Proceedings of the Standing Senate Committee on
Transport and
Communications
Issue 28 - Evidence
OTTAWA, Thursday, May 6, 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 10:37 a.m. to give consideration to the bill.
Senator Marie-P. Poulin (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, I call the meeting to order.
Our first witness is from Osgoode Hall, Ms Jamie Cameron.
Before we proceed with Ms Cameron, I believe Senator Lynch-Staunton wanted to ask a question of the committee.
Senator Lynch-Staunton: First, I have copies of a brief, prepared by the Massachusetts Medical Society for the House of Commons Canadian Heritage Committee, which raises certain points that I think would be of interest to all members. I would like permission at the appropriate time to have the brief distributed.
The Chairman: Yes.
Senator Lynch-Staunton: Second, when George Russell, editor of Time Canada, was here, he refuted categorically two statements, one by Mr. Wernick, the Assistant Deputy Minister, and another by Mr. Malden of Maclean Hunter. We had agreed that they would be contacted to have an opportunity to reply. Has that been done and, if so, have we received any replies?
The Chairman: I know the clerk has addressed that question to them; therefore, I shall let the clerk answer the question.
Mr. Michel Patrice, Clerk of the Committee: I wrote to both Mr. Wernick and Mr. Malden on the day following the meeting. I faxed to them the letter, along with a transcript of the meeting. We are waiting to hear from them.
Senator Lynch-Staunton: Thank you, Madam Chairman.
The Chairman: I will now ask Ms Jamie Cameron to proceed.
Ms Jamie Cameron, Professor, Osgoode Hall Law School: Thank you, Madam Chair and members of the committee for the invitation to appear before you.
Yesterday, I quickly put together a written brief, which I faxed to the clerk of the committee. I hope members of the committee have received it and find it readable and helpful.
Given that I have submitted a written brief, I shall try to make limited comments only and leave most of the time for questions, which I suspect is the real reason I am here.
I will mention briefly three preliminary comments. First, as members of the committee know, I have not been retained by anyone in this matter. I do not represent any organization, association or group that has any interest in the outcome of this bill. I am completely independent in my views.
Second -- and I am not sure I need to say this or should say it -- but it is my view that some of the inflammatory rhetoric that has invaded the trade dispute should be kept out of the constitutional discussion. That rhetoric can too easily obscure the seriousness of the constitutional issues that arise under section 2(b).
Third, a new idea is floating around in academic circles that sees the Charter as a process of dialogue with the legislatures. The idea here is that there is a give and take between the courts and legislatures. The purpose of this little theory of the Charter is to downplay the confrontation inherent in judicial review. However, another aspect of it may be helpful to this committee. A concept of dialogue between courts and legislatures contemplates that the legislatures have constitutional responsibilities too, including the duty to carefully review pending legislation to ensure its consistency with the Constitution. That is by way of saying that it is in everyone's interest to find solutions that do not abdicate questions of constitutionality to the courts.
As to the Charter and Bill C-55, I like to think of the Charter as an equation, one that sets up the rights and freedoms guaranteed by the document on the one side and the democratic or reasonable limits under section 1 on the other side. The trick in any given case is to decide where the balance is -- to find that point of equilibrium between the rights and freedoms on one side and the notion of democratic limits on the other.
I shall make a few brief comments about each side of the equation and then leave it open for questions.
Constitutional rights, including section 2(b)'s guarantee of expression in the press, define one side of the equation. I shall start by examining in what ways Bill C-55 might violate section 2(b) of the Charter, and there are three possibilities.
In the first instance, this piece of legislation prohibits foreign publishers from publishing or supplying Canadian advertising services. The prohibition is absolute or complete in the sense that there are no extenuating circumstances or circumstances in which it is relaxed. We could compare that with the 72-hour opinion poll blackout that was struck down by the Supreme Court of Canada in Thompson Newspapers v. Attorney General of Canada. There, the opinion poll blackout was described as a complete prohibition, even though it only lasted for 72 hours. You can see that the kind of prohibition we are talking about here is far more absolute in the sense that it is not attenuated or relaxed or forgiven in any circumstance. It is across the board, and it is perpetual.
