Proceedings of the Subcommittee on
Communications
Issue 4 - Evidence
OTTAWA, Wednesday, April 1, 1998
The Subcommittee on Communications of the Standing Senate Committee on Transport and Communications met this day at 3:30 p.m. to study Canada's international competitive position in communications generally, including a review of the economic, social and cultural importance of communications for Canada.
Senator Marie-P. Poulin (Chairman) in the Chair.
[English]
The Chairman: Colleagues, today we welcome Michel Blondeau from Digital Renaissance.
Mr. Blondeau, as you are probably aware, we have been doing a special study on Canada's international competitive position in communications generally, and in that regard, we published a report last year which was well received by the industry.
In this phase of our study, we are concentrating more on a review of the economic, social and cultural importance of communications for Canada, so that we will remain at the forefront of communications in the year 2000.
Mr. Blondeau, please proceed with your submission.
Mr. Michel Blondeau, Director, Content Development, Digital Renaissance: I would like to talk to you about what digital media is, since it is the engine of our knowledge, our economy and something that will take us into the future. I am happy to hear that you, as leaders, are inspired to take us into the next century.
Digital media is about creativity, technology, information, solutions, infrastructure, business planning, marketing and distribution, but really it is about people. It means freedom, efficiency, learning, convergence and opportunity. It also has implications for changing social, cultural and economic landscapes within which we live. Perhaps it is the most common element to all Canadians today. Most important, it will transform how we think about the way in which we think.
Just a little bit of background on my company: Digital Renaissance is a company of 115 people. When I started there three years ago, the company employed only 10 people. That is an example of what this industry is about: a lot of growth, a lot of change. The people who work at Digital Renaissance are quite different, one from the other, but their most common element would be youth. Therefore, if we are looking at the future of Canada, we should look to companies such as Digital Renaissance to give us some answers as to what the future might be like. They have common assets; creativity, ideas, and we are all human beings, of course. We have a space to call our own, a structure to call our own, and we have a dog. We are a very different kind of company. However, we are making it in a very hard, economic atmosphere.
Digital media is about the marriage between technology, information and creativity. As a company, we offer a range of services that are probably too diverse to mention here. However, if you tell me what your need is, I can tell you how my business can help you. We have called our company a multi-media company, an interactive media company, a new media company, a digital story-telling company, a knowledge economy company and digital media. It is many different things to many different people.
The issues at our company are growth, changing focus, a U.S. and international breakthrough, competition from traditional media, competition from start-ups, the pace of changing technology, losing and finding people who are useful resources for our business, the changing scope of what the Internet is -- both from a legal, social and economic perspective; the challenge of growth versus a culture that we appreciate as human beings working at Digital Renaissance, and consolidation, whether that is a good or bad thing. It is a complex company, so it is difficult for me to sit here and try to articulate what exactly digital media is or how telecommunications will look in the future. However, I will make my best effort.
In the documentation that I received before coming here, there are three areas that I was asked to think about: globalization, Canada competitiveness and the promotion of Canadian products. I will therefore try to look at some of the benefits and hurdles that we face as a company, and perhaps as an industry, as we move forward into the future.
First, with respect to globalization: Canadians are veterans in the field of digital media. That is hard to believe when it is so new. However, Digital Renaissance has been around for a long time -- only six years. I myself, at 34 years old, was once the eldest person at Digital Renaissance, and therefore not only a veteran in the company but a veteran in the industry.
Canada, by its very demographics, is also able to help. We are connected throughout the world by the people who live here. Digital media has the potential to help almost every other kind of business. It is not an industry in and of itself that is isolated, but rather an industry that can address many other business needs.
Canada, by the very nature of our geography, has distribution and delivery channels already in place. However, some of the hurdles around globalization are that we must take early steps in order to move our industry out, or extend its reach, while we are still ahead; that we need to foster this industry; that government and other industries need to support new initiatives, whether that be through R & D or tax initiatives. We need to help this business grow but, rather than protecting it from competition, we need to protect it so that it can compete into the future as it starts its growth.
Another hurdle we face in the international marketplace is that it is a difficult thing for us to move from being a small company to being an international company. First, we need to identify where the key markets are in the international sphere. Second, are those markets ready to take what we have to offer, and to use it to their own advantage? Digital Renaissance has had problems in this area, primarily because the markets overseas, in Asia or Europe, may not be ready for what we are selling. At this point, I would like the Canadian government to assist in appealing on a government-to-government level, and to help leverage the current experience that exists within Canada, in order to help other countries and economies develop in relation to the digital media industry. The cost of moving into international markets is also prohibitive for many Canadian companies, and the methods of marketing are different -- and difficult. What is clear is that we need to leverage our experience, and the areas where we are currently leaders, into the international market-place so that we can gain a foothold.
Second, with respect to Canada's competitiveness: One of Canada's benefits is that we have an educated population. We are good at lateral thinking. We are also good in this particular business, and we can achieve great success. We are very active, very innovative. We are recognized as current leaders in telecommunications, computing and the cultural industries, and convergence will help us to be even stronger leaders.
We also have a large consumer base with which to test our products here in Canada. Canadians are early and eager adopters of technology. That is beneficial as we try to move into the international marketplace. We have strong, independent production communities. Once again the world is here, and we can test a variety of different products on the demographics of the world.
One of the bigger hurdles, in terms of competitiveness, is that we have a strong communication infrastructure, but we need to build upon this through R&D initiatives and different delivery mechanisms. We also need to ensure that cultural policy allows us to take risks in building products that reflect ourselves. In terms of educational software, for example, Microsoft products are some of the best selling products into our schools. However, when I have tried, personally, to find funding for educational software, it has been very difficult. I wonder why it is that we cannot use this new mechanism to help educate our children. It seems that the market is too small to bear the types of experiments and research initiatives that need to be done.
Another hurdle in terms of competitiveness is changing technology. It is changing so very quickly that it may become obsolete by the time we have the wherewithal to bring our product to the market. We are constantly facing a brain drain to the international market-place, the U.S., and to other sectors of our own Canadian economy.
Most of those who are involved in our type of business lack business development skills. We tend to be entrepreneurs rather than managers and, as we grow, there is a problem in changing over. Couple that with inexperience in marketing and it becomes a catastrophic hurdle to overcome.
In addition, we have difficulty attracting financing. The risk tends to be too high, or people find it difficult to understand exactly what it is that we do. Also, strategic partnerships with key leaders in other industries are difficult to come by, although Digital Renaissance has found success in that area. We have recently had an investment from Bell Canada, and that is helping Digital Renaissance move forward.
Currently, the industry itself is not cohesive and does not have a strong identity, therefore its presence is weak in the international sphere. When we think about digital media in Canada, there are very few companies that we can reference. There are many small companies, but the industry really has not become a cohesive unit.
The regulatory environment itself is struggling to keep pace with this change. My understanding is that this is one of the reasons why this subcommittee is meeting, to try to effect that. There is a lack of government support in cultural and R&D sectors, especially for smaller companies.
Lastly, in terms of competitiveness, the future for Digital Renaissance is to look at enabling applications, those very base applications that will allow for other directions in terms of creative development. There is really no money to build those kinds of applications. They are useful tools for the future, although perhaps not useful tools for today. It is hard to argue a business case that is extrapolated into the future.
On the final point of the promotion of Canadian products, Canadians have built many products, and there is a great deal of energy around and good ideas for building further products. Canadians have new ways of thinking about old problems. There is lots of opportunity for us to build great product and sell it internationally. The Canadian dollar value will help with that. However, it does seem that marketing prohibits us from promoting these products.
Hurdles exist in terms of the promotion of Canadian products. Once again, such products are hard to move out into that international market. Marketing and distribution are problem areas for inexperienced entrepreneurial managers. Financing is difficult to come by as well. We need more creative financing from the traditional financing industry. We need the infrastructure to showcase the future, in terms both of hardware and a pipeline through which to deliver the materials. We need the incentive to leverage current products in a variety of different directions. We can take a product and extend it out, showcase it so that we encourage a ripple effect. However, if the incentive is not necessarily there, one product, however innovative it may be, may not move anywhere.
