Policy Statement on the net benefit reviews of Foreign Investments in Cultural Businesses in the Interactive Digital Media Sector under the Investment Canada Act

The Government of Canada is providing guidance on how the Investment Canada Act (the Act) will be applied to investments in cultural businesses in the interactive digital media (IDM) sector in Canada.

The Government recognizes Canada’s globally renowned leadership and talent in this sector which has led to increased opportunities for Canada to strengthen its reputation in this space and continue to attract foreign direct investments (FDI).

The following policy statement is intended to provide guidance regarding the conduct of net benefit reviews under the Act, by the Minister of Canadian Heritage, of foreign investments in cultural businesses in the IDM sector in Canada.

Policy Statement

A policy on investments in the interactive digital media sector

The Government of Canada recognizes the importance of ensuring that Canadian stories are created and owned by Canadians in the cultural IDM sector.

For the purpose of this policy, IDM is defined as digital content and environments with which users can actively participate or which facilitate collaborative participation among multiple users for the purposes of entertainment, information or education, and are commonly delivered via the Internet, mobile networks, gaming consoles or media storage devices. Examples of cultural activities that fall under the category of interactive digital media include, but are not limited to, PC gaming, console gaming, cloud gaming, mobile gaming, and certain immersive technology/augmented reality. This policy framework recognizes the importance of a strong domestic IDM sector and aims to maintain and increase the presence of distinct Canadian-owned and created intellectual property (IP). This framework also recognizes the important relationship between the creation of IDM and FDI.

Under the Investment Canada Act, the Minister of Canadian Heritage is empowered to review any type of business activities prescribed by regulation related to Canada’s cultural heritage or national identity. This includes proposed acquisitions of control from foreign investors, where the value of the Canadian business is above a defined threshold or if it is in the public interest to review that investment.

In this regard, it is the policy of the Government of Canada to ensure a commitment to encourage the creation and retention of Canadian IP in respect to foreign investments in the IDM sector, including investments to directly or indirectly acquire businesses that produce culturally relevant IDM in Canada.

Net benefit

Foreign investments in cultural businesses in Canada’s IDM sector that own or create their own IP and are reviewed for “net benefit” pursuant to Part IV of the Act, will likely be subject to stringent undertakings. Where investments in these cultural businesses fall below asset-value thresholds for review, the Governor in Council may issue an order for review, under section 15 of the Act, which may also result in similar outcomes.

For greater clarity, some factors that will be examined to determine whether a proposed investment would be of net benefit include:

• the extent to which a foreign state is likely to exercise direct or indirect operational and strategic control over the Canadian business as a result of the transaction
• whether the Canadian business to be acquired owns or creates its own intellectual property
• the degree of competition that exists in the sector, and the potential for significant concentration of foreign ownership in the sector as a result of the transaction
• the corporate governance and reporting structure of the foreign enterprise, including whether it adheres to Canadian standards of corporate governance and to Canadian laws and practices, including free market principles in its Canadian operations
• whether the Canadian business to be acquired is likely to continue to operate on a commercial basis

For foreign investments in the cultural IDM sector which include the creation and ownership of IP, the continued expression of Canadian voices and stories reflective of Canadian values will be of particular concern. Consequently, in addition to the typical undertakings required of most foreign investments, a net benefit review in this regard may require undertakings that deal with:

• ensuring the creative independence of the Canadian business
• ensuring robust corporate governance and transparency in decision-making
• requirements for ongoing reporting, auditing and rights of inspection