New media fears financing collapse

Cultural Funding Cuts

Grant Surridge, Financial Post Published: Wednesday, October 08, 2008

Apprehension is spreading among Canadian digital media companies about future sources of financing as government funds for the nascent industry threaten to dry up.

So-called new media includes online video games, television Internet sites, social networking sites and videos that can be viewed online or on devices such as cellphones.

Government funding -- often tied to a mandate of promoting Canadian culture -- has been a major source of capital for the domestic industry to this point.

The federal Conservative government is vague about its plans to renew programs such as the $14-million Canada New Media Fund, and a looming recession and credit crisis will make already scarce venture capital harder to come by.

"There's a lot of fear right now," said Mark Bishop, chief executive of Toronto-based Marble Media said yesterday after an industry gathering. "We see government funding as a sandbox that we can't play in forever."

The biggest problem facing new media companies is that while traditional media companies recognize digital media as the future of their industry, no one has figured out how to make money with it yet.

"There are a lot of unproven business models right now," Mr. Bishop said.

Andra Sheffer, executive director of the Bell Broadcast and New Media Fund said that despite the huge potential of new media, venture capital firms still see the sector as a risky investment.

The Bell fund gets its money from Bell ExpressVu LP, which is mandated by the CRTC to commit money to a fund of its choice.

"Television producers and broadcasters see this writing on the wall," said Ms. Sheffer. "They see this is where their audiences are going."

According to the Canadian Interactive Alliance there are more than 3,000 firms engaged in interactive media in Canada generating revenue of over $7-billion.

Most of that revenue is being earned by multinational companies and the number of Canadian firms dedicated solely to new media is significantly smaller.

Worldwide, the gaming industry is a US$55-billion industry, and in Canada it is only $1-billion.

The potential is huge. For example, the World of Warcraft online game is pulling in about $100-million a month around the world, and about 25% of that comes from China.

"Some of the big gaming companies are more successful because there are significant returns to be had," Ms. Sheffer said.