We need better content projects and not just technological projects. The legal issues need to be settled sooner rather than later. Our field is dominated by giants. For example, the distribution of software in Canada is dominated by two companies. Media giants are now entering our business, especially from the U.S., and that poses a real threat to companies such as Digital Renaissance. The promotion of products is costly, and the competition is getting more and more fierce as we move into the U.S. market.
I would like to recommend the following: that we find good investors who are willing to take a risk, and to help us figure out the markets. We are calling these people "angels," like the backers that they had in the early days of theatre, television or film. It will be a costly endeavour.
I would also recommend that we make sure that our educational system means something to our business; that job creation efforts ensure that we have direct skills and transferable skills that can move over into this business. It involves every kind of skill, from conceptual to creative to technological.
We need incentives to keep the talent here in Canada. We need integrated, coordinated efforts between business and government; once again, convergence. We need the support that other traditional media enjoy. In that regard, the question of tax incentive comes to mind again, and investment in R&D, and delivery channels. Finally, we need the government to be a leader on this front. The learning curve for many other private sector businesses is too high; it is too risky for them. Perhaps, in that event, the Canadian government needs to be a leader in shepherding this and other similar businesses forward, since they have so much promise for the future.
Senator Johnson: I have a question concerning the interest in multi-media content these days. What is the importance of multi-media content in the near future? Do you think it will rival conventional forms of entertainment like television, or will it be a complementary form of distraction?
Mr. Blondeau: It will be complementary. These are two very different ways of accessing information. I look at it more as passive and active formats. Television is a very passive medium and we can sit and not necessarily choose to interact, but it is entertainment. When we look at computational power and the computer, it allows us to interact with the media. They are thus very different elements.
When we sit in front of a computer, we have a mouse, and we expect to click and move our way through the information. It is all in the way in which we design information. When we design a film, it is a narrative art. It is one unit, complete from start to finish. When we design for interactive media, it is a bit of a different animal where, at some point in time, we are expecting that the user will want to go deeper. I see them as separate experiences for a person. Both will survive into the future.
Senator Johnson: I was interested in your comment about better content for products, and not just technological projects. You did not expand on that. Could you do so now?
Mr. Blondeau: With respect to this industry, the essence is in the technology, but in order to really leverage the technology we need to have some content that we can put on top of that, and that is where we will start to expand conceptually what types of products we produce in the future. What we are talking about here is putting money into something that is well designed and well thought out, and where we are actually using the power of the computer, rather than showcasing the bells and whistles of digital technology, which in essence is a software functionality, and not the ideas emanating from that.
Senator Johnson: How would you do that for one of your clients, for example? I believe you have Bell Canada and the Bank of Montreal. Could you illustrate how you would do that for one of your clients?
Mr. Blondeau: In using their content?
Senator Johnson: Yes.
Mr. Blondeau: What we have to do is really think about the end user, and how we can benefit the end user by using the content itself. Technology will be put aside for the moment. I would like to talk about some work I am doing with the McMichael Canadian art collection. We are doing a project with McMichael, and Bell is involved, and they are funding a portion of the development of that project. Our project involves using art work to help kids to learn about Canadian social history. For example, we can put up a painting which the student can explore in an aesthetic manner; we can change the colour of the background, we can change some of the music around that painting. The student then has an emotional attachment to the painting. Once the question "Where did this painting come from?" has been asked, we can allow the student to move through the painting and obtain references to the time period and the social era in which that piece of art was painted. That is using technology, but in the best possible way, because the content still is what matters there.
Senator Johnson: As you said, it is certainly a huge learning curve for everybody. When you mentioned that government should lead, of course part of our study is the regulatory side of the new age into which we are heading. How can we be more diligent in shepherding that new age forward? You talked about how film and television producers now receive subsidies and tax incentives from Ottawa and the provincial governments. Do you think multi-media producers should benefit from the same policy support because you ask government to lead and you ask for support that other forms of media enjoy. Is that the sort of thing you are talking about?
Mr. Blondeau: Yes, but perhaps with different delivery mechanisms; such things as infrastructural R & D initiatives. What is also important is allowing for software to be developed that will make it easier for others to use the tools, to take risks in moving into larger projects that cannot be funded by industry: infrastructure, broadband initiatives, video on demand initiatives -- those would be good examples of where government can go when others will not necessarily do so. That will be the delivery and distribution pipeline of the future. Those are important areas that need to be looked at.
Senator Perrault: I appreciate the testimony we have heard this afternoon. You stated in your remarks that you are in a position to help almost any entity or company. As politicians and parliamentarians, we love doing the "rubber chicken" circuit, telling people how they must become more efficient. Meanwhile, back at the ranch, we are still very inefficient as a government institution. If the Parliament of Canada were one of your clients and wanted to clean up its act and see if we can communicate more effectively with the people of Canada, would that be an assignment of interest to you?
Mr. Blondeau: It certainly would. It would be a huge task.
The Chairman: Are you saying that we have a long way to go?
Senator Perrault: We suspected you would say something like that.
Mr. Blondeau: I would ask what your major problems would be, and where you want to be as an institution; how responsive, how close to the ground you want to be. The Internet, for example, is one of the more democratic developments in our time. Through the Internet, you can talk to almost every Canadian by sitting at a computer and sending them messages 24 hours a day. That is an important element.
When I talk to other businesses about what the electronic industry can do for them, it is really about problem-solving; how we can solve your problems. If your problem is becoming more legitimate, and being closer to the ground with other Canadians, then certainly we can start to think about those issues.
Senator Perrault: It would be an interesting assignment for you and associated companies, to find out how we can do a better job by seeking the views of Canadians.
Mr. Blondeau: Yes.
Senator Johnson: You can stay home and log on to the Internet.
Senator Perrault: It would be interesting to know. With this multi-media revolution, there must be some way that it can be adaptable to the way we communicate as parliamentarians.
Mr. Blondeau: I agree. The whole point of it is being able to use tools to help us communicate with each other. I do not think it can be just about the technology itself. That is my approach to it. The question to ask is: Where do you need to be?
Senator Perrault: It is possible. Certainly, of concern to me is the way the smaller Canadian companies are being gobbled up by American super-giants such as Microsoft. Does that trouble you at all, or does that aid the general, world wide effort to give a place to multi-media?
Mr. Blondeau: Is the place bugged by Microsoft?
The Chairman: You mean, officially?
Mr. Blondeau: That is a problem in our business. Consolidation, whether it happens north or south of the border, is a problem. Digital Renaissance is moving south of the border to San Francisco. Certainly, having a relationship with Microsoft is important to us, but if that relationship gets too close, then we have a problem, especially if we choose to remain independent. In this field, which is dominated by one player in terms of software development, that is a very difficult question to answer. What you say or what you do with a company may affect the bottom line, your business line, so it is a precarious position to be in.
Senator Perrault: Mr. Gates will never require a tag day, will he? He is doing rather well.
The Chairman: In your opening remarks, you stated that your company is all of the above, but mainly people. Then in your closing remarks you talked about the importance of the fact that our country needs better content products. What is the problem? You said that that is a hurdle.
Our committee conducted a fact-finding mission in the United States. One of the comments that we heard while interviewing witnesses, who were Americans, was that we have so many excellent products. The issue for the Americans was that these products were not well enough known, or well enough promoted. Now you are telling us that we need better content products. Could you speak to that point, please?
Mr. Blondeau: Yes. Better content usually comes out of enough money to build better content. The bottom line is that our market cannot necessarily support such activity. The cost of producing software is so high that when we try to move it out into the markets, it will not sell enough volume and, therefore, we must dilute the identity of the product in order to sell it in the U.S., or internationally. That, in turn, does not speak to our identity as Canadians but, rather, speaks to our ability to "dumb it down," in a sense; to appeal to a universal rather than a Canadian identity. I think that that is a serious problem.
