Activision’s Radical Entertainment, one of the oldest gaming companies in Vancouver, triggered an uproar within the vidgame industry when it recently announced layoffs of 89 employees.

Shortly afterward, Rockstar Games made its own stunning announcement: The company will be expanding over the next six months — to Oakville, Ontario, and is offering its 35-person Vancouver development team the opportunity to either relocate to the Toronto studio or take positions at other Rockstar studios (or find alternative employment, of course).

Rockstar Vancouver, considered a major company by the local vidgame community, has worked on titles such as “Bully” and “Max Payne 3.” According to Rockstar, the Ontario facility, which will add more than 50 positions, is a result of a strategic partnership with the Ontario government. Rockstar VP of publishing and operations Jennifer Kolbe said in a statement “a single Canadian team will make for a powerful creative force on future projects.”

Great news for the Toronto studio, but for Vancouver, not so much.

The recent news may have sent shockwaves through the industry, but the gaming biz in Vancouver has been suffering for a while now. Propaganda Games, which was acquired by Disney Interactive, closed in 2011. Ubisoft shuttered its Vancouver studio this year and Nokia, after axing its game studio in 2009, finally closed its R&D center in June. Microsoft Game Studios cut 35 jobs after two projects, “Microsoft Flight” and “Project Columbia,” closed. Capcom Vancouver cut 20 jobs.

Meanwhile, Relic Entertainment, United Front Games, Slant Six, and Electronic Arts have all experienced heavy layoffs.

Vancouver’s pricey real estate and high cost of living may be a factor in all of this but aggressive government subsidies from Ontario and Quebec seem to be at the root of the gaming industry’s problem. Unlike the vfx/animation sector, which flourishes under an average tax credit of 51% on labor, the new digital media tax credit for vidgames is only 17.5%.

“If our tax credits were the same as they are in Ontario and Quebec, the size of our industry would be double the size that it is today,” says Howard Donaldson, president of the Digital Media + Wireless Assn. of British Columbia (DigiBC).

Six provinces in Canada offer digital media tax credits. Most of them fall within the 30% to 50% range, making British Columbia the lowest by far.

According to Donaldson, B.C.’s tax credit doesn’t necessarily have to be the biggest since the province already has many advantages, such as location, infrastructure, a great talent pool, and schools. However, he maintains, the tax credit must at least be competitive or companies are bound to go to regions that have a strong talent pool and better incentives.

Case in point: Ontario and Quebec have been luring away gaming companies — and Georgia, Louisiana, Florida, as well as Singapore and Australia are all pursuing the biz.

“If we’re able to double our workforce with tax credits, the tax revenue that is generated in the province will more than offset the cost of that tax credit — and that is why other territories are doing it,” Donaldson says.

There’s more behind the biz’s struggles than just tax credits, however.

Radical cited the failure of its IP, “Prototype 2,” to garner enough sales as the impetus behind the layoffs. The reality of the marketplace is that it’s changing and so must the business model.

According to Victor Lucas of game-focused TV series “Electric Playground,” “Prototype 2” was a very big, expensive title that carried a large financial risk. It was met with consumers who are “gun-shy” in-between systems, and are less comfortable with spending a lot of money on a single console game — particularly a sequel. In its heyday, Radical was working on three to four games at once, then it got to one, “Prototype 2,” and that game failed to sell.

Nowadays, the market is fragmented and saturated. There are games for multiplatforms, smartphones, tablets, Facebook apps downloadable computer games and more. Consumers are spending less money on major console releases. Only triple-A games seem to survive. “It’s a recipe for a lot of change,” says Lucas.

During this period, he insists, there needs to be a bigger drive from the public and private sector in Vancouver to ensure that the “brain strength and creative output” stay in Vancouver.

“This is a big chunk of time that people devote every week to being entertained through videogames, so I think that there is a huge economic gain at the investment level and a great environmental gain and a community gain by having these really smart, gifted people be part of our city.”