Second, the ban that is directly imposed on foreign publishers is indirectly imposed on Canadian advertisers who are effectively and completely barred from access to advertising in foreign publications. Once again, I stress that it is not just in some circumstances but in all circumstances. It is effectively the same kind of complete or absolute prohibition on Canadian advertisers as it is on foreign publishers.
A third possible violation of section 2(b) of the Charter has to do with the Canadian magazine-reading public who is denied access to foreign publications with Canadian advertising content. Instead of having access to foreign publications with some Canadian content, the Canadian magazine-reading public is left with only one choice as to foreign publications, that is, foreign publications with no Canadian content.
My conclusion is that these violations of expressive freedom and freedom of the press under section 2(b) are neither trivial nor insubstantial. They are backed up by powers in the legislation that essentially criminalize advertising in publishing activities. Why is this important? It is important because the nature of the violation and the severity of the violation are taken into account on the other side of the equation where courts consider whether it is reasonable or justifiable to impair constitutional rights in order to achieve a particular legislative purpose. I am now moving from the one side of the equation, the side that protects constitutional rights, over to the other side of the equation and the question of whether the impairment of the right can be considered reasonable or justifiable under section 1 of the Charter.
The courts have a test they apply under section 1. It is judge-made, and it is highly structured. It started out as a strict standard of justification in the jurisprudence, but it has now built into it a certain number of variables which, in consideration of section 2(b) under section 1, are referred to as the contextual approach.
Two elements of context that are particularly important under section 1 in cases concerning expressive freedom are the nature of the legislation and the nature of the right that has been infringed or the nature of the expression that has been limited or restricted.
As to the legislation itself, the court has been quite sceptical in a number of cases of measures that place a complete or an absolute prohibition on expressive activity. At page 5 of my short brief, I give a partial list of the cases in which the court has invalidated legislation that places either a complete or an absolute prohibition on expressive or press freedom. It is a partial list, but it is a rather impressive one just the same.
As to the nature of the right or expression, the court has on three occasions invalidated blanket prohibitions on commercial expressive activity and on one occasion upheld the prohibition. Those cases are referred to at the top of the next page.
To summarize that point, there is no question but that commercial expression can be regulated consistent with the Constitution, but the court has required in a number of cases that, for a regulation to withstand scrutiny under section 1, it must survive the different parts of the section 1 test.
You are familiar with the test from Professor Monahan's testimony. It has two main branches. The first branch of the test is typically referred to as the Oakes test. The first branch of the test requires the government to satisfy the court that its legislative purpose or objective is a permissible one. The first branch of the test looks to the permissibility or the legitimacy of the legislative goal or purpose or objective.
The second part of the test, in simple terms, requires that the means that Parliament has chosen to achieve its purpose must be proportional. You look at the means that Parliament has chosen to achieve its purpose, and those must be proportional or fitting or suited to that purpose, carefully tailored to achieve that purpose.
I apologize for the technicalities, but there are three subsections to the proportionality test. First, there is the rational connection test. Second, there is the minimal impairment test. Third, there is the standard of final proportionality.
The government has the burden to satisfy the court as to each aspect of the test, both the first branch of the test as to the objectiveness and as to each of the three aspects of proportionality under the second branch of the test.
Part one of the section 1 test, the legitimacy of the purpose, is typically not a problem in the jurisprudence. My own personal view is that the court is unlikely to challenge the notion that it is permissible for Parliament to protect or promote Canadian culture. I do not think that there is likely to be too much of a problem with Bill C-55 under branch one of the test.
Moving to branch two of the test, the proportionality test, unfortunately there I have concluded that Bill C-55 is questionable or vulnerable under every one of the three proportionality tests.
I have spelt that out in my brief, so I shall not give all the arguments here. I shall address it in the questions that follow, should it be raised. However, I shall say a couple of words about each test and why I think Bill C-55 may be vulnerable.
