incubator s primary sponsoring institution and founding partner. This is an ideal sponsor for the incubator as a broad consensus of studies show that colleges and universities are perfect partners for the development of an incubator s programs and facilities (Millier Dickinson Blais 2007). Incubation programs linked to universities offer two-way advantages: universities get the opportunity to implement technology transfers and commercialization of their research work, while incubator clients gain access to university facilities including libraries, laboratories and technology tools. (Kalis 2001) There are clear mutual benefits for both the incubator and its academic partner, as detailed below, but the greatest benefit goes to the incubator as Millier Dickinson Blais (2007) states, universities and colleges can dramatically improve the performance and opportunities for success of an incubation program. Indeed, from an economic development perspective, the involvement of universities and colleges significantly improves the chances that an incubation facility will ultimately be able to play a key role in the development of a larger industry cluster within a given community or region. Along with the above, George Brown College also gains stronger and more direct linkages with industry and the room to increase its industry partnerships or to create new initiatives around research and development. It also gains the ability to more closely evaluate how its curriculum is serving industry needs. This ongoing feedback can make its gaming program even more responsive and relevant to both its students and industry. Academic-affiliated incubators provide entrepreneurs: Well-equipped laboratories, extensive libraries, and powerful computer systems Technology expertise A well-educated workforce Subject matter experts among the faculty Academic-affiliated incubators provide students: Internship or part-time job opportunities Real-world examples for case studies or class projects Opportunities to apply their knowledge to real business problems An introduction to entrepreneurship early in their professional careers 92

93 In turn, the incubator gains substantial capital and operating advantages. By entering into a sharing arrangement with GBC, the incubator reduces its technology costs and gains access to technical resources which can operate those advanced tools and technology which reduces the operating costs to itself and its clients. GBC pursues joint partnerships with industry and offers its expertise and resources in the creation of new products or R&D. GBC has offered to bring these projects into the incubator; expanding the possibility of new joint projects and increasing business development opportunities for gaming companies. GBC has also committed to offering its students to the incubator as part of a student pool available to incubator clients and, possibly, to industry. The head of GBC s gaming programming has agreed to take responsibility for pre-qualifying all students provided by the college. Incubator clients get validated resources at substantially reduced rates. There is also a strong likelihood that GBC will locate classroom(s) within the facility where the incubator would reside. Classrooms are rarely located in incubator facilities as it could be difficult to justify the amount of space they require from a cost/revenue perspective. However, by making the classroom a shared facility between GBC and the incubator, both sides gain a valuable asset at a manageable cost. GBC could use the classrooms during the daytime for its needs and the incubator could have access outside of academic hours. The incubator would use the classrooms for its own clients needs such as seminars and presentations but it could also use the classrooms as a revenue source by hosting larger paid seminars for industry needs. Some reports examining academic-incubator partnerships identify the danger to the partnership if a culture gap exists between the two. The academic partner s needs should fit with an incubator s objectives and vice-versa. Fortunately, GBC and the gaming incubator have very compatible objectives and similar long-term goals to better serve the needs of the gaming cluster and to help develop industry competitive advantages. Academic-affiliated incubators provide colleges and universities: Opportunities to strengthen ties between the educational institution and the local business community A system for bringing technological advances and products to market An opportunity to fulfill research, academic and community service missions Source: Linda Knopp, Incubator-University Partnerships, 2004 A recruiting tool for faculty members and students interested in entrepreneurial opportunities 93

94 SERVICE PARTNERS It s imperative to find out which organizations already provide business assistance so that your incubator doesn t duplicate services. It serves little or no purpose to do so, especially when costs are high and resources scarce. Additionally, in duplicating services, an incubation program effectively creates competition, which undermines community support. A better option would be for the incubator to form partnerships with other local business assistance providers, perhaps by contracting out services, colocating with the local Small Business Development Center (SBDC), co-sponsoring business seminars with the chamber of commerce, or partnering with the local university to use lab space or specialized equipment. Such efforts not only benefit the individual organizations, they also support the community s broader economic development efforts. (Boyd 2006) The incubator would like to provide as many services as possible to its clients but, on its own, is limited to what it can deliver. It does not have the resources, time or expertise to deliver the expected range of services on its own. Luckily, there are many organizations in Toronto that already offer entrepreneurial assistance services as well as professional services. The incubator does not want to replicate services that are already being well delivered and, to this end, has begun preliminary discussions with appropriate groups on partnering to deliver to its incubator clients as full and broad a range of services as possible. The ability to offer those services at a reduced cost is also a key factor. The Arts Incubator of Kansas City serves as a model for the gaming incubator. In Missouri, the Arts Incubator of Kansas City is home to the non-profit Kansas City Volunteer Lawyers and Accountants for the Arts, which provides legal and accounting assistance to artists and arts organizations from all creative disciplines. As an anchor tenant for the Arts Incubator, KCVLAA not only pays rent but its bank of lawyers and accountants provides free legal and accounting services to the artists in the incubator. (Boyd 2006) The incubator has been in discussion with the Toronto Business Development Corporation to gauge how each group can help each other resolve some of their outstanding needs. The incubator has office and classroom space to offer while the TBDC has extensive small business services and seminars to offer. In terms of funding services, the incubator has received initial interest from MaRS to provide incubator clients with commercialization and funding assistance and other general business training. 94

95 The incubator has also had early interest from a major financial institution to partner in the delivery of financial and funding services. Preliminary discussions have been held with a potential provider of legal services. This firm specializes in law related to the digital industry and would offer services for pay along with legal seminars specific to digital and gaming for a free or minimal charge. Discussions with other groups should follow to determine those that are interested in the formation of a service provider network. Beyond the above, partners are also a potential source for the incubator s own need for advisors or mentors, capital and professional services (lawyers, accountants...). Partners will also allow the incubator to direct its energy and resources to developing and providing services that others do not or cannot supply. This way the incubator is not competing with other providers while creating new valuable services specific to the digital and gaming industry. GOVERNMENT PARTNERS The incubator has had preliminary discussions with the City of Toronto as to the possibility of support for the incubator. An opportunity exists for the City of Toronto to be the key lead on a project housed within the incubator that develops a service, technology or R&D for the City a specific project has already been proposed. Other avenues of City support have been discussed including the possibility of property tax reductions for an incubator facility. While there is interest from the City in the possibility of creating new property tax classes for specific economic drivers such as incubators, that is a long-term pursuit and would have no immediate effect on the incubator. 95

96 TECHNOLOGY PARTNERS The incubator has not yet held discussions with technology (hardware and software) companies. While the incubator would love to have technology partners that could provide the incubator, and its clients, access to technology at reduced rates 25, the greater win would be in creating long-term partnerships that could lead to the funding of joint projects similar to the following example from the UK: Southwest RDA funds two partnerships with Hewlett Packard and Alias that is creating SE3D, a facility giving filmmakers, games developers and animators access to remote computer power over the internet. SE3D offered 12 groups of UK animators access to a new rendering service for computer graphics, accompanied by workshops and mentoring. The resulting films have won international awards and HP has gained valuable insights into developing computer services for small businesses. (DCMS 2008) The incubator would also seek out technology partnerships to get advance access to new technology. A valuable addition to the gaming cluster would be the formation of a technology playground where gaming companies and individuals could be exposed to and play with new technologies; running the gamut from new hardware (e.g., surface tables), new hardware models (e.g., latest smartphones...), first look at new platform versions (e.g., consoles, dev kits...). INDUSTRY PARTNERS In the near term, the incubator may serve as a matchmaker between industry and incubator client companies; matching needs with talent and resources. In later stages, the incubator may have a larger role in serving as an intermediary between industry and incubator clients and the outsourced or contracted project opportunities; overseeing parts of the projects developed by qualified incubator client companies or its academic partners. The incubator can also be part of the linkage between industry and its academic partner in the pursuit of industry-funded research and development. 25. ngen had success with Dell sponsoring $50,000 worth of equipment and Microsoft donating software. 96

97 The incubator has had preliminary discussions with Interactive Ontario (IO), an industry trade organization, to explore potential opportunities. IO would be interested in having access to classroom space for the workshops they hold on legal and financing issues. Longer-term opportunities may exist around shared technology. In turn, IO would offer incubator clients access to its networks and resources. PARTNERSHIPS WITH OTHER INCUBATORS The incubator has had prolonged discussions with other related or complementary incubators in the greater Toronto region. Informal cooperation agreements are already in place with both the Centre for Social Innovation (CSI), ngen and the TBDC (see Service Partners section). CSI has already assisted with this study by supplying incubator data and has shared their insights and key metrics in the day-to-day operations of an incubator. The geographic boundaries of the gaming cluster go well beyond Toronto and include the St. Catharines/ Niagara region and extend out as far as the Waterloo area. Both ngen and the incubator see themselves not as competitors but as key assets contributing to the growth of the overall cluster. While each has its own mandate, there are clear opportunities for information exchange around incubator and industry experiences. Our discussions with ngen further revealed that there will be strong opportunities for the academic partners from these two incubators to collaborate on a variety of academic and industry-related prospects. DEVELOPMENT PARTNERS There has been interest from private developers and investors in partnering with GBC around an incubator facility. Developers feel that the proposed hybrid-model incubator with GBC and other anchor tenant(s) is financeable (see Real Estate Analysis section). 97

98 DESIGN CENTRE SURVEY This study s demand analysis results are further confirmed by a study that has been running in parallel led by Margaret Stagg, a student of George Brown College s Design Management program. Stagg s survey is focused on self-employed designers and seeks to understand their desire for a future design centre. The survey probes the kinds of services and tools that would be of interest and the preferred location for such a centre. Stagg s survey correlates with this study s findings; particularly in the area of services, location and designers strong desires to network, collaborate and to be exposed to new technologies and techniques. The survey was performed using online tools (craigslist for a callout to self-employed designers and SurveyMonkey for the survey) and attracted 86 respondents representing young design companies (0-3 years) and freelancers. Would you be interested in being part of a design centre that caters to self-employed designers? not interested I ll be there everyday once a week couple times a month special events only Note: Charts show total number of responses from 86 respondents What type of services would you be interested in? reference/ research library meeting rooms work rooms café exhibit space central phone service kitchen sample library print room small business mentors mailing address networking events

99 Would you be willing to pay for these services? yes no What type of design do you focus on? interior design graphic design motion graphics website design advertising/marketing industrial design fashion design art/photography Where would you prefer this centre to be located in Toronto? near public transit queen west district liberty village leslieville the junction financial district Which of the following best describes your current employment status? FTE designer FTE plus some independent clients FT self-employed designer with PT job recent graduate have small design firm plan to be selfemployed in future FTE full-time employed; FT full-time; PT part-time 99

100 How long have you been self-employed (either full-time or part-time)? 0-3 years 3-5 years 5-10 years 10+ years How important are the following to you? Extremely Important Important Slightly Interested Not Important N/A Networking with designers Collaborating with designers Feedback from the design community Staying current on design trends Involved in your community Involved in the design community (results in percent) How often do you use the following in your design practice? Daily Weekly Monthly Never Mac computer PC computer Drafting table B&W printer Large format printer (colour) Projector LCD television (results in percent) 100

