Proceedings of the Standing Senate Committee on
Issue 23 - Evidence
OTTAWA, Tuesday, April 20, 1999
The Standing Senate Committee on Transport and Communications, to which was
referred Bill C-55, respecting advertising services supplied by foreign
periodical publishers, met this day at 5:43 p.m. to give consideration to the
Mr. Michel Patrice, Clerk of the Committee: Honourable senators, I have received
a letter from the Chair of the committee, Senator Bacon, which she has asked me
to read. It is addressed to Sharon Carstairs, Deputy Leader of the Government.
I am sorry to inform you that I cannot continue to chair the Senate Standing
Committee on Transport and Communications which is presently studying Bill
C-55, an Act regarding the Foreign Publishers Advertising Services Act.
Due to my poor health status, as the enclosed medical certificate will confirm,
I will not be able to return to the Senate until the end of May. I will be
consulting an orthopaedist on Wednesday, April 21, for a possible surgery of a
Bayker's cyst. If surgery is necessary, my sick leave will then be prolonged. I
therefore think it is preferable that I submit my resignation as Chair of the
Senate Standing Committee on Transport and Communications.
Again, I am sorry I cannot be of much help to the Committee but this situation
is totally out of my hands. I would like to wish the very best to all the
members of the Committee.
Yours sincerely, Lise Bacon, Chair.
Senators, as clerk of your committee, it is my duty to preside over the election
of a new Chair. I am ready to receive motions to that effect.
Senator Maheu: I propose that the Honourable Senator Marie-P. Poulin be named
Chair of this committee.
Mr. Patrice: Are there any other motions?
If there are no other motions, is it your pleasure, honourable senators, to
adopt the motion?
Hon. Senators: Agreed.
Mr. Patrice: I declare the motion adopted and the Honourable Senator Marie-P.
Poulin elected Chair of the committee.
Please take the Chair.
Senator Marie-P. Poulin (Chairman) in the Chair.
The Chairman: Before we get under way officially, on behalf of all committee
members, I would like to thank Senator Lise Bacon for the excellent work she
did chairing the Transport and Communications Committee these past few years.
We all wish her a speedy recovery.
Senator Forrestall: Honourable senators, if I may, I should first like to
welcome our very distinguished colleague, Senator Poulin, to the Chair and to
wish her very well in it; then I would particularly pay tribute to Senator
Bacon, who has done exemplary work with this committee over the past several
Senator Bacon has done her work under difficult circumstances and sometimes
under great pain and difficulty. I wish particularly to express my appreciation
to her for all the assistance she has given me in the work that I have done, as
I know Senator Poulin reflects when she expresses her appreciation to Senator
Bacon for the work that was done on the communications side.
I wish to express to her my best wishes, as well as those of my family, and I
wish her a very speedy identification of precisely what her difficulties are
and, beyond that, a very speedy recovery and a return to our presence.
The Chairman: I know Senator Bacon will appreciate our good wishes.
Honourable senators, this is our second meeting on this bill. I should like to
invite our witnesses from the Canadian Business Press to come forward. We are
reviewing Bill C-55, respecting advertising services supplied by foreign
periodical publishers. We have with us Mr. Terry Malden, who has, I believe, a
presentation for us.
Mr. Terry Malden, Chairman of Canadian Business Press and Executive
Vice-President of Maclean Hunter Publishing: Thank you for the opportunity to
present this issue to you and to give you our views on Bill C-55. The way we
have chosen to structure our presentation is to talk a little bit about the
issue itself, as the background to Bill C-55, and then, as a way to explain how
Bill C-55 addresses the issue, to deal with the objections that have been
raised in one quarter or another against Bill C-55 and to give you our answers
to those objections.
Let us start with a discussion of the issue. For over 35 years it has been the
policy of the Canadian government to ensure an environment in which Canadians
have a choice of reading magazines that reflect our country, while at the same
time having the ability to choose to read magazines from anywhere else in the
Canada is a totally open market for foreign magazines. In fact, I believe you
have heard the numbers before.Imported magazines occupy something like 80 per
cent of the space of an average newsstand in this country and account for
something around 50 per cent of magazines sold in Canada.
In this very competitive and totally open market, Canadian publishers compete
successfully for readers. In order to survive, Canadian publishers also must be
able to compete for advertising revenues. Advertising revenues account for
about 60 per cent to as much as 100 per cent of the revenue of a publisher.
Therefore, if Canadians are to have the choice of reading Canadian magazines as
well as foreign magazines, Canadian publishers cannot be subjected to unfair
competition for that advertising revenue from foreign publishers.
How would that unfair competition take place? It could take place through the
publishing phenomenon of split-run advertising editions. A split-run
advertising edition is one for which the foreign magazine is circulated in this
country with editorial content that is largely the same as appears in the
domestic or home version of that magazine, but in which the advertising is
The easiest example is a typical issue of the Canadian edition of Time. Time is
a classic split-run edition that has been allowed to operate in Canada for all
these years. In a typical issue of Time, one to three pages of editorial may be
different from the editorials circulated in the States. In this week's issue,
out of 50 pages there happen to be six pages of unique editorial material, three
of them dealing with Wayne Gretzky's retirement. That takes the number a little
higher than you would normally find in a typical issue.
In citing this example, I am careful to add that this is not in any way a
criticism of Time Warner or Time Canada. They are following a business model, a
publishing model, that any business person would like to have, because it
includes the ability to produce a product and sell a service without incurring
the same costs as your competitor. It is because of this cost advantage that
foreign publishers can compete unfairly and with an insurmountable cost
advantage over Canadian publishers.
In the first appendix of the document that you will receive there is a detailed
explanation of how foreign publishers would approach the opportunity to publish
split-run editions. The numbers that I have shown on page 2 of the document
summarize those appendix numbers in an index format to bring them into a
The first two sets of numbers here are for a consumer magazine and a trade
publication.A consumer magazine is a typical magazine like Maclean's,
Chatelaine or Time. A trade magazine is the kind of vertical publication that
Mr. Doody publishes for vertical industry segments. The biggest difference
between the two is that consumer magazines tend to have paid circulation whereas
business publications often have controlled circulation and are targeted right
at a vertical audience.
I have also shown actual profits and losses from one of Maclean Hunter's more
successful consumer magazines. I indexed the numbers using the total revenue as
100. On that publication, we make a 12 per cent margin.
If the U.S. publishers were allowed to operate as split-run publishers with a
similar kind of magazine with a similar circulation -- and there are U.S.
magazines that operate in this market and which fit that description -- they
would generate the same advertising revenue as we do, but they would incur very
little incremental costs. There would be no editorial costs. They would have no
costs other than changing the plates on the press to put the Canadian ads into
the magazine as it was being printed for Canada and the costs of paying their
sales people for selling those ads.
Using actual numbers from our income statement to arrive at the estimate of the
cost that a split-run would incur, you see that it generates a profit margin of
80 per cent. It is true that, for a foreign magazine under the current regime,
advertising for a Canadian advertiser in such a magazine would not be
tax-deductible. The publisher would have that tax disadvantage over his Canadian
competitor, but even if he discounted his advertising rates, as shown in the
far right-hand column, to such a level that, on an after-tax basis, the net
cost to the Canadian advertiser would be the same as the net cost of a
tax-deductible Canadian publication, that publisher would end up with a 66 per
cent profit margin.
I will not go through the numbers for the trade magazines. As I say, the
explanation of those numbers is in the first appendix.
This huge cost advantage then allows a U.S. publisher of split-run editions to
undercut Canadian publishers by charging less for advertising than Canadian
publishers must charge to remain viable. Those split-run editions can gain
market share and take advertising revenues away from Canadian publishers and
The result of this unfair competition for advertising revenues from split-run
editions of American publishers is that Canadian publishers would lose
advertising revenues and could cease to be viable.
Split-run publishing represents the sale of a service at rates that do not
reflect the true cost of delivering that service. That is an unfair trade
practice that the Canadian government has prevented for the last 35 years. The
measures previously taken to accomplish that policy objective were found by the
WTO, as you know, to be inconsistent with GATT because of the effect on trade in
magazines as goods.
Canada has complied with the GATT ruling by rescinding the previous measures.
Bill C-55 has been introduced to accomplish the policy objective with a measure
that is completely different from those that were found to be offside the WTO
agreements by simply prohibiting the sale of advertising services in the
Canadian advertising market by foreign publishers. This is a right that Canada
has under its trade agreements, including the NAFTA, the FTA and the WTO/GATS
agreement, which is the service agreement of GATT. Bill C-55 simply puts into
law rights that Canada has already negotiated in its trade agreements.
That is the background. That is the issue and the problem that Canadian
publishers would face if subjected to unfair competition from split-run
Now I should like to go through the kinds of objections that have been raised by
opponents to Bill C-55 and give you the answers to those objections. We think
that is the best way to help you understand how Bill C-55 works and how it
addresses the issues.
The first general objection is that protection of Canadian publishers is just
inappropriate in a free-trade world. As we have said, Canadian publishers were
not protected in the past nor will they be in the future under Bill C-55 from
competition for readers in the consumer market. The market is completely open
to imports of foreign magazines. Bill C-55 aims to protect Canadian publishers
from unfair trade in the advertising services market.
American publishers, as we have seen, could sell advertising services in Canada
at prices that do not reflect their real costs of providing those services. The
performance of split-run editions of Sports Illustrated, when it was allowed to
operate for three years in Canada, indicates that this is actually the strategy
that is most likely to be adopted by foreign publishers.
Sports Illustrated operated from 1993 to 1995 and published, I think, 26
separate Canadian editions during that period. The content requirement of those
editions that differed from the domestic editions went down from 23 per cent in
the first year to 4 per cent. In the last nine issues published as split-run
editions, seven of the nine Canadian issues had no original content at all.
Sports Illustrated in Canada charged advertising rates that were 30 per cent of
the rates that Sports Illustrated charged in the U.S. for comparable
circulation of regional editions. Consumer magazines often sell subsets of
their total circulation in audience to advertisers. There are several regional
editions of Sports Illustrated in the U.S. with almost the same circulation as
the Canadian edition. The rates charged in Canada were 30 per cent of the rates
charged for advertising in those U.S. editions.
In a goods market that would be dumping, an unfair trade practice that countries
are allowed to stop. Unfortunately, there are no remedies for the dumping of
services available to countries under international trade agreements. There are
no trade rules dealing with the dumping of services.
Bill C-55 aims to prevent the sale of dumped advertising services. It is simply
the prevention of unfair trade and is not the protection of Canadian
The second objection is that, if Canadian magazines are good enough, they can
and should be able to compete with split-run editions. This is the notion found
in every other industry that has been subjected to free trade: if you produce
goods that consumers want to buy, you will survive and you should be subjected
to that kind of competition so that you will be compelled to produce goods that
are in demand by consumers.
We have already seen that Canadian magazines are in fact good enough to be in
demand in a competitive market that is totally open to hundreds of American and
other foreign magazines. Our magazines capture one half of the Canadian market,
while the other half is captured by foreign magazines, largely American
Canadians want to read, and be able to continue to read, both Canadian and
American and other foreign magazines. The problem arises with the split-run
phenomenon that American publishers can deliver their audiences that they
generate in Canada through advertising rates that are much lower than Canadian
publishers have to charge to cover the full costs of publication.
The problem is not that we do not produce magazines that people want to read;
the problem is with the advertising services market, where there is this
artificial cost advantage that we cannot duplicate.