It costs more to develop a good software product than, say, to produce a small film. If you are talking about producing, say, a CD ROM product such as Myst, that would be about $3 million U.S., and that cannot happen in Canada. It has never happened in terms of developing that type of product, because it is so very expensive.
The Chairman: Thank you very much Mr. Blondeau. If our research team has additional questions, I trust we will have no problems communicating with you?
Mr. Blondeau: No problem, Madam Chairman.
Senator Perrault: Would you like to share any of your recent developmental successes with us?
Mr. Blondeau: Today we were mentioned in The Globe and Mail; yesterday we were on CBC Venture. Are you asking about the grand successes? In my opinion, one of those successes is the fact that we were able to grow so quickly and still retain a sense of culture. Culture is perhaps the most important element. That is what keeps us there, that the people are still human. The fact that we are able to have relationships with companies such as Microsoft and Bell, and still be ourselves on a functional level is important.
I have worked in many different industries. For me, this is the first one where the workplace is not a daunting thing. I do not know how senators feel, but certainly going to work is something that is pleasurable. It appeals to our innate nature of lateral thinking, lateral connection. Many jobs are "silo driven," so that people do become bored. We have been able to create an environment that allows people to go very wide, and that, to me, is perhaps the biggest success, that people enjoy coming to work, enjoy being with each other and it is a creative, kind of free-thinking atmosphere, but we still have managed to sustain a business which speaks to the other side of us. In other words, if we are all responsible for generating our own pay cheques, somehow that will happen, and it is not necessarily tied to a giant, corporate identity that has no individual reference to it.
Senator Perrault: That is a good report.
The Chairman: We always have postscripts in this committee.
Our next witness is Mr. Gary Neil from ACTRA. Please proceed.
Mr. Gary T. Neil, Policy Advisor, Alliance of Canadian Cinema, Television and Radio Artists (ACTRA): ACTRA is pleased to present its views here today. The issues which your committee are studying are obviously quite vital. Let me tell you a little bit about ACTRA, and about me, because it will help position what I will then tell you.
The performers guild known as the Alliance of Canadian Cinema, Television and Radio Artists, ACTRA, represents more than 11,000 professional artists whose work in films, television, radio and commercials entertains, educates and informs Canadians from coast to coast, to coast.
For more than 50 years, ACTRA and its predecessors have negotiated and administered collective agreements which provide minimum conditions of engagement, and a framework for the contracting by producers of actors, dancers, singers, hosts, stunt performers, variety artists and other performers. Members of the guild live and work in every region of the country, and for all of Canada's broadcasters, commercial producers, independent television and film producers, for the NFB, the sound recording industry, and developers of multi-media products. The members have a vital stake in the future of all the Canadian media, the emergence of multi-media and the new forms of distribution. The interest comes about not just because it is the livelihood of the members, but because we feel passionately that Canada needs a strong Canadian presence wherever entertainment and information services are created, and however they might be provided to Canadians.
I am a policy advisor to the guild. For purposes of your work today, let me tell you a bit about myself and my background. I am a consultant. I work for a variety of clients in all of the cultural industries. I am chairman, as well, of the Cultural Industries Council of Ontario, which is an umbrella group from the sector which is meeting together and attempting to promote and encourage cross-sectoral initiatives.
For seven years I was a member of the Cultural Industry Sectoral Advisory Group on International Trade, a federal government advisory panel in the international trade arena. I am a former vice-president of the Canadian Conference of the Arts, and previous executive director of the group that will be appearing before you next, the Association of Canadian Publishers.
My own practice is global. I have completed assignments for clients in the U.S. and Europe. A really critical theme of my practice over the past number of years has been helping people respond to the challenges of convergence and new technologies. I produced a major report for the CBC Business Affairs Department on the consequences for them of the new forms of production and distribution. I know many of Canada's new media developers, the implications of convergence and the effect on the cultural industries of the new methods of distribution, including the Internet.
To really understand the guild's recommendations on how we can continue to improve Canada's international competitive position in the cultural industries and the new media area, it is important to review what I call Canada's cultural dilemma. Incidentally, what I have to say really picks up on what I overheard from the previous witness. I was only here for two minutes, and I heard a comment about the challenges of producing product in a country the size of our own. That is really the cultural dilemma as I see it for Canada.
In the cultural industries, most people know a number of the statistics. In television, despite the proliferation of new Canadian services, about 60 per cent of what English Canadians watch are U.S. programs; almost 95 per cent of the time on Canadian movie screens is devoted to the films of others; over 84 per cent of retail sales of sound recordings feature foreign content; 70 per cent of the Canadian book market consists of foreign works, and 83 per cent of the news-stand market is foreign magazines.
As Canadians, we want to be able to see ourselves reflected in what we watch, hear and read, and to be able to choose to view the world from our own perspective as well as that of others. However, it is difficult to provide the necessary range of quality Canadian choices on a purely commercial basis. That is what your last witness was talking about in relation to the computer and software development business.
Canada is a nation of only 30 million people, spread out over 6.5 million square kilometres. Twenty-two million of us share a language and an idiom with the world's largest producer of cultural material. Canadians expect and deserve to receive Canadian material that is equivalent in quality and price to the U.S. product. However, cultural producers in this country do not have the economies of scale enjoyed by their U.S. counterparts, who produce for a primary market many times the size of our own.
I will offer two examples: In the television industry, Canadian broadcasters typically contribute 25 to 30 per cent of the production budget as a license fee. In the U.S., broadcasters contribute 75 to 80 per cent of the budget, a result of having a substantially larger audience to sell to advertisers. Therefore, if you are the Canadian television producer, you have a structural problem.
In book publishing, the average print run for a work of fiction in Canada is 1,500 copies, compared to 10,000 in the United States, which means that the unit cost per Canadian book is much higher, and yet the selling price must remain competitive in order to satisfy the Canadian consumer who does have this access to the best of international products.
Faced with these competitive advantages, Canada has developed a series of measures to level the playing field, and thus permit our artists and cultural industries to emerge and succeed. The basic objective of these policies is to ensure that Canadians have choice in our own country. While the policies change over time, witness the current shift from direct funding to mechanisms such as tax incentives, or the current challenges to Canadian content rules. While the specific policy combination may shift over time, we continue to need such policies if we are to meet our own cultural needs.
Make no mistake: while you will hear about Canada's success stories abroad, about how we became the second largest exporter of television programs in the world, the second largest exporter of French language sound recordings, and the third largest exporter of English language sound recordings, our success in global markets is based upon success in Canada which, in turn, continues to rely on public measures which have attempted to level the playing field. That is the context within which we make the following comments about the more specific area of interest of this committee.
Canada is well positioned to be in the front ranks of the development of new media products. We have the creative talent in all areas, including software development, animation, all of the cultural industries. Our artistic achievements over the past decade have been phenomenal. The financial resources we can also mobilize in this country, and we have a record of international success.
These developments are bringing new opportunities to performers. We now have agreements to cover the work of performers in live action drama parts of video games, for example. We have seen a great deal of demand for the reuse of existing product as new forms of distribution are opened up.
In the view of the guild, what we need are policies and encouragement for partnerships between industries which historically are not accustomed to working together. We must find ways to put book publishers in touch with the television producers and software developers. We must bring creative writers to the computer industry.
Part of the solution, clearly, is industry action. I mentioned the Cultural Industries Council of Ontario. This is exactly the kind of thing that we are attempting to do in Ontario: bring together firms from the various cultural industries to talk about what the future and what current technologies, as well as future technologies, may have in common for each of them.
Part of the development could also be encouraged by government measures such as tax credits, perhaps modelled on the new film and television tax credit, or perhaps on Ontario's tax credit for animation and special effects called OCASE.