101 REAL ESTATE ANALSYIS A key part of this report is the evaluation of the availability and feasibility of real estate suitable for the establishment of an incubator facility. Much of this section is based on interviews with other incubators, real estate experts, developers and industry; along with feedback from gaming companies and potential clients and best practices gathered from existing incubator literature. There are basic issues to consider when undertaking a real estate search for an incubator facility: Location what are the parameters that effect where an incubator should be located Size what building size optimally satisfies the needs of the incubator and supports its sustainability Configuration are there specific features that the incubator requires Buy or lease which option is best for a long-term facility INCUBATOR FACILITY LOCATION The first step in locating a suitable incubator facility is to establish location-based search parameters. Ideally, the facility should be near the cluster community and its entrepreneurial pool. Unlike in Vancouver and Montreal, this area is difficult to define in Toronto as the cluster is quite dispersed. There are, as of yet, no large gaming companies serving as anchors around which clusters develop. Though the Toronto cluster has no obvious hubs there are other indicators that can be used as reference points to assist in defining a real estate search area. Interactive Ontario (IO) states that the majority of its Toronto-based members are located downtown in an area demarcated roughly by Dufferin Street, Dundas Street West, Parliament Street and the lake. IO admits that the area is based on a list that might not be fully up-to-date and that it may not reflect smaller gaming companies that have not registered with the organization. Overall, however, this is probably a pretty good approximation of the reality on the ground based on the fact that a small and organic cluster has developed centered around Spadina Avenue and Queen Street West which is right in the center of this area. The future Ubisoft studio will be a key addition to the Toronto cluster and will pull the cluster area slightly north and west. On the whole, the cluster will clearly be developing in the inner-toronto area and should be the focus of any search. This also matches survey data where respondents clearly indicated that there was almost no appetite or desire for an incubator facility outside of the inner-toronto area. The other key requirement is a strong demand that any incubator facility be accessible by public transit. The facility must be close to walking distance from subway lines or major transit lines. 101

102 Location of Ubisoft studio Area that interactive Ontario identifies as the location of the majority of its Toronto-based member companies INCUBATOR FACILITY SIZE Size is an important consideration when seeking incubator space. A facility that is too small will not be able to generate enough revenues to cover expenses; a facility that is too big might be hard to sustain. The following experience from CSI is enlightening: The Centre for Social Innovation operated for three years in 5,000 square feet. But the truth is that we would never have been self-sustaining at that rate the margins simply weren t sufficient and we had to bring in consulting, grants, and other activities. It was only when we scaled to 19,000 sq ft that we could approach and achieve self-sustainability; finally, our space was big enough that our margin could cover our operating costs. That s not to say that you can t make it work on 5,000 sq ft, but you need to carefully estimate potential revenue and expenses. Our experience tells us that small spaces only succeed with Hotdesks, which have the highest possible margins (and risk); offices space provision requires an overall larger footprint. This is strongly supported by incubator studies which discuss the optimal size for an incubator facility. In a 2002 NBIA study, the average size of an incubator was 47,157 square feet (the median was 25,908 square feet). Boyd (2006) further states that many incubation professionals consider 20,000 to 30,000 square feet the minimum for achieving financial sustainability. 102

103 INCUBATOR FACILITY CONFIGURATION The principal configuration requirement for an incubator facility is that it have a column/grid setup that allows the space to be divided into a variety of sizes from larger classrooms and labs to smaller offices. TBDC has found that, in their experience, a building with flexible loading spaces (e.g., access to a loading dock) plus hallways that are wide enough to move furniture and equipment are strong pluses. They have had challenges moving equipment within their facility and surcharges are typically applied on large deliveries due to a lack of a loading dock. The facility should also be accessible to all including people with disabilities. INCUBATOR FACILITY OWNING VS LEASING Incubators typically use leased space especially if suitable buildings are not available or affordable. Leasing also reduces the up-front funding that is required for the purchase or construction of a facility. However, there are things to look out for when leasing. If an incubator leases a facility at market rates then it has no choice but to ask its clients to pay above market rents just to cover its base rental and operating costs, unless the incubator has other substantial sources of revenue (e.g., grants, sponsorships, service contracts...). If an incubator can negotiate affordable rents then it should consider leasing rather than purchasing to save upfront costs. Based on our interviews with other incubators that lease, by far the greatest issue has been the lack of long-term stability associated with leasing. An incubator in a leased facility is susceptible to market pressures to increase rents or to redevelopment of the property. Toronto s fashion incubator was forced out of its successful previous location when the property was redeveloped. At its previous location, TBDC suffered from the dual pressures of being in a deteriorating facility while its rents were ever increasing. CSI is very wary of future pressures on its rental rates as the neighbourhood it is located in becomes ever more popular and gentrified. These incubators may find themselves looking for new locations after having invested significant funds in the establishment of their successful incubation program. Incubators may even have increased the value to the building they are vacating through infrastructure or technology investments which they will have to repeat in the facility they move to. Real Estate Price Pressures & Hub Development The organic cluster centered at Spadina Avenue and Queen Street West is feeling the same price pressures discussed in this section. The small companies we talked to were concerned about how to manage future rent increases if they became unaffordable. This volatility may limit the growth of, or destabilize, this small hub s development. 103

104 Robert Meeder, in Forging the Incubator (1993), suggests that experience shows it is better to purchase a facility than to lease one. It is virtually impossible, he argues, to reach a point of sustainability if the incubator is leasing space itself, and then subletting that space to tenants. Such programs find it very difficult to manage their programs on the margin and even more difficult to maintain a level of occupancy as their master lease reaches the end of its own initial leasing period. (Millier Dickinson Blais 2007) The only way to avoid this buy or die situation is to secure a long-term lease with a facility at affordable or below-market rates. As can well be imagined, those kinds of facilities are not easy to find, it they exist at all within the search area. It is even more of a long-shot if the incubator team is looking for a facility that is ready to move into. Main leasing search parameters: Inner Toronto Close to subway or main transit lines 50,000 sq ft (20,000 sq ft minimum) Building should be easy to divide Location of Ubisoft studio Area that interactive Ontario identifies as the location of the majority of its Toronto-based member companies LEASING SEARCH AREA 104

105 LEASING SEARCH Devencore Realties Corporation Canada offered to assist the report with the search for potential leasable incubator space. Devencore was given the following search parameters: Located in the general inner Toronto area roughly, Lansdowne Ave to the west; Parliament St to the east; St. Clair Ave W to the north and the lake to the south Close to subway or main TTC transit lines Looking for 50,000 sq ft (20,000 sq ft as the minimum) Building should be easy to divide (e.g., clear spaces and column/grid) Proximity to a George Brown College campus a plus Prefer heritage building (brick and beam) if divisible The parameters were fairly broad in order to maximize the number of buildings that might fit. The result of this search was disappointing. No facilities were found that satisfied the parameters and had a price point that allowed for the affordable operation of an incubator facility. Devencore was asked to undertake a more expansive leasing study to help provide insight to the leasing situation in Toronto. The results of that undertaking are shown in the following map. The map highlights neighbourhoods and individual facilities. What stands out the most about the map is how uniformly priced the lease rates are in the city of Toronto. While it is no surprise to find the highest rates in the downtown financial core, it is surprising to find how uniform lease rates are throughout the city for class B and C buildings (class A buildings were excluded from the study as their rates are too high for incubator sustainability). George Brown College has experience in inexpensively renovating class B & C buildings into useful college space, so Devencore was asked to expand their search to seek out class C buildings that had good bones (open interior space that had maximum flexibility for reuse). Under these conditions, the best that could be found for under $20 sq ft were buildings that were all located outside the inner Toronto core and, generally, were in industrial areas. Our studies clearly show that potential incubator clients are not interested in relocating to the outer part of the city or on being dependent on cars to reach the facility. 105

106 106

107 Index Neighbor- hood Neighborhood Lease Rates Property Property Lease Rate 107

108 B Class Lease Rates by Neighbourhood Airport - Rexdale 427 Corridor Downsview Yorkdale/Lawrence King & Dufferin Downtown West North Yonge Midtown Bloor Financial Core Downtown North Downtown East Midtown St. Clair & Eglington Don Mills & Eglington Consumers Road Woodbine & Steeles The classification of office buildings as either A, B or C usually relates to design and functionality, the year of construction and the building s location. Classification differs slightly from city to city, but generally follows a standard pattern, which is described below: Class A Buildings. These buildings sport modern construction with state-of-the-art functionality and architectural design, infrastructure, life safety and mechanical systems. Class A buildings are also located in the most sought-after areas. Not surprisingly, Class A buildings typically command the highest rents, include the best amenities and, consequently, offer the least attractive concession packages for tenants. Class B Buildings. These buildings are usually highly functional, well-located facilities more than 10 years old. Class B buildings generally feature a less desirable design and infrastructure than Class A buildings, although a well-located B building can be renovated and reclassified as Class A. Class C Buildings. Generally, Class C buildings are more than 25 years old and have not been renovated. C buildings are functionally and architecturally obsolete and are located in less desirable areas. They command the lowest rents and attract the least credit-worthy occupants. It is not likely that a C building could be rehabilitated to A status, regardless of its location. Source: AllBusiness 108

109 Within the inner Toronto area, all listed Class C buildings were over $20 sq ft. It is possible that an incubator can make a go of it at this rate but not without funding or operations support and this is before factoring in the major renovation costs that would be needed to convert a Class C building into an attractive facility. This study highlights the very real challenges that Toronto-based incubators are facing when it comes to finding affordable space. It also supports Meeder s claim that it is extremely difficult to maintain sustainability and manage their programs if an incubator is leasing space at market rates. These are exactly the kinds of challenges that non-academic-based incubators, such as the TBDC and CSI, face and work hard to minimize. Some incubators may be charging their clients rents that are above market rates specifically because they have little choice. The cost of space and the sustainability of any incubator in Toronto is an issue that calls for further inquiry. PURCHASE SEARCH The same search area that was used in the leasing search was used in searching out buildings for purchase that were suitable for incubator use. Along with Class B &C office buildings, buildings that served primarily light industrial usages were added to the mix. As manufacturing has moved out of the city core, many older manufacturing and warehousing buildings are losing their primary function and many are having difficulty finding new use. Due to the experience of GBC at repurposing Class B and C buildings there is a high level of comfort in being able to repurpose the right industrial building into a unique and attractive incubator space. The greatest benefits of this class of building are their flexibility of use and the fact that they are available at much lower costs per square foot than other building types. The only caveat is that these buildings require substantial renovation to convert their usage. But when done right this can be quite effective much of the popular space that is in high demand in the Spadina/Queen area today is repurposed light manufacturing space. Many buildings were examined for this study. Many of these buildings were visited and most were quickly rejected for failing either site criteria, transit inaccessibility or for being difficult to convert. Ultimately, three buildings were selected for more detailed examination two were in the west end (W1 & W2) and one in the north end (N1) of the search area (inner Toronto). All three buildings have unique advantages and unique challenges. 109