The third objection is the other side of that coin: "You Canadian
publishers do produce magazines that Canadians want. No one will stop reading
Maclean's, or Canadian Living or Outdoor Canada; so you will survive." The
same answer applies, that, yes, we do have audiences and we would not expect to
see any change in those audiences just because foreign publishers are allowed to
operate in the advertising services market in Canada. Their magazines are
already available in Canada. We already compete with them. Their ability to add
Canadian ads to them is not likely to make them more competitive with us for
readers than they already are. What they have, though, is this cost advantage
that allows them to attract advertising services at lower rates than we could
ever afford to charge.
The fourth objection is that Canadian publishers exaggerate the threat of
split-run publishing. There are one or two major split-run editions, Time
Canada being the predominant one, that operate in the Canadian market. It is
fair to say that Time Canada does charge advertising rates that are roughly
similar on a cost-per-thousand basis to competitive Canadian magazines. That
would not be the case were the market to be entered by the 10 or 20 or 30 U.S.
magazines that already have Canadian circulation that would be big enough to
make the profit opportunity of split-run edition publishing attractive. They
would be in a much more competitive market than we currently face, because not
only would they be competing with Canadian publishers, they would be competing
among themselves. They would surely adopt the strategy that Sports Illustrated
exhibited when it was selling deeply discounted advertising rates.
In fact, an analysis done by Harrison, Young, Pesonin & Newell, which is one
of Canada's leading media buying agencies, concluded that if all the U.S.
titles that currently have Canadian circulation of 50,000 or more, which is an
artificial level above which it could be assumed that split-run publishing
might be attractive, were allowed to operate split-run advertising editions,
they could easily obtain advertising market shares of 70 per cent.
The numbers at the bottom of page 6 show what would happen to that consumer
magazine that I used as the basis for the numbers that we have just gone
through to show the cost advantages of split-run editions. They show what would
happen to the profit of that currently very successful, by Canadian standards,
Canadian magazine if it lost just 10 per cent of its advertising volume and if
its advertising rates were forced down by just 10 per cent because of the
discounting by split-run editions. You can see that that profitable magazine
turns into a break-even magazine. Of course, HYP&N concluded that the loss
of advertising revenue would be much greater than the numbers that I have used
The fifth objection is that the Canadian magazine market is underdeveloped for
readers; there are not as many Canadian magazines as there should be. First, we
have to understand the reason for this underdevelopment. There are two major
reasons. One is that the Canadian marketplace is a small marketplace by
comparison to the U.S. If you are making the statement that there are fewer
magazines than you would like to have based on a comparison with the number of
titles published in the U.S., that is partly a "market size" issue.
Magazine publishing is a big, fixed-cost business. The smaller the market, the
smaller your base over which to spread those costs and the more difficult it is
to be viable.
The second factor that probably results in there being fewer Canadian magazines
than there might otherwise be is that we do compete in a very competitive
market for readers, mostly with American magazines. Thus, we are not only
competing among ourselves for our readers, but are competing with these
hundreds of American magazines, which makes it difficult to publish in some
sectors where there are big presences by American titles.
Whatever the explanation, the answer to this objection is that, whether or not
the Canadian magazine market is underdeveloped for readers, allowing foreign
publishers to produce split-run advertising editions will make no difference to
the number of magazines that are available to readers. Those magazines that
would publish split runs are already available in Canada, with mostly 100 per
cent foreign content. Giving those American publishers the ability to make
incremental profits by selling advertising services would do nothing to bring
more magazines into this country or to encourage them to produce Canadian
content in those magazines. They are getting the readers without having any
Canadian content. Adding Canadian content would just increase their costs and
reduce their profit opportunity. There is no reason for them to do it.
Therefore, it would have no impact on the level of development of the Canadian
magazine market for readers.
That the Canadian magazine market is underdeveloped for advertisers is a notion
that there are fewer magazines in this country than there might otherwise be
for advertisers to use to reach their audience. You must understand that part
of the reason for this underdevelopment is that multinational advertisers in
particular take into account the Canadian audiences that they get through the
Canadian circulation of foreign magazines. They direct less of their
advertising budgets to the magazine medium in Canada than they would otherwise
do, because they are getting that spill-over advertising benefit from the
In fact, the net result of split-run advertising editions being allowed to
operate in Canada could be that advertisers end up with less rather than more
choice, because they may get a number of split-run advertising editions to be
able to use, but they may end up with many fewer Canadian magazines available
to them as advertising vehicles because we cannot compete.
The seventh objection is that Bill C-55 is just about protecting the profits of
Rogers and Telemedia. Bill C-55 seeks to create an environment in which all
publishers, not just Rogers and Telemedia, are protected from unfair trade. All
publishers in the private sector need an environment in which, if they do the
right job of publishing the right magazine, they can earn a reasonable profit
that is adequate to attract investment to the industry. Bill C-55 is every bit
as important to an independent publisher as it is to the two major publishing
Bill C-55 is supported by the members of both the Canadian Magazine Publishers
Association and Canadian Business Press, which are made up of many more titles
than just Maclean Hunter and Telemedia titles.
In fact, if I were to characterize the opposition to Bill C-55, I would say that
that is where the profit motive of big publishers comes into effect. The
opposition to Bill C-55 is really just about increasing the opportunity for big
American publishers like Time Warner, Hearst and other American publishers, who
are already making money in Canada, to make even more money regardless of the
impact on the Canadian industry and on Canadians' ability to read about
themselves in the magazine sector.
The eighth objection is that Bill C-55 is an infringement of the rights of
advertisers. Bill C-55 represents no new restrictions on advertisers. In fact,
all anti-dumping regulations restrict the ability of purchasers of a good from
buying that good at an unfair price to their advantage for the time being.
Thus, Bill C-55 really aims to strike a balance between the rights of
advertisers to have good channels to reach their audiences and the rights of
Canadians to be able to choose to read about their country and themselves in
the magazine sector.
The ninth objection is that Bill C-55 is contrary to the Charter of Rights and
Freedoms. The Charter, as honourable senators know better than I, allows the
government to apply restrictions if the objective is in the interest of the
country and if the restriction is the most reasonable means of achieving the
Bill C-55 represents no change in the rights of advertisers and, in our view and
the views of people from whom we have had advice on this, does apply reasonable
restrictions in the aid of a very important national objective.
The tenth objection is that Bill C-55 contravenes Canada's obligations under its
trade agreements. Ms McCaskill will deal with this in more detail, so I will
not spend any more time on it. I have already covered the fact that it deals
with the issue in a totally different way, with a totally different measure
than the measures that were found to be offside the trade agreements.
The next objection is that Canada has lost twice at the WTO. Why does it not
just give up? Well, in fact, in issuing its decision on the U.S. challenge to
our previous measures, the WTO was very careful to say that it was not ruling
that Canada did not have a right to a policy and to measures to protect its
cultural identity. It did not say Canada could not have a policy; it simply said
that the previous measures were offside the trade agreements. I believe the
question that must be asked of someone who would raise that objection is, "Why
should Canadian publishers not have the same protection from unfair trade
practices as other Canadian industries?"
The twelfth objection is that Canada should not implement Bill C-55 for fear of
a trade war. Since Bill C-55 is consistent with our trade agreements, the U.S.
has no right to retaliate. If the U.S. does retaliate, Canada can seek remedy
under the NAFTA dispute settlement process. We would submit, and feel very
deeply, that it is not in Canada's interests, or the interests of our industry
or any other Canadian industry, for Canada to give into threats of illegal
The final objection is that Canada should seek a compromise that is acceptable
to Americans. The difficult part of this situation is that, despite all kinds
of very informed and brilliant minds looking for a solution to this issue over
the last two years, no one has been able to identify a measure other than Bill
C-55 that would be effective in stopping dumping, that would achieve the policy
objective of ensuring that Canadians do have access to Canadian content in
magazines, and that would be consistent with trade agreements.
In conclusion, we would argue that Bill C-55 should be, and could be, supported
by Canadians on the basis of any one or more of the following reasons: First,
because there is a belief in the importance of magazine content to the
maintenance of Canada's identity and culture; second, if that reason were not
important to you for some reason or other, then, because it is a prevention of
unfair trade and it is in Canada's economic interest not to allow unfair trade
to undermine its economy; third, because it does stand up to protect Canada's
rights under trade agreements. Canada has the right to stop foreigners from
operating in the advertising services market, and Bill C-55 simply reflects that
Since no other measure that is effective and consistent with trade agreements
has been identified, Canada should pass Bill C-55, and if the U.S. believes
that Bill C-55 is in violation of the trade agreement, then it should challenge
it at the WTO, where it won the last time.
I would now ask Ms McCaskill to go through the trade appendix.
Ms Anne McCaskill, President of McCaskill Consulting Inc., Trade Advisor to
Canadian Business Press: I wish to elaborate a bit on the key points that Mr.
Malden has already made with respect to the trade aspects of Bill C-55. Mostly,
I just wanted to reinforce a couple of key points that are based on my own
almost 20 years of personal experience as a trade policy specialist and trade
negotiator with the federal government, including direct involvement in the
Uruguay Round negotiations on the WTO.
First, as does the Canadian government, we believe that Bill C-55 is, in fact,
consistent with Canada's international trade obligations. That is because Bill
C-55 regulates access to the Canadian advertising services market. It is
therefore a services measure. It does not apply to or affect imports of
magazines in any way. There will be absolutely no restriction on imports of
magazines under this legislation.
In the WTO, therefore, Bill C-55 falls under the services agreement, or the
GATS. In the negotiation of the GATS, Canada did not offer, and the U.S. did
not obtain or pay for, access to our advertising services market. Canada
therefore has no obligations to provide access, nor does the U.S. have any
right of access, to the advertising services market.
In the case of NAFTA, Bill C-55 clearly falls within the cultural exemption,
which means that Canada is entirely within its rights to pursue this
legislation. Also with respect to NAFTA, I believe that the U.S., in fact,
would have no right to retaliate under NAFTA in this case against Bill C-55. The
word "retaliation" is really a bit of a catch word. What the cultural
exemption really talks about is a right to withdraw concessions of equivalent
commercial effect, which is somewhat different, but we do use the word "retaliation"
as a short form. Under the provision in the cultural exemption, the right to
withdraw concessions applies only if the measure would violate a Canadian
obligation in the FTA, the original free trade agreement, if not for the
cultural exemption. We must look back to the FTA to see if there is anything
that would be violated in that agreement by Bill C-55. In fact, as is the case
in the WTO with the GATS agreement, Canada assumed no obligations under the FTA
to provide access to the advertising services market in the magazine sector.
Therefore, once again, Canada has no obligations under the FTA that would be
violated by Bill C-55.
We believe that, in fact, if the U.S. were to retaliate against Bill C-55, under
NAFTA that would be illegal and Canada would be in a position to challenge, and
we expect could successfully overturn U.S. retaliation.
Having said that we do not believe there is a legal basis for retaliation, we
would also note that the level of retaliation that the U.S. has threatened is
also illegitimate. As I have mentioned, the provision in the cultural exemption
is for the withdrawal of concessions of equivalent commercial effect, and the
idea here is to right the balance of concessions that was achieved in the
negotiation of the FTA if it were upset by a new Canadian measure in the
cultural area that benefited from the cultural exemption. However, in fact,
there is nothing in Bill C-55 that affects the balance of concessions in the
FTA. The measure is consistent with the FTA and would result in no new
Just on a final point that often comes up, the fact that Canada's previous
magazine measures were ruled inconsistent with the GATT does not, we believe,
mean that Bill C-55 would be ruled inconsistent. As Mr. Malden has said, this
legislation is very different in some important ways from a trade rules
perspective from the previous measures.
The important point is that the previous measures applied to magazines as goods.
