This Is Not a Simulation: Canada Releases New Policies for Foreign Investments in Interactive Digital Media

On March 1, 2024, the Canadian government issued two policies that will be consequential for foreign investment in the Canadian gaming, virtual reality and digital media sectors, indicating that such investments will be subject to increased scrutiny.

The Policy Statement on Foreign Investment Review in the Interactive Digital Media Sector (ISED Policy) and the Policy Statement on the net benefit reviews of Foreign Investments in Cultural Businesses in the Interactive Digital Media Sector under the Investment Canada Act (Heritage Policy) indicate that foreign investments in interactive digital media (IDM) will face heightened scrutiny under the Investment Canada Act (ICA). This increased probing comes as a result of IDM’s potential to propagate disinformation and manipulate information and provides that foreign investments may be subject to national security reviews, discretionary net benefit reviews and extended undertakings.

The policies provide an open-ended definition of IDM, which includes digital content or an environment that enables collaboration among users for the purposes of entertainment, information or education that is delivered via the Internet, mobile networks, gaming consoles or media storage devices. The policies note that IDM includes video games, virtual reality devices and platforms used for entertainment, training, education and e-commerce. This broad definition of IDM encompasses a range of products offered in the Canadian technology sector, such as artificial intelligence chatbots, collaboration and chat tools, social media platforms, and online gaming stores or mobile app stores.

In a joint statement, the Minister of Canadian Heritage and the Minister of Innovation Science and Economic Development cautioned that hostile states may seek to leverage foreign investments in the IDM sector to propagate disinformation or manipulate information. The policies recognize the importance of Canadian-created intellectual property and stories. They signal to the market that foreign investments in the IDM sector will be subject to enhanced scrutiny.

ISED Policy on Foreign Investment Review in the IDM Sector

Any investment by a non-Canadian in a Canadian business can be subject to review under the national security provisions of the ICA. The ISED Policy recognizes the heightened risks of state-sponsored or influenced-information manipulation in the IDM sector, and sets out factors that can be considered in assessing whether a transaction in the IDM sector could be injurious to national security, including:

• The reach and audience of the product's content
• Online elements, such as in-game chat logs, purchases or microphone/camera access
• The investor's ties to a foreign government
• The potential to use the Canadian business to propagate disinformation or censor information
• The board of directors of the business
• The degree of influence over the Canadian business and its content

The ISED Policy recommends that all non-Canadian investors review planned investments in IDM for potential linkages or influence by foreign states and consult ISED at least 45 days in advance of any such investment, even where they do not trigger a mandatory pre-closing filing.

Net Benefit Reviews in Cultural Businesses in the IDM Sector

Under the ICA, foreign investments in Canadian cultural businesses are subject to a review by the Minister of Canadian Heritage, where the applicable asset-value threshold is met, to determine whether the foreign investments are of “net benefit” to Canada. Where the threshold is not met, such investments may be subject to a net benefit review on a discretionary basis. The Heritage Policy indicates that the government will be increasingly likely to exercise its discretion to review foreign investments in Canada’s IDM industry that do not meet the threshold. 

The Heritage Policy specifies that Canadian voices and stories reflective of Canadian values present a particular concern, and investments in Canadian businesses that create and own intellectual property (IP) will be subject to a thorough review. The policy outlines factors that will be considered when conducting a net benefit review of investments in the IDM sector, including:

• The degree of influence in the operational and strategic control of the business
• Whether the business owns or creates IP
• Competition in the sector and the effect of concentration of foreign ownership
• Corporate governance and reporting practices
• Whether the business will continue to operate on a commercial basis

Impact on Investment in the IDM Sector

Foreign investors considering investments in Canada’s IDM sector should be aware of the heightened scrutiny and factor in the potential for extended review and consultation with ISED in advance of closing. Additionally, the Heritage Policy provides that investments in the IDM sector will require stringent undertakings to address creative independence of the business; corporate governance and transparency; and ongoing reporting, auditing and inspection rights. Although net benefit undertakings have generally imposed conditions for three to five years following the investment, Heritage has signalled that longer commitments should be expected for investments in IDM to receive net benefit approval.

Accordingly, foreign investors should be prepared to provide long-term commitments related to maintaining Canadian IP in Canada and ongoing reporting and compliance obligations when investing in the IDM sector.

These policies, together with proposed amendments to the ICA currently being debated by Parliament, demonstrate the government’s heightened focus on potential national security concerns of foreign investments spanning various Canadian industries and its focus on enhanced powers to scrutinize foreign investment. For more information regarding the proposed amendments to the ICA, please see our December 2022 Blakes Bulletin: Canadian Government Proposes Important Changes to Expand National Security Review Powers Under the Investment Canada Act and our April 2023 Blakes Seminar: Sweeping Changes to Canada's Competition and Foreign Investment Rules.

For further information, please contact:

or any member of the Blakes  Competition, Antitrust & Foreign Investment or Technology groups.