The rational connection test requires that the means that are adopted by Parliament, that is the legislation itself, be rationally connected, or rationally linked or reasonably linked, to the purpose of the legislation. Therefore, if the purpose of the legislation were to protect culture by giving an advantage to Canadian magazine publishers, then the question under the rational connection test is whether the measures that are adopted by Bill C-55 can be reasonably expected to achieve that purpose.
I will say one thing and leave it at that. To me, it is not self-evident how measures which on their face have nothing to do with culture -- in other words, if you read the legislation and you are hard-pressed to find any explicit connection between the measures that are adopted by Bill C-55 and the promotion or protection of culture -- can be rationally connected or reasonably related to the protection of culture.
That is my concern about Bill C-55 under the rational connection test. There, I have no idea what the government's evidence might be, but I would remind committee members that it is the government's burden under section 1 to establish that there is a rational connection.
Second, in my opinion it would be difficult for the government, if the legislation were passed and were to be challenged in a court of law, to establish that Bill C-55 as it presently stands satisfies the requirement of minimal impairment. Here, once again, the question is: Was it necessary for the government to adopt these measures, which are set out in this piece of legislation, in order to achieve its purpose? Must it adopt these specific measures in order to achieve the purposes of its legislation?
To answer that question, the courts will ask whether the impairment is undue or excessive, whether the impairment is more than is necessary to achieve the objective. Concerns about Bill C-55 under the minimal impairment test have to do with the scope of the prohibition. It affects foreign publishers, Canadian advertisers, and the Canadian magazine-reading public. It has to do with the fact that it is an absolute or a complete prohibition rather than a partial prohibition, and it has to do with the use of the criminal process to enforce the goals of the legislation.
The third part of the proportionality test I refer to as final proportionality, and there the question is: When you look at the whole picture, at the end of the day, do the gains that will be achieved through Bill C-55 outweigh the harmful consequences that are incurred in violating a constitutional right?
Again, I have some material in my brief related to that discussion; I will not take up your time here to go over it. I have just two concluding remarks. It was quite a surprise to a number of people, I believe it is fair to say, when the Supreme Court of Canada invalidated the Tobacco Products Control Act, which I believe was enacted in 1988. The reason I mention it is that in the RJR-MacDonald Inc. v. The Attorney General of Canada case, which is referred to in my brief, the court did not say that Parliament could not regulate tobacco advertising. Instead, what the court said was that the regulation must be consistent with the Constitution, and that Parliament, if it wanted to regulate tobacco advertising and other aspects of tobacco promotion, must do a better job.
In my view, this is not about whether culture matters. The debate about constitutionality, under section 2(b) of the Charter and Bill C-55, is not to my mind about whether culture matters, because I do not think there is any disagreement on that point. It is about whether the Constitution matters. As I have said, I believe Bill C-55 is vulnerable under all three branches of proportionality. As such, , I would not be at all surprised to hear a court say the same thing to Parliament here, as it did to Parliament in the tobacco case, namely, if you wish to protect culture, that is fine, there is no argument about that, however, if you wish to protect culture, you must do a better job and you must find ways of protecting culture or advancing culture that are consistent with the Constitution.
Senator Beaudoin: Professor Monahan, who was before the committee earlier, reached another conclusion. I agree that the first question is whether it is against freedom of expression. It is, if it is a total ban, as was the case in RJR-MacDonald, where the Supreme Court said that it does not comply with the Charter unless it can be justified under section 1.
In this case, I believe it is a total ban. Thus, the whole debate is on section 1. Could the restriction on the freedom of expression be justified in a free and democratic society? My first inclination is to say that if it is for the identity of our country and the culture it is justified. However, you said that it is not for the protection of identity and culture. If it is not for that, what is it for? Trade? Commercial speech? That may well be the case. In that case, you have serious doubts that the bill complies with section 1 of the Charter, that it may be justified.
I should like to know why you conclude that it is not the identity of the country and the culture that is at the very centre of this problem?