The U.S. therefore had an opening to argue that the measures violated the GATT,
which is the WTO agreement on goods. It should be noted that the Canadian
government disagreed with the WTO finding and described it as seriously flawed,
but, in fact, had no choice but to comply. In the context of the finding in the
first case, however, the WTO went out of its way to emphasize, to make explicit,
that Canada's right to pursue the underlying cultural policy was not at issue
in the case.
The appellate body specified that they were looking only at the very specific
question of whether the measures being used were consistent with the WTO
agreements. In other words, Canada had and continues to have rights and is
under no obligation to abandon the underlying cultural policy in the magazine
sector or in any other cultural sector, but only to bring its measures into
compliance. We believe Bill C-55 does that.
The bottom line is that under its trade agreements Canada does have the right to
take measures in support of cultural industries and, more particularly, to
regulate access to our advertising services market in the magazine sector. If
Canada does not assert those rights, including its rights under the NAFTA
cultural exemption, then the reality is that they are meaningless.
On a final point, Canada should not have to negotiate over and over again with
the United States. We have paid for our cultural exemption in NAFTA. We should
not have to negotiate again or compromise on measures that are consistent with
our rights under NAFTA and our other trade agreements.
Senator Lynch-Staunton: It is interesting to see how the witnesses have
approached this bill. It is in sharp contrast to the stance of the sponsoring
minister who pretty well wrapped it up in the Canadian flag. These witnesses
have reduced it to what it is -- basically a trade issue with a Canadian
feature, as Mr. Malden said in his summary. Bill C-55 is the prevention of
unfair trade, whether perceived or real.
The minister categorized the ongoing discussions in the United States as being
more along the line of discussions and not negotiations. We will not quarrel
about the proper words. Are you following these discussions or negotiations?
Can you give us some insight as to what is happening down there, more than the
little we know from the papers or from what the minister can tell us?
Mr. Malden: I doubt that I can give you more insight than you can get from the
media. Our understanding is that the Americans would like to have some
alternatives to Bill C-55 that would give their publishers access to the
advertising services market, despite our trade agreements. They are seeking
ways to achieve that.
Our government's view is that there has been no identification of alternatives
to Bill C-55 that would be effective and that would ensure a fair and level
playing field for Canadian publishers to be able to produce Canadian content.
If there are ideas to be discussed, they can be discussed. Our view is that
Bill C-55 is the only measure yet identified that is effective.
Senator Lynch-Staunton: You would like the bill passed as is? You do not care to
see any amendments or changes to it?
Mr. Malden: That is true.
Senator Lynch-Staunton: We notice that the government is not pushing very hard.
Obviously, something is going on in Washington right now; otherwise there would
not be any discussions. One of the items admitted as being discussed is a
minimum Canadian content, which would exempt this bill.
If a split-run edition had a minimum Canadian content, it would be exempt from
this bill. I do not know whether that would be 50 per cent or 80 per cent or 30
per cent, but content apparently is being discussed.
Would you accept that kind of compromise, which, if we interpret the discussions
correctly, would be acceptable to the Americans and would avoid the trade war
that they have threatened and must be considered here? Would your association
accept a proposal that this bill include a minimum Canadian content, however
defined, that would allow split-run editions to be exempt from the bill?
Mr. Malden: We understand that there are a number of different measures being
discussed in different areas, as you also understand from the press. Content is
one of the elements being mentioned. Our view is that the basic issue here
deals with content in two senses. First, the policy objective here is to ensure
that Canadians have access to Canadian content; second, the absence of the need
to produce content in split-run editions creates the non-level playing field.
We cannot comment on specifics, because we do not know what is being discussed.
Senator Lynch-Staunton: This is a hypothetical question so just give me a
hypothetical answer. If a minimum Canadian content provision were acceptable to
the Canadian government and the American government and were included in this
bill, would that be acceptable to your association?
Mr. Malden: It boils down to whether the agreed definition of "content"
and the level of content would, in fact, eliminate the unfair trading
capability and the unfair cost advantage of split-run editions.
Content is at the core of the issue. We would certainly look for any alternative
to Bill C-55 to somehow drive the content objective. I cannot comment on
whether a content measure in and of itself, or a content objective, would
accomplish the objective and would create that level playing field, because it
depends on how it is structured.
Senator Lynch-Staunton: Do Canadian publishers have a policy of Canadian content
in Canadian magazines?
Mr. Malden: Canadian publishers, to be eligible as tax-deductible vehicles for
advertisers under section 19, are required to produce 80 per cent original
content. The fact of the matter is that, because we operate in a marketplace
that is so competitive with foreign magazines, our competitive advantage is in
producing Canadian content. Although the requirement is for us to do original
content, the net result in 90 per cent -- well, that is an inadequately studied
number, but virtually any Canadian magazine exercises its competitive advantage
by producing Canadian content in competition with the foreign magazines.
Senator Lynch-Staunton: How is Canadian content defined? The current issue of
Maclean's magazine does not have 80 or 90 per cent Canadian content, if it is
defined as Canadian subjects. Is it defined as written by Canadian authors and
photographed by Canadian photographers? Does the subject matter have to be
Canadian? What is Canadian content in order to be eligible for that exemption?
Mr. Malden: Section 19 simply says it must be original content. It does not get
into specific definitions.
Senator Lynch-Staunton: How is "original" defined? Is it an original
piece by a Canadian writer?
Mr. Malden: No. Section 19 simply says that it cannot be the same as content
that has appeared in foreign magazines.
Senator Lynch-Staunton: It does not have to be Canadian then?
Mr. Malden: No. The net result is Canadian content.
Senator Lynch-Staunton: I see. That is how Canadian Geographic, for instance,
can have a full issue on non-Canadian topics and still qualify for this
description. An American magazine could have 50 per cent Canadian topics and
yet not qualify.
Mr. Malden: Yes. The practical outcome of that regulation is that Canadian
publishers do produce content that is Canadian -- not just in subject matter
but in perspective and in reflecting the interests of Canadians.
Senator Lynch-Staunton: I will not belabour the point; I raised it simply
because both you and the minister seem to be on the same wavelength when you
use the expression "Canadians should be able to read about themselves."
That is one of the main arguments she used last week and you picked up on it
towards the end of your presentation.
As I understand it from the definition of "original content," it may
not mean that Canadians are reading about themselves. It may be that Canadians
are reading a Canadian magazine that has original material, or that can be
reproduced as original in Canada. That is a long way from Canadians reading
about themselves, is it not?
Mr. Malden: I think you have to ask the question, if Canadian publishers were to
go out of business because of this unfair competition, would Canadians lose a
lot of what both of us would agree is Canadian content? The answer is yes.
Senator Lynch-Staunton: Your presentation is well done. Unfortunately, I did not
see it before, so if I am on the wrong track take me off it immediately. This
is based on many assumptions, is it not? "If so many people come in with
so many split-run editions, this may happen?" But in fact do you know of
any major American publishers who are waiting to come in with split-run
editions, should they be able to do so without penalty?
Mr. Malden: Yes. Time Warner has clearly shown an interest in doing it, because
they did it with Sports Illustrated.
Senator Lynch-Staunton: That is one.
Mr. Malden: The president of international publishing for Hearst, the publisher
of Good Housekeeping and Cosmopolitan and other magazines, has expressed an
interest in doing that in Canada.
Senator Lynch-Staunton: I remember Newsweek tried to do it some years ago and
failed. Thus, it is not exactly a sure thing when you say, "I am going to
try it." Newsweek is quite a powerful magazine and they tried twice, as I
recall, and finally folded, for whatever reason.
Mr. Malden: They were here and, for whatever reason, they decided not to stay.
Senator Lynch-Staunton: My last question has to do with the definition of "foreign
owner." A foreign owner is one with less than 75 per cent of its shares
owned outside Canada; is that correct?
Mr. Malden: Yes. Well, more than 25 per cent in Canada, I think.
Senator Lynch-Staunton: Would that not stop a Canadian publisher from selling to
Mr. Malden: Yes.
Senator Lynch-Staunton: Then you are locking in a successful publisher who, for
valid reasons, wants to sell and the only buyer he can find is outside the
country. Once that is done, all the advantages of Bill C-55 will then be lost.
Mr. Malden: Yes.
Senator Spivak: Good.
Senator Lynch-Staunton: Did I hear "good"?
Senator Spivak: There are different values.
Senator Lynch-Staunton: I think that would penalize the Canadian seller more
than it would the American buyer. I was wondering whether you had given some
thought to that. Let us say a small publisher has done well and has built up a
good business, but has no one to take over -- as happens in a lot of small
family businesses; now he wants to sell, but he can only find a foreign buyer.
The foreign buyer says, "Sorry, but I will only buy you at a discount,
because I have to carry Bill C-55 as a result of my purchasing you."
Mr. Malden: Canadian publishers have been subject to restrictions on their
ability to sell to foreigners up until now and they would continue to be. I can
only say that the membership of the two major publishing associations
representing consumer publishers and business publishers are supportive of this
measure knowing that it has that effect.
Senator Lynch-Staunton: Are there restrictions now on the sale of Canadian
Ms McCaskill: Yes.
Mr. Michael Doody, Action Communications Inc.: I am the president of a small
publishing company and we cannot sell to foreign people. Canadians have to own
75 per cent of our company. If we have a nice successful company and would like
to cash in on it and retire, we have to find a Canadian buyer. We cannot sell
to an American or a foreigner.
Concerning the figure of 75 per cent, senator, I think it is the reverse to the
way you described it.
Senator Lynch-Staunton: I knew I was not explaining it properly.
Senator Tkachuk: How would you do that?
Senator Doody: We would have to sell to a Canadian, or we would just keep going
the way we are and try to get our own employees to buy us.
Senator Rompkey: I am interested in international comparisons, although it may
not be possible to find a comparable situation anywhere else in the world,
because we sleep next to the elephant, so to speak, and perhaps we are unique.
Do you know of anywhere else in the world where this situation pertains, where
a smaller country like Canada has laws similar to Bill C-55?
Mr. Malden: I do not know.
Ms McCaskill: We believe that our situation is unique for precisely the reason
you mentioned, senator. That is to say, we are right beside the largest
magazine market and largest producer of magazines in the world. As well, it is
the only country in the world that exports a reasonably significant percentage
of its magazine production. The average around the world for exports is about 1
per cent of domestic production in most countries. Generally, magazines are not
export products, but are local media.
The exception to that rule is the United States. It exports about 5 per cent of
its domestic production, most of which comes to Canada because our market is so
close and there are so many common, shared interests.
Senator Rompkey: We are in a unique situation. To your knowledge, no other
country in the world faces the same sort of competition that we do in the
magazine sector, is that right?
Ms McCaskill: Yes.
Senator Rompkey: Is there any other legislation that prohibits foreign companies
from operating in the Canadian services market? This legislation is aimed at
the services market. We have changed from goods to services. If there is other
legislation, how does it square with NAFTA?
Ms McCaskill: I think there are two sorts of measures that act as restrictions
in services markets. First, under the Investment Canada Act, there are foreign
ownership restrictions in the magazine sector and in the broadcasting sector.
In addition, there are several measures that have the effect of restricting
access of foreign interests to services markets, as is the case thus far in the
magazine sector. There are restrictions on access of foreign broadcasters to
the Canadian advertising services market in the broadcast sector. We also have
restrictions that relate to the distribution and retail sectors, particularly
with respect to cultural industries.
In all those cases, the approach that has been taken in trade negotiations is
that Canada has simply not accepted any obligations in our services agreements
that would prevent those kinds of measures, which I said tend to be for
cultural policy reasons, from being maintained.