110 PURCHASE SEARCH AREA W1, consisting of 45,000 sq ft, is available at a reasonable purchase price and fits the majority of the site criteria. The building is close to a subway station (Dundas West station) and two main transit lines (Dundas and College streetcar lines) and also has onsite parking. The interior space is tremendously flexible and in good condition. The only challenge with this building is the environmental concerns associated with it. The building itself is free of any environmental issues but there is a concern that the ground near part of the building s perimeter might be contaminated. Preliminary investigation shows that most likely this is not the case for this building but it is enough of an unknown to have kept the building on the market for some time. This would be the ideal industrial space to transform into an incubator facility if the issues with environmental conditions could be resolved. Fortunately, there are two potential partners that can help 110

111 with the resolution of the environmental issue. The study has identified an interested development partner who has experience dealing with buildings with environmental concerns. The City of Toronto has offered to lead on an FCM environmental grant process if the incubator wished to proceed with this building and if there was a need for environmental remediation. W2, consisting of 100,000 sq ft, over four floors, is another industrial building with great potential for reuse. However, this building is not as transit accessible as W1 and the area around the building is not vibrant yet. The neighbourhood itself is undergoing a transformation and this building would be of more interest once that transformation has been underway for a few years. This building could support a variety of incubator types and, ideally, an economic development agency or other organization would be purchasing it today for incubator use in the future. N1, consisting of 70,000 sq ft, is another ideal light industrial building ready for transformation. This building fits the site criteria. It is in walking distance from a subway station (Dupont station) and a major bus route, and has onsite parking. Similar to W1, the interior space is immensely flexible and in good condition. It was initially understood that this building was available for purchase which turned out not to be the case. However, the owner is extremely interested in the kind of reuse that is being proposed and would be willing to enter into a long-term lease (+15 years) or other future options that allow the incubator to maintain affordability and sustainability. Furthermore, the building owner has indicated a strong interest in participating in a way that is yet to be determined in order to support the idea. In our exploration of real estate, we have uncovered a strong interest from developers in partnering with the incubator. Interested developer partners see how an incubator can increase the value of a building that is transformed from industrial use to technical and office use. Developers have a particularly strong comfort level with a stable partner such as GBC involved in the process. Under the right conditions, development partners have indicated an interest in the process of financing the purchase of either W1 or W2 for the conversion into an incubator facility. N1 also attracted a potential development partner who would be interested in the longer-term potential of the building and site. 111

112 FINANCIAL FEASIBILITY This study strived to do as much financial modelling as possible in order to determine the feasibility of the incubator. At this stage of the incubator s development, there are still too many unknown factors in terms of stakeholders, funding and real estate to perform an exact financial analysis. Wolfe (Boyd 2006) uses budgetary numbers from data gathered in the feasibility process to determine facility costs and operating expenses and further states: We typically don t put hard numbers together in terms of revenue, cost of construction, and any affiliated debt until the business planning stage, when a facility has been selected, a marketing strategy has been developed, a capital structure has been determined, and specific staffing needs are understood. (Boyd 2006) Nonetheless, this study undertook a fairly rigorous financial analysis of the incubator based on a few real estate options. All numbers utilized were, as much as possible, based on hard data collected from interviews, surveys and detailed discussions with existing incubators 26 in order to model feasibility as accurately as possible. Conservative revenue numbers were used based on the following factors. RENTAL INCOME The main revenue generator for the incubator will be from rent charged to its clients. All the incubators we talked to including TBDC, CSI and ngen charge full market rents two of the incubators charge rents well above market rate and remain at capacity CSI maintains an extensive waiting list of clients who want space in their incubator. ngen charges about $15 psf (price per square foot) based on adhering to the principle of charging full commercial rates for space, a downtown St. Catharines location suggests that approximately $15,000 per year will be generated from each 1,000 ft² of space that is leased. (Millier Dickinson Blais 2007) The TBDC charges a lease rate about 25% above market rates in their neighbourhood. (Millier Dickinson Blais 2007) Both TBDC and CSI have some spaces that they rent to clients for over $40 psf. In fact, CSI s average rate for space is well-over $40 psf. Clients are clearly willing to pay rates that are equal or higher to market rates for space that delivers other advantages. 76% of CSI tenants report access to better facilities than their previous location. (CSI 2009) 26. CSI shared its budget (detailing both incubator income and expenses) with this study for the expressed purpose of analyzing the feasibility of the gaming incubator. 112

113 Some companies will place a premium on space that improves on their previous facilities especially ones that have attractive space and deliver other features and services. Enough literature validates the fact that an incubator should not be about cheap rent but about great spaces, technology and services at reasonable rates. In our interviews with existing gaming companies renting offices, the typical rental rate ranged from $20-$30 psf (not clear if this was net or gross). One company had paid as much as $168 psf for space in a private colocation facility. The gaming incubator uses market rates in its financial analyses. Other rental income may come from organizations that want to maintain space in the incubator to have direct access to gaming companies (e.g., industry organizations, professional service providers, government agencies, etc.). A larger facility may also have space for other major or anchor tenants compatible with the gaming incubator that provide stable rental income. RENTABLE SPACE An incubator facility will have space that is non-rentable such as hallways along with common areas (reception, boardrooms, kitchens, event space...). It is important to factor that into modelling as it reduces the amount of rentable space. The gaming incubator uses a 10% corridor factor in its modelling. OCCUPANCY Boyd (2006) suggests that incubators set an occupancy goal of 75% by the end of year one. When CSI expanded its space from 5,000 to 24,000 sq ft, the expanded space opened at 60% capacity and added 10% a month (essentially full after four months). For its modeling, the gaming incubator assumed a lower opening occupancy and a longer time to full capacity. PROJECT FUNDING The incubator can house research and development and partner-driven projects sponsored and funded by its academic, industry or government partners. ngen has had great success in housing projects led and funded by both Brock University and Niagara College. These projects bring resources into the incubator and attract other project funding while supplying rental and services usage revenue to the incubator. 113

114 VIRTUAL INCUBATION CSI has developed a successful virtual incubation and virtual tenancy program that delivers substantial revenue to their facility. These are clients who pay a monthly fee to access facility services, boardrooms and other space. Other incubators supply virtual services online which have growth potential unrestricted by the size of the incubator facility delivering them. These services take time to develop and should be factored in as longer-term revenues only. ROYALTIES, LICENSING AND EQUITY Royalties, licensing and equity are a key revenue source for some incubators, particularly those that are privately operated. ngen is currently using the royalty model with at least one of its in-house projects (in return for staff, support resources and space) which is a reversal from the recommendation in the Interactive Niagara report which states: Some incubation programs and facilities have generated additional income through the negotiation of licensing income, royalty agreements or the acquisition of equity involving companies within their incubation programs. This is not recommended in the Niagara case for a number of reasons. It has been shown that when incubation programs are too directly tied to the performance of participating companies, it is difficult to make sound decisions as to continued participation when it may not be warranted. At the same time, the loss of revenues (however potential) acts as a deterrent for companies to enter the incubation program, with the largest deterrent effect found among those companies with the greatest potential for success. Finally, the administration of the legal and accounting infrastructure necessary to support such arrangements can be onerous and costly, while producing (in most cases) only negligible financial returns. (Millier Dickinson Blais 2007) The gaming incubator is not counting on revenues from royalties, licensing or equity as a source of regular income for all the legitimate reasons listed in the above statement and for the fact that they are unreliable sources of revenue (i.e., unknown returns and timelines). The incubator does not rule out that option for the future but it would be under the right circumstances and evaluated on a case-by-case basis. BOARDROOM & EVENT SPACE RENTAL An incubator can assume some revenue from renting out boardrooms and event space that has not been booked by its clients. CSI charges from $15/hr (8-10 person boardroom style) to $72/hr (32 person classroom style). 114

115 PROGRAM FEES Fees collected from services, programs and technology usage are hard to predict at this early stage of the incubator s evaluation. For example, service partnerships have not been formalized and the advanced technology that will be deployed has not been finalized. The gaming incubator assumes that the cost of basic technology such as access to internet and shared equipment is fully recovered by user fees. Once the incubator is established it can develop event programming such as industry seminars that drive further revenue (some industry seminars and networking opportunities charge as much as $ per event). SPONSORSHIP FEES No sponsorship fees were assumed in the incubator s financial analysis. FACILITY COSTS The following building related costs were utilized in the financial analysis: Operating $3.00 psf Utilities $1.50 psf Janitorial $1.00 psf Operating costs include maintenance, landscaping, HVAC, insurance, snow removal, repair, etc. PROPERTY TAX Municipal property tax can be a significant cost for an incubator facility, $90,000 per year for the Toronto Business Development Centre*, and $50,000 per year for the Waterloo Accelerator Centre. (Millier Dickinson Blais 2007) If an incubator s organizational structure is configured as part of an academic institution, there is a possibility of not having to pay property tax since provincial bodies such as colleges and their properties (owned or leased) are exempt from local taxes. This study does not take that possibility into account, at this stage, and factors in the cost of property taxes as part of the analysis. The study uses a property tax rate of $4.00-$5.00 psf in its analysis. * Refers to previous facility as TDBC has since moved to a new location 115

116 RENOVATION COSTS Based on GBC s experience, renovation costs were assumed to range from $60 - $75psf depending on the initial building conditions. SAMPLE ANALYSIS Sample below of financial analysis template created to test the viability of real estate opportunities. The template has already been used to evaluate a number of properties. ASSESSMENT This study undertook extensive market research through on-site visits along with surveys and interviews with industry, companies, incubators and potential stakeholders validated against Canadian and US incubator best practices in order to assess the viability and potential of a Toronto gaming and digital media incubator. 116

117 The outcome of the feasibility study is the determination that a gaming incubator is both achievable and a valuable addition to the Toronto gaming cluster. That determination is conditional on securing the right facility that allows for flexibility of usage. If purchased, the facility must have the right price point (including purchase and renovation costs) to allow for affordable and sustainable operations. If leased, the facility must have the right lease rate (including any renovation costs) and a long-term lease agreement in place. Either way, the reality of the Toronto real estate market is that in order for an incubator facility to fulfill financial requirements the search must be directed to finding the right Class C or industrial building that is available at a reasonable rate (purchase or lease) and ripe for repurposing. This feasibility study was undertaken with the critical assumption that the incubator would have to be as self-sustainable as possible including in the critical facility acquisition stage. In other words, this study makes no assumptions about the availability of key financial sponsors; instead, the feasibility is based on utilizing key stakeholders to minimize the acquisition and operational costs of the incubator. To this end, the incubator has confirmed George Brown College as its key founding stakeholder which can be considered a financial, technology and service partner for the incubator. Due to GBC s track record of successfully repurposing facilities at below-market costs and the subsequent increase in value to those facilities, the incubator has had little trouble in attracting potential private developers and investors that can assist in the acquisition phase of the incubator. This is quite a coup for an incubator and is one of the strongest indicators of its potential. GBC s stability gives potential partners a much higher level of comfort than the incubator could generate on its own. This has clearly been the case on the real estate side where the idea of an incubator with GBC as the lead partner quickly secures the interest and support of building owners or landlords and potential developer partners. 117