Ms Cameron: That is a very good question and I do not disagree that the spirit, the catalyst, and the motive for this legislation being enacted was exactly as you say, to advance and protect and promote the identity of the country. I am not disagreeing as to that because I believe there is not much doubt about that. What I am a little less clear on is whether that is actually what Bill C-55 does, when you sit down and read the bill cover to cover and you look at the actual measures that have been adopted by Parliament. Again, the absence of any link or connection in the legislation itself, between the purpose of protecting and promoting national identity and the measures adopted, is quite troublesome. It could well be that all we are quibbling about is draftsmanship, however, draftsmanship is an important issue when the result of poor draftsmanship is the needless violation of constitutional rights.
That is the basis of my concern. As I said before, I do not know anyone who would maintain that we ought not to promote and protect Canadian culture. My concern is that with this legislation we may be doing it on the back of the Constitution and we may be doing it on the back of the Constitution when there is really no need. There may well be many other ways that Canadian culture can be protected or promoted without the degree of intrusion on constitutional rights that we see in Bill C-55.
Senator Beaudoin: We are left with the question that, if it is mainly a bill on trade and commerce, obviously, according the division of powers, we have the right to legislate in this area because it is international. If there is a total ban, however, on the question of commercial speech or on trade and commerce, then it might be more difficult to justify that restriction under section 1. That is your thesis.
Ms Cameron: Yes. I think I said this in my brief, but it is a point worth emphasizing: Total, complete or absolute prohibitions on expressive activities are much harder to defend under section 1. It is virtually impossible for any government to go into court and maintain that it was absolutely necessary to absolutely ban the expressive activity. It is almost always the case that less intrusive alternatives that would impair the right more minimally are available.
Senator Callbeck: In your remarks, you mentioned that you wrote an article for the National Post entitled "Split Runs: An attack on the Charter." I read that article, and there are a couple of things that I should like you to explain for me.
You say -- and I am paraphrasing here -- that this heavy-handed measure affects the rights of Canadians who will be denied access to magazines that the government has decided threatens Canadian culture. Nothing in this bill authorizes the government to keep any magazines out of Canada, and nothing authorizes the government to decide whether a particular magazine threatens Canadian culture.
I would like your comments with respect to those comments.
Ms Cameron: I should explain the context of that article. It was written for a different purpose. It was written while the bill was still before the House of Commons committee, and I had some fantasy of making my views known.
I have not changed my view that this legislation is heavy-handed. I could go through it and point out the features in it that I think leave no doubt that what has been done here is to criminalize the use of Canadian advertising services by foreign publishers. Perhaps it is the second part of the quote with which you are more concerned.
I do not have the article in front of me, but you asked if I had written that the government would be deciding what magazines Canadians would see and that some would be a threat to cultural identity. My point there was that, by effectively eliminating foreign publications with Canadian advertising content, Bill C-55 would be removing a whole category of magazine publications from the Canadian public on the assumption that it is necessary to remove that category of publications in order to protect Canadian culture. I was disputing that assumption. I was limited to 800 words, and I did not have an opportunity to explain more fully the basis of the assumption.
Senator Callbeck: You also say in that article that Canadian advertisers have the choice of publishing copy in a Canadian magazine or not at all, denying them opportunities and choices as to where, when and what they will advertise.
I cannot figure out where you come to that conclusion in the legislation. A Canadian advertiser can choose among any of the Canadian media-buying opportunities, and they can advertise in any U.S. or foreign edition of any magazine. That is what I get out of the legislation. Where did you get that notion?
Ms Cameron: To answer that question, it is necessary to identify what Canadian advertisers can do and what they cannot do. What they can clearly do, with or without Bill C-55, is advertise in Canadian publications. What they can do, with or without Bill C-55, is advertise in foreign publications directed at foreign markets in foreign countries. What they cannot do if Bill C-55 is enacted is to publish Canadian advertisements in foreign publications directed at the Canadian market. Of the three categories of advertising options within the publishing industry, one category has been eliminated. That is the sense in which the choices of Canadian advertisers are affected by the prohibition on foreign publishers using Canadian advertising services.
Senator Lynch-Staunton: I would like to go to that part of the bill regarding investigations and the application of the legislation outside this country. As you know, clause 15(1) specifies that:
In a proceeding for a contravention of section 3, a foreign publisher who commits an act outside Canada that, if committed in Canada, would be an offence under that section is deemed to commit that act in Canada.
