STAFF REPORT

February 28, 2000

To: Economic Development and Parks Committee

From: Joe Halstead, Commissioner Economic Development, Culture and Tourism

Subject: Toronto New Media Works Study and Update on City of Toronto's Involvement in New Media Initiatives

All Wards

Purpose:

The purpose of this report is to provide information about the City of Toronto Economic Development Division's involvement in Toronto's rapidly growing new media sector and update on several ongoing initiatives.

Financial Implications and Impact Statement:

There are no financial implications resulting from the adoption of this report.

Recommendations:

It is recommended that this report be received for information.

Background:

In 1999, a key area of focus for Economic Development Division's IT&T and New Media Sector Development was facilitating business development opportunities and building partnerships for Toronto's burgeoning new media industry.

Our practice of encouraging collaboration and co-ordination amongst like-minded organizations has been an important part of building a unified voice and brand for Toronto's new media cluster.

The five key areas outlined in this report are:

(1) Toronto New Media Works Study

(2) New Media Business Development Centre

(3) Update on New Media Village

(4) DXNET

(5) E-Commerce Initiative

Toronto New Media Works Study

Toronto New Media Works (TNMW) is a multi-stakeholder initiative that was developed with a mandate to undertake a comprehensive study that would identify and foster a better understanding of the Toronto region's new media industry drivers, barriers, access to capital, labour markets and training systems. For the purpose of the TNMW study, Toronto refers to the geographical area encompassing the '416' and 'local 905' telephone area codes.

The $245,000 study was funded by Human Resources Development Canada (HRDC). In January 1999, PricewaterhouseCoopers (PwC) was engaged to carry out the analytical work and develop recommendations for enhancing Toronto's new media industry.

The City of Toronto Economic Development Division was a partner in the study and served as a member of the Steering Committee. The other partners in Toronto New Media Works are Centennial College (Bell Centre for Creative Communications); Human Resources Development Canada (HRDC); Interactive Multimedia Arts & Technologies Association (IMAT); Ministry of Energy, Science & Technology (MEST); Ontario Film Development Corporation (OFDC); and SMART Toronto.

For the purposes of the Toronto New Media Works study, new media was defined consistent with the following definition of new media published by the Canadian Radio-television and Telecommunications Commission:

"new media can be described as encompassing, singly or in combination, and whether interactive or not, services and products that make use of video, audio, graphics and alphanumeric text; and involving, along with other more traditional means of distribution, digital delivery over networks interconnected on a local or global scale."

The objectives of the Toronto New Media Works Study were to:

(a) Create a taxonomy of new media (market, commercial supply, infrastructure and support);

(b) Provide a consolidated view of existing research on new media companies;

(c) Identify performance indicators and establish baselines for performance benchmarking of the Toronto new media industry; and

(d) Recommend how to reduce the barriers and energize the drivers of Toronto new media industry growth.

The TNMW study includes an assessment of the current policy environment within which this industry works and provides recommendations as to policy changes and other activities that would enhance the industry, and also suggestions as to how these policies are formulated.

Study Conclusions:

The following summary provides highlights of the research findings.

Key characteristics of Toronto's new media cluster:

(i) There are approximately 400 new media/content creation firms in Toronto.

(ii) These firms employ approximately 4,000 to 8,000 workers.

(iii) The total estimated commercial output of the Toronto new media cluster is $900 million to $1 billion.

Strengths of Toronto's new media cluster:

(i) Toronto, as Canada's business address, is well positioned to take advantage of the global nature of the new media market. Half of Canada's information technology producers are located in Ontario, and 60% of those are in Toronto and area.

(ii) Toronto's high quality of life makes it an attractive location. It is a cosmopolitan and safe place to live and work.

There is a highly educated and skilled technical and creative workforce, due to the availability of world-class educational facilities with programs that train in specifically new media.

The Canadian Radio-Television Telecommunications Commission's (CRTC) decision not to regulate the Internet supports the growth of new media services in Canada. The CRTC is one of the first regulators in the world to clarify a position on this matter, and clear regulatory standards put Toronto in a competitive position globally, as companies have a clear understanding of the environment in which they conduct business.

