What does it take to bring foreign investment to Montreal?

In the case of Warner Brothers Interactive, which announced plans this week to create 300 jobs over the next five years at a new video game studio in Montreal, it takes a lot of persuasion - and a generous amount of government incentives.

Officials were quick to insist that Warner Brothers chose Montreal, not for the money, but because the city offers the best available pool of talent.

There's already a critical mass in video games in Montreal, with close to 6,000 employed. The education system is chipping in: several CEGEPs and universities

offer software development courses geared to train young people to work in the video game industry, with at least 800 students now enrolled.

Officials say Montreal offers the best of both worlds: a results-driven North American business culture in a European-style environment that favours creative talent.

But make no mistake, money talks in the end. Martin Tremblay, a Quebecer who now heads Warner Brothers Interactive, said the Quebec government's financial offer was the best on the table.

Warner Brothers first approached Quebec 18 months ago with the idea of building a studio here. The company was relatively new to the video game industry, having entered the business in 2007.

With studios in Chicago, Seattle and two locations in Britain, it was anxious to expand its game catalogue by concentrating on such franchises as Batman, Lord of The Rings and the DC Comics portfolio.

There was no shortage of potential suitors. Mayor Gérald Tremblay said the competition was "ferocious" and Montreal was up against locations in other parts of Canada, the U.S., Australia, China and India.

Quebec brought out its heavy artillery, including lobbyists from Montreal International, the agency that promotes foreign investment in the city, and Investissement Québec, the government's own investment arm.

The government put three forms of aid on the table: a 37.5-per-cent employment tax credit available to video-game developers; a 50-per-cent refund of admissible training costs through Emploi Québec; and fiscal incentives available to audio-visual producers through the Société de développement des entreprises culturelles (SODEC).

Apparently this wasn't enough to attract the Burbank, Calif.-based multinational.

In the end, the deal-maker was Investissement Québec's commitment to give Warner Brothers a $7.5-million non-refundable contribution.

Economic Development Minister Clément Gignac conceded that the direct subsidy is a first for the government in its video-game strategy.

It brings Quebec's total spending on financial incentives to video game producers to more than $100 million in the last 10 years - money that Gignac insists has been well spent because it's made Quebec the "envy" of other jurisdictions.

Perhaps he's right. Video game producers have been falling all over themselves to come to Montreal.

This is the third such deal funded by the Quebec government in the last seven months. Norwegian game-maker Funcom said last September it would create 100 jobs in Montreal and California-based THQ followed with a commitment to create 400 jobs at a studio here.

But the generous spending by the government comes against a backdrop of skidding industry-wide sales. Video game sales fell 15 per cent in February, the 10th monthly decline in the last 12 months, according to the NPD Group, an industry research firm.

Consolidation is already under way, as large media companies such as Disney, Viacom and Warner gobble up game publishers and build their portfolios.

Meanwhile, layoffs have been common at many established game publishers, including Electronic Arts, Take-Two Interactive and IGN Entertainment.

One trend to watch is the shift to online game-playing as consumers seek the ability to play on more devices. Online buying has reached 20 per cent of industry sales, but margins tend to be smaller as consumers are less inclined to pay for stuff on the Net.

"If publishers try to sell digital-only new release games at a $40-$50 ASP (average selling price), we don't think gamers will find the price points compelling," an industry executive was quoted as saying recently on the news site Gamesindustry.biz.

So far, Quebec has had success backing a hot industry. But some of what it's built will be at risk if current trends persist.

phadekel@videotron.ca