Clauses 4 and 5 allow the minister to cause an investigation to be made on the presumed contravention anywhere it may have taken place, which would mean outside Canada.
What are your views on the appropriateness of presenting this type of legislation and having Parliament accept the application of Canadian law to foreigners who may be in violation of Canadian law outside Canada?
Ms Cameron: On the appropriateness of those measures, I cannot say because I do not know whether they are legally appropriate. I do not have particular expertise on territorial jurisdiction in those issues. However, as to whether such measures are legally appropriate, there is a further question as to whether they are appropriate as a matter of sound public policy and political choice.
The measures you have pointed out emphasize the heavy-handed nature of Bill C-55 and the attempt, in my view -- and others might not share it -- it makes to deflect attention away from the violations of the Charter inside the country by pointing the ammunition at foreign publishers outside the country.
I do not know much about the genesis of this legislation. I often wonder, however, whether foreign publishers were targeted in as heavy-handed a manner as they were in order to avoid attention to the consequences for section 2(b) of the Charter on Canadian advertisers and the Canadian magazine-reading public.
Senator Lynch-Staunton: That may be the answer to my second question. Had the bill been worded in such a fashion that the Canadian advertiser would be prohibited from advertising in a periodical owned by a foreign publisher, then section 2(b) would apply. However, given the wording as it is now, the onus is on the one who sells the advertising services. Because he is not here, the appeal to the Charter may not be as strongly upheld.
I do not want to put words in your mouth, but does that summarize it?
Ms Cameron: Yes. Were the legislation to have been aimed directly at Canadian advertisers, it would be a far more explicit and egregious violation of the Charter. However, that does not change my opinion that it is a violation of the Charter both as to foreign publishers and as to Canadian advertisers. The effect of the legislation on Canadian advertisers is as though the prohibition were directly aimed at them. It might as well have been directly aimed at them. The effect is the same.
A violation of the Charter can occur by the effects of legislation just as much as by the insidious purpose or motive of the legislation. The effects on Canadian advertisers are just as serious as if the legislation had been directly aimed at them.
Senator Joyal: I have two questions. On the proportionality test that you describe in your brief, on which of the three elements do you feel that your dissension with Mr. Monahan is the strongest?
Mr. Cameron: I think the legislation is vulnerable under all three of the branches of the proportionality test, but I think it is most vulnerable under minimal impairment. The reason for that is that for the government to succeed on that point it would have to show that it was necessary to impair the right to the degree that Bill C-55 does in order to achieve its purpose, and it would have to show that there were no less intrusive alternatives available to it to achieve its purpose.
It is the hardest part of the section 1 test to satisfy, not just in this case but in all cases that come to section 1. That is why the court does play around with how strict its interpretation of minimal impairment is from case to case. I should say, in all fairness, that the court has been known to relax the requirement of minimal impairment and to give Parliament the benefit of the doubt. My reason for thinking that that might not occur here is that it is less likely for the court to do that in circumstances where the prohibition is complete or absolute, as I suggest it is here.
Senator Joyal: Is it not a fact that this is an anti-dumping measure, that the direct impact is to fight against the sale of advertising services in this country by American magazines in the Canadian market? Is that not what the bill does, besides anything on Canadian content, identity or culture? Is the strict impact of the bill not that? You yourself mention there is no word of culture or Canadian identity to be found anywhere in the bill.
Mr. Cameron: I know there has been some discussion in the newspapers and elsewhere on this dumping point. To be perfectly frank with you, I have not followed every single debate and discussion about the magazine publishing industry on either side of the border, so I cannot answer the question as to whether it is valid as a measure to prevent dumping. All I can say is that, in order for the government to succeed under section 1, it will have to come forward with a legitimate purpose under the first branch of the test, and it will have to show additionally that the measures adopted impair the right as little as possible in the circumstances.
If it were to be accepted as a valid anti-dumping measure, it would still have to satisfy the test of minimal impairment. I am just not familiar enough with that argument to say whether it would.