While many positive attributes exist in the Toronto new media cluster, there are significant weaknesses to the cluster that have been identified:

(i) There is a serious "digital content gap" emerging in Toronto and area. Comparisons with other international new media centres (i.e. New York, San Francisco) suggest that Toronto may be generating only half of its potential revenue in this industry based on its position as Canada's leading business centre. Digital content is the creation of video, audio and graphical material and information distributed over networks locally or globally.

Toronto is conceivably losing between $2 and $3 billion in direct, indirect and induced economic output from this digital gap. This gap will likely rapidly increase if policy and program action is not taken soon.

The key weakness of Toronto's new media cluster is its small size and scale. As a result, it lacks a unified voice and prominent new media brand names.

There is a lack of available and/or accessible financing for new media entrepreneurs in Toronto.

Canada's participation in e-business is below average, therefore limiting Toronto's exploitation of e-business revenue opportunities.

There is a lack of recognition inside and outside of Toronto and area of Toronto's new media cluster. Toronto lacks organization, marketing and branding of its new media products and services to develop an international identity and reputation.

The TNMW study suggested four key recommendations with respect to how Toronto's to reduce the barriers and energize the drivers of Toronto new media industry growth.

(1) Synergy and linkages - Building positive relationships between the organizations and firms within the cluster through specific projects that will link the firms together;

Communications, marketing and branding - Developing a strategy for raising the awareness and profile of the capabilities of the Toronto new media cluster (i.e. one local trade association - SMART Toronto - should be tasked with ensuring a co-ordinated and unified voice for the cluster, in partnership with various industry stakeholders);

Financing - Significant new financing should be funnelled into the Toronto new media cluster. Both the private sector and the City of Toronto, in partnership with the provincial and federal governments, should play a lead role in facilitating this financing; and

Skills development - In order for the cluster to develop the critical business skills that it needs, providers of post-secondary new media training should endeavour to include new media specific business components to their curricula. Educational institutions should work with industry to develop partnerships that are in tandem with the growing and changing needs of the evolving cluster.

The study findings were released on February 4, 2000 at an industry launch attracting over 200 stakeholders from the private and public sector. The TNMW Steering Committee has agreed to continue to work towards implementing the recommendations of the report over the coming months. The Economic Development Division's 2000 Work Plan includes dedicated staff and financial resources to support the City of Toronto's role in advancing the recommendations.

New Media Business Development Centre (former working title Liberty Village Enterprise Centre)

In anticipation of the findings of the Toronto New Media Works Study, staff began seeking partnership opportunities that would support the business development goals of the new media sector. Consequently, in July 1999, SMART Toronto, the Economic Development Division and York Heritage Properties, submitted a proposal to the Ontario Ministry of Energy, Science and Technology (MEST) under the Interactive Digital Media Fund (IDM Fund) to establish a new media development centre. On February 4, 2000, MEST announced that it would invest up to $1 million in the New Media Business Development Centre designed to foster growth and new jobs in the digital media industry.

The New Media Business Development Centre will be structured as a separate legal entity, and will be governed by a Board of Directors, on which the City of Toronto is entitled to a seat as a founding partner in this initiative.

The New Media Business Development Centre will:

Market and promote Ontario's and Toronto's expertise in the new digital economy;

Work to foster a stronger climate for the flow of financing to the new media cluster;

Address concerns relating to domestic human resource retention, attract foreign human resources to Ontario and work to repatriate Canadians currently living in other jurisdictions;

Celebrate and showcase industry successes;

Represent the local industry members' interests; and

Collect and distribute information on this new economic sector.

The City of Toronto brings many assets to its partnership in the New Media Business Development Centre. The City's land space database and listing of bandwidth-ready buildings (developed by the New Media Village Growth Corporation) would be key components of the information being offered by the New Media Business Development Centre. The City of Toronto's TradeLink facility could also help by providing export consulting services and conference and meeting facilities.