118 The financial analysis was based on the hardest data and numbers that could be found. CSI was of great help in this phase as it is a well-established incubator of a size (24,000 sq ft) that is relatively equivalent to the working size for the gaming incubator. Access to their budget numbers, including expenses and revenues, gives us a high level of reassurance in our financial analysis. We also used very real numbers in terms of facility acquisition and renovation which allowed us to perform cash flow and return on investment analyses. These are more advanced types of financial analyses that are typically found in the more detailed business plan phase that follows a feasibility study. Wolfe states in Boyd (2006) that he usually carries out a simplified financial analysis in a feasibility study and performs a more detailed multi-year pro forma Market: Is there a sufficient market for the business assistance services an incubator would provide? Ontario has 40% of all Canadian gaming firms and Toronto is the third largest gaming cluster so there is definitely a sufficient gaming market for the incubator to serve. In terms of services, there is verified interest in a broad spectrum of business assistance services. Is there enough entrepreneurial activity to warrant not only the launch of a program but also to sustain the incubator in the long term? Yes, based on the current size of the cluster and its three-year projected growth rate of 31% (Ontario). Does the community have the capacity (commercial space, workforce, infrastructure, etc.) to retain companies after they graduate? Capacity is not an issue in the Toronto area. Is there a history of entrepreneurial behaviour in the community? Yes. What types of location, facilities, and services would benefit these entrepreneurs? Companies desire a facility in the inner Toronto area close to major transit lines. The facility should be attractive, have flexible space, offices with maximum privacy and access to shared spaces. The cost of the space should be affordable but does not necessarily have to be below market cost. Entrepreneurs are interested in a variety of business assistance services and shared office services. There is also strong interest in access to a variety of technology equipment and tools some technologies have strong across-the-board demand while other technologies have demand that is dependent on the type of products a company develops. Would entrepreneurs be willing to pay for incubator services? Yes, though incubator clients would expect some office services to be covered as part of their regular fees. Some business services are expected to be delivered below or at cost while professional business services (legal, accounting...) can be offered at regular rates, if need be, but clients want help with recommendations and accessing those services. Are there other business assistance providers with which the incubator could partner? The incubator has had initial interest from TBDC to help deliver business assistance services and MaRS to help deliver commercialization and financing services. Preliminary interest has been shown from financial institutions which can assist with banking and financing services. Are there individuals in the community with expertise in law, accounting, and other areas who are willing to participate in a service provider network? Early-stage discussions were held with a legal firm which specializes in servicing the digital industry to gauge potential opportunities. Would clients have access to debt and equity capital? Possibly from potential service and financial institution partners but not from the incubator itself. 118

119 in the business plan phase, we typically don t put hard numbers together in terms of revenue, cost of construction, and any affiliated debt until the business planning stage, when a facility has been selected, a marketing strategy has been developed, a capital structure has been determined, and specific staffing needs are understood. Boyd (2006) has a list of questions that incubator feasibility studies should answer and that serves as a useful template for assessing an incubator s viability. Real Estate: Is appropriate land or commercial space available for the incubator? The incubator study has identified two properties that it is following up on. What size incubator would be appropriate? The incubator is looking for a facility in the range of 20,000 to 50,000 sq ft which is line with incubator professionals who suggest 20,000 to 30,000 sq ft as the minimum size for achieving financial sustainability. What features do potential clients desire (manufacturing bays, wet labs, etc.)? The only facility feature mentioned as desirable was a loading dock. Stakeholders: Are there individuals in the community who support the incubator concept? Will they get behind the effort for the long term? Yes, the founding stakeholder is already confirmed and a variety of other partners have signalled their interest. Are there individuals who are opposed to the concept? None that the study has identified. Do the wants and needs of stakeholders fit with the incubator s goals? There is a strong correlation between GBC s needs and the incubator s goals. The incubator only seeks out partners that fit its goals and vice versa only real win-win partnerships have the ability to deliver long-term benefits. Do some stakeholders have unrealistic expectations or incorrect assumptions about what an incubator can and cannot accomplish? No. Are some stakeholders willing to commit financial resources to the project? Yes, there is interest from private developers and investors under the right conditions. Other partners, including GBC, may contribute other resources that offset financial costs (e.g., equipment, resources, services...). Finances: Given the entrepreneurial pool and available real estate, is it likely that an incubator could generate sufficient revenue to eventually become self-sustaining? The study s financial analysis shows that the incubator can indeed generate sufficient revenue and be self-sustaining. In fact, a key goal of the incubator is to be as self-sustaining as possible from day one. Is the incubator likely to secure predictable, reliable sources of funding? Yes, the incubator s main source of revenue will be rental income (from clients and anchor tenants). How much capital is needed to build or acquire a facility and launch a program? Purchase costs are dependent on the facility. A purchased or leased facility would most likely require renovation costs which are expected to fall in the $60-$75 psf range. (Source: Boyd 2006) 119

120 120 GAMINGINC

121 This section details design and specification guidelines for a potential gaming incubator facility. KEY FACILITY PRINCIPLES The gaming incubator should be a hub for emerging and existing SME digital and gaming companies; supporting and accelerating the growth of enterprises through the delivery of services and access to technologies and tools. A successful gaming incubator will need to collaborate with a variety of partners in order to be able to deliver services and technologies with a maximum efficiency and expertise at a reasonable cost to its clients. As well, the gaming incubator should endeavour to become a key addition to the Toronto gaming cluster by facilitating networking between academia, the digital and gaming industry, government and other creative industries with the goal of delivering innovative services and technologies, R&D, joint projects and programs for incubator clients and the gaming industry overall. Gaming Incubator Key Guiding Principles: The gaming incubator aims to support the growth and development of emerging and existing small digital and gaming companies. The gaming incubator endeavours to be a positive contributor to the gaming sector and industry as a whole. The gaming incubator aspires to be a model of collaboration, open to all who share in or benefit from its goals to support gaming companies and the gaming sector. The gaming incubator should be designed to foster creativity and innovation. 121

122 THE FACILITY BRAND The way an incubator positions itself helps in attracting the right clients and partners. Hub space is what we are trying to create. Generating the ecosystem for Toronto gaming. Luigi Ferrara It is interesting to note that many incubation facilities do not actually use the term incubator in their name. These incubators may want to express the fact that they do much more than just incubation. As part of its overall brand, the gaming facility should choose its name carefully. The name should reflect the primary goals of the facility without having a limiting or restrictive effect on the vision of the facility and its ability to achieve its goals. This is not within the realm of this report and is left as a future exercise. This section will use the name gaminginc as a placeholder. While the inc in gaminginc can represent incubator it also refers to the gaming industry as a whole (as in gaming inc. or gaming incorporated) which fits the goals of the facility in helping the growth of both gaming companies and the gaming industry. Interestingly, while research suggests high levels of support for the concept of incubation, it also showed a marked reluctance to use the terms incubator or incubation in the actual delivery of a program. Some sources suggested that the terms were both overused and potentially negative in its connotations (due to the failure of many private incubators after the tech crash in the early 2000s). Similarly, some Ontario companies have suggested that being associated with an incubator can suggest an element of early stage activity or amateurishness that frightens potential investors. (Millier Dickinson Blais 2007) All of the following, amongst others, perform incubation functions: In Toronto: Toronto Fashion Incubator, Toronto Food Business Incubator, Toronto Business Development Centre, the Centre for Social Innovation, Ryerson Digital Media Zone and MaRS Discovery District (which contains the MaRS Incubator) In St. Catharines: ngen (The Niagara Interactive Media Generator) In Waterloo: The Accelerator Centre (AC) Instead of incubation, these facilities are involved in the cultivation of technology entrepreneurship (AC) and are building Canada s next generation of companies (MaRS). ngen and AC have broader regional mandates. AC defines itself as such: The AC was established to accelerate the creation, growth, and maturation of sustainable new technology companies; to promote commercialization of research and technology rising out of academic institutions and to generate economic benefit and enhance the strategic importance of Waterloo Region within Ontario and Canada s broader economy. 122

123 INCUBATOR CHALLENGES There are two principal challenges that gaminginc needs to avoid these are the kinds of problems that can destabilize an incubator s operations. By far the greatest destabilizing challenge Toronto incubators identified were in relation to real estate some incubators find themselves at the mercy of the market or landlords affecting both their stability and sustainability. This instability of space may force an incubator to re-establish itself after having created a successful facility a challenge to its bottom line and its permanence. The lack of permanence affects not only the incubator but the industry it supports. In its previous location, the Toronto Fashion Incubator was at the heart of a creative hub or cluster that was developing in the West Queen West area. Creative industries feed off each other and seek out to be close to those who are in the same or similar industries and every time a key piece of cluster infrastructure, such as an incubator, disappears it can destabilize what had been built around it in terms of companies, services or programs. The other main issue was related to capital and operational funding gaps. Many incubators we spoke to talk of the pressure to cover basic operating costs such as rent and how it can overwhelm all the other goals of the incubator. Other funding issues revolve around the instability of some funding sources. For example, government programs can change, be withdrawn or come with a limited lifespan. Incubators can end up on a funding treadmill where they are constantly re-applying for funding and cannot budget more than a year or two ahead with certainty. 123

124 SELF-SUSTAINABILITY This section details key recommendations for limiting the effect of the challenges mentioned above. Most non-private incubators rely on subsidies from government or other partners to sustain operations. At the same time, many incubators are facing financial pressures which are challenging their operational capacities. Initial supports or subsidies may be a requirement for the creation of an incubator facility; however, that same requirement need not be the case for maintaining long-term operations. gaminginc should focus its business plan on developing a revenue model that will allow it to be operationally selfsufficient as quickly as possible. This motivation is based on the recognition that self-sufficiency brings the facility maximum flexibility in how it can support its clients and deliver programs. A self-sustaining facility generates income which supports its operating budget and has other funding sources that are reliable or replaceable. A self-sufficient facility covers all its expenses from its own operations. gaminginc needs a viable sustainability plan in order to attract private and public investors. In order to achieve sustainability and eventual self-sufficiency, gaminginc needs a stable real estate situation. This is achievable by leasing a building with a long-term term or, ideally, the purchase of a building. Both these would give gaminginc a fair idea of long-term cost commitments on the largest operating line item. The more funding sources that gaminginc has access to the better its financial stability and reliability. Robbins (NBIA 2006) suggests an incubator should have six to ten revenue streams, which might include rents and service fees, income from contracts, cash operating subsidies or sponsorships, and investment income. The bottom line is: Best practice incubators operate like businesses as much as possible and the less long-term dependence on financial subsidy, the better. Multiple funding sources protect gaminginc from becoming dependent on one source of funding or from funding sources that can be withdrawn both of which can destabilize an organization. 124

125 FACILITY MODEL It is important to have the right type of incubator facility to ensure that clients can be properly serviced and that incubation is possible. A pure colocation centre (also referred to as bricks and mortar ) maximizes rental revenues but offers no incubation. An incubation centre maximizes incubation but minimizes rental revenue and relies on external sources of funding or riskier revenue streams (equity). The recommended facility model for gaminginc is the hybrid model. The hybrid model combines aspects of colocation, incubation and business development and tries to find a balance between the generation of internal revenue and the delivery of business services, technology or incubation. The Centre for Social Innovation has successfully implemented the hybrid model for social, environmental and cultural enterprises. CSI s first stage of development was focused on colocation with shared spaces, shared services and events but with minimal or little incubation. After its expansion (at its original location), CSI increased its colocation space and shared services but, more importantly, it now had the capacity to expand its business services to external clients and to incubate companies and projects. CSI has since opened a new facility. 125