The second point we would make to you in terms of international competitiveness is that we must defend aggressively our ability to continue to implement policies and programs for cultural reasons. Many of the policies so vital to our creative output are under increasing attack from the U.S. entertainment industry, which views any policy designed to encourage indigenous production activity as an impediment to its conquest of world markets, and a threat to its hegemony. There was the successful WTO challenge to our magazine industry support measures last year; the threat of retaliatory measures in response to the CRTC decision a few years ago to remove Country Music Television from the list of authorized services; there is an impending challenge to the revisions of Canada's new Copyright Act that the Americans may be launching under NAFTA or the WTO; there is the decision of the European Community to challenge our decision in the Polygram case.
The President of the guild, Brian Gromoff, is presently in Stockholm at a UNESCO Conference on Cultural Development, where he is supporting the efforts of Minister Copps to use that forum through which to build an international alliance to defend cultural sovereignty. What we view as culture, the U.S. views as business; what we view as encouraging choice, the U.S. views as erecting barriers.
In this connection, I must say a few things about the Multilateral Agreement on Investment. The guild is among those groups raising questions about the potential negative consequences of the MAI for Canadian cultural policy. While it is unlikely to proceed in its current form, the issues are already there, and the threat is already very real. The guild submits that there is a need for a new international approach to defend cultural sovereignty, and we are, in fact, pleased that Minister Copps is taking this initiative in Stockholm.
Third, the guild believes that we must continue to regulate the distribution systems regardless of the technology employed, in order to ensure that Canadian choices are available for those wishing to have such a choice. In our view, this includes the Internet. In our own primary industry, film and television, we know that when Canada controls the distribution, such as in the television industry, we have a strong Canadian industry. Where we do not exercise control over the distribution system, such as in the film industry, we do not have a strong Canadian presence. It seems to us to be a fairly simple equation.
The methods of that regulation may change, and we may need to employ different methods to regulate different distribution systems, but the need for that control, that regulation, does not change.
In this connection as well, the guild believes that Canada must pay particular attention to the navigation systems. I am not sure if anyone has talked to you about this area yet. With the roll-out of the digital cable television boxes, we are about to see in Canada the emergence of true video on demand, whereby you can sit in your home and order up any movie you want which, in turn, is delivered to you via the cable system, directly to your television set. That is, indeed, true video on demand. We have the Internet already. We are soon to see the entry of telephone companies to the program distribution business. Next week in New Brunswick, New Brunswick Tel will be before the CRTC seeking a cable television license. We are about to see an expansion of choice beyond our wildest possible dreams even in the last decade, and beyond what we can see today. In the guild's view, we must ensure that Canadian alternatives are front and centre.
That takes me back to the navigation system. We do not want to see a special "Canadiana" section in the navigation system because that would ghetto-ize the Canadian product. It must be an integral part of the menu. We cannot -- nor should we -- force Canadians to choose Canadian programs, but those who want them must be able to find them. When that is combined with efforts to continue to improve the quality and promotion of Canadian materials, we are confident Canadians will choose to watch, listen to and read, Canadian materials.
I was recently in Europe on business, and this debate about regulation is occurring everywhere else in the world. I was struck by the European debate, which seemed to pose, on the one hand, consumer choice and consumer driven versus regulation of the system, on the other hand, as if you cannot allow consumer choice within a regulated system.
It is exactly the position of the guild that we are talking about choice for consumers, and we are talking about ensuring that they have the opportunity to choose a Canadian program, software package or whatever. In order to do that, we must make sure that the quality is equal to the best from the rest of the world, and we must ensure that they have an opportunity to find it in this universe of almost unlimited choice.
Five: The need to reform Canada's Copyright Act continues. The new methods of production and distribution create new ways of manipulating and misusing the work of creators. We have seen the emergence of virtual actors, and there are even names for them. Some people call them "vactors" and some people call them "synthespians." There are the scenes in the Titanic which were digitally created. We do not need to look to an American movie. A portion of Rocky IV was shot in Canada, in Vancouver, and there were a few hundred background performers in one scene who were digitally enhanced to become a packed stadium in the final movie.
We need new rights for creators. The 1997 amendments to the Copyright Act were only one step. In the guild's view, there should be a full range of rights for performers included in the next phase of copyright forms. Any of you who know copyright law know that it is the most arcane system of law in the world. Now we have developed this new concept called the "right of making available" which is, in the words of the international copyright people, the right that would allow for maximum degree of control when material is distributed in new electronic formats; distributed digitally. Therefore, the "right of making available" should be a right that is made available to Canadian performers.
We need joint industry and government action, in the view of the guild, in order to create a copyright clearance agency for new media uses and distribution which will both facilitate access to material by new media developers and ensure that rights holders are adequately compensated.
Number six, the guild and others welcomed the 1995 announcement of the government that projecting Canadian culture and values was to be the third pillar of Canada's foreign policy. Unfortunately, little has changed, in the view of the guild, as a result of that pronouncement. Many committees and informal coalitions have recommended a variety of ways in which the government could give effect to this declaration, such as through more aggressive promotion of Canadian products, involvement of a cultural dimension in trade Team Canada missions, and other mechanisms. In the view of the guild, these recommendation remain relevant.
Finally, the guild reiterates here its support of the campaign launched by the Canadian Conference of the Arts to have the government develop and enunciate a coherent federal cultural policy. While it is our submission that there is a sound basis for government action to support Canadian cultural expression, policy-making in Canada over the years has been at best ad hoc; at worst, it has been inconsistent. We need to understand collectively why we must continue to develop policies in this field, and in our view we must have a collective vision of how we will promote Canadian stories and Canadian cultural expression in all of the media in the next millennium.
The Chairman: That was an excellent presentation.
Senator Johnson: Yes, it was an excellent presentation. I do not disagree with much of what you said. It is a huge area to cover, of course, and with your varied background, you seem to have touched on almost every aspect of the arts in Canada.
Perhaps I could home in on one in particular, and that is the film industry, simply because I do believe that, in recent years, our publishing, television and music industries have taken off a lot better than they have ever done in the past. Some of that is due to some government assistance and regulations, but the film industry continues to underperform, and I do think it could be a money-maker for Canada. In certain aspects, the Americans are making films here, but they just use our sites and locations.
I am curious to know what ACTRA would say about this. Why do you think this is so? Is it due to our size, which you call Canada's cultural dilemma, and then you mention the size of our country as being part of the problem. Is it due to our proximity to the U.S. and the whole Hollywood scene? Is it our government regulations, particularly Telefilm's policy that a film must have a Canadian star and only be released in Canada to qualify for funding, and yet even with that regulation, only 3 per cent of cinema revenues come from projecting Canadian films. I do not know what we can do about this. It is a big conundrum to me. Do we relax the government funding? Do we do what Derek Mazer, a Winnipeg producer I know, suggested? He said Telefilm acts more like a studio trying to develop film makers, rather than an investor, who stays in the background. Is this also true?
These are some of the things I wanted bring forward on this particular industry. Minister Copps has released a paper, and they are discussing some of these matters in UNESCO now. The whole film side does feed into a lot of other things both in multi-media and the Internet and everything else. I know this is quite a long question, but I did want to get it on the record.
As senators in this subcommittee, we are trying to grapple with Canada's competitive position in communications. Could you address this one aspect in particular from the ACTRA perspective, and from the perspective of the actors as well, of course, to whom it is a livelihood?
Mr. Neil: The question may be long, but the answer is even longer.
Senator Johnson: It would be difficult to make it short.
Mr. Neil: Yes. ACTRA has welcomed the discussion document from the Department of Canadian Heritage on Canada's film policy. We have already made a submission encompassing our preliminary thoughts about what we can do to try to improve the situation with respect to the feature film industry in this country. We intend to be fully participating in that discussion as it evolves. In fact, you could find an ACTRA brief on the web site of the Department of Canadian Heritage on the film business.
Let me make a couple of comments as briefly as I can. I did touch on this aspect in the initial presentation. The reason, historically, that we have not built a film industry in this country in the way that we could is that we do not control the distribution mechanism. In television, because of the existence of a regulatory agency, now the CRTC, we have been able to exercise a degree of control and provide a diversity of opinion, and view, and product in the system. That is the fundamental difference between our television industry and our film industry. The same players are involved: the same producers, and virtually the same directors, and the same actors.