I mentioned earlier that in the case of the magazine sector Canada has no
obligations under either NAFTA or the services agreement in the GATS, in the
WTO, to provide access to our advertising services market. The same is true for
broadcasting, distribution and retail services markets.
Senator Rompkey: This legislation, then, is not unique. It is mirrored to a
degree in the broadcast sector.
Ms McCaskill: Yes.
Senator Rompkey: Can you give me some examples in the retail sector?
Ms McCaskill: There are some limitations in the Investment Canada Act with
regard to book retailing, for example. There are restrictions on entry into the
retailing sector in Canada. Once again, we have not assumed any obligations. In
fact, there currently is no multilateral investment agreement at the
international level. Essentially, we have not taken on any trade obligations
that would limit our ability to maintain our investment policies under the
Investment Canada Act.
Senator Tkachuk: I am trying to get a handle on this magazine business itself.
The bill is based on the fact that Canadian magazines need protection from U.S.
competition and that the competition would be unfair. We have had the fact
thrown about that American magazines occupy 80 per cent of newsstand space.
When you include subscription sales, would I be right in saying that that figure
would be reduced to 50 per cent?
Mr. Malden: The estimate is that 50 per cent of the magazines sold in this
country are foreign magazines and 50 per cent are Canadian.
Senator Tkachuk: If I then include freer controlled circulation magazines, it
would be even less than that; it might be 20 per cent of the circulation.
Mr. Malden: I do not know that number.
Senator Tkachuk: I am just asking. I am trying to get the information. From what
I gather, it is about 20 per cent American readership, if you include all those
other magazines that are out there. I get a magazine by the name of Western
Living. I do to pay a subscription for it, but it is a Canadian magazine. It is
a demographic magazine.
In reality, when we use these numbers of 80 per cent, saying, "Oh, Lord,
the world is falling in," it is not quite as bad as people would make it
out to be, is it?
Mr. Malden: The "quite as bad" really refers to the competition in the
advertizing services market that would take place if split-run editions were
allowed to come in. Approximately 30 to 40 American magazines have 50,000 plus
circulation in Canada. That is based on a totally objective analysis by the
media-buying company I mentioned earlier, which simply said, "Let me
pretend that those 50 magazines -- or 30 or 35 magazines -- with that level of
circulation or higher were offering advertizing services in Canada in
competition to Canadian publishers; and let me plug that into our media-buying
model, the computer program that we use to decide which magazines to use. Then
let me take a hypothetical advertizing client, and say, "I am trying to
reach this kind of a marketplace and I have this big a budget. What would I do
with that budget?" In every scenario they came up with, they had as much
as 70, 80, or 90 per cent of that hypothetical advertizer's budget going to the
split-run editions. Because of the cost advantages, that is enough to do the
damage that we are talking about to the viability of Canadian publishers.
Senator Tkachuk: Let us talk about that for a minute. When the minister was
here, I was trying to get to that using the Sports Illustrated edition. Well,
the minister tried to waylay me with the question of nationalism and the
question of whether a person would have the right to buy the bathing suit
edition, but I was simply talking about the magazine.
No one in Canada produces an equivalent magazine, so would they take advertizing
away from Maclean's or would they take advertizing away from SportsNet and TSN?
Mr. Malden: They would clearly take advertizing away from other magazines.
Senator Tkachuk: Which ones?
Mr. Malden: Maclean's and Chatelaine, for instance, both of which attract car
advertizing, as does Sports Illustrated.
Senator Tkachuk: But let me suggest to you that if I am selling cars, or any
other product, and I want the competitive advantage of being able to address a
particular audience, say for a muscle car, I will want go to a sports magazine
that has a strong male readership, because it is not advantageous for me to
advertize in Maclean's; however, I advertize there because I have no other
choice. Do you think that is good for the car advertizer, or is that bad?
Mr. Malden: It is that balance that the Canadian government has adopted and has
tried to achieve over the last 35 years of putting some restrictions on
advertizers' ability to use foreign magazines to reach Canadian audiences in
favour of ensuring that Canadians have access to Canadian magazines as well as
those foreign magazines. That is the trade-off have that has been made.
Ms McCaskill: Could I just add a point?
Senator Tkachuk: Absolutely.
Ms McCaskill:There are two other factors to bear in mind here in talking about
the Sports Illustrated question. Although it is true that there is no directly
competitive Canadian general interest sports magazine at the national level --
one of the reasons being that it is very difficult for a Canadian publisher to
enter that market because it is so dominated by Sports Illustrated --
nevertheless, there is a range of niche sports magazines in Canada. There are
magazines about Canadian golf, about boating, about a whole range of other
sports. I have certainly spoken with Canadian publishers in the sport market
segment, who were immediately and adversely affected when Sports Illustrated
began selling advertizing services in Canada. There was an immediate loss of
advertizing revenue to Sports Illustrated. So there is an impact in that market
segment. Then, as Mr. Malden said, there is also an impact in other market
segments, because sometimes the advertizing may be placed in a sporting
magazine but also in a general news magazine.
In addition to that there is another very important point: If Canada were to
open the advertizing services market in the magazine sector, which has so far
not been done, it would be an on-off switch. You could not pick and choose
which foreign publishers would enjoy the right of access to the market and
could sell advertizing services in Canada. If you opened the market up to one,
you would have to open it up to all.
In other words, you cannot really speak only about the specific impact that a
Sports Illustrated would have. You would really need to look at what the impact
would be right across the board, if the advertizing services market were opened
up; and there you would have a range of foreign publishers coming into the
Canadian market right across the board. Instead of looking at one case, you
would be looking at multiple cases, both in terms of the market segments
affected and also in terms of the number of players in the marketplace.
Senator Tkachuk: Let us talk about that. I have a lot of confidence in the
Canadian publishing industry. I believe that much of our magazine industry is
demographic in nature. We write about golf and about all sorts of things.
Muscle Magazine has 90 per cent of its circulation in the United States;
350,000 households in the United States subscribe to Muscle Magazine
International. That is a Canadian magazine. Oxygen, is another health magazine
and has 90 per cent of its circulation in the U.S. -- 225,000. We produce Owl.
We produce good kids' books and magazines. We produce The Hockey News. I do not
believe that Canadians are not capable of producing magazines that will sell in
the North American marketplace, whether they are about golf or homes or
Let us go back to Sports Illustrated and maybe Newsweek. Let us say,
hypothetically, that Sports Illustrated has a circulation of 250,000 in Canada
and Newsweek has 50,000. When they publish in the States, they sell their
advertizing space based on the fact that they have a certain total circulation,
of which that 250,000 Canadian is a part and is counted in. Is that not right?
That is the way it works.
Mr. Malden: No, that is not the way it works.
Senator Tkachuk: Tell me how it works, then.
Mr. Malden: Magazine advertizing is sold on the basis more of audience than of
circulation, the distinction being that circulation is the number of copies
that you sell by subscription or newsstand, while audience is an estimate.
There are companies in the States that do that estimating, and in Canada there
is an industry organization that does it. They measure readership and determine,
for instance, that Time magazine has five readers per copy. It is that audience
that is the basis on which advertizing rates are negotiated by publishers in
Canada and the U.S.
U.S. magazines that have Canadian circulation do not have their Canadian
audiences as part of their measured audiences, because those firms that do that
measurement for them do not come up to Canada and measure that audience. Of
course, circulation is there, and they cite an advertizing circulation rate
base, but the prime driver of advertizing rates is audience. Many publications
have American circulations that more than equal their guaranteed rate base
without having to include their Canadian circulation.
Senator Tkachuk: Why does Newsweek magazine, if it does not take that into
account, print the extra copies?
Mr. Malden: It makes money through the sale of those copies in Canada.
Senator Tkachuk: Let us use subscription as an example. A company owned by
Reader's Digest sells a lot of magazines. I cannot remember the name of it
exactly, but it sells magazines in schools.
Mr. Malden: Yes.
Senator Tkachuk: Newsweek gives 100 per cent of their money to that company.
Newsweek does not make one dime from that magazine. It all goes to the person
who sells it. Why would they go through that whole effort of selling that
magazine, from which they make not one dime of money? The same is true with
door-to-door sales and sales through telemarketing and Publishers Clearing
House. When someone pays $100 for a subscription, they might get $10 or $5 or,
in many cases, zero. It all goes to the person selling the magazine. Why would
they do that if they did not take that cost estimate into account?
Mr. Malden: Most U.S. magazines that have any significant circulation in Canada
do sell the bulk of their circulation through newsstands; so that agency-source
type of circulation you are talking about is not a big part of those magazines'
circulation in Canada. Therefore, they make money on their circulation by
selling it on the newsstand.
Senator Tkachuk: How much money would Newsweek make out of the $4.25 Canadian
that I pay for my Newsweek magazine, after you take out the newsstand cost,
transportation, shipping, and the rest of it?
Mr. Malden: The numbers I provided here as the actual numbers for a Canadian
magazine are for Flair, which is our fashion magazine, and one of the reasons I
used it is that Cosmopolitan magazine is comparable in audience and circulation
size to Flair. I was trying to set up a real-world comparison. For
Cosmopolitan, as I estimate their costs of printing the copies for Canada and
what they would net from their newsstand revenues, they do make a profit in
Senator Tkachuk: I have one last question. Time has been here since 1948 or
Mr. Malden: I am not sure when.
Senator Tkachuk: It has been here for as long as I can remember. Maclean's
magazine went from a monthly to a weekly and is very successful. It has used
the money from its success to buy all kinds of cable companies, which is
another monopoly. How did they do that? How did they compete against Time and
Mr. Malden: Time magazine, as I mentioned earlier in the presentation, has not
chosen to use deeply discounted advertising rates. It is the single split-run
edition magazine operating in this market and, as such, does not need to use
those cost advantages to attract a share of advertising that produces its
optimum profits. Maclean's is operating in a competitive, but fairly
competitive, environment, not just with Time but with all other magazines with
which it competes for advertising. What we are talking about here is the threat
of 20 or 30 publications coming into this market with those cost advantages and
doing what Sports Illustrated did when it was here, which is sell advertising at
rates well below what it charges in its home market. That is a documented fact
and it did it because it was new to the market and was aiming to gain market
Senator Tkachuk: Don't try to fool us. I like questions answered honestly.
Almost every publication, when it starts, discounts advertising. Newspapers,
when they start, discount advertising, and so do magazines until they build
their circulation, because they are losing money until they get rolling, and
then they try to come up with some average price that reflects the marketplace.
They all do that. Sports Illustrated did not do this in particular because it
was an American magazine and came in here to try to get everyone.
Mr. Malden: I do not think it is normal, even for a start-up magazine, to charge
rates 70 per cent below the normal rate in the market place. That would just be
Senator Joyal: Bearing in mind your experience in the Canadian publishing
market, I wish to draw your attention to an article that was published in the
Mirror, the Montreal weekly magazine, about the market conditions of Canadian
magazines. The article says:
There was some bad news for major Canadian magazines this month: circulation is
down, way down.
According to Masthead ("The Magazine About Magazines"), "it was a
slaughter out there on the newsstands" in 1998. For example, over at the
Canadian edition of Time, newsstand sales dropped by 41.6 per cent. At
Maclean's, the loss was 39.1 per cent.
The losses were pretty much all across the board: magazines as diverse as
Chatelaine, Canadian Living, Canadian Geographic... L'Actualité...
