MONTREAL (Reuters) - Outside, the sun is shining, but it is dark in the production room where more than 150 Ubisoft artists, animators and engineers are racing to finish the latest edition of “Assassin’s Creed,” one of this holiday’s hotly anticipated games.

Chase Toole, a concept artist, works on art at THQ Inc., a developer and publisher of interactive entertainment software, in their Montreal office August 30, 2011. According to the economic development agency Invest Quebec, 86 companies and 8,236 jobs have migrated to Quebec as a result of a government program under which 37.5 percent of a video game company's payroll is subsidized by the majority French-speaking city in the form of a refundable tax credit. The incentives, which include extra credits for companies that make French versions of their games, have enticed heavyweights such as Electronic Arts and Activision Blizzard to open major operations in Quebec. REUTERS/Christinne Muschi

They are working not from Ubisoft’s headquarters in Paris or California, but in Montreal, Quebec. And they aren’t alone. Quebec has become the preferred place for some of the biggest names in video games to set up shop.

According to the economic development agency Invest Quebec, 86 companies and 8,236 jobs have migrated to Quebec as a result of a government program under which 37.5 percent of a video game company’s payroll is subsidized by the majority French-speaking province in the form of a refundable tax credit.

Put another way, for every dollar a video game company spends on paying its development staff, it receives 37.5 cents from the Quebec government.

The incentives, which include extra credits for companies that make French versions of their games, have enticed heavyweights such as Electronic Arts and Activision Blizzard to open major operations in Quebec.

“There’s a buzz right now, just like how Hollywood was the place to make movies in the 1920s,” said Charles Jolicoeur, a coordinator at Invest Quebec.

Last year, Quebec spent $100 million on the program, up from $83 million in 2009 and significantly more than some U.S. states with similar programs such as Texas and Louisiana.

The province first set aside money for video games in 1996 after starting a program to jumpstart the film industry a year earlier. According to Jolicoeur, the aim was to move Quebec from a manufacturing economy to a “new economy” by creating artistic jobs for young people.

Fifteen years later, the bet appears to have paid off.

“The incentives the government provided helped plant the seed, and now it’s big and everyone is hiring,” said Yanick Roy, studio director of Bioware, an Electronic Arts outfit.

THQ, the Southern-California based company that makes the popular “WWE Smackdown vs. Raw” video game, recently made Montreal its adopted home. After putting up disappointing results the last few quarters, CEO Brian Farrell told investors in July that THQ was moving most its resources to lower-cost areas, including Montreal, as part of its restructuring. Studios in New York and Phoenix shut down over the summer.

Since relocating, THQ has hired 145 employees for its new studio, housed in a converted newspaper printing press near the cobblestone streets of Old Montreal. The next step is for the company to hire 100 employees every year for the next five years until it reaches a staff of 500.

“When you look at our plan, it would be very difficult to do it in a lot of markets. But the right ingredients are in Montreal, with the tax incentives and the quantity and level of talent,” said Dave Gatchel, general manager of THQ Montreal.

This week, the Montreal newspaper La Presse reported that the Tokyo-based video game company, Square Enix, was going to double its staff and hire 350 developers to become the third-largest studio behind Ubisoft and EA.

COMPETING FOR THE FUTURE

Ubisoft, the leading video game employer in Montreal, plies its 2,100 game developers in Montreal with a full-time doctor on staff, an in-house gym with personal trainers and a rooftop bar area overlooking the city.

The company, which came to Montreal from France in 1997, helped put the city on the map as a video game center. It released top selling games such as “Tom Clancy’s Splinter Cell” and “Assassin’s Creed,” trained hundreds of developers and invested in programs at nearby universities.

But as new entrants such as THQ move into Montreal, the competition for top video game talent has intensified. Last year, THQ poached Patrice Desilets, the designer of “Assassin’s Creed,” which spurred a lawsuit between the companies.

“The energy is the same here at THQ as when I started at Ubisoft in 1997,” he said. “It’s a smaller place with less people, and there’s the feeling that we’re the underdogs.”

EA, the second-largest U.S. videogame company, came to Montreal in 2004. It has 750 employees on three floors of a downtown high-rise next to top-tier law and accounting firms.

EA plans to hire more people in mobile and social games. Playfish, the social games company that EA bought in 2009 in a deal worth roughly $400 million, has 30 employees in Montreal and plans to nearly double its staff by the end of the year.

The Quebec government is also pursuing its next big growth area -- online games. Though the local industry is still big-budget console games, sales of these games are declining. Quebec is courting online gaming companies to ensure that jobs and growth stay in the province. Government representatives will attend G-Star, the video game show in South Korea in November, to attract Asian games companies to set up outposts or build data centers in Montreal.

“We are going to convince them to have a look at what’s going on in Montreal and to join the parade,” Jolicoeur said.

THQ’s Desilets, a lifelong Montreal resident who rose to fame with “Assassin’s Creed,” said the notorious winter weather should not deter game developers, even ones from California, from considering a move. He said they should focus on what the city offers, like affordable housing, culture and cuisine.

“You have winter, but then you realize it’s not that bad,” Desilets said. “I love it here. One of my dreams is to be the mayor of the city.”

(Editing by Peter Lauria and Robert MacMillan)