Senator Joyal: When you apply the test of rational connection the way you have defined the test, I feel that the courts have never studied or received legislation in isolation from its overall context. There is no doubt, as you know very well, that this legislation comes after the WTO struck down some provisions of previous bills on excise tax. It is the privilege of the government to use additional instruments to help the Canadian magazine industry. There are already existing, as you know, the tax break, the postal subsidies, and the ownership structure. The government is of the opinion that Canadian magazines face unfair competition from foreign magazines that sell advertising at discounted rates. I do not think, when the courts look into a bill, they totally blind their eyes to anything around it and simply look at the bill without understanding the rational connection. In other words, to establish the rational connection, you have to take into account the whole picture of the milieu where that measure will be applied and not strictly confine yourself to the wording of the bill. Is that not right?
Mr. Cameron: You are absolutely right. I do not in particular disagree with anything you have said. There is not much doubt in my mind that there would be, on my part and also on the part of any court that may hear a constitutional challenge to this legislation, awareness of and sympathy for the basic circumstances that brought the legislation forward. I do not think that would be withheld from the court. I do not think it would be uninfluential with the court. What I am saying is that it still does not change the fact that, however laudable the government's purposes, they still must be consistent with the Constitution.
The last thing I would say is that constitutional experts or professors or scholars disagree with each other all the time. Courts disagree. Members of the court disagree with each other. Everyone knows that. Professor Monahan and I are colleagues. We frequently agree on many issues and we frequently disagree. It is the same with members of the court.
It is difficult to predict what might happen were the legislation to be enacted as it stands today and a constitutional challenge were to be heard in a court of law. Much would depend on what evidence came forward in the court. I do not know what that evidence is today. The analysis under section 1 is very definitely evidence-based. It very much depends on the evidence, and it very much depends on the context. That makes it difficult to predict. I am simply trying to point out some of the ways in which Bill C-55 might be vulnerable, notwithstanding that evidence.
Senator Joyal: My perception, in thinking of the tobacco legislation which you mentioned in your brief, is that the tobacco companies, during all the parliamentary process through which the bill was submitted, made it clear that they would immediately take legal action to contest the constitutionality of the bill. You probably remember that very well. That is what they did. The next day, they were before the court.
Does it not surprise you that, on this bill, while the concerned industries talk about it, we have not heard that kind of firm commitment that, if that bill is adopted the way it stands, they will immediately contest it? In other words, the grey zone in the bill is much larger, deeper, bigger than it might have been in the tobacco bill and, as such, does not that allow us to have some kind of a presumption that the bill is legal?
Mr. Cameron: I do not know how much store I would put on that. I was astonished that the Supreme Court of Canada struck down the tobacco legislation. I think a good number of those in the legal profession were likewise astonished. The thought was that the circumstances surrounding tobacco promotion and so on were compelling enough to warrant regulation by Parliament, even if the regulation were not perfect under the proportionality test. Likewise here, it is very difficult to predict the outcome in advance because we do not know who, if anyone, will challenge the legislation or on what ground. We do not know what the evidence will be. All I know presently is what the law is that provides the foundation or the framework in which any challenge to Bill C-55 in the courts would be set.
Senator Kinsella: I would like to turn to the very interesting observation you make on page 2 of your notes, your preliminary observation that a notion currently being discussed in academic circles is a concept of the Charter as a process of dialogue between the courts and the legislatures. I find that quite intriguing and I am pleased it is occurring in academic circles.
We have had experience, in recent times, of the court reading into statutes as a form of a remedy. That troubles some of us.
The mention of the dialogue would seem to mean that some listening is required. Is the legislative branch listening to what the courts are saying?
Ms Cameron: That is, in part, the genesis of this theory about the Charter. There was an article published in Osgoode Hall Law Journal about two summers ago, co-written by Peter Hogg, who is our dean, and his research assistant, that looked at the Supreme Court of Canada decisions under the Charter and the responses of the legislatures.
Professor Hogg came to the conclusion that there was a dialogue taking place between the courts and the legislatures. Once the courts indicated what the constitutional guidelines were under the Charter, the legislatures tended to respond by tailoring their legislation more carefully to make it consistent with the Charter.