The New Media Business Development Centre will work to support and profile all initiatives dedicated to the promotion of the new digital media economy; and by doing so, will create a virtual network of support. It will also encourage all levels of government to work collectively towards the common goals of this sector

This project has a total cost of $2 million, which will be contributed by many other key industry players. The New Media Business Development Centre will play a key role in addressing the challenges of the TNMW Study.

Update on New Media Village

The New Media Village Growth Corporation is a private-public partnership, incorporated as a Community Development Corporation of the City of Toronto. This initiative, created by the former Borough of East York, has a mandate to encourage the growth of new media companies by providing financial contacts, education linkages and stimulating investments high-speed bandwidth.

City staff and Councillors Pitfield, Prue and Tzekas sit on the Board of Directors of the New Media Village.

With the financial support of Human Resources Development Canada, the New Media Village designed and built a unique on-line real estate and financing resource for new media companies. This valuable Internet content will require regular maintenance to ensure its continued viability to the new media community across the City of Toronto.

During the fall of 1999 the organization began a strategic planning process to help determine its future direction. The outcome of this process resulted in a decision to mobilize its assets and the energy of its volunteer members to help address the $1 billion gap identified in the Toronto New Media Works Study. One of the key recommendations of the study was that there be "a co-ordinated and unified voice for the cluster." The New Media Village Board determined that collaboration with other organizations would help the new media sector flourish. To this end, the New Media Village is currently finalizing a leadership role in developing the New Media Business Development Centre. These actions will help ensure that the web assets and expertise created by the New Media Village will continue to thrive and serve the interests of the new media industry.

DXNet

The City of Toronto Economic Development Division is a partner in DXNET, a high-speed communications network being developed to provide a secure on-line environment for designers, their clients and their suppliers to work collaboratively on new products and services. The Design Exchange, the lead partner in this initiative, was awarded $750,000 from the Ontario Ministry of Energy, Science and Technology's Telecommunications Access Partnerships (TAP) program. The total project cost is $3 million, which will come from other private sector partners such as SGI, WATCO and Velocet Communications.

This electronic forum will provide small firms and design students with increased access to broader client and partner networks. This will enable them to test ideas, use high-end modelling software and showcase their work. Participants using DXNET will be able to develop virtual offices on-line, promote their products and services in a rich media context and collaborate on-line using the DXNET intercommunication and project management tools. By providing a highly secure network and reducing the time it takes to get new products to market, this project is also expected to yield economic benefits to the manufacturing, construction, entertainment, communications and new media industries.

Using advanced communications technologies, DXNET will provide Ontario with leading-edge infrastructure and drive innovation that will help the design sector grow and compete, and take full advantage of expanding global markets.

The Economic Development Division has dedicated staff resources to help mobilize the design and technology community to support and benefit from this leading-edge initiative.

E-Commerce Initiative

E-commerce (both business to consumer and business to business) has enormous potential for long-term and significant economic impact in any given geographic area. The recent Industry Canada led Canadian E-Business Opportunities Roundtable found that Toronto, as Canada's business centre with its strengths in finance, retail, and industry, must rise to this challenge.

To help address this issue of increased awareness about e-commerce, the Division has provided funds to SMART Toronto, one of the Division's key strategic partners, to host an E-Commerce Forum in late spring 2000. This industry event, which was supported through the Economic Development Sector Initiatives Program, will initiate a formal discussion on e-commerce in Toronto, and to begin to create a series of resources accessible to those who are currently looking for answers to their questions about opportunities in e-commerce. The E-Commerce Forum will see 50 of the top thinkers and practitioners of e-commerce gather for a full day to:

(i) Assess the current e-commerce situation in Toronto;

(ii) Define the issues currently restricting the adoption of E-Commerce in Toronto;

(iii) Begin the development of resource materials that can be made available to those seeking

more information on E-Commerce; Develop a preliminary action plan to help address the E-Commerce situation;

(iv) Identify those partners (both public and private sector) critical to developing and expanding

(v) Toronto's E-Commerce expertise; and

(vi) Define necessary next steps.

This initiate demonstrates the Division's proactive response to another of the key issues identified in the Toronto New Media Works Study - the lack of exploitation of opportunities available in e-commerce.