126 FACILITY SIZE Robert Meeder, in Forging the Incubator (1993) emphasizes repeatedly that most business incubators that achieve self-sustaining operations have more than 30,000 square feet of net rentable space based on his assertion that rental income should serve as the primary source of operational revenue. gaminginc needs at least 20,000 square feet of usable space in order to have enough room for core companies, technology, shared space (boardrooms, kitchen ) and colocation offices. Extra space beyond that would allow gaminginc to open up room for anchor tenants and provides it with space for future expansion. Below that size, gaminginc would have to pare down its services or incubation capacity or rely on external funding sources. COLOCATION The primary source of operational funding for gaminginc s goal of achieving self-sustainability will be from rental income. The gaminginc facility should dedicate a sizeable amount of space to the colocation of gaming and digital companies with potential room for anchor tenants. Both provide rental revenues anchor tenants can provide longer-term rental stability. CSI (2006) claims that the city of Toronto is ripe for the development of new colocation enterprises there are currently only a handful of such initiatives in a city in which demand is far outpacing supply. Colocation space should be envisioned as more than simple space for rent. Colocated companies should go through a selection process to ensure a good mix and fit as these companies can serve as catalysts for collaboration and innovation within the gaminginc facility. The main focus of the facility will still be on providing services and technologies to its core group of emerging and small gaming and digital companies. However, the colocated companies will also have access to the facility s services and technologies. The colocated companies increase the scale of the facility allowing for the quick establishment of a gaming hub which will bring substantial benefits to both core and colocated companies potentially triggering the same kinds of multiplier effects that CSI has measured in its facility (see the Cluster Demand section). A colocation facility can offer significant benefits to its tenants, including: Stable and affordable rent Improved physical space, amenities and location Reduced overhead and infrastructure costs through economies of scale Increased visibility Opportunities for cross-organization collaboration and synergy Source: CSI 2006 Access to shared services 126

127 ANCHOR TENANTS Anchor tenants can serve an important role in generating stable rental revenue; however, they should not be selected simply based on their ability to pay rent. Anchor tenants housed in the gaminginc facility would define part of the character of the facility. It is important that anchor tenants fit the overall goals of the facility and support the concepts of collaboration and innovation. They should be comfortable in working with other facility partners, even potential competitors, and encourage or contribute to the flow of ideas. Anchor tenants should be in the digital or gaming business, other complementary industries or in a business that can directly serve the needs of gaminginc clients. MARKET RENTS Gaming companies signalled that they were looking for affordable rents. Those with existing offices were already paying at or above market rates. This study did not come across any companies that were paying rent that was substantially below market rates. Incubated emerging companies may require initial rental assistance but even these companies should be weaned off cheap rents and moved to market rates as soon as possible in order to prepare them for graduation to a stand-alone office once their tenancy period is complete. Companies located in existing Toronto incubators are most likely to be paying above market rates some substantially so. It is clear that below market rates are not a requirement for filling incubator space. Incubators offer the advantages of smaller space (e.g., 100 square feet) and flexible space (shorter leases, space that can be expanded or reduced) that the private market rarely provides along with other services and shared facilities that small companies could not afford otherwise. Smaller companies are attracted to these flexible and full service facilities and are willing to pay a fair rate for access. In sixteen Helsinki, Finland incubators, the rent is set at market rates for the Helsinki Region. Incubator companies can stay as long as they wish; however, rent is raised by 10% every year (after the second year) until companies move out which most companies do after the third or fourth year. (Abetti, Pier Government-Sponsored Incubators in the Helsinki Region.) 127

128 CLIENT SELECTION Incubators in Canada received 4,517 applications for admissions in Only thirty-four percent of the applicants were selected to become clients. (Statistics Canada 2006) gaminginc will succeed or fail not just on its space and services but also on its clients. Demand tends to exceed supply in the Incubator world so client selection is a critical incubator function. The same amount of effort that goes into creating a viable physical space needs to be spent on selecting gaminginc clients. Most client applicants will self-select based on their understanding of what the Incubator can and cannot do for them but in order to ensure that clients are a good fit for the Incubator and its offering they should go through a formal application process. The process should aim to validate the client s business model and to ensure that selected clients are those that can benefit the most from gaminginc s offering. All potential clients should have to apply for space using a detailed application form that gives the information needed to make an informed decision about their viability. Finally, potential clients should be given a tour of the space and a formal interview before being approved. The selection process defines in advance what kind of clients would benefit most from the space and add value to gaminginc itself. It should define desired client sizes and industry sectors. A sample selection process could include the following factors: a focus on gaming or digital media a diversity of developmental stages, including both early stage and SME other services that are beneficial to the Incubator or its clients (design, business or technical services) The client selection process can occur at the management level, board level, or might even include existing clients. In keeping with best practices, gaminginc should encourage rapid graduation from the facility. gaminginc should have a defined process for graduating successful companies and, also, for removing companies that no longer meet gaminginc criteria avoiding the situation where unproductive companies accumulate in the facility leaving less space for new companies. Some incubators limit a client s tenancy to three years. Other incubators raise a client s lease rate every year as a way to prepare the client for market rates and to encourage them to prepare to graduate from the facility. 128

129 MAIN CRITERIA UTILIZED TO SELECT APPLICANTS Criteria Number of times applicable A good business plan 62 A sound management team 46 A good business opportunity 46 A technology transfer or commercialization opportunity 35 Availability of financing 32 A collaborative research opportunity 29 Other 26 The applicant is a spin-off from a stakeholder organization 10 A working prototype 4 The foreign applicant has a reference from its host country 1 Source: Statistics Canada 2006 Basic characteristics of a selection process should include: Incubators should accept a diverse range of clients to increase synergy and diminish direct market competition Applicants should be for-profit ventures They should be identified within the technologies or other cluster supported by the incubator Applicants should be early-stage generally within the first two years of business operations not yet profitable and still growing. Exceptions may be made for small firms that are changing focus, in a turn-around mode, substantially restructuring or launching a new business project Those that can properly use access to an affiliated institution such as a university, federal laboratory or other strategic partner should meet the basic requirements of the partner if their success involves using the partner s resources They should have a management team that is capable of handling technical and operational aspects of the business or understand the need for and be willing to obtain needed technical assistance Applicants should be able to benefit from the added value provided by the incubator and its resource network They should provide economic benefits in the form of job and wealth creation or otherwise develop a product or service that will benefit the region and/or sponsor Source: Wolfe, Chuck, Dinah Adkins, and Hugh Sherman, Best Practices in Action Guidelines for Implementing First-Class Business Incubation Programs, NBIA Publications, 2001 They should have the ability to pay rents and fees charged by the incubator while developing positive cash flow 129

130 CLUSTER SUPPORT Creative industries are particularly suited to the formation of clusters. They benefit from the concentration of collaborating and competing businesses and the proximity to talent, supply networks and the creative infrastructure that is typically offered by larger urban areas as reflected in the highly concentrated gaming clusters in Vancouver and Montreal. The interaction between people and firms helps further intensify the development of the cluster. Toronto s gaming sector does not display this same level of concentration or clustering there is no there there. The sector s high level of dispersion lessens the opportunities for people and firms to be exposed to innovation, to network or to collaborate. Toronto s cluster would benefit from more physical and social concentration and connectivity, leading to stronger cluster hubs which, in turn, attract gaming specialists in finance, publishing and distribution. In the long term, gaminginc has to be about more than incubating and supporting its client companies; it has to also be about supporting the gaming sector itself. Once the facility is running smoothly, gaminginc should implement its strategy for integrating the facility with the gaming sector by setting up networking, collaboration and innovation-sharing opportunities between companies, industry, academia and complementary creative clusters. gaminginc has the potential to be an important channel in driving increased cluster development activity. Ontario s development studios have tended to remain relatively isolated from each other and from potential partners in the many complementary industries located in Ontario. (SECOR 2008) In time, gaminginc should also look beyond the gaming sector to other digital and complementary industries in a quest for cross-industry collaboration among complementary sectors. While creative people are highly mobile, the big producers and distribution companies on whom they ultimately rely are not, so creative talent is drawn to the places where distributors are located. Creative businesses need this pool of specialist labour to scale up to cope with big projects such as films and games. In its turn, this talent pool of creative people and services encourages a discerning local market, which is essential for creative producers to understand new trends and fashions, the engine of innovation in this sector. A sophisticated local market is a key component of a creative cluster: creative clusters are clusters of both production and consumption. UN (2008) 130

131 STUDENT POOL A key aim of gaminginc should be to work closely with its academic partners to establish a student pool of design, development and project management resources available to incubator clients at reduced rates. One of the unique factors in the digital space is the almost virtual-nature of some companies. Employee growth in more traditional industries is a determinant of ongoing product or service growth. Digital companies, however, may have growth that is more dependent on a project-by-project basis. Technical and design skill set requirements can vary dramatically with each new project and a company may have to contract and expand its human resources at a more pronounced pace than is experienced in other industries. Almost 50 percent of multimedia companies prefer hiring for a particular project - an employee is usually hired because of a particular skill for a specific project. The other half uses a regular pool of employees that are assigned to different successive projects. However, among those establishments that have regular employees, 57 percent foresee the hiring of project-specific employees within the next few years. (Source: U.S. Department of Commerce. Overview of Quebec Video Gaming) Larger companies can afford to park their human resources within the organization even when they are not being fully utilized as a way of ensuring that the resource is available when required. Smaller and earlier stage companies do not have the same luxury of sustaining full-time employees for part-time resource requirements. However, smaller and early-stage companies do exactly that due to the fear of not having key resources around which they may require at a later stage. Compounding this fear is the difficulty in sourcing these resources in the first place and in competing for the same resources with other enterprises. One of the companies interviewed for this study talked about how they had to turn down a $4 million project because they couldn t staff quickly enough. Smaller enterprises are either forced to lock in their resources earlier than fully required and face financial challenges, turn to more expensive freelancers/consultants or run the risk of being delayed in the future while re-sourcing the required skills. The end result is that smaller enterprises lose their flexibility at the most critical stage of their development. gaminginc recognizes this as a significant challenge for small and early stage companies and should seek to alleviate the situation by making the availability of key human resources on a part-time basis a fundamental feature of the facility. In partnership with GBC and any other enlisted post-secondary 131

132 institutions, gaminginc should endeavour to offer quality programming, design and project management resources at minimal prices and allow organizations to access those resources as needed. These typically hard-to-find resources, available in-house and on a flexible basis, can be a critical success factor for smaller organizations that do not have the capacity to attract or hire full-time resources. gaminginc can coordinate the creation and management of a post-secondary student and graduate pool of designers, developers, producers and project managers supplied by enlisted institutions. Enlisted institutions would agree to pre-select and validate all students and graduates provided to the program. In our interviews with students they showed a very high level of interest in participating in a student pool. The opportunity to gain real-world experience far outranked the chance to earn money as a reason for being interested. Benefits for students 27 and graduates: Paid work Experience Networking Flexibility in terms of work hours Possible portfolio material While it appears that most of the benefits are accrued by students in the pool, there are real benefits for participating academic institutions. Students value programs that allow them real-world experience while they are in school and are more apt to be attracted to institutions (especially colleges) that provide these opportunities as part of their academic offering. The problem for academic institutions is in identifying and establishing those opportunities. Some institutions create in-house work projects for students just to give them a taste or semblance of project experience. gaminginc would offer a ready-made solution for academic participation and the only cost to the institutions is the validation and pre-screening of participating students. Benefits for enlisted institutions: One-stop setup for offering real-world experience for qualified students Can expose students to potential employment opportunities after graduation Students may receive credit (dependent on project and work) Can offer students real-world projects that they can add to their portfolios 27. Full-time students are limited to the number of hours they can work per week (e.g., 24hr max for GBC students) 132

133 Benefits for Incubator companies: Below-market priced resources (GBC applies a standard rate of as little as $15/hour for qualified developer and design resources) Resources that can be filled in relatively short notice Accessible for specified blocks of time Hard to find specialty skills available, such as producers and project managers (recent graduates) Opportunity to try out potential future employees DESIGN AND ART RESOURCES The success of the Toronto gaming cluster is intrinsically bound to the quality of the creative talent in the region. The gaming industry depends greatly on content creators, designers, artists, musicians, animators, etc., as primary inputs. Though creative talent is fundamental to the digital and gaming sectors it is not uncommon to see assistance to the sector primarily focused on technology and other technical aspects instead. gaminginc should ensure that both technical talent and creative talent help drive gaming innovation. 133

134 ... better educational programs and stronger links to the arts is what will maintain the city s (Montreal) edge. The gaming business also needs better links with the cultural sectors. As games evolve, more talent is needed to produce them, including artists and musicians. Remi Racine, President, Artificial Mind & Movement (in The Montreal Gazette, May 5, 2006) Interviews with gaming companies revealed the high demand for art and design resources. However, many companies were frustrated in their limited ability to access those resources. This in turn has an effect on the quality of the final product. Design research, often a critical component of product development, falls outside the definition of eligible activities for a Scientific Research and Experimental Development (SR&ED) tax credit, presenting a challenge to incorporating design in product development. Within content producing sectors, project development funds frequently fall short of the level needed to produce products with international market appeal. (CONCERT 2008) The gaming sector can benefit from being exposed to other creative industries such as film and fashion in the pursuit of untapped collaboration opportunities. gaminginc can take a leading role in developing design research capacity for the gaming sector and can serve as a center for increasing interaction between the various creative sectors in the quest for unique product innovation. WOMEN IN GAMING Roberto Rocha (in The Montreal Gazette, May 5, 2006) says that anxiety about labour shortages would be nil if studios hired more women; and quotes Nick Dyer-Witheford (Faculty of Information and Media Studies, University of Western Ontario): There needs to be a cultural revolution to support involvement of women. Greater female involvement could also lead to a greater variety of games. We hear more and more that video games are stuck in a predictable and formulaic rut. While gaminginc cannot tackle every issue related to the gaming sector, it should make an effort to help with the issue of a shortage of women in the gaming industry. gaminginc should ensure that its facility and events are inviting to women. ngen, for example, holds special networking sessions for women. 134

135 SERVICES At the heart of a successful incubation program are the services that a facility can deliver in support of its clients. Without services, gaminginc would be just another building with rentable space with little ability to support the growth of emerging and small companies. Though a gaminginc building can help or hinder the facility s success, fundamentally, it is the services and technology that will be the key driver of growth and innovation. gaminginc cannot deliver all the services that can benefit gaming companies or that companies have on their wish list. The facility management and staff are unlikely to have all the necessary skills and experience, or time, to deliver a broad range of services unassisted. Nor can they develop all those services in-house due to the time and cost involved, and, most likely, end up unnecessarily duplicating services that are already being delivered by other organizations and professionals. This is especially the case for business services which are largely tailored to all business and do not require specific reformatting for gaming companies. gaminginc has already had preliminary discussions with two organizations that could deliver business and commercialization services. Ideally, a partnership can be agreed to that benefits both parties and avoids waste of resources on needless replication and competition. Some services are normally delivered by professionals such as lawyers and accountants. gaminginc needs to develop a professional service provider network of those with expertise in assisting emerging and small companies. Ideally, these professionals should have experience in the digital sector so that specific industry needs (e.g., tax credits for digital companies, legal issues specific to gaming ) can be delivered efficiently and well. If for any reason, gaminginc cannot secure a service partnership then it needs to ensure that the facility hires someone who is qualified to assist emerging and small companies as this is one of the most valuable functions that the facility has to provide. This would be the priority staffing need, along with someone experienced in managing a facility. Other partnering opportunities exist with financial institutions which have the capacity to deliver basic business services and financial planning. The services the facility opens with should be based on the core emerging and small business service needs determined from best practices and client surveys. However, the facility should also identify any 135

136 services that are missing that would be beneficial to the growth of its clients. gaminginc would love to provide a full slate of business and financial services but cannot do so from the get go and needs to roll out the service offerings in stages. Though the facility listens to the desires of companies in seeking the balance between benefit and demand in the services it delivers, ultimately, it must take responsibility for determining which services to provide. This is important because digital companies can have extremely low costs of entry into their market. A digital company can be up and running with as little as an idea and a computer an office or, even, a desk being optional so it is not surprising to find digital companies delaying fundamental business requirements such as a business planning to later stages than is typically seen in other industries where fundamentals are required up-front as part of standard funding requirements. It was not uncommon, in our interviews, to come across companies who had been active for a while and had yet to complete a business plan and were, in fact, quite comfortable with that fact. The same effect was identified by the UK s Creative Britain report (CEP 2008), regarding business planning in creative businesses which states that only 35% of creative SMEs use formal business planning techniques. Since the facility cannot deliver everything at once, it needs to determine which services to start with. This will be a key part of the facility s business plan and gaminginc should seek out industry consultation and feedback from technical and academic partners that can help define the core services that the facility should offer. The list might also be dependent on the service partnerships that develop. gaminginc s sustainability plan will evaluate how best to price the cost of services. Shared services are typically bundled into rent. Other services are charged as separate fees. While services can be an important revenue source for the facility they should not be priced at the expense of affecting the rate at which facility clients access those services. gaminginc seeks to deliver as many services as possible at no or reduced cost, however, interviews show that companies are prepared to pay a fair price for services they deem critical to their advancement. 136

137 There is mixed evidence about the extent to which the creative industries experience specific or greater business support issues. Many creative industry firms have no business plan (39%), no training plan (64%) or no training budget (70%), all of which can limit their business success. A separate study found that the proportion of creative small firms using formal business planning techniques is just 35%...and a third of creative businesses with an annual turnover of more than 1 million have no explicit financial goals. Although the evidence does not point to greatly different problems for creative small firms compared to those elsewhere in the economy, this absence of business planning and training has been raised consistently throughout the industry consultation of the Creative Economy Programme. All of this suggests that an approach to business support that acknowledges and understands the underlying characteristics of the creative industries is needed. (CEP 2008) Core Incubator Services The following is a list of services that incubators commonly provide. Not every incubator provides all of these services; services will vary according to incubator type, location, and client needs. For example, only incubators that serve high-growth companies will assist them in obtaining venture capital. Business Development Services Business coaching Educational seminars Links to lawyers, accountants, and other professional service providers Marketing assistance Mentor programs Brown bag lunches Pre- and post-incubation assistance Assistance in obtaining funding Connections to venture capital sources Intern programs Shared administrative services CEO roundtables Building Amenities Resource libraries Shared conference rooms Shared office equipment (photocopier, fax machine) Shared specialized equipment Reception area and receptionist to greet visitors Source: NBIA

138 FACILITY SPACE gaminginc should be about more than just rentable space. More than a physical space, it has to be a space with functional multiple personalities; allowing for focused and quiet work and allowing for formal and informal exchanges while also providing space that encourages exploration and unexpected discoveries. The facility needs to make the most of the space it occupies and part of that revolves around implementing a clean and fresh design. Other incubators like CSI show the value of creating a space with modern and open design. In turn, the space s environment becomes a key tenant attractor. gaminginc is a strong proponent of the power of space to improve productivity and collaboration through good design. Private spaces must truly allow users to be separated from the ongoing activity in the rest of the facility; and the ways shared spaces are designed will go a long way to either supporting or limiting interaction among facility members. Details such as maximizing natural light can have an enormous effect on how well people function within the facility. Ultimately, clients should feel comfortable or even proud to invite customers or investors to the facility. GBC has converted a variety of spaces into facilities that offer maximum space flexibility. Properly designed shared facilities such as boardrooms, meeting rooms and even kitchens can serve their basic function while also providing space that can support client collaboration or be an encouraging place to play with new ideas and technologies. Well designed shared spaces rarely sit empty as their flexibility allows clients to re-envision the space in ways that the facility may not have thought of. In an interview with this study, TBDC s Michael Donahue revealed some of the lessons they had learned regarding facility space and what works: Not having too much shared space Office space that offers discretion and privacy Flexible space the ability to grow is important Inside offices are harder to rent people like the sense of a window Loading space access to loading docks plus doors and hallways wide enough to move furniture and equipment is a strong plus having enough collaborative space and small meeting rooms (with windows) where people can have quick meetings outside of their offices 138

139 Original vision diagram: Luigi Ferrrara, GBC 139

140 GOVERNANCE The majority of incubators in Canada operate as incorporated not-for-profit firms. Ten percent of North American incubators are registered as for-profit organizations; 90% of incubators are registered as notfor-profit. (NBIA 2006) Business Type by Colocation Nature of Colocation Business Type Not colocated University or college Other Federal gov t lab Private Total Incorporated non-for profit firm Part of federal, provincial or municipal government Part of university or college Other Incorporated private for profit firm Part of larger incorporated private for profit firm Total An incorporated not-for-profit is the preferred legal entity for gaminginc. Source: Statistics Canada 2006 gaminginc s board of directors will have fiduciary responsibilities and should consist of a selective group of experienced individuals who can contribute to and are committed to the facility s mission, goals and client companies. The board should provide direction and leadership but should not be involved in regular daily operations. Experts do not agree on what the appropriate size is for an initial board, the range varies from four to twelve directors depending on the stage and need (i.e., smaller in the earlier implementation stage and growing once established). A non-profit corporation is a legal entity separate from its members and directors formed for purposes other than generating a profit to be distributed to its members, directors or officers. While, a non-profit corporation can earn a profit, the profit must be used to further the goals of the corporation rather than to pay dividends to its membership. Non-profit corporations are formed pursuant to federal or provincial law. An incorporated non-profit organization can enter into contracts, buy land, borrow money, have bank accounts, etc., in its own name. Source: CorporationCentre.ca 140

141 gaminginc s initial board of directors can consist of the facility s manager/ceo, a founding stakeholder representative, other stakeholder representative(s) plus a legal and/or finance professional. The initial board should be fairly small in order to stay focussed and to ease the decision making process; it should be in place before the facility opens in order to help with the creation and implementation of the facility. In addition to a board of directors, many facilities also put together an advisory board. These advisors can support the facility manager and team on specific needs (technical, real estate, financial, business development expertise ) and can help with client screening and selection. Facilities that rely on a stakeholder for key financial or in-kind subsidies to operate the facility or programs should have agreements in place that prevent the termination of the support for non-agreed-upon reasons. If the situation exists where gaminginc and a stakeholder are equity partners in a building then an arm s length relationship must be maintained and an agreement must be in place dictating the acceptable terms of termination of the partnership. This is to protect gaminginc from a situation where a change in stakeholder management leads to a change in commitment to the facility. Key roles and responsibilities of an incubator facility s board of directors: 1. Develop and update a strategic plan for the incubator 2. Set policies regarding the Board s operation and the role of staff 3. Manage external relations for the board and for the incubator 5. Support the development of the incubator companies Rice, Mark and Jana Matthews. Growing New Ventures, Creating New Jobs. Quorum Books, Support the business operations of the incubator 141

142 142 CONCLUSION

143 This study shows that a Toronto gaming incubator is necessary and feasible underpinned by a strong demand for innovative space and services. There is an abundance of small and emerging companies in the Toronto region that can benefit from a facility that can offer access to greater levels of business services while exposing those same companies to new technologies, networks and collaboration opportunities. There is currently no facility in the Toronto region that can offer a full slate of business, technical and resource supports to the wide spectrum of digital and gaming companies from the research and early stage of development through to the mature and stable enterprise stage. The challenge with incubator facilities in the Toronto region is not in filling them in all the regional facilities we examined or visited demand exceeds availability the real challenge is in delivering a full slate of technologies, services and incubation sustainably without over-dependence on outside sources for operational funding. Canadian incubators only recover one-quarter of their annual costs from internal operations and rely heavily on government and economic development organizations for operational funding funding which can be unstable and unpredictable over time. To assure more long-term stability and flexibility incubator facilities should focus on partnering strategically (e.g., academic institutions) and on increasing internal sources of revenue. The hybrid model that this report recommends is based on a strategic academic partner and combines services, technology, incubation and human resource supports with flexible space that can mix large, mid-sized and small companies along with emerging and early-stage research enterprises. This model allows for the maximization of revenue which can help support facility services and technologies; and, in turn, tries to lessen the susceptibility to the real estate concerns that were identified in this report as a major challenge for Toronto-based facilities. This report proposes that a facility similar to the sample detailed as follows would be both a model for long-term sustainability and a valuable addition to the Toronto region s gaming environment. 143

144 SAMPLE MODEL GAMINGINC 144

145 REVENUE SOURCES Rent (Offices & Desks) Rent (Boardroom/Event Space) Fees for Services Training & Seminar Fees Sponsorships External Contracts Private Sector Contributions Public Sector Contributions Membership Frees Lincense Fees Royalties/Equity 200 sf 100 sf 400 sf Permanent Desk TECHNOLOGY [T] EVENTS [E] HR POOL [H] Development Kits 3D Printer 3D Scanner Gesture Tek Surface Computer [Motion Capture] SERVICES [S] Office Mgmt Legal Accounting Fiancing Marketing/PR Business Plan/Advisory HR/Training SHARED AMENITIES [A] Building Reception Telecommunications Meeting Rooms Office Equipment Mailboxes Event Space Kitchen Facilities Building Security Cleaning/Maintence Pre-Qualified Students Developers Designers Artists Project Managers JOINT PROJECTS [J] R&D Projects Industry/Academia Business Development gaminginc145

146 KEY RECOMMENDATIONS - GAMINGINC R01: gaminginc should finalize a strategic academic partnership with an institution(s) that has a compatible vision and set of goals in the gaming and digital space. R02: In the business planning phase, gaminginc should produce a 3-5 year sustainability plan with the goal of financial sustainability driving everything in the plan. R03: gaminginc must strive to be self-sustaining as quickly as possible with a mid-to-long-term goal of financial self-sufficiency (generating enough revenue to cover its own operating expenses). R04: gaminginc should pursue the hybrid facility model. R05: gaminginc must control its own real estate destiny either through a building purchase or a longterm lease (+15 years). R06: gaminginc should look for a facility with 20,000 to 50,000 square feet. R07: gaminginc should have a well designed environment creating attractive and professional space that serves both private and public uses. R08: Any anchor tenants housed in gaminginc should be compatible with the goals of the facility; and, should be in the digital or gaming business, other complementary industries or in a business that can directly serve the needs of gaminginc clients. R09: The gaminginc facility should contain colocation space as the primary revenue source for sustaining operations. R10: Colocated companies can serve as catalysts for collaboration and innovation within the gaminginc facility and should go through a selection process to ensure a good mix and fit. R11: gaminginc should charge full market rates for facility clients. R12: Define gaminginc client selection criteria and process so that decision-making can be streamlined and is clear to potential clients/companies. R13: Define the processes for graduating successful companies and, also, for removing companies that no longer meet gaminginc criteria. R14: Set a three year limit for gaminginc clients (with an option for an additional year at facility s discretion). R15: gaminginc should work closely with its academic partners to establish a student pool of design, development and project management resources available to incubator clients at reduced rates. R16: gaminginc should develop strong linkages and networks between creative talent (content creators, designers, artists, musicians, animators, etc.), gaminginc and the facility s clients. R17: gaminginc should take the lead in developing design research capacity for the gaming sector. 146

147 R18: gaminginc can serve as a center for increasing interaction between various creative sectors in the quest for unique product innovation. R19: gaminginc should strive to serve as a hub for the gaming industry; leveraging its space, technology and talent to become an integral part of Toronto s digital and gaming cluster. R20: While gaminginc should be primarily focused on its clients and internal operations, it should also have a game plan for integrating its programming and facilities with the greater gaming community in support of the cluster s goals. R21: gaminginc should also look beyond the gaming sector to other digital and complementary industries in a quest for cross-industry collaboration. R22: gaminginc should ensure that women are encouraged to be involved with the facility and its events. R23: gaminginc should take a phased approach to service delivery and needs a services plan identifying which services are essential for when the facility opens and which it should add as the facility evolves. R24: gaminginc should not be reinventing the wheel when it comes to business services. R25: gaminginc should seek out and formalize partnerships with other organizations to deliver business services. R26: gaminginc should build on initial interest from financial institutions to support in-house delivery of business and financial services. R27: gaminginc should develop a professional service provider network (e.g., lawyers, accountants...). R28: gaminginc services should be delivered at a fair price that does not hinder client usage of those services. Services delivered to companies external to the facility may be priced differently. R29: An incorporated not-for-profit should be the preferred legal entity for gaminginc. R30: gaminginc s initial board of directors can consist of the facility s manager/ceo, a founding stakeholder representative, other stakeholder representative(s) plus a legal and/or finance professional. The initial board should be fairly small in order to stay focussed and to ease the decision making process; it should be in place before the facility opens in order to help with the creation and implementation of the facility. R31: gaminginc should create an advisory board that can advise on specific facility requirements. R32: gaminginc should have an arm s length relationship with any stakeholder that provides financial or in-kind support (space, technology, human resources ) 147

148 NEXT STEPS This report validates the need and feasibility of a Toronto gaming incubator and identifies the demand for services and technologies. The report recommends, as a next step, the creation of a comprehensive business plan detailing the specifics of an incubator facility with the following primary outputs: Financial sustainability plan (a 10-year pro forma statement that details how the facility can achieve financial self-sufficiency in the mid-to-long term; confirm all funding sources and partners) Partnership plan (complete legal requirements and sign-off on founding partner(s); confirm all other industry, government and academic partners) Services and technology delivery plan (identifying which services and technologies to deliver, delivery partners, delivery phases and pricing plan for all services and technologies) Facility plan (detail physical facility requirements; locate and validate viable real estate locations for facility) 148

149 CONCLUDING NOTE The Toronto region has an outstanding foundation from which to build a strong global gaming cluster. The region is blessed with a multitude of world-class academic programs supplying talent and innovation to the gaming sector. Furthermore, the region has strong government support and a very large creative sector cluster that can supply content and ideas. However, though the Toronto gaming sector is clearly growing in size and complexity, it remains a key supplier of talent to other clusters and trails the much larger and globally-focused clusters that are found in Vancouver and Montreal today. One of the reasons Toronto has not yet become a leading player in the gaming industry is because of the lack of a fully realized gaming ecosystem. While the underlying ingredients are abundantly there for Toronto to lead in this sector they have not yet been arranged in such a way that the sum of the ingredients are greater than the parts. While a gaming incubator cannot, on its own, fill in all the cluster s missing pieces, it can implement key parts of best practices and recommendations as its contribution to the development of a stronger and more successful digital gaming cluster while remaining focussed on the incubation and development of emerging and small-to-mid sized digital and gaming companies in the region. 149

150 150 REFERENCES

151 Abetti, Pier A Government-Supported Incubators in the Helsinki Region, Finland: Infrastructure, Results, and Best Practices. The Journal of Technology Transfer, Volume 29, Number 1: Boyd, Kathleen Developing a Business Incubation Program: Insights and Advice for Communities. Athens, OH: National Business Incubation Association. Centre for Social Innovation (CSI) Shared Spaces for Social Innovation. Toronto: Centre for Social Innovation. Centre for Social Innovation (CSI) and Eli Malinsky Fostering Social Entrepreneurship in Toronto: Critical Factors for Collocation Site Selection. Toronto: Centre for Social Innovation. CONCERT (Consortium on New Media, Creative, and Entertainment R&D in the Toronto Region) Seizing the Opportunity: Toronto Region Digital Media Regional Innovation Strategy. Toronto: CONCERT. Department for Culture, Media and Sport (DCMS) Creative Britain: New Talents for the New Economy. UK: DCMS. Entertainment Software Association of Canada (ESAC) and Hickling Arthurs Low Entertainment Software: The Industry in Canada. Toronto: ESAC. Entertainment Software Association of Canada (ESAC) and Hickling Arthurs Low Canada s Entertainment Software Industry: The Opportunities and Challenges of a Growing Industry. Toronto: ESAC. Kalis, Nanette Technology Commercialization through New Company Formation: Why U.S. Universities are Incubating Companies. Athens, OH: NBIA Publications. Knopp, Linda Incubator-University Partnerships. In A Comprehensive Guide to Business Incubation, Completely Revised 2nd Edition, ed. Meredith Erlewine and Ellen Gerl, Athens, OH: NBIA Publications. Lavrow, Marina and Sherry Sample Business Incubation: Trend or Fad? Incubating the Start-up Company to the Venture Capital Stage: Theory and Practice. Ottawa: University of Ottawa. Meeder, Robert A Forging the Incubator: How to Design and Implement a Feasibility Study for Business Incubation Programs. Athens, OH: NBIA Publications. Millier Dickinson Blais Interactive Niagara: Niagara Interactive New Media Initiative. Ontario Media Development Corporation (OMDC) Ontario Media Development Corporation: Towards A Strategic Plan. Helping Ontario Firms Compete in the Global Creative Media Market. Toronto: OMDC. SECOR Consulting Ontario 2012: Stimulating Growth in Ontario s Digital Game Industry. Statistics Canada Characteristics of Business Incubation in Canada, Catalogue no. 88F0006XIE, no Ottawa: Statistics Canada. United Nations Creative Economy Report 2008: The Challenge of Assessing the Creative Economy towards Informed Policy-making. Geneva: United Nations. U.S. Commercial Service Overview of the Quebec Video Game Industry: An Industry in Full Growth. U.S. Department of Commerce. Wolfe, Chuck, Dinah Adkins, and Hugh Sherman Best Practices in Action Guidelines for Implementing First-Class Business Incubation Programs. Athens, OH: NBIA Publications. 151

152 152 APPENDIX

153 A1 INCUBATOR MODELS The following is a brief description of popular business incubator models 28. Bricks and Mortar Operating Model (BAM) BAM, the most basic model of business incubation, involves the provision of physical space and office amenities such as a meeting room and office equipment. Limited services and expertise may also be provided. Revenue is commonly generated from renting space, and businesses may not necessarily have to be start-ups. The BAM model is also commonly referred to as a colocation centre. The Hub Model The Hub is another common incubation model, combining the BAM approach with a variety of other services. Common services offered include financial services, legal expertise, marketing services and basic technical infrastructure (internet). Revenue is commonly generated from rent and from fee for services. Ideation Model In this model, individuals approach the incubator with an innovative idea, which is incubated as a project of the incubator, rather than launched as a separate business on its own. Ideas usually undergo a rigorous selection process and extensive support is provided to each organization. In this model, revenue is commonly generated through equity investments and service fees. Atomic Model The atomic model is a structurally complex one that revolves around the concept of networking. Essentially, the incubator creates a model consisting of current incubated projects, past graduates of the incubation program as well as external organizations. The incubator acts as an intermediary to the different organizations, facilitating formal or informal exchanges between its incubator clients. For example, in exchange for providing consulting services to one organization, the incubator gains the use of legal services from another organization. This creates a network of exchange that serves the interests of all parties. Revenue is commonly generated from charging referral fees. Other benefits include costsavings from services provided. Virtual Incubator Model The defining feature of the virtual incubator is that it does not provide a physical space for its clients clients can be located anywhere they choose. Virtual incubators usually offer a combination of both in-house and virtual services, provided over the internet. Revenue is commonly generated from fees for services and equity investments. Hybrid Model A hybrid model is a combination of any of the above incubation models. Incubator Revenue Sources Incubators can generate revenue from one or more of the following different streams, depending on the business model implemented: Rent (office and event space) Fee for services Training and seminar fees Sponsorships Equity investments External contracts License fees Product sales Private sector contributions Public sector contributions Membership fees 28. Models adapted, in part, from Lavrow and Sample s Business Incubation: Trend or Fad? (2000) 153

154 A2 INCUBATOR SELECTION CRITERIA SITE SELECTION There are innumerable decisions involved in the creation of an incubator facility; the following section details the most critical factors relevant to the incubator creation process and is based on the Centre for Social Innovation s experiences as detailed in their Critical Factors for Collocation Site Selection report (CSI 2006). One of the most critical factors in the creation of an incubator is proper site selection. An ideal incubator serves more than its immediate clients and is, also, a catalyst or hub for innovation, collaboration, entrepreneurship and networking for individuals, ideas and organizations that make up the greater cluster. For this reason, it can be difficult to find an ideal site that perfectly satisfies all the potential incubator users and contributors. However, this doesn t mean that location can be ignored or minimized and replaced with a build it and they will come mentality. Based on CSI survey results, potential incubator clients identified geographic location as the most important variable in site selection and, as such, it is important to recognize site-related priorities of potential clients so that location does not become a negative determining factor. CSI survey respondents further identified accessibility to transit as the highest priority, followed closely by a location in the downtown core (undefined). Importantly, the core becomes less critical versus a more peripheral location if that site is located directly on a major transit line. Key location criteria (for clients) in site selection process Transit Proximity to downtown Proximity to target populations Green space Parking Safety Public accessibility Is the facility located on a public transit line? How frequently does public transit run in this area? Is the facility close to the downtown core? Is the location close to the target populations of potential incubator clients? Should it be? Is there green space or parkland nearby? Is there parking nearby? Is the facility located in a safe area? Is the facility easily accessible to the public? Source: CSI

155 NEIGHBOURHOOD CHARACTERISTICS An important makeup of a site s desirability is the neighbourhood it is located in and how the incubator facility integrates into the local community. Neighbourhood and surrounding environment considerations Neighbourhood character Industry clustering Complementary services Academic Partners Community support Pedestrian traffic Public accessibility Cultural activity What is the neighbourhood like? Is it a well developed area? How is the neighbourhood likely to change over the coming ten years? Is it an area popular with other organizations in the same industry? Are there organizations serving similar populations or providing complementary services to client s target industry? Is it near academic partners? Will the local community be supportive and interested in an incubator initiative? Is there a lot of foot traffic in the area? Is it located in an area that people would gladly visit? What types of cultural activity are there in the immediate area? Are there theatres, libraries, or other hubs of activity? Source: CSI 2006 The above list acknowledges the desire for creative companies to cluster around similar or complementary companies which gives them exposure to what is going on and the ability to more easily source resources and opportunities. General safety was also a key consideration of CSI survey respondents, expressed as a concern for the security of staff and volunteers, as well as belongings within the incubator facility and offices 155

156 SURROUNDING AMENITIES AND SERVICES Part of a neighbourhood s appeal are the local amenities that the neighbourhood supplies. Respondents highlighted the need for local amenities such as access to business services, restaurants or nearby green space. Surrounding amenities and services Office services Recreation facilities Daycare Restaurants Off-site meeting options Are there a variety of nearby office services, such as banks, business supply stores, post office, etc.? Are there gyms, community centres or other recreation facilities in the neighbourhood? Is daycare accessible in the community? Is there a variety of restaurants in the immediate area? Are there other facilities in the area that could be used to host meetings? Source: CSI

157 BUILDING CONSIDERATIONS It is clear that the right building in the wrong location will have challenges in succeeding but the same argument can be made for having the wrong building in the right location. Careful consideration must be made to both the location of an incubator and the characteristics of the building it will be housed in, with particular emphasis on determining if the building (as is, or after renovations) can promote the aims of the incubator and support the basic infrastructure that incubator clients seek. Early-stage companies are generally looking for small to mid-range conventional office space. Some companies are looking for basic or no-frills space at the lowest cost but many other companies want space with better facilities balanced against their budget considerations. Respondents expressed the need for a variety of room types, including large boardrooms, smaller meeting rooms and storage space. Several respondents also mentioned a desire for a multi-media or performance space that could be used for larger community events. Finally, an ideal incubator facility should provide offices of varying sizes. This not only allows a wider variety of organizations to become incubator clients, but allows existing clients to scale-up and scale-down within the same building in accordance with fluctuations in their project-based funding. Significant attention should be paid to how the facility is ultimately laid out, ensuring that there is a balance between private and shared space. The facility should have space where informal or natural interaction can take place in order to encourage collaboration and exposure to new ideas. Shared space should also encourage external interaction by making space available for public events that can draw in other elements of the cluster or creative community. CSI (2006) does, however, warn that nonetheless, any incubator facility is ultimately a place of work. The ability to interact with others must be carefully balanced against the need for privacy and quietness. Incubator facilities should capitalize on the potential for client interaction, but must not allow this goal to trump the more basic need of an appropriate work environment. 157

158 Building considerations Total square footage Rentable square footage Square footage / number of floors Building appearance Historical or other unique features Existing green characteristics Sunlight Space flexibility Common areas Kitchen facilities Event space Storage space Bicycle parking Shower facilities Washroom facilities Accessibility Building security Air quality Air conditioning Heating Electrical systems/wiring Plumbing Internet/telephone Noise levels Parking What is the total square footage of the facility? What is the rentable square footage of the facility? What is the available square footage on each floor of the facility? Is it an attractive building or a heritage building? Are there any historical or other unique and appealing features in the space? Does the building currently use any green technologies or observe any environmentally-friendly practices? Does the facility have sufficient sunlight? Can the design of the space ensure that people in the space have access to windows for light? Is the space capable of accommodating offices and meeting rooms of different sizes? How flexible is the space? Are there common areas for informal interaction? Do kitchen facilities currently exist? Is there a space that can be used for larger events and performances? Is there on-site storage space? Is there on-site bicycle parking? Are there any shower facilities on-site? What is the condition of washroom facilities? Are the building and office facilities accessible to persons of restricted mobility? Does the building have reliable security measures? How is circulation and air quality? Does the building have air conditioning? Is the building sufficiently heated? What is the condition of the boiler? What is the state of the electrical system? What is the state of the plumbing system? Is the building currently internet and telephone ready or compatible? Are there any measures in place to reduce noise levels? Is there on-site parking? Source: CSI

159 DEVELOPMENT CONSIDERATIONS Any incubator project needs to be aware of any potential hurdles in terms of development or building-use restrictions. Development considerations Zoning compliance Are any changes to the zoning required? Permits Are any permits required to modify the structure? Restrictions on use Are there any restrictions on the use of the building? Required renovations What renovations are required? How long would they take? Restrictions on renovations Are there any restrictions on renovations? Existing tenancy Are there any limitations or concerns with regards to existing building tenants? Source: CSI 2006 The following should be added to CSI s list: Environmental issues Are there any existing environmental issues that may limit the use or renovations of the building? 159

160 A3 INCUBATOR OPERATIONS CRITERIA MANAGEMENT CONSIDERATION Incubators require experienced management teams in order to operate efficiently and successfully. Incubator management should, naturally, have expertise in business management but also in building or operations management. The management team should, ideally, have experience directly related to the digital industry but, if not, should be able to rely on the expertise of the board or an advisory group which must absolutely have as part of its composition experience related to the digital industry and gaming specifically. Other critical expertise such as legal, marketing and business development should be found within management, the board or an advisory group. Main areas of expertise of the incubator management team Number of times applicable Business management, finance 65 Marketing 35 Engineering 16 Technology transfer 16 Business law, intellectual property 15 Education 14 International business 12 Other 12 Natural science 8 Source: Statistics Canada

161 KEY STAFF ROLES AND RESPONSIBILITIES CSI (2009) has identified other key incubator staff roles and responsibilities as outlined below. These roles may vary in configuration from facility to facility and may initially be managed as shared responsibilities or as part-time positions but, nonetheless, should be viewed as critical to operational success and factored into the setup of any incubator. Operations A primary role is that of someone focused on the overall and day-to-day operations of the incubator. Tasks may include budget development and management; tenant and client relationships; building development and maintenance; infrastructure and service improvements; vendor negotiations and overall facilities management. Marketing and Communications A successful incubator needs to tell its story, build its profile and attract new members on an on-going basis. An effective and coordinated marketing and communication program allows the incubator to define and build the incubator brand. Administration and Bookkeeping Administering leases, issuing and paying invoices, tracking down accounts receivable and administering payroll all belong in the hands of someone with an eye for detail and an obsession with perfection. The Incubator needs to have the systems in place to manage these details. Community Animation A culture of collaboration does not manifest itself without conscious effort. A shared space that seeks to go beyond simply a colocation must invest in the programming, energy and atmosphere-design that only a Community Animator can provide. Community animation is serious business it takes work to have fun! 161

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