Toronto Life Fashion and The Hockey News all had poor showings. Among the few
mass circulation mags to post increases were Reader's Digest...
and so on. Further on, the article states:
Not that the plummeting circulation has hurt the big mag's advertising sales: As
Masthead notes, "most of the country's leading titles performed
exceedingly well" and experienced "remarkable growth." Which
means that Canadian advertisers are pumping more and more money into lame
mainstream magazines that fewer and fewer people are reading.
How do you reconcile the fact that, on the one hand, it seems that the
advertising business is booming and advertisers are looking for magazines,
while, on the other hand, the Canadian public seems to question their use of
Canadian magazines in a substantial way? When a drop is 40 per cent, I feel that
it is certainly substantial. We are almost close to 50 per cent. How do you
reconcile the situation of the magazine industry presently in the context of
the discussion that we are having?
Mr. Malden: I did not see the article. I gather from what I heard you read that
they were talking about newsstand sales as opposed to total circulation. In
fact, the whole newsstand environment, both for Canadian and American
publishers, has been very volatile in the last couple of years because of
industry consolidation and wholesalers taking over other wholesalers and so on.
That has had an impact. I think overall sales of magazines in North America on
newsstands are probably about flat to a little bit down, partly because of that
phenomenon and partly because of new magazines coming in and taking away market
share for newsstand sales.
In fact, though, our total circulation, including subscriptions for our
magazines, is roughly stationary. Maclean's magazine sells in total 500,000
copies per issue, of which I think last year we averaged 20,000 newsstand
sales, with all the rest being subscription. If we experience a 10 or 15 per
cent decline in newsstand sales, it is a very much smaller percentage of our
total circulation. As newsstands have gone through this turmoil and had this
impact on unit sales, not just of our magazines but of others, we have worked
harder to generate subscriber circulation. We are doing okay in terms of
maintaining our circulation levels and maintaining our audiences and the number
of people reading our magazines.
Advertising has been on an upswing for the last two or three years, because we
have come out of the recession. The year 1998 was a good year relative to the
previous year and left most Canadian publishers with acceptable, but not
exceptional, profit margins.
Senator Joyal: We have heard the figure of $160 million in advertising sales
that could be drawn by foreign magazines; is that a figure you agree would
represent what, in fact, the foreign magazines could draw from the market at
this point in time? Do you agree that, in fact, we are looking at that segment
of the money that advertisers are putting in the market?
Mr. Malden: The estimate of total advertising revenue in magazines in Canada,
both trade and consumer, is $500 million to $600 million. If you take that
number and apply the Harrison Young conclusion that at least 40 per cent of
revenues could shift to foreign magazines if they were publishing split-run
editions, then you are somewhere in the ballpark of $150 million to $200
Senator Joyal: What I would like to try to get from you, from your experience,
is whether that $160 million is targeted to very specific magazines or is
spread in so many bits and pieces that we cannot measure the impact on some
kinds of magazines? Are some magazines more attractive in comparison to others
that do not really attract advertisers? In other words, that money would have a
major impact for some kinds of magazines and much less impact for others.
Mr. Malden: Except for cultural sorts of magazines that are supported largely by
their readers, almost all publishers depend for their survival on advertising
revenues. When Sports Illustrated was operating in Canada, a fellow who was
associated with a maritime regional outdoors type of magazine told me that he
specifically lost two or three accounts because they consolidated revenues from
a number of publications in order to put into Sports Illustrated.
There is a belief on the part of most publishers who do depend on advertising
revenue that split-run editions would do damage to them as well. It would not
be restricted to one category or one size of magazine.
Mr. Doody: Mr. Malden is absolutely right. There would be quite a severe effect
on our ability to publish magazines if we lost even 10 per cent or 15 per cent
of our revenue because of split-run editions coming into Canada and covering
our markets. We do not have the same situation, because ours are all controlled
circulation magazines. They go free to the recipients and we do not depend at
all on newsstand sales or subscriptions. Advertising revenue is the entire,
critical thing to us.
Senator Joyal: Are you telling us that such a small difference as a 5 per cent
or 10 per cent decrease in revenue, because of a lack of advertising or a
rechannelling of advertising, could threaten the life of some of your members?
Mr. Doody: Five to 10 per cent probably would not; however, 10 to 15 would. It
is that critical.
Senator Joyal: What is the profit margin normally of a magazine? Is it true that
half of the magazines do not make a profit?
Mr. Doody: I have heard that. We do better than that. We would be 7 to 10 per
Mr. Malden: It is marginal.
Senator Joyal: In other words, if I understood your answer correctly, for most
of the magazine industry such a small margin would even threaten the life of
some magazines, perhaps many of them.
Mr. Doody: Yes, I believe it would.
Senator Joyal: Have you ever determined which of the magazines in Canada is the
largest and which magazines are totally self-sustaining, as opposed to just
breaking even or making only a small profit, or perhaps not even making a
profit at all? Can you tell us that from the figures that you seem to have at
Mr. Doody: When we refer to an independent publisher, we are usually referring
to someone who is not Maclean Hunter, Southam or Telemedia. Among the
independents, Action Communications Inc. has five magazines; some of them have
one, two or three magazines. The independents cannot take a big hit in
advertising revenue, because that is all they have to live by.
Does that answer your question?
Senator Joyal: Yes. However, if you could give more precise answers in terms of
the variety of magazines, that would certainly be more enlightening, if that is
information you have. Give us some examples so that we can try to understand
what you say.
Mr. Doody: We have one magazine that is aimed at the metal working industry in
Canada; another goes to the electronics industry. We have one for design
engineering, which is product design and development in this country, and we
have a woodworking magazine in Canada. We also have a general industrial
magazine that we publish in French. That is the safest one of the bunch, because
foreign publishers are not likely to enter that market.
As an aside, in the woodworking field, for example, through the efforts of our
publisher and editor we have been instrumental, and at some cost to us, in
establishing with Industry Canada a degree-granting course at the University of
British Columbia in woodworking. That is an engineering degree. It is really
the only co-op woodworking course in North America. The magazines that we
publish certainly have an effect on what is happening.
Senator Joyal: You seem to know that magazine very well. What revenue is drawn
from the advertising?
Mr. Doody: That particular magazine would probably do approximately $600,000 a
year in advertising revenue.
Senator Joyal: On a budget of how much?
Mr. Doody: That would be our gross revenue. Out of that we pay salaries and
Senator Rompkey: That would be 100 per cent.
Mr. Doody: Yes.
Mr. Malden: The second table in the appendix shows the numbers for one of our
business publications, which happens to be one serving the printing industry.
You can see that it has total revenue of $1,200,000; of that, $1,100,000 is
advertising, and I have a line called "other" for the difference,
most of which is for providing services like preparation of ads for advertisers;
so it is virtually all advertising-related revenue, because that magazine has
very little paid circulation.
Last year that magazine reported a profit margin of 14 per cent. That is above
average for our division of 30 some business publications. The average for
Maclean Hunter -- and we think we are successful publishers in business
publishing -- is somewhere around 10 per cent. As Mr. Doody said, if
advertising dries up, you can save costs. If you are selling fewer pages then
you will print fewer pages; therefore, you do save some costs. However, a big
chunk of the cost of publishing is fixed costs. You pay the publishers and
editors, et cetera, so there is not lots of room to cut costs when your
revenues or your ad rates fall or your volume falls.
We experience that in cycles. Publishing is a cyclical business; many of our
magazines that are today making decent margins were losing money during the
early 1990s just because the advertising was not there. The threat of split-run
editions is that that would not be a cyclical phenomenon, but would be a
permanent one. We know we can lose money on these publications if advertising is
not up to the adequate volume.
Ms McCaskill: We do have some material that we could perhaps make available to
you that would provide more background in terms of the industry and the
structure of the industry. We have been using a few examples that probably are
above the industry average in terms of profitability. There are approximately
1,500 titles. The vast majority would be small to medium-sized publications; if
I am not mistaken, the industry average in Canada in terms of profit margin is
approximately 4 to 5 per cent overall.
The examples which Mr. Malden has presented are intentionally examples of
relatively successful publications, just to illustrate that even a successful
publication would be adversely affected pretty quickly in terms of the impact
on advertising revenues if there were foreign publishers competing with
discounted pricing in the advertising services market. That is an example of a
successful magazine with an above-average profit margin, just to show that even
a strong performer like that could be adversely affected. Of course, profit
margins for many other publishers in Canada, who are smaller, would be much
less than what you are seeing here.
Senator Joyal: Perhaps you could provide that information to our colleagues on
the committee. Certainly, in terms of the real world, they would be interested
to see exactly what it means, because we are talking about an industry as a
whole. What we have in mind is Time magazine, Sports Illustrated, Reader's
Digest, the big ones, but in fact those do not make up the reality of the things
at which this legislation is aimed. That is why it is has been difficult for us
to understand fully the impact of those measures in the real world of the small
Senator Rompkey: When the witnesses are sending information, could they aim it
at regional publications in order to add a nuance to the information sent?
Perhaps they could target how these small magazines are distributed regionally.
I know that the Atlantic region already has a number of small magazines like
Atlantic Business. I would suspect that the small size of that market makes
those magazines vulnerable. Can we find out more about that?
The Chairman: Is that information available for forwarding to our clerk, Michel
Mr. Malden: We can try to obtain that information.
Senator Roberge: Mr. Malden, you were referring in your presentation to the
media firm of Harrison, Young, Pesonin & Newell. They came up with a few
conclusions that I found interesting.
First, they say that without Bill C-55, the introduction of split-run magazines
would not affect French-language magazines in Canada. Mr. Doody just commented
that foreign publishers are not interested in that. Does that also include
publishers from France?
Mr. Doody: Those publishers cannot buy our publications.
Senator Roberge: I was referring to the claim that French-language magazines
would be unaffected by split-run editions.
Mr. Malden: I do not believe that would be the outcome, if foreign publishers,
even of English-language magazines only, were allowed to enter the market and
take serious amounts of advertising volume away from Canadian publishers. Many
Canadian publications have English and French versions, although they usually
have totally different editorial content. For example, we publish Chatelaine in
English as well as Châtelaine in French. Their contents are totally
different and they are produced for two different markets. However, we sell the
advertising in combination. Therefore, an advertiser who is trying to reach the
Canadian market in both languages will buy both magazines from us.
If Chatelaine disappeared or Canadian Living and Coup de Pouce, or other
examples of those combinations, it would make it very difficult for a French
magazine to continue to be viable, because they share a large part of the cost
base with their English counterparts. The damage may be indirect. It may not
result from French magazines coming into the marketplace from France, but there
could be real damage even on the French magazine side.
Senator Roberge: Harrison, Young also concluded that the opening of the Canadian
market for split-run magazines would not be harmful to Canadian Business Press.
That is a firm that you utilized. They say that, because they would be starting
from a zero base, unlike their consumer counterparts, the process would be
long, laborious and expensive and that would benefit Canadian
Can you give us your comments on that?
Mr. Malden: We did not utilize the firm. That study was commissioned by Heritage
Canada. It is true that they do start largely without significant circulation
in Canada, although there are a few publishers who have found it to their
advantage to have some Canadian circulation. In those cases, they tend to
charge for that circulation as part of their ad rates.
One expected phenomenon is that Canadian entrepreneurs in the publishing sector
will strike deals with U.S. trade publishers to take care of advertising sales
in Canada. They would arrange the printing of those ads and the binding of
those ads into the copies being produced for Canada. Then there would no risk
and no effort for U.S. publishers to enter the Canadian market. I am sure that
that activity would occur.
U.S. publishers see it as a competitive advantage to serve the Canadian market.