Senator Kinsella: Suppose that we as legislators are listening to what the courts are saying, in particular with reference to when a section 1 analysis ought to be on our agenda. Would you then agree with Professor Monahan who told us in response to a question I raised with him that, when we examine Bill C-55 line by line, the bill does not define clearly its objective?
In other words, if the objective is where we start, would you agree with Professor Monahan that the object is not clearly defined? If you do agree, can the bill be improved by injecting a purpose clause?
Ms Cameron: I want to dodge that question, but I will answer it anyway. It is interesting that this legislation does not have a preamble or a purpose clause. I hate to keep going back to the Tobacco Products Control Act, but, by my recollection, it had a fairly elaborate purpose clause. That clause enabled members of the court to pass the legislation through the first branch of the section 1 test fairly easily because the government had stated its purposes in enacting the legislation.
I am simply agreeing with the observation that there is no purpose clause here. What is the explanation for that? I am not sure. Would it improve the bill or its chances of withstanding constitutional scrutiny? I cannot answer that in the abstract or hypothetically.
To the extent that the legislation might be vulnerable under the proportionality test for not establishing a link between the measures that are adopted and the purpose of the legislation, a clause stating the purpose of the legislation might be helpful.
Senator Kinsella: As honourable senators know, since this is reported in the media these days, there is a fair amount of negotiation taking place between the Government of Canada and the United States government officials around this matter. If amendments are brought forward as a result of those discussions, should we focus on the minimal impairment test in a special way? Should we have an eye on whether the absolute ban could be made not absolute?
As another matter, I read Sports Illustrated fairly regularly. A Canadian manufacturer of hockey equipment, CCM, is located just east of Montreal. If this bill were to become law, could CCM advertise their Canadian products in Sports Illustrated?
Ms Cameron: To the extent that Sports Illustrated is sold in the United States, there would not be any problem of which I am aware.
As to an American publication of Sports Illustrated -- that is, not a split-run edition but an American edition carrying Canadian advertising -- I do not know. I would have to read the bill more closely to see whether that would be caught by the legislation. It would not be within the spirit of the legislation because that would not be a split-run edition. It would be the American publication of Sports Illustrated with Canadian advertisement.
I would not think it would be within the prohibition of the legislation, but I cannot say that with a great deal of certainty without going back and looking at the legislation.
Senator Lynch-Staunton: The bill talks about advertising services directed at Canadian market.
Ms Cameron: So there you go.
Senator Lynch-Staunton: They have to prove whether this ad is directed at the total market or specifically at the Canadian market.
The Chairman: Thank you, Ms Cameron, for your presentation and your answers.
Our next witness panel is ready. Please proceed.
Mr. Ron Lund, President and CEO, Association of Canadian Advertisers: Honourable senators, we found the task of preparing for our appearance here today to be incredibly difficult. We were trying to prepare to come before your committee while, at the same time, trying to understand what is happening because we are hearing about a lot of negotiations in the press. We found it strange to be presenting evidence to a piece of legislation that may change.
I wish to underscore that our comments today are with the bill as it is currently drafted and not with regard to what is being reported in the press.
It is an honour and privilege to appear before this committee today on behalf of Canadian advertisers and advertising agencies.
Bill C-55 is an issue that touches the lives of all Canadians. The witnesses appearing today represent three organizations, along with our legal counsel, that together represent the interests of the Canadian advertising industry.
We are the Association of Canadian Advertisers. I will now turn the microphone to Mr. Harrison.
Mr. David Harrison, President and CEO, Harrison Young Pesonen & Newell; Chairman, Institute of Canadian Advertising; and Director, Canadian Media Directors Council: Honourable senators, I am here today as chairman of the Institute of Canadian Advertising, which is the industry organization that represents advertising agencies. I am also a director of the Canadian Media Directors Council, so I am here representing them. I am also President of Harrison Young Pesonen & Newell, which is a media management company that was retained by Heritage Canada to do a significant study on the whole question of unfettered access to the magazine market in Canada.
