Ottawa Toughens Policies on Reviewing Foreign Investments in Interactive Digital Media Sector

Minister of Innovation, Science and Industry François-Philippe Champagne rises during question period on Parliament Hill in Ottawa on Oct. 5, 2023. The Canadian Press/Spencer Colby

The federal government has introduced new policies aimed at better protecting Canada’s interactive digital media industry from foreign investments that could pose threats to national security.

“Starting today, investments in the interactive digital media sector by entities owned or influenced by foreign states, particularly states that engage in activities that may pose a risk to Canada’s national security, will be subject to enhanced scrutiny,” Innovation Minister Francois-Philippe Champagne said in a March 1 statement.

The statement provides additional guidance on how the Investment Canada Act is to apply in the sector, which includes a wide variety of businesses involved in digital entertainment and educational applications such as video games and extended reality.

Ottawa expressed concerns that “hostile state-sponsored or state-influenced actors may try to spread disinformation and manipulate information” by leveraging foreign investments in the sector.

The term interactive digital media refers to digital content or environments that allow users to participate or interact with each other in activities online or via gaming consoles or media storage devices. Examples include PC gaming, console gaming, cloud gaming, mobil gaming, and certain immersive technologies like virtual or augmented reality.

In a new policy, the government provided a list of factors to be considered when assessing whether a potential investment in the sector would be harmful to national security.

These include assessing the reach and audience of the product’s content, the investor’s ties to a foreign government, and potential use of the Canadian business for spreading disinformation or censoring information in a way that’s inconsistent with Canadian rights and values.

The government will also scrutinize the composition of the board of directors of the Canadian business and the degree of control or influence the investor would likely exert on the business and the content of its products.

In another new policy, the government provided a list of factors to be examined to determine if a proposed investment would be of net benefit to Canada.

“Net benefit reviews for foreign investments in the cultural interactive digital media sector, particularly in businesses that create their own original intellectual property, may require stricter undertakings for a longer period of time, particularly with respect to creative independence, corporate governance and transparency,” Mr. Champagne said in his statement.

While the statement didn’t pinpoint specific countries, the government has identified China, Russia, and Iran as significant threats to Canadian national security and intellectual property on numerous occasions.

The Policy on Sensitive Technology Research and Affiliations of Concern, introduced in January, specifically targets these threat actors. The policy aims to increase protection of Canadian researchers during foreign collaborations, particularly in sensitive technology research areas such as artificial intelligence, nuclear technology, biotechnology, and advanced weaponry.

As part of the policy, the government released a list of “Named Research Organizations,” identifying over 100 universities and entities in China, Russia, and Iran recognized for their ties to the regimes’ military or state security apparatuses. Canadian researchers engaging in partnerships with these institutions in sensitive research areas would be ineligible for government funding.

Ottawa says it still welcomes foreign direct investments in the interactive digital media sector.

“We will continue to encourage and work with Canadian businesses that require investment capital, by helping to identify and find partnerships that will be in the best interest of Canada’s businesses, workers and economy,” Mr. Champagne said in the March 1 statement.