Senator Johnson: We have asked this question before, and distribution comes up.
Mr. Neil: There have been various studies for 25 years which argue, in my view persuasively, for finally tackling this issue head on, of taking control of our own distribution system. However, we have been unable to do that, the reason being the power of the American industry. The last time we attempted it was when Flora MacDonald was the minister of communications. I was the General Secretary of ACTRA at the time, and I was not impressed with the legislation because I did not think it went anywhere near far enough. It was only attempting to affect 15 per cent of the film business, but even that was too much for Jack Valenti and the American Motion Picture Producers' Association, who railed against it, and came to Ottawa to do so, and the political will in Canada simply collapsed at the time. That is the big reason that, at this point in time, we do not have a film industry in Canada.
What do we do now? I am not sure that the necessary political will can be mobilized in this town to take on that issue, front and centre. In my submission, we will always therefore be much more limited in what we can do in the film industry.
One of the things with which we must come to grips is: who is our competition in the film industry? Our competition is not the American blockbusters. Our competition is not Titanic. Titanic cost $250 million U.S. The promotion and marketing budget alone of Titanic was probably as much as the entire production budgets of most of the English-language movies we produced last year in Canada. That is not our competition. Atom Egoyan and David Cronenberg do not produce movies that would compete with Titanic. Yet some people believe that that is where we should be competing.
Instead, in my view, we need to be competing where we have a strength. It is in the hauteur films; in the films that are telling Canadian stories that have universal themes that nobody else can tell. There is a variety of things we can do in that area to improve our situation, from additional support for emerging film makers through changes in the Canadian content rules. Some people are concerned and we are concerned in ACTRA about the on-air appearance of some allegedly Canadian movies. Some movies are still made to take advantage of some of the support mechanisms that exist. We have recommended that the point system needs to be amended to include additional points for performer categories, and that the minimum standards then need to be raised.
We have made a proposal with respect to exhibition. We have recommended that the point system be amended to include additional points for performer categories and that the minimum standards be raised.
With respect to exhibition, we propose that there be an incentive for exhibitors, for theatres which show Canadian movies. That is, of course, one of the problems with our system. We have some excellent Canadian movies, wonderful film-makers, excellent actors, but nobody sees them because we cannot compete with the promotion and marketing budgets of the American majors.
Senator Johnson: Did you see The Globe and Mail editorial this weekend which said that all commercial cinemas in Canada would have to include a promotion for Canadian films showing at the local repertory cinema in their trailers? They wrote an editorial and talked about a five year plan.
Mr. Neil: I like that idea. I do not think it goes nearly far enough. We recommended that where admission tickets are sold to Canadian movies, the income the theatres generate not be counted as income for purposes of calculating taxes. This would provide a real solid incentive to theatres to give screen space and to help in the promotion of Canadian movies. Essentially it would make it much more advantageous from an income perspective.
In our submission, it would not cost a lot of money.If all of these things are done and we begin to develop a Canadian film industry, in fact, we will increase the audiences for Canadian movies.The subsidiary income they generate from the sale of popcorn, soft drinks and so on should increase and should, in fact, offset the money lost as a result of the non-taxation of the admission revenue. That is an idea that we have thrown into this debate for discussion purposes.
Various other things can be done. You can tackle the distribution problem through looking at competition law and policy because, in our view, what is happening in the film industry is anti-competitive. A few weeks ago, a lawyer with whom I was speaking about this situation said that if it were reversed and the same degree of control existed in the United States as exists in Canada between the production, distribution, and exhibition, it would never survive a challenge under U.S. anti-trust laws. Therefore, you can begin to examine some anti-trust mechanisms that might work, establish systems to prevent that kind of control.
I will supply a concrete example: There is a difference between the proprietary product of the U.S. major studios that own international copyright -- they have produced it, they own it, and they distribute it -- and the independently-produced product. We have currently a policy which attempts to promote the separation of the markets, ensuring that Canadian distributors have a chance to distribute this independently-produced product from around the world and that they can earn the revenues that are generated by those kinds of productions.
There are ways to effectively enforce that sort of regulation, by establishing systems and doing things in the distribution field. I am probably getting a little bit too detailed now on film. We and others have made recommendations, and you may find over the next few months some consensus in the industry on measures that might be effective in improving our position.
Senator Johnson: Part of your answer applies to other areas of culture, of course. The critical thing is telling our stories and getting that out.
Senator Perrault: There are so many questions arising from this very interesting testimony, it is hard to know where to start.
The need for Canadian product to have access to more screens in the world is very urgent. In that story my colleague mentioned today in The Globe and Mail, the same week that the Titanic had over 2,853 screens in North America, only 63 others were showing The Sweet Hereafter, which is a marvellous film, a legitimate contender for an Oscar. That is rather disturbing.
One aspect that concerns me is the fact that the Australian films, Breaker Morant, and Gallipoli, the Man from Snowy River and My Favourite Aunt, or whatever the title was, did not seem to suffer distribution problems in North America. Do we need a better marketing plan to distribute Canadian product?
Mr. Neil: We often look to the Australian model as an example with which to compare ourselves, but do not take that too far. In fact, the Australian film industry went through a period of rapid expansion.
Senator Perrault: The problem no longer exists?
Mr. Neil: That trend disappeared. It is a direct result of one government making a serious commitment to the industry and injecting substantial resources, then another government saying, "We have fiscal problems and that commitment will be withdrawn. In fact, the film industry in Australia has gone through a terrible period of decline.
Having said that, there is also a big difference in their distribution and exhibition system. In Australia, the major distributor is an Australian company and they have not had the same problem that we have in having access to our own screens. They have an industry. They have a domestic market from which they have been able to build this international success.
Senator Perrault: They have alliances, obviously, because the product was well shown, was it not?
Senator Neil: It was only for that period of time. Since then, yes, there have been examples from Australia over the last few years. We cannot really point to any Canadian examples of commercial success, but the degree of exhibition has changed fundamentally from what it was 15 years ago.
Senator Perrault: We have such talented actors and actresses and technical people in this country. This week, Vancouver lost the X-Files series, a top-rated television show, as they pulled out of Vancouver. Some people in the acting profession have suggested that in certain cases they do not get paid as much as American people in some of those productions done in Canada. You may or may not have a view on that. I hope that we are not being exploited by those who are filming up here now. It is good to have that industry.
They have great film-makers in Ontario and Quebec and a number of other provinces. We have the talent and it is a shame that we cannot do better than we have been doing.
Mr. Neil: First, I can assure you that Canadian performers are paid as well. The minimums are in line with each other. There are differences in the collective agreements, so there are different pay structures. There are different residual structures, but you cannot conclude that we are underpaid.
Senator Perrault: We are not being exploited.
Mr. Neil: I can assure you that we are not being exploited, senator. The other thing is the industry in British Columbia is not particularly concerned about the pull-out of the X-Files. They have more than enough production to provide work for the crews, the actors and everyone else. There will be other series moving in. There are lots waiting in the wings.
Senator Perrault: I wish James Cameron had identified himself as a Canadian at the Academy Awards the other evening. It would have helped. It would have been good for our morale here. We should tell the world that we do have producers and actors and experts out there who can match the world in quality.
Mr. Neil: We do not need him to claim he is Canadian. He did not get any of his training or background in the film industry in Canada. He left as a very young man. I, personally, was not upset at all with that. We have enough to be proud of.
Senator Perrault: What about your membership? You have many people. What is the unemployment rate among actors and actresses?
Mr. Neil: On any given day, the overwhelming majority of the membership is not working. I do not, frankly, have the current figures on earnings, but the historical pattern has always been that only a small percentage of that 11,000 membership base would be earning a reasonable amount of money on a yearly basis.
Senator Perrault: It takes a great deal of dedication, does it not?