Mr. Dennis Stoakes, Chair, Association of Canadian Advertisers: Honourable senators, historically I have been a passionate and still am a passionate supporter of Canadian periodicals. At their request, I appeared in a long-running advertising campaign promoting the benefits of Canadian magazines. As an organization, we continue to be a large print advertiser.
Unfortunately, today, I find myself at loggerheads with the media vehicle that I happen to love most.
Mr. Lund: I wanted to underscore the experience of Clifford Sosnow. Mr. Sosnow has had five years of experience with trade law under the auspices of the Department of Foreign Affairs and International Trade. He has been involved in five WTO disputes.
To date, he is the only lawyer from the private sector that has been retained by the Canadian government to represent a WTO dispute. He was recently invited to speak at an APEC conference on the WTO and WTO disputes. The qualifications he brings to this dialogue are important.
If we can proceed, I wish to make the point that the people at the table represent not insignificant stakeholders in this industry. Between Mr. Harrison's organization and my organization, we estimate that we represent some 85 per cent of all Canadian dollars spent. The size of the industries that we represent, again, are not insignificant insurance industries, et cetera.
To begin, we wish to underscore that we believe in the objective of the government to enhance Canadian culture and, through such efforts, to reinforce our unique Canadian identity. I wish to get that out of the way at the beginning. We do not believe Bill C-55 has anything to do with that.
We also want a strong and vibrant Canadian periodical industry because that is in our best interests. In this regard, the magazine industry and the Canadian government repeatedly tell us that Bill C-55 is all about advertising. Yet when the Canadian advertisers asked to participate in this process, the door was shut in our face. We repeatedly asked for representation, to have input before this bill was put before Parliament, and we were denied that access. We were also denied access in terms of making various alternatives known to the minister in this regard and we finally did so in writing.
It is our understanding that the government deems it to be necessary to intervene in the market on behalf of the Canadian magazine industry on the ground that the industry is a special public interest that merits extraordinary assistance. It is our view, however, that such additional support should neither be borne directly nor indirectly by Canadian advertisers. Legislation designed to intervene on behalf of the magazine industry should not target the advertiser whose investment drivers the magazine engine.
Further, legislation that is designed to achieve these goals should not expose Canadians to the risk of economic harm, including that of trade retaliation declared by the United States. It will affect Canadian industries and jobs of Canadians in those industries who have nothing at all to do with Bill C-55. Ineffective and harmful legislation is not made better by good intentions. Bill C-55 is harmful legislation.
We continue to hope that a negotiated solution will be met that addresses all stakeholders' concerns.
There are several and numerous myths surrounding Bill C-55. There is partial information that leads to wrong conclusions and, in the case of the Bill C-55, we think an inappropriate solution.
For instance, we have heard from the minister and magazine publishers how 80 per cent of newsstand sales are American. Closer examination of those facts revealed that, when you included subscriptions, this number was closer to 50-50. Moreover, by including the many Canadian-controlled circulation magazines into the equation, we determine that the balance between Canadian magazines and American magazines is more like 75 per cent Canadian and 25 per cent American. In reality, most magazines read in Canada are indeed Canadian, as a majority of Canadians do not choose to purchase their magazines at the newsstand. We suggest that real numbers be employed when devising major solutions to important problems.
Let us take a look at some of the myths that we believe are associated with Bill C-55.
Mr. Harrison: The first myth is that Bill C-55 is about ensuring that Canadian stories are told. The government's stated purpose in tabling Bill C-55 was summarized by the Minister of Canadian Heritage in a statement in the House of Commons on October 2, 1998. She said that the Parliament of Canada has an opportunity and a responsibility to provide some space on the world's cultural shelf for our stories to be written about and to be heard.
What strikes us when we look at this bill is not what it says but what it does not say. Bill C-55 makes no reference to Canadian culture, voices or content. Bill C-55 is utterly silent on this. Bill C-55 does not require or encourage magazines to write Canadian stories. Bill C-55 does not require or encourage magazines to employ Canadian writers or encourage or require the introduction of new Canadian magazines. Rather, Bill C-55 is about Canadian ownership as defined according to arbitