Digital media industry needs early stage financing to grow: report

The report, New Directions for the Financing of Interactive Digital Media in Canada also called for new business models in the country's convergent media programs.

Canada’s digital media industry needs early stage financing to grow and sustain a digital sector here.

That call came from New Directions for the Financing of Interactive Digital Media in Canada, one of two research reports released last week by the Canada Media Fund.

The report, published by the Canadian Interactive Alliance, with research by Communications MDR, cited effective project financing from both public and private sources for Canada’s interactive digital media industry.

But it also underlined a challenge for companies to secure financing during critical start-up and early-stage phases of development.

The report stated that 75% of Canada’s 2960 interactive digital media companies are identified as small-to-medium sized companies, showing a very specific financing need for the sector to get projects off the ground.

In practice, that means companies often need cash flow to finance early concepts. And with self-financing often the only resource available, the report suggests that producers need formal seed money or business angels who are willing to invest in potentially high-risk projects.

The report also found that greater investment from the venture capital sector is needed, perhaps through increased investment from the government into VC funds.

Further, without access to financial tools to facilitate growth, companies may go elsewhere to where growth capital is more readily available.

The report also suggested that encouraging greater angel investment could be encouraged by associations representing the sector, not least by creating opportunities for companies to pitch their concepts.

Another key finding to strengthen and develop the sector is to make it a priority to get a project ready for angel investment, in part by promoting business skills development and knowledge transfer between developers and financiers.

Here ,the report cited U.K. company NESTA and Canadian VC INovia as examples of  initiatives that provide greater understanding of investment criteria used by potential investors.

And while the report conceded that  public financing and assistance from federal and provincial governments, including tax credits, has greatly helped develop the industry in B.C., Manitoba, Ontario and Quebec, the report also called for new business models in Canada’s convergent media programs like the Canada Media Fund and the Bell Fund.

The report suggests broadening potential market backing for existing programs beyond key broadcast triggers, reviewing current criteria and looking at new ways to market and exploit support for companies.

According to the report, the most recent profile of the interactive digital media industry in Canada in 2008 earmarked $3.8 billion in revenues generated by the almost 3000 companies in the sector,  with the game sub-sector ranking third behind the U.S. and Japan with almost $2 billion in economic activity.

The report, unveiled at the Banff World Media Festival, was written by Maria De Rosa and Marilyn Burgess, with the research a result of a partnership with the Ontario Media Development Corporation and assistance of the Bell Broadcast and New Media Fund, the Department of Canadian Heritage, the National Film Board and the Canadian Media Production Association.