For many of our publications, a very high percentage of our advertising comes
from south of the border. These are American firms seeking to sell their
products and services in Canada. They use our magazines to reach the Canadian
marketplace. Those same advertisers, of course, are buying space in the
American counterpart magazines and, therefore, they are already doing business
with these firms that would end up seeking to publish split-run editions in
Canada. They have real cost advantages just because they are there. They are
making the selling effort already and they would not have to produce new
editorial material and so on.
The impetus for this comes largely from U.S. publishers such as Time Warner and
Hearst. However, I have no doubt that intermediate-run foreign trade magazine
publishers would also see it as an opportunity.
Senator Roberge: Senator Perrault made some interesting comments when we met
with the minister. He was talking about electronic communications, cyberspace,
the Internet and such things. The way we receive information has changed
dramatically over the last five years.
Are we using outdated methods to solve a problem that will be changed by
technology over the next couple of years?
Mr. Malden: We in the publishing business actually do not believe that the
Internet will replace magazines as a medium for entertainment and
communications, although it might be one phenomenon helping to flatten magazine
circulation overall. It is certainly a competitor for consumers' time. We
nevertheless believe that magazines will continue to exist and that, as long as
they do, in our unique Canadian situation we need to be protected from this
potential for unfair competition.
Whether a comparable problem will develop in the Internet sphere, I do not know.
The entire role of the Internet in providing information and being a
communicator of cultural identity is not clear. I also cannot foresee the
business model of successful Internet publishing. There are many more
publishers in that sphere who are not making money because they have not yet
figured out how to generate revenue than there are publishers there who are
making money. I do not know whether that will be an issue in the future. I do
not believe it is an issue today.
Senator Roberge: In the future it may be an issue, because technology is moving
so rapidly. You can print things easily from the Internet.
Mr. Malden: It may be that advertising will not be the prime revenue source for
these sites. We may not have the same issues with Internet publishing as we do
with magazines as printed vehicles.
Senator Fitzpatrick: We have been speaking mostly about the impact of this
unfair competition on the magazine publishing industry. Perhaps, there is
another aspect. We rely in Canada on emerging businesses to develop specific
new sectors that rely upon magazine advertising to grow.
If the magazine industry is restricted, then these emerging industries must look
for alternative ways of advertising. It has been suggested that to advertise in
American publications, whether split-run editions or otherwise, may be too
expensive for such industries.
Have you done any studies on potential impacts of new Canadian industries trying
to develop their advertising strategies?
Mr. Malden: There are hundreds of Canadian magazines available to advertisers
both on the consumer side and on the trade side. The titles that are most
likely to do split-run publishing in Canada are those that are direct
counterparts to successful Canadian magazines. If those split-run magazines are
allowed to operate and use their cost advantage to undercut us until we cannot
afford to continue, there probably will be no net gain to advertisers. They
would lose the Canadian vehicles that are currently available to them, but they
would have these new split-run editions.
The challenge is that you could end up with 30 or 40 split-run magazines in a
few major editorial categories, such as women's publishing and so on, and they
would take advertising revenues out of Canadian magazines on a broad number of
categories. The same is true for the business press. The net result could well
be a diminishment of the vehicles available to these Canadian companies to
which you are referring.
Senator Fitzpatrick: Do you also think that, once the split-run industry has
established itself, those rates would not be so advantageous, as they are
attempting to get into the business with split-run opportunities?
Mr. Malden: That is a valid question to ask and to wonder about. There is no
doubt that selling advertising in magazines is a competitive business today and
would be more competitive then and they would use that cost advantage. If the
level of competition diminishes as Canadian magazines disappear, there may be
an upward trend in the rates that they charge. They will charge what the market
will bear and maximize their profits.
Senator Spivak: I wish to return to the question of trade. I know you said that
the United States has no right to retaliate, because Canada has not violated
any provision of the FTA. However, in reading newspaper accounts, they have
threatened billions of dollars of retaliation. I asked the minister when she
was here whether the United States intended to act illegally, and she did not
really respond to that question.
Let us suppose the Americans were to retaliate. What would be the total dollar
amount in terms of the commercial equivalent, if they actually had the right to
Ms McCaskill: There are a number of different scenarios you could look at. To
estimate it, you would have to start with the value of the Canadian advertising
services market, which is the market they want to gain access to.
As Mr. Malden mentioned earlier, the total value of the advertising services
market is roughly $500 million Canadian. Let us say that the U.S. claimed that
if U.S. publishers could access that market they would capture 50 per cent of
it. If they made that claim, it would counter somewhat the rhetoric that we
have heard from the U.S. They have attempted to indicate that U.S. publishers
would not really take up much of the Canadian market or draw very much in the
way of advertising revenues away from Canadian publishers.
Let us just say, if it came right down to it, that they might argue that they
could easily capture 50 per cent of the Canadian market. That would presumably
then suggest a commercial effect of $250 million Canadian, which, to put this
subject in perspective, amounts perhaps to four or five hours in a day's
bilateral trade between Canada and the United States. In the scheme of things,
that is a small number.
Senator Spivak: Is it your opinion that the reason for exaggerating this
retaliation claim is to pressure Canada into doing something else, which is
what they are doing now, namely, negotiating? Is that what you think they are
doing? If the compromise they are looking at is to have a minimum Canadian
content, then it seems strange to me that the government did not legislate it
that way. I do not understand why, or what, they are negotiating, if this is as
clear-cut as you have laid out. Why would we then be negotiating anything with
the United States? What is your answer to that?
Ms McCaskill: To begin with your first point, senator, I believe that the
threats of retaliation are intended to apply political and economic pressure on
the government to back down from this legislation. The threat of retaliation is
a tool or a lever that the U.S. often uses, not just with us but with other
countries as well. Their exaggeration is intended to increase the amount of
pressure being applied.
If we are on solid ground in terms of the defensibility of Bill C-55 under trade
agreements, which I think we are, then what is the point of negotiations? My
recollection of how we got to these negotiations is that a number of months ago
the United States said that they thought there were other approaches that they
would find more palatable. It was at the suggestion of the U.S. that bilateral
suggestions were initiated, with the expectation that the U.S. had some
suggestions of alternatives to make. U.S. officials did indicate that they had
other ideas and they wanted an opportunity to discuss those. That was how this
process of negotiation or consultation got under way.
Senator Spivak: Obviously, that minimum Canadian content provision was one of
the options that the government must have looked at in reviewing this
legislation. That is obviously less satisfactory, in whatever terms you wish to
put it, than this piece of legislation. Would that be a correct assumption?
Ms McCaskill: It is correct to assume that, having reviewed a wide range of
options, the government concluded that Bill C-55 was the best approach in terms
of its effectiveness and striking the balance between consistency with trade
agreements and other kinds of considerations that were taken into account.
Senator Spivak: What impact would this have on our trade stance? Suppose we
negotiated a compromise. What impact would it have on the status of our
agreements if we voluntarily, or under pressure or whatever, gave up something
that we do not have to give up? What impact would that have on other things?
Ms McCaskill: Minister Copps and other ministers have indicated that if an
alternative can be found that is effective in achieving the policy objectives
of Bill C-55, and it can be properly enforced, then they would be open to
considering such an alternative. Basically, the industry has indicated that it
would be open to an alternative. The bottom line has always been that any
alternative would have to meet the policy objectives of Bill C-55 and be
effective in achieving those policy objectives.
Thus far, we have not seen any sign that such an alternative has been found.
Bill C-55 is, therefore, still the best approach.
In my view, if Canada, under threat of retaliation from the United States,
accepted a compromise that did not achieve, but rather fell short of, the
policy objective of Bill C-55, which is the policy that has been in place in
this country for over 30 years, then Canada would not be availing itself of or
asserting the rights that it has under its trade agreements, including the
cultural exemption under NAFTA. That would have important implications -- not
only for this particular case, but for future trade issues on which we will
deal with the Americans.
The whole purpose of negotiating our trade agreements, both the regional
agreement, NAFTA, and also the multilateral agreement, has been to move away
from the law of the jungle that previously applied, in which the economically
strong essentially called the shots, to a rule of law where we have defined
rules that will produce certainty and predictable results. If, when it comes
right down to it, we are unable to enjoy our rights, while respecting our
obligations under our trade agreements, then we will not be achieving what our
trade agreements have been intended to achieve.
Senator Callbeck: My question relates to the examples on page two of your brief
where you show that split-run publishing gives the foreign publisher an
advantage. That is obvious to see from the examples.
Under the U.S. example, why is there such a difference in the margin as between
a consumer magazine and a trade magazine, whereas in Canada they are about the
Mr. Malden: When a U.S. consumer magazine publisher already has circulation in
Canada, it is generating whatever revenues it is generating from that
circulation; if it were given access to the advertizing service market in
Canada, it would make its decision on whether to bother coming into the
Canadian market, on whether it saw that as a big opportunity or not, strictly on
the basis of the incremental revenues it could get and the incremental cost it
would incur to get those revenues. It could ignore the cost of printing that
magazine, because it is already spending that money to print magazines that are
coming in here to get the circulation revenue.
Therefore, in the case of a consumer magazine, its only costs would be the plate
changes and stopping the press to change the plates. However, in the case of a
business publication, as Mr. Doody and I have both said, most U.S. publishers
do not have circulation in Canada because they are a controlled circulation and
do not generate circulation revenue. Therefore, they have had no reason to have
big circulations in Canada. This reflects that business publishers will have to
take into account in this incremental analysis the cost of printing the copies
as well. However, they will still save editorial and overhead costs.
The Chairman: Thank you for your presentation and your answers.
Senator Lynch-Staunton: We are still ready to move to clause-by-clause
examination, Madam Chairman. I do not know why the government is so reluctant
to do so.
The Chairman: Thank you for wanting to move this ahead so efficiently, senator.
Our next witnesses are from Reader's Digest Magazines Limited: Mr. Paul Lalonde,
Ms Barbara Robbins, and Mr. Poirier. Please proceed.
How long will your presentation take?
Ms Barbara Robbins, Vice-President, Legal Affairs, Reader's Digest Canada: Since
we will try to be as concise as possible, I would have to say about ten
minutes. We plan to leave ourselves enough time to answer your questions.
Allow me to introduce to you Mr. Poirier, the President of Reader's Digest
Reader's Digest Magazines is the publisher today of Reader's Digest (Canada) and
the French-language counterpart but separate magazine Sélection du
Reader's Digest. Paul Lalonde, of the legal firm Flavell Kubrick & Lalonde
here in Ottawa, has considerable experience in the area of trade and Canada's
I thank the honourable senators for this opportunity to appear before you this
evening on behalf of Reader's Digest and its more than 300 full-time employees
in Canada. As we have been a member of the Canadian publishing community in
Canada for more than 50 years, we think it is of great importance that our
voice be heard on the subject of the bill before you.
I should like to emphasize from the outset that advertizing revenues are an
extremely important component of the viability of both Reader's Digest and Sélection.
In turn, the success of our magazine product line is the basis, if you will, of
the success of the total of Reader's Digest's operations in Canada. It is the
fulcrum from which we have grown our success into books, videos, and so on.
I should also like to confirm to you that the voice with which we are speaking,
both from a corporate stature and from a publications stature, is a Canadian
I should like to dispel any lingering perceptions that may unfortunately have
found their way into the media because of the high profile of this debate and,
perhaps, because of a lack of understanding of the Digest that we publish a
split-run. We do not publish split-run magazines. Reader's Digest and Sélection
are Canadian publications.
Notwithstanding our full support for the policy objectives of Bill C-55, we do
have one or two important concerns on the details. People say that the devil is
always in the details. I should like to address those concerns with you by
taking a brief, concise detour on our structure, both corporate and editorial.
It will make comprehension of the issues easier.
In the mid-1970s, when the government of the day brought forth section 19,
another magazine policy measure, the executive of Reader's Digest's Canadian
operations at the time, with the full support of the American Reader's Digest,
took the conscious and deliberate decision that we would do what we had to do
to comply, that is, to be Canadian. Thus, Reader's Digest magazine was
incorporated with the appropriate and requisite share structures and
directorships in place in Canada and thus has it continued until today.
As regards the editorial side, let us step back for a moment. Understand that
Reader's Digest publishes a digest, which by nature and definition is a product
that reprints to a certain extent pre-published materials from different
sources. When the language of section 19 was being proposed, it became quite
clear that, unwittingly and unintentionally, some of the language in the drafts
would not have allowed for a digest publication, ours or any other. Therefore,
we succeeded in sitting down with the revenue authorities and obtaining what we
called a ruling or a recipe for how a digest publication can comply as a
Canadian periodical and yet continue to publish its unique type of digest
The results of that ruling, as they date from the mid-1970s and right through,
are such that we have two full-time editorial staffs in Montreal that are
buffered and supported by literally hundreds of freelance writers,
photographers and translators from sea to shining sea of this country. We have
two full-time research staffs who work to produce our content.
On the topic of content, 80 per cent of the editorial content of Reader's Digest
and Sélection is material that either we create -- that is, we
commission a Pierre Berton or a Jim Hutchison or Margo Pfeiff to do an article
for us -- or that we rework from material for which we purchase the rights from
publications that are not associated with Reader's Digest. We condense those
materials, we adapt them and we put them into our magazine. Given that Reader's
Digest has a subscription base right now in Canada of over 1 million, that
exercise, and even the exercise of buying up rights, gives a secondary source
of income to the Canadian creative community and exposes their work to many
more readers and subscribers than perhaps they would have had with their initial
publication. We can also give them the opportunity to be exposed in other
Reader's Digest magazines throughout the world because of the network that we
In short, I wish to underscore the fact that 80 per cent of our content is, if
you will, original or derived from sources that are not related to the digest.
We have put the magazine together in that format since 1976 or so and we
continue on that way today.
Again, it is perhaps because of the digest aspect that misperceptions have
persisted about what this beast known as "the digest" is. The
important thing to underscore here is that we do not publish a split-run
When we have addressed the language of Bill C-55, we have not focused on clause
21, which is well known as the grandfathering provision. Given the
restructuring that we did and given our editorial practices, not to mention the
fact that we have a foundation that helped to establish the publishing program
at UBC and that supports schools of journalism throughout the country, we do not
feel that we should be content with that kind of status. Given what we have
done and the contributions that we make and will continue to make, I think you
will agree that it is not fair; we do not deserve to be treated thus. We wish
to be treated along with all the other Canadian publishers in the other language
of the bill.
That brings me to the two specific points or concerns that we have. They are in
the language of clauses 3(2) and 3(3) of the bill as currently drafted. I can
remind you that, in all the materials that you have received from us, these
matters are addressed in pages 1 to 5, particularly pages 3 to 5.
Clause 3(2) tries to define a foreign publisher and a split-run issue without
using the term "split-run." It says that a publisher will be deemed
to be a foreign publisher if a substantial part of its publication is published
under licence, and so on. The language in clause 3(2), particularly against the
backdrop of a company like ours, is ambiguous and raises a certain amount of
concern because each monthly issue of our magazine is put together with
material that is reprinted and very often under the authority or licences of
certain parties. We certainly do not steal that material. We pay handsomely for
it and are well recognized, again, as a good financial nourisher of the
On page 5 of our brief, you will note that we have put forth some language that
we feel will help to address the ambiguities that we believe exist in the
current language of clause 3(2). We understand that there may be other digests
or similar types of publications that may be affected by that same concern.
We proposed amending the wording of clause 3(2) to read as follows:
For the purpose of this Act, a person who, directly or indirectly, produces or
publishes under licence or other authority granted by a foreign publisher a
periodical which is substantially the same in format and content as a
periodical produced or published by that foreign publisher is deemed to be a
That new wording would address our concern that somehow the type of publication
that we have would be misperceived to be a split-run edition.
As we have said, that provision talks about the split-run edition without using
those words. It is another way of dealing with the content issue, and the basis
for it and its intent are not necessarily wrong. We have been hearing in the
media and again here tonight some of the propositions about Canadian content.
Leaving aside for the moment the qualifying aspect, there is the question of
quantity, of what percentage would be Canadian content. Based on our experience,
I suggest that there be a 50 per cent bar. I can say that it would require a
very respectable infrastructure and investment in the country to meet a 50 per
cent Canadian content requirement. Perhaps this committee could propose a
requirement of 50 per cent.
Also, instead of the words "substantial part," it might be worth
considering putting in a percentage. Again, there is a lot of ambiguity. From a
business point of view, publishers must know what the level is, where the bar
is. The bar could be different for each and every one of us.
Clause 3(3) also presents a concern for us, and perhaps for other publications
that may not have thought this through. A test for control in law and for
control in fact is another way of labeling a foreign publisher. We do not have
a problem with that. We understand that. However, on page 5 of our brief, we
propose some additional language. That language already exists in section 256 of
the Income Tax Act and is thus not unknown. It attenuates, if you will, the
bareness and the boldness of those wordings and allows for certain kinds of
common business agreements, whether franchises, licences or trademark
agreements. In essence, it would assuage concerns by saying that a company that
operates under a licence to a trademark with a foreign company that happens to
be the owner of that trademark need not be worried unnecessarily that suddenly
that trademark agreement will be held up to scrutiny or will be used against it
to determine that it is controlled by a foreign publisher.
Those are the two concerns that we have with the language in the bill as
In conclusion, I should like to reiterate our support for the policy objectives
of the bill, understanding that we have complied with former policy objectives
since section 19 was implemented. We are fully dependent on a current policy
objective that translates into postal subsidies by the PAPT program. Please do
not hurt us in the current language of the bill or in any further drafts that
may occur. Please keep us in mind in your deliberations.
Mr. Paul M. Lalonde, Lawyer, Flavell, Kubrick & Lalonde, Reader's Digest
Canada: Honourable senators, if I may encapsulate or recapitulate what Ms
Robbins said, she came to me and said, "Look at clause 3(2) and clause
3(3) as my lawyer and tell me if we are okay." Looking at that language,
the best I can do in good conscience is tell her, "Probably."
The purpose of our recommendations and of our presentation here tonight is to
move that "probably" to a "clearly." We think it is clear
that Reader's Digest is entitled to be recognized unambiguously as a Canadian
publisher of a Canadian publication or publications, and that is the spirit in
which our recommendations to modify the language ever so slightly are made.
We believe that our proposed amended version of clause 3(2) is preferable to the
clause as it exists in the bill now. However, as Ms Robbins said, if you wish
to make it even more explicit, instead of using language like "substantial,"
you could put in some sort of definite threshold like 50 per cent. That could
also work for Reader's Digest.
Mr. Bernard Poirier, President and Chief Executive Officer, Sélection du
Reader's Digest: I will not be making any speeches, but I will answer your
questions. In fact, I would like to respond to a question that was asked
earlier regarding a subsidiary company we have in Canada by the name of Quality
Quality School Plan, or QSP, is a fundraising company fully owned by the
Canadian Digest in Canada. Someone was asking that before.
Senator Maheu: How does the Canadian version of Reader's Digest differ from the
Ms Robbins: Your question could also be applied to the British and French
versions, since many editions of this magazine are published, not just the U.S.
Our Canadian publication is unique. Each month, our team of editors sit down and
decide on the content of Reader's Digest and Sélection, relying on a
number of factors, while complying with the 20 per cent content rule, as
spelled out in the Income Tax Act, and our own ruling. We can reproduce
articles taken directly from another edition of Reader's Digest, whether the
U.S. or the Polish edition.
As for the remaining 80 per cent, it is comprised of a mix of original articles
taken from such publications as National Geographic, Canadian Living,
Chatelaine and The Economist.
Senator Maheu: Occasionally, Reader's Digest publishes a condensed version of
articles taken from other publications. Do you view these abridged versions as
having Canadian content?
Ms Robbins: Yes, absolutely. First of all, our product involves reprinting in a
condensed format previously published material. This is not something we do
haphazardly. We do not go about striking two or three paragraphs from these
articles for the fun of it. We seek out a Canadian or Quebec perspective,
without trying to make any political statements. We peruse articles to find
relevant anecdotes and so forth. If the article did not originate in Canada,
publishing it nevertheless always involves some work by Canadians, whether it
be by our full-time staff, or by our freelancers in Quebec or elsewhere.
Senator Maheu: Amendments were made to Bill C-55 by the House of Commons
standing committee. Are you still not satisfied with this bill? Would you like
further amendments to be made?
Ms Robbins: We are satisfied with the amendments respecting the share structure
and the 75 per cent. The wording of the bill was changed to ensure consistency
with the wording of the Income Tax Act. We are completely satisfied, as far as
our corporate structure is concerned. However, we are concerned about the two
points that Mr. Lalonde and I just mentioned and submitted to the committee.
Senator Lynch-Staunton: What was the government's reaction to your anxieties
surrounding clauses 3(2) and 3(3)? Why did they not amend the bill accordingly
to respond to those concerns?
Ms Robbins: Frankly, that is difficult for me to answer.
Senator Lynch-Staunton: You did make representations, did you not?
Ms Robbins: I cannot say that we got vociferous dissension, frankly, nor bullish
support. It may be that there are still reflections going on. It may be that
reflections took place and the jury came in with a negative response, but
accepted the ownership one.
Senator Lynch-Staunton: I hope that we will move to clause-by-clause study of
the bill sometime this week. If you want changes made, then you should bring us
amendments in the form you have suggested and in text form so that we know what
the wording should be.
Ms Robbins: On page 5 of the brief we have the language. Page 5 is exactly what
we have been submitting to different parties all along. We have the language
there. We have redrafted the wording of the clauses exactly as we would prefer
Senator Lynch-Staunton: Thus far, the government has not seen fit to accept
those two recommendations; is that correct?
Ms Robbins: It does not seem so.
Senator Lynch-Staunton: Why is that? Do they not share the same concerns as you?
Do they not feel that there is a potential penalty to Reader's Digest in
Ms Robbins: Again, it is difficult to say. We have not been able to hone in on
an exact reason. Perhaps there are those who, having been exposed to our
publications and analysis, are somehow comfortable and will say, "It is
academic. You do not have anything to worry about because I believe that you
are what you are and we will not apply this to you." It could be something
of that nature. However, the language of the text must stand on its own.
Senator Lynch-Staunton: Do you not think that clause 21 applies to you?
Ms Robbins: Based on our history, we do not feel that we should have to accept a
Senator Lynch-Staunton: Is it not better to have a well-protected second-class
status than a non-protected first-class status?
Ms Robbins: Clause 21 is there. If you will, it is my insurance policy. We do
not feel that clause 21 will disappear. It seems to be carved in stone.
Senator Lynch-Staunton: In effect, you agree that clause 21 protects you, but it
gives you a status that you do not accept.
Ms Robbins: Yes.
Senator Lynch-Staunton: However, if you have to accept it, you are protected.
Ms Robbins: Yes.
Senator Lynch-Staunton: Therefore, you wish to change clause 3(2) and clause
3(3) so that you escape clause 21 and reconfirm your status as a Canadian
publication rather than be defined as a split-run publication. Is that the
basis of your argument?
Ms Robbins: Absolutely.
Senator Lynch-Staunton: I can see that. It is up to the government side to
decide whether they wish to follow through on your recommendation which, in
effect, is to reconfirm the status that you have so eloquently developed.
Ms Robbins: It is not language that has been drafted personally for us. As we
have said, there are other digests in Canada and other hybrid or different
types that may also be affected. In some ways, it makes the language clearer
and more precise.
Senator Lynch-Staunton: I was a little surprised, perhaps out of ignorance, when
I read the definition of Canadian content. At the end of his presentation, Mr.
Malden spoke about Canadians knowing each other better through Canadian
stories. The minister also made mention of that. I always assumed that that was
what Canadian content is about. However, it turns out it is not that. It is
original editorial material that is first published in Canada.
Ms Robbins: That is the language of clause 19, yes. It does not use the words "Canadian
Senator Lynch-Staunton: Therefore, for the purposes of our discussion tonight,
Canadian culture and Canadian identity are not necessarily part of Canadian
Ms Robbins: You can say that. However, if you focus on what has happened in the
case of the digest, we think we are a success story and a positive byproduct of
the language of clause 19. We do nourish the Canadian creative community. We
nourish Canadians with stories about Canada, by Canadian writers. There is no
question about that. In other words, even without using the words "Canadian
content" specifically, the by-product does turn out to be that to a
Senator Lynch-Staunton: You can devote a whole issue to an original story by an
American novelist and that would come under the definition of "Canadian
Ms Robbins: It would come under the definition, depending on the circumstances
of content not hitherto published possibly, yes.
Senator Lynch-Staunton: I am still reflecting on that one. I feel that we wave
the flag and then we realize that we are not talking about the same thing when
it comes to Canadian content.
Mr. Lalonde: If I may add, digesting as the Reader's Digest does, is not simply
cutting and pasting.
Senator Lynch-Staunton: I am not talking about the Reader's Digest as such. I am
talking about what we mean when we say "Canadian content."
I have a great deal of time for Reader's Digest. I worked for a Canadian-owned
subsidiary of a foreign company that was more Canadian than many companies I
know. So I respect what you have done here and I have no problem with the
Reader's Digest. It was just this question of Canadian content, and that is all
I have to say for the moment.
Senator Tkachuk: On the Canadian ownership question, could you clarify the
relationship between the non-profit foundation and Reader's Digest Association
(Canada) Ltd.? There is a parent company of Reader's Digest that trades on the
New York Stock Exchange. What do they own in Canada? Can you work it down for
me so that I can see how all this fits together?
Ms Robbins: The company that is traded is the Reader's Digest Inc., which is out
of New York. It owns 100 per cent of a company called the Reader's Digest
Association (Canada) Ltd. The Reader's Digest Association (Canada) Ltd. owns 25
per cent of Reader's Digest Magazines Limited, the entity that is here before
you this evening -- which is the publisher, the periodical arm -- and the 75 per
cent balance is owned by the foundation.
Senator Tkachuk: The foundation is a non-profit company under the federal
statute governing non-profit corporations?
Ms Robbins: Yes.
Senator Tkachuk: There are no shares in the foundation, but there are members?
Ms Robbins: That is correct.
Senator Tkachuk: Who are the members? How many members does it have?
Ms Robbins: That can vary; there is a range. According to the company charter,
or by-laws if you will, the understanding is that the members are to be
selected essentially as individuals who have an interest in publishing and
journalism, because those are the objectives of the foundation.
Senator Tkachuk: They would have some voting rights, would they not? They own 75
per cent of Reader's Digest Magazines. Who represents the foundation at the
board of directors meetings?
Ms Robbins: It could be the president or it could be someone who is given a
proxy to attend. It depends on who is given the right to vote.
Senator Tkachuk: Let me go through this again, because this is really important.
You could have one member, you could have five, or you could have 100. How many
members does the foundation have as per in its by-laws?
Ms Robbins: The foundation currently has five members, what we call five
directors, but one, possibly, will be designated -- or it can be done through a
proxy -- to attend and vote at a meeting of the Reader's Digest Magazines.
Senator Tkachuk: The reason I am asking these questions is to clarify the
Canadian ownership question and the 75-25 per cent relationship. It is
confusing to me because of the way this is structured.
Who are the five members who are on the foundation? What is their background?
Are they business people or writers, or what?
Ms Robbins: Right now they are business people.
Senator Tkachuk: Are they American or Canadian?
Ms Robbins: They are all Canadian.
Senator Tkachuk: Do any of them work for any of the subsidiaries or the related
companies of Reader's Digest?
Ms Robbins: Yes.
Senator Tkachuk: All of them?
Ms Robbins: Right now all of them, yes, but it is rotational.
Senator Tkachuk: That is pretty nifty, I think.
Let us say that Reader's Digest Magazines makes a $1 million profit. I use that
number not because I know, but just because you can do easy math with it. After
taxation, but bearing in mind that it is jumping up some dividends, 25 per cent
is $250,000. That goes to --
Ms Robbins: The association.
Senator Tkachuk: That goes upstairs and then that probably goes to New York,
right, or wherever the headquarters is located?
Ms Robbins: Yes, there is a path, and it goes up the path.
Senator Tkachuk: I am not sure of this part of the law. Say I am a partner with
Senator Fitzpatrick, and he owns 60 per cent of a company and I own 40 per
cent; if he creates a dividend for himself of, say, $6,000 and writes himself a
cheque for $6,000 from this private company, he is required to give me a
dividend as well, because I am a partner. With that in mind, what happens then
to that $750,000?
Ms Robbins: It is a dividend that flows to the foundation, but you must remember
that charities are non-profit companies and they are regulated in Canada, and
Senator Tkachuk: I know that.
Ms Robbins: We have restrictive by-laws that state the purposes and, therefore,
indicate where the money is to go. We have at times been audited. Therefore, I
cannot show that the money has gone to you or Mr. Lalonde. I must show that it
has gone to Concordia School of Journalism or an institute of technology. It
must fulfil the purposes.
Senator Tkachuk: I understand that. What I was getting at is that by Canadian
law, in a private corporation, if Senator Fitzpatrick creates a dividend for
himself, he is obligated to create the same dividend in proportion to the other
Are you, Reader's Digest Magazines, obligated by law to give the non-profit 75
per cent, if you give 25 per cent upstairs to your holding company? Or can you
write the whole 100 per cent and then it has no effect whatsoever, which I do
not think it does?
Ms Robbins: No, we are not.
Senator Tkachuk: You must give 75 per cent?
Ms Robbins: Yes, to the foundation.
Senator Tkachuk: The foundation can do business, too, can it not?
Ms Robbins: No.
Senator Tkachuk: It does not do any business at all?
Ms Robbins: No.
Senator Tkachuk: It takes three-quarters of the profits of the Reader's Digest
Magazines, the net profits?
Ms Robbins: Yes.
Senator Tkachuk: It takes it into itself and donates the money out?
Ms Robbins: Yes.
Senator Tkachuk: It sounds like a heck of a deal. The way I figure it here, over
the period of 20 years you have given something in the neighbourhood of
$125,000 per year. You claim the foundation has given out $2.5 million to
journalism schools, non-profit organizations and high schools across Canada.
That is $125,000 per year based on a 20-year period. That would be 75 per cent
of your net profits, then, per year?
Ms Robbins: Yes.
Senator Tkachuk: I do not get this. That means Reader's Digest makes $200,000
per year? You are in the wrong business.
Ms Robbins: I did not choose the figures. You chose them hypothetically and then
we followed the example down.
Senator Tkachuk: I am following your hypothetical example. How much does it
Ms Robbins: Frankly, I do not know how much the magazine makes each year.
Mr. Poirier: It does not quite work that way. Reader's Digest Association gets
25 per cent. The magazine company has a profit to make.
Senator Tkachuk: Of course.
Mr. Poirier: It then gives $100,000 to $200,000 per year to the foundation.
Senator Tkachuk: That is much better.
Mr. Poirier: It then retains in the magazine company the other profit. There is
a contract between the magazines and the foundation that it will do the
publishing of the magazines. That is the way it works.
Senator Tkachuk: Therefore, there is a contract between the magazine and the
Mr. Poirier: Yes.
Senator Tkachuk: You do all this to get around Canadian law. It is unbelievable.
Mr. Poirier: In 1976, I was a kid when this law was passed by the liberal
Ms Robbins: We respect the law.
Senator Tkachuk: I am trying to point out that Canadian ownership is not quite
what it seems.
You have another operation called Quality Service Programs Inc., or QSP, which
assists schools and youth fundraising through the sale of magazines and gift
products. It is owned 100 per cent, is it not? By which company?
Ms Robbins: It is now owned 100 per cent by Reader's Digest Association (Canada)
Senator Tkachuk: That is the Canadian company that is wholly owned by the
American parent company; correct?
Ms Robbins: That is correct.
Senator Tkachuk: It is not owned by Reader's Digest Magazines Limited. I want to
make that clear, because that was not clear earlier. Who was it owned by
Ms Robbins: It was owned previously with Maclean Hunter in a 50-50 share
Senator Tkachuk: And then you sold it?
Ms Robbins: No, we bought the rest of it.
Senator Tkachuk: Sorry. You bought the other 50 per cent.
Ms Robbins: Yes.
Senator Tkachuk: What did you pay for the other 50 per cent to Maclean Hunter?
Ms Robbins: I think that is proprietary information, sir.
Senator Tkachuk:It is just that you put down that you assist schools and youth
funding, and, it sounds almost like the Red Cross, and you do that through the
sales of magazines and gift products.
Ms Robbins: Yes, we do.
Senator Tkachuk: I would just like my colleagues in the Senate to know that this
is a very profitable business. What does it gross, $30 million a year? In other
words, it is a business that makes money.
Ms Robbins: Yes.
Senator Tkachuk: You go to the schools, but it is not some charity; it is a
profit corporation; it makes money; and kids go out there and they sell
magazines for you.
Ms Robbins: Yes.
Senator Tkachuk: That is what they do. You take a piece; they take a piece. They
fund their band program, and everyone is happy. Right?
Ms Robbins: Yes.
Senator Tkachuk: I wanted that clarification.
Mr. Poirier: I do not think our submissions ever suggested that Reader's Digest
Magazines does not make a profit.
Senator Tkachuk: I did not say that. I am just trying to get at the ownership
question. Reader's Digest is a great Canadian company. I like Reader's Digest;
don't get me wrong. However, it is controlled by New York.
Ms Robbins: It depends on your definition.
Senator Tkachuk: Let us be truthful. Let us not try to cover it up.
Ms Robbins: That is not true. We are not trying to cover up anything.
Mr. Poirier: We have supplied more executives to Pleasantville, N.Y., than any
other digest in the world. I have been with Reader's Digest for 39 years. For
15 of those years I worked in foreign countries. I have opened up countries --
Spain, Portugal, the countries in Latin America, et cetera. There are dozens of
executives in Pleasantville who came from Canada. We are a centre of excellence
for the entire digest world and we are proud of it.
If you hurt Reader's Digest you are hurting a big institution in Canada that has
been flourishing here for years, enabling many authors and digesters to work in
Canada. It is a great company to work for.
Senator Tkachuk: Mr. Poirier, I do not argue with any of that. I know you are a
great company. You do great stuff. You print here and you employ Canadian
writers. That is fine. I do not disagree with that. You are also a good
corporate citizen. I did not say that you were not.
Mr. Poirier: No, but there is this question of the United States controlling us.
They have been very democratic. They run a global organization where there is a
significant amount of autonomy given to each country. In Canada, as the CEO, I
run the compa