Mr. Neil: Yes.
Senator Perrault: We have done extremely well. The Canadian talent has certainly been demonstrated. The Americans insist that it is purely economic and they will not listen to our cultural considerations, the need to protect our own.
Mr. Neil: That is right.
Senator Perrault: Can you generate enough interest telling Americans the story of, for example, Radisson? Would it be given wide circulation in the United States? We have to produce more Canadian films and they have to be given wider distribution, but will they buy the product?
Mr. Neil: When we have a mature film industry in this country, we will have a full spectrum of production, from shooting scenes for the next Titanic in Canada to producing movies about beavers playing hockey, and they will be produced for different audiences and at different times. Those that are distinctly Canadian but have a universal theme may gain broader acceptance. Those that are particularly Canadian will not have much play beyond our own borders, but in my view, we will have a mature film industry when we have that full spectrum of production.
The only issue to me is when you are dealing with Canadian public funds and Canadian regulatory mechanisms, where do you draw the line between those products that you will support and those that you will not support? Clearly, an on-location movie shot by Paramount or Universal does not need public support in order to be here. They are here for a variety of reasons, including the value of the dollar and the excellent infrastructure to which they have access.At the other extreme, that uniquely Canadian movie will have to have a tremendous amount of public support if we are to produce it.
Senator Perrault: You are talking about unique Canadian settings and the like. In all too many American films, Banff shows up as Colorado Springs, and all the license plates are changed on the police cars. That is a petty remark to make, I suppose.
You say we have to produce more Canadian films. I wonder whether a film on the life story of Mackenzie King would be a grabber in Alabama.
Mr. Neil: I wonder if it would be a grabber in Moose Jaw. It depends how it is done.
Senator Perrault: You think that we can come up with imaginative ideas.
Mr. Neil: Absolutely.
Senator Perrault: What will high definition television do to this whole process? That is the next technological breakthrough, is not it?
Mr. Neil: High definition television, if it does emerge, will create a need for more production and new production. On one level, it will be very good because you cannot show existing products on high definition television. You do not get the benefit of high definition television.
Personally, I am not convinced that that will be the next major technological development. I think competition in the cable industry will be more significant, which will come from the telephone companies and perhaps the satellite companies as well. That will be much more instructive. Even before high definition television has a real impact on the industry, you will see the impact of distribution via the Internet and computer-based technologies. Those are the factors most likely to cause disruption and change and create threats and opportunities in the industry.
The Chairman: We really appreciate your presentation and your candid answers to our questions. If our researchers have additional questions, I take it they can get back to you?
Mr. Neil: Absolutely.
The Chairman: Our next witnesses are Mr. Davidson and Mr. MacSkimming. We are looking forward to hearing your views on Canada's international competitive position in communications.
As you know, we have come out with a preliminary report. Now we are reviewing of the economic, social and cultural importance of communications for Canada, as we want to remain competitive internationally.
Mr. Paul Davidson, Executive Director, Canadian Association of Publishers: Honourable senators, we appreciate being included in this discussion on communications.
It seems very often today people focus on the high-tech, new, dazzling technology end of communications and overlook the book. One of our core messages today is: The book has been around for 500 years and will continue to be a key part of the information economy.
Normally, when we are invited to appear before such bodies, we bring an active publisher member, most often Jack Stoddart, who is president of our association. He is unavailable this afternoon so we are pinch hitting for him.
Our association represents over 130 Canadian-owned book publishers. We have members in every province. We have members from all publishing genre, from literary, trade, education, scholarly publishing. We also work closely with our francophone counterparts, the l'Association nationale des éditeurs de livres.
We will talk briefly about each of the three areas you have asked us to address and then make some very specific recommendations to the committee.
At every opportunity we like to underline the fact that Canada's book publishers have played a vital role in creating a national literature that introduces Canadians to each other and Canada to the world. We are proud that our Canadian authors now dominate Canada's best seller list and, increasingly, best seller lists around the world. I believe it was The Times of London that described Canadian fiction right now as the hottest in the world. German publishers now regularly come to Canada to identify new Canadian talent and, in fact, just last fall a Canadian publisher from Winnipeg, Turnstone Press, had a first-time Canadian novelist who was the subject of an intense auction at the Frankfurt International Book Fair. This is an example of the acclaim our writers are receiving around the world.
Our export position is improving every year with exports tripling over the last four years. Another point that we like to make is that, despite all of the competition from new media, Canadians are spending more time in the 1990s reading books than they did in the 1970s. That is very encouraging to us. It underlines the fact that the book is very much alive in people's lives.
It has been said when radio was invented that it would kill the book; when television was invented, it would kill the book; when home videos became available, they would kill the book; and now people are saying that Internet and new media will kill the book. We are confident the book has a very important place in Canadian's lives for generations to come.
In summary of these preliminary remarks, I would say these accomplishments were not by accident. They came as a result of incredible creative tenacity. They came as a result of judicial public policy, and they came as a result of the entrepreneurial tenacity of Canada's publishers.
I invite Mr. MacSkimming to comment briefly on the current context of globalization in book publishing and then move on to Canada's competitiveness and the promotion of book products by export.
Mr. Roy MacSkimming, Policy Director, Canadian Association of Publishers: The achievements that Paul has just outlined have really taken place over a generation and perhaps slightly more. You have to think back to the growth and maturation of Canadian writing and publishing since the Centennial year and how new creative energy was unleashed at that time. This trend was reinforced by public policies that came in, in the early 1970s, principally federal policies but also some important provincial ones. Culturally speaking, these two forces interacted to create the strong and vibrant book publishing industry that we have now.
One of the remarkable things about that industry is that it is, to a great extent, Canadian-owned. Canadian-owned book publishers publish close to 85 per cent of the books written by Canadians. There has been the strong export growth that Mr. Davidson mentioned, the increasing international recognition.
This trend is rooted in s a book publishing industry that is highly diverse. We have, as he mentioned, over 130 publishers in our association. There are another 90 some, I believe, in the l'Association nationale des éditeurs de livres. There is a kind of bio-diversity, if you like, within the industry that is quite remarkable and the envy of people from other cultures and other countries in the West, where there has been a tremendous amount of consolidation in the field of book publishing.
Globalization as it applies to book publishing can be illustrated by the events of just the past two weeks in the book publishing world. One was Canadian in impact and the other was much more international. The first one was that Time Warner, one of those giant media conglomerates with book publishing interests as well as film, television, magazine and recording interests, decided that it really did not need a Canadian book publishing program any longer. That program was Little, Brown Canada. At the stroke of a pen, it was closed down by Time Warner. Although it was profitable, it was not profitable enough, and so a Canadian publishing program publishing a number of important Canadian authors is history.
Last week, of course, Bertelsmann, the Munich-based media conglomerate, took over another media giant, Random House. Both these companies have branches in Canada, so a further measure of creative outlets has been lost through consolidation. This has been the trend globally. Canada, by contrast, has maintained really a much more diverse industry that is much closer, if you like, to the roots of the culture, to the writers themselves, and that is based in all regions of the country. It is something to be proud of and it is something that we have created really through some very important domestic policies.
A number of funding measures, regulatory measures regarding foreign investment, and copyright measures, which senators will remember well from last spring, have been instrumental in building a strong domestic industry. It is not a very profitable one but, nevertheless, it has endured and has been extremely creative. It stands in contrast to the increasing globalization, and if I can say this, "conglomeratization" of book publishing and media empires in the West.
Against this background, we urge you to affirm the importance of the federal government maintaining these strong domestic policies and ensuring that they are not dismantled or threatened through our international trade obligations.
Certainly, the negotiation of the Multilateral Agreement on Investment has our industry and many other Canadians very concerned insofar as it threatens to dismantle some of the positive measures and incentives for Canadian ownership and control in the book industry. If it were passed, it would allow foreign investors to be treated exactly like national companies and would break down the whole structure on which the growth of the Canadian-owned sector has been based.