Comments:

To help Toronto's rapidly growing new media sector realize its potential, the Economic Development Division will continue its active involvement promoting the strengths of Toronto's New Media sector in domestic and international markets. The division will continue to work with organizations representing the interests of this industry to advance Toronto's capacity to be a leader in e-business.

Using the model of the recommendations put forth by the Toronto New Media Works Study, the following outlines tangible ways that the Economic Development Division can and is actively involved in helping to build Toronto's new media cluster.

(a) Synergy and linkages:

The Economic Development Division is an active member of several Toronto-based technology associations (i.e. SMART Toronto, New Media Village, IMAT), and is committed to working with these organizations to deliver clear and consistent marketing messages regarding Toronto's new media industry. The City of Toronto can also add value by providing statistical information and collateral materials (specific to the new media industry) to organizations to assist them in their marketing efforts.

In addition, significant work is required to raise the awareness of the opportunities e-commerce provides. Canada's participation in e-business is currently below average, therefore limiting Toronto's exploitation of e-business revenue opportunities. To respond to this gap, the Economic Development Division will work with key stakeholders to develop resource materials that will assist entrepreneurs to enter the world of commerce activity. This "tool kit" will explain the opportunities and benefits of e-commerce, and will outline the urgency of becoming involved in e-commerce. It will also encourage the business community to partner with other companies within the technology and new media cluster in developing an on-line presence.

A direct benefit to Toronto's new media industry will be realized by a raised awareness among Toronto-based companies of e-commerce opportunities. This raised awareness would subsequently result in an increase in the demand for web site strategy, architecture and design products and services of local new media firms as companies develop their e-business strategies. An overall economic benefit would be achieved in Toronto due to the increase in revenue that Toronto-based companies would realize from adjusting their business models to include e-commerce activities.

Communications, marketing and branding:

Toronto's industry currently lacks a unified voice and prominent new media brand names. Because of this lack of cohesion, Toronto is not as recognized as a leading new media cluster in North America. Toronto lacks the organization, marketing and branding of its new media products and services to develop an international identity and reputation. Through initiatives such as the Small Business Enterprise Centres and the New Media Business Development Centre, the Economic Development Division will work to promote Toronto's new media cluster in local and international markets.

The Economic Development Division's current efforts to develop a major initiative to market Toronto as a prime location for IT&T and digital media companies, in partnership with Toronto real estate brokers will support this objective.

Financing

In partnership with organizations such as ViaTech, the Toronto Venture Group and Toronto Access to Capital, the Economic Development Division will work to redirect more traditional financing to the new media cluster. The Division will play a proactive role in ensuring that the financial community and the business community engage in ongoing dialogue to make sure that venture capital is available to new media entrepreneurs.

In Toronto, a gap exists in 'angel'-type investment, particularly for companies looking for smaller amounts of capital ($100,000-$500,000) to finance stages of 'proof-of-concept' research and product development beta testing. To address this gap, PwC has recommended that the New York New Media Association's 'NY Angel Investors Program' be researched as a potential model for Toronto. The Division will work with other industry stakeholders to co-ordinate a local network of angel investors that understand the new media sector, and provide a forum for them to meet with high potential new media entrepreneurs.

Skills development

The Economic Development Division will continue to promote Toronto's public and private academic institutions as some of the world's best providers of new media training. The Division will also provide support to initiatives that bring the educational institutions together with members of industry. Such networking opportunities will ensure that a complete and relevant spectrum of new media training is available in the Toronto area. The City of Toronto will partner with the Toronto New Media Trainers Alliance (an affiliate of SMART Toronto) to expand the mandate and reach of that organization.

Conclusions:

New media is a high-growth component of the new knowledge economy. The Division's ongoing efforts to support the long-term development of this important cluster through the initiatives outlined in this report will demonstrate our commitment to this industry and our understanding of its significant role in the local economy.

Contact:

Brenda Librecz

Managing Director, Economic Development Division

Tel: (416) 397-4700/Fax: (416) 397-5332

Blibrecz@toronto.ca

Joe Halstead

Commissioner Economic Development, Culture and Tourism