New Directions in the Financing of Interactive Digital Media in Canada

Key insights

7 takeaways

01
Canadian VC investment volumes fell from a peak of $3.7 billion in 2000 to $1.1 billion in 2010, according to the document.See it on page 15
02
Approximately three-quarters of Canada's 2,960 digital media companies are small and medium-sized, and more than 50% of companies are small, reporting annual revenues below $250,000.See it on page 13
03
The authors identify early-stage financing as the first finding, citing repeated stakeholder statements that young companies with high-growth potential need greater access to investment.See it on page 46
04
Tax credits were cited by companies as an important and predictable source of financing, though interviewees said provincial tax credits can take well over a year to materialize.See it on page 31
05
Project funding was described by interviewed Canadian VCs as not a net benefit for growth, since it is project-based and deadline-driven.See it on page 37
06
Stakeholders reported that banks lend mainly to companies with a history of profitability and collateral, which interactive digital media companies generally lack.See it on page 34
07
The authors report that the CMF's Convergent Stream and the Bell Fund require a broadcaster as a trigger, which the study says prevents companies from seizing new online business opportunities.See it on page 49

Summary

The study, New Directions for the Financing of Interactive Digital Media in Canada, was prepared by Communications MDR for the Canadian Interactive Alliance and funded in part by the Ontario Media Development Corporation, the Canada Media Fund, the Bell Fund, Canadian Heritage, the CMPA and the National Film Board. Its method combined a literature review of Canadian and international sources, 36 in-depth stakeholder interviews, and profiles of ten Canadian interactive digital media companies. The study's stated focus is Ontario, and it examines the effectiveness of financing mechanisms, particularly private ones, and potential new financial vehicles.

The document reports that 2,960 digital media companies in Canada employed about 52,000 people and generated $3.8 billion in revenues in 2008. Roughly three-quarters of these companies are small or medium-sized, and more than 50% of companies are small, reporting annual revenues below $250,000. The authors identify access to venture capital for seed and early-stage growth as a challenge, and they note that few Canadian banks actively lend to the sector.

According to the document, financial instruments put in place by governments are seen as effective by Canadian companies, particularly tax incentives, and the authors cite VC volumes falling from a peak of $3.7 billion in 2000 to $1.1 billion in 2010. Interviewees described project funding as valuable at the seed stage but limited in helping companies grow. The study concludes that early-stage financing and investment readiness are among the gaps identified.