We have seen the dangers regarding magazine policies that have been, in effect, invalidated or unravelled by the World Trade Organization. This is not something that we would wish to see replicated in book publishing. It would be extremely dangerous for Canada's literary culture and it would undo so many of the gains that have been achieved.
Mr. Davidson: Mr. MacSkimming is underlining that we are operating in this backdrop of globalization and consolidation in the industry and that Canada really stands out as an example of a diverse publishing community that creates some of the best writing in the world.
You have also asked us about competitiveness. I think it is important to underline that, because we are a small country, book publishers are probably more technologically advanced in Canada than they are in New York because they have to use every technological advantage to improve that competitive position.
In the recent past, the Canadian government has played a helpful role in facilitating acquisition of new technology for publishers. Also, in book production, a British Columbia based firm has created the world's best direct-to-plate technology so you no longer go through the film stage in printing the actual book; you go direct to plate from disk. That B.C. company is among the best in the world.
Senator Perrault: Do you know the name of the company?
Mr. Davidson: The name of it is CREO technology.
The Friesen publishing plant in Altona, Manitoba, recently adopted that technology. To give an example of the economic benefits of that, a significant portion of the population of Altona is employed in Friesen's printing plant.
Senator Johnson: Manitoba will soon be printing everything for Canada.
Mr. Davidson: It is a very dynamic community. We use all that technology because we are still competing against the economies of scale. We are the only country in the world that has the largest exporter of cultural product in English right next door. What that means is even if we get all the up-front costs reduced right down to the minimum, the cost of printing and distributing the book is still more expensive proportionately. When a new title is published in Canada, the print run could be 3,000, whereas in the United States, they will not print at less than 15,000. You just cannot drive the unit cost any lower in Canada because of those small print runs.
This has a couple of implications: The first is that the pricing of Canadian books is determined by the pricing of books in the States, and second, it means that publishers are increasingly relying on export sales to extend and increase the length of those print runs. Export is a very important part of Canadian publishers' programs, but it is not the core reason for their existence. The core reason is not to produce a commodity that can be exported around the world. We are happy when that happens, but the core reason is to be able to publish stories about Canadians for Canadians and to reflect Canada to the world.
Shifting to the final part of your question with regard to export, exports for many of our firms have moved from being about 10 per cent of their business to 25 to 30 per cent and, in some cases, 50 per cent of their business. That is the result of the last three or four years, as interest in Canadian books has increased and as publishers continue to try to find ways to exist in this very difficult climate.
Specifically, the industry works through a cooperative group called the Association for the Export of Canadian Books to facilitate that export and, increasingly, the United States is the focus of those exports. The Association of Canadian Publishers will be holding a full day workshop on how our members can better access the U.S. market later this year.
You have asked for some specific recommendations. I would like to give them. First, we need to celebrate the successes that we have had and affirm that the policies that have been put in place work. We need to support the domestic industry at every opportunity.
I think it is also important not to assume that technology is unstoppable. We hear the argument from other places in government that we just have to cave in because the advancing technology is uncontrollable. That is wrong. The Information Highway Advisory Committee has provided some very detailed recommendations on how to ensure there is Canadian content in new media.
I think it is important to support the Minister of Canadian Heritage's recent initiative to convene a meeting of culture ministers from around the world. We have to carve out some space with other like-minded countries.
Very practically, there is Phase III of copyright. You are probably just recovering from Phase II. Senator Johnson nods.
Senator Johnson: Has that started yet?
Mr. Davidson: Oh, yes, it has started in big ways. It is an integral part of ensuring Canadian writers and Canadian publishers rights in new media.
I would conclude by saying that three years ago the Government of Canada launched a new foreign policy that called on the promotion of Canadian cultural values and goods as one of the three pillars of Canada's foreign policy. However, to date, we have seen far more action in the negotiation of the MAI, and that could undermine those very values that we are trying to promote and preserve. I will stop there.
Senator Perrault: This great acquisition by Bertelsmann affects a number of companies in the Random House family, does it not? Jonathan Cape is involved in Britain, and there are a number of publishers in the United States. That is a massive take-over.
Mr. Davidson: It is a massive takeover. Bertelsmann is the world's largest publishing company. Random House is the world's largest trade publisher.
Senator Perrault: It is a formidable entity now.
Mr. Davidson: Yes, with far-reaching implications. We expect that a number of countries will be examining that transaction, and we expect that Canada will examine that transaction.
Senator Perrault: With BMW moving in on Rolls Royce, it has not been a good week for them.
You have suggested that there is a greater readership of books. It is the same as the newspaper business, is it not? The readership is up in many of the newspapers. It certainly suggests that being on the Internet does not meet all of the needs of people wishing to acquire greater knowledge of society and creative fiction.
A chap phoned me up a few months ago. He said, "It is marvellous, Ray. You know what I am able to access tonight? War and Peace by Tolstoy." I said, "You will never get through it reading from a monitor, or you will die of radiation."
The book will not be replaced. I have a big collection, and I am pleased to have it.
Mr. Davidson: There are ways that the technology is compatible with the book. We have circulated two documents today: One is a brief we did last month to the Heritage Committee and the second is a recent article on the United States' experience on investing billions of dollars in hardware to get computers into the classroom, meanwhile forgetting textbooks.
What they found is, after spending billions of dollars, the learning results declined because students no longer could grab a dictionary, take an Atlas off the shelf, or take the book home to have a parent work with them. If the home was wired, what are the chances that it is a compatible program?
This is not to say that there is not a place for computers in the schools, but one of our key messages is that the book has a strong place both in schools and in people's lives. I was at a meeting of librarians last week in Saskatoon. They said by having their catalogues available on the Internet and by giving rural communities access to those catalogues, their demand for books is higher now. It is driving demand for books both in libraries and in retail stores.
Senator Perrault: So it becomes an auxiliary facility.
Mr. Davidson: That is right. It really facilitates people getting access to information.
Senator Perrault: On the web, I came across a site called Amazon, and Barnes and Noble are there. Conceivably, they could be increasing book readership by selling their products, too. How many book sellers in Canada are on the Net and have enjoyed success in marketing their products with the assistance of Internet? Do you have any figures to that effect?
Mr. Davidson: Mr. MacSkimming may want to jump in here. There are a couple of recent developments. Some independent bookstores have been developing Internet sites. Paragraph book store in Montreal is an example. The Book Shelf in Guelph is involved in a co-venture with Simpatico, I believe.
Senator Perrault: There are a couple in Vancouver, too.
Mr. Neil: Last week, Chapters announced a co-venture with The Globe and Mail that they expect will see the creation of an interactive web site and on-line purchase capability.
Senator Perrault: It would not be putting the text on the screen.
Mr. Davidson: No. It is book ordering.
Senator Perrault: That is excellent. In broadcasting, Canada is treated as a separate rights market. In cinema, this is not always the case. What is the market practice in publishing? Is Canada a separate, distinct market for "rights" to a book or are we part of the North American market? What is the trend likely to be in the future?
Mr. MacSkimming: We are a separate market. The practice in book publishing internationally is to treat national territories as distinct for rights purposes.
Senator Perrault: Political boundaries determine that.
Mr. MacSkimming: Yes. This was one of the key issues in the copyright amendments last year. There are a number of issues. I will not go into all of them, but I would like to link it with what you mentioned a minute ago. The fact that we are now getting Canadian Internet sources for ordering books is quite important because it means that the Canadian edition of those books will be sold to Canadian consumers as those consumers begin using these sites. Whereas if, for example, they buy Margaret Atwood -- we promised we would not mention Peggy Atwood today; we would mention somebody else, but she comes to mind so often -- from Amazon.com, you will likely get the U.S. edition because that is the one they have down there, so it is important that Canada develop that Internet book-selling capability.
The Canadian editions of books are the ones that produce a much higher financial return, not only to the Canadian publishers but to the authors because they get a full royalty.
Senator Perrault: That is an important consideration.
Mr. Davidson: We also mentioned Phase III of copyright. One of the very serious issues on the agenda is protecting the electronic rights of authors and rights holders. It is a contentious issue with regard to periodical writers right now, but it is very important that as Phase III unfolds, Canada continue to protect the rights of authors and rights holders, and to ensure that they are paid for their work, that they are compensated for the work that they do.
Senator Johnson: Is that the most important issue for writers? It is back to copyright in terms of their work being reprinted, put on the Net and everything else. Is Heather Robertson still pursuing her case?
Mr. MacSkimming: Yes, and we are supporting her, as are many book publishers, in her fight against the newspaper.
Senator Johnson: Will she be bringing this issue forward in the next round of copyright discussions as well?
Mr. MacSkimming: Yes, no doubt.
Senator Johnson: Where is the case now? What is happening with it at the moment? I have not been brought up to date since the late fall.
Mr. Davidson: There is a civil action underway against Thomson Corporation. Heather Robertson is enlisting support. It is a class action that she is leading. As for the precise point in the proceedings, I am not up to date.
Senator Johnson: Is it a significant case in terms of the publishing industry, for the writers?
Mr. MacSkimming: It is very significant.
Senator Johnson: How significant?
Mr. MacSkimming: It is difficult to know how big or lucrative a market electronic rights will become in future but, at the moment, the newspaper chains and some magazines have said they expect writers to surrender their rights to electronic forms of their writing with the fee that they get paid for the printed version. Writers have said, "Just a minute, you will at some point be selling the electronic formats of the work we do and receiving revenue and you are not allowing us to participate in that revenue?" The principle is clearly an important one, and it will mean much more in dollar terms in the future as these markets develop. It is difficult to say.
It is important, I think, that Heather Robertson, acting on behalf of writers as a class, get the principle established and then eventually get it enshrined in the third phase of copyright amendment.
Senator Johnson: I think that will certainly be looked at. I will only add that I am thrilled, as you probably are, at the increase of people reading books in Canada. I do not think it has declined. It seems, since the computer, it has increased. I think the literacy drives across the country by a lot of us, and by people in general, are supporting these initiatives.
Will the corner book store disappear as people all over North America and increasingly around the world gather socially to have coffee at Chapters? Is that the wave of the future?
I will conclude by asking, what are the sorts of things government can do? What do industry and writers want government to support, outside of the copyright? It is no secret Canada has produced some incredible writers. They have done extremely well in the last couple of years. The women writers in particular have really come on strong. Michael Ondaatje's book is still on the best seller lists all over the world. There are Carol Shields and Margaret Atwood, of course. What more do you want us to be doing?
Mr. Davidson: If I could start with the first part of your question which is about the future of independent book stores. The ACP has a very clear interest in ensuring there is a healthy and competitive environment. We have gone through a period of profound change in the last two or three years as Smith Books and Coles have merged to form Chapters. We are not through that period of transition yet. We are deeply concerned by the experience in the United States where it is two or three years further ahead, where the independents are becoming casualties.
At this point, as superstores roll out across the country, it is very good for book publishers because, for every superstore, there are 100,000 titles and those titles come from book publishers. That is quite encouraging, but when that saturation point is reached, there is concern about the sustainability of the book trade in that regard. In particular in communities across the country, there is deep concern that stores like Chapters are taking a very prominent place, whether it is in Halifax, where they have one store open and a second store about to open, or in Saskatoon, where there is an expectation that one will open.
There is another part of the story as well. We are very pleased that the government chose to support Canada's foreign investment provisions with regard to the book trade. When the U.S. super store Borders tried to come in, the government recognized that that was not an acceptable joint venture.
I think it is fair to say that independents were really unsure of what direction the government was going to take, or were unsure about what they could do. Since that decision, we have seen independents reinvest in their stores. We have seen independents like McNally Robinson open a superstore. They announced ten days ago that they will open a second store in Winnipeg. It is understood that they will also be moving to Saskatoon.
The independent community is in a period of real transformation. We are deeply concerned about their long-term health and we are working with our counterparts at the Book Sellers Association to try to find ways of ensuring there is that healthy community. I guess one part of that is making sure that the independents carve out specific niches in their communities and provide top-notch service and good prices.
Publishers help bring readers and writers together, but as part of that you have the libraries, the independent book stores, and the printers. There is a whole community of people and, of course, it starts with the writer. Right from creation through production and distribution, we have an impressive industry here in Canada that is the envy of the world.
Looking to the future, we are motivated to ensure that that success is not a one-generation phenomenon.
I will ask Mr. MacSkimming to speak to the issue of what more we can do about copyright.
The Chairman: Your idea of celebration was excellent since it is a form of promotion.
Mr. Davidson: I would be remiss if I did not mention here Canada Book Day, April 23.
Senator Johnson: That was Lawrence Martin's idea.
Mr. Davidson: Lawrence Martin came up with the idea over Christmas one year and we held the first one in April. It got great press. The second year, it was opened out nationally. This is the third year. There will be events in every province. We have asked every member of Parliament and senator to participate.
Senator Johnson: He cannot believe what has happened with it. I was talking to him. It has just taken off.
Mr. Davidson: It is also International Book Day. In Spain, it is the single biggest day for book sales. It is to books what Valentine's Day is to chocolates, and we would love that to happen here.
Senator Johnson: It is such a relief in this technological age.
Mr. Davidson: In Great Britain, for example, W.H. Smith provides a book token to every British student, and on that day, they get a one pound discount on the purchase of a book.
Senator Perrault: That is a great idea.
Mr. MacSkimming: I will just add one comment in answer to Senator Johnson's question on what we would ask. We asked earlier, in a very broad sense, that you maintain the present structure of policies and programs that have contributed to this success over a generation. Our association has developed over the last two or three years a three-point plan for federal publishing policy. We have been very happy that the first two points have been accepted and implemented by the government.
The first was to restore some of the direct funding through the Canada Council, and particularly through the Department of Canadian Heritage which was cut as a result of the 1995 budget. That was the great cost-cutting budget, of course, following program review. The federal programs for book publishing at the Department of Canadian Heritage took a very big hit. We asked for those cuts to be reconsidered because they were quite punitive, we felt.
Mr. Davidson: They were in the order of magnitude of 55 per cent overnight.
Mr. MacSkimming: They were considerably harsher than cuts meted out to other programs in other areas of government.
Senator Johnson: Which cuts were these?
Mr. MacSkimming: The book publishing support at the Department of Canadian Heritage in 1995.
Senator Johnson: Is that the direct funding you were talking about?
Mr. MacSkimming: Yes. In fact, that point was heeded by the minister and the government in the last year and that funding has been essentially restored, in somewhat different form, but still within the department. We are very appreciative of that fact because it is a crucial piece of the revenue that goes towards the development and the publication of new Canadian books.
Our second point was a proposal for a loan guarantee program which would assist publishers in their banking relationships and in their long-term financial planning. This, too, has been adopted. It was especially important in the Province of Ontario, where a provincial loan program had been cancelled by the Harris government. Now publishers across the country will have access, if they qualify, to a measure of a guarantee that will facilitate banking arrangements. That is not in place yet but it is well advanced in the planning.
A third point that we have proposed is a structural measure that would deal with the competitive position of the Canadian-owned publishers vis-a-vis imported books. That would be a tax measure. There are different options for how a tax measure could be designed. Mr. Davidson mentioned earlier the gap we suffer in Canada in terms of unit costs of printing books and how we are squeezed, from one end, because of our higher unit costs, and from the other end, by competition from lower-priced imported books. Thus, o we have to price our books lower than they really should be. We feel that competitive problem in terms of pricing could be addressed by a tax measure comparable to the one that is in place for film and television production. Perhaps there is a different type of measure that would attract equity to the industry. That is our third point. We hope that will be developed.
The Chairman: Mr. Davidson, Mr. MacSkimming, thank you. We appreciate your appearing before us. With your permission, our researchers might continue the discussion with you so that we can bring even more of your suggestions to the forefront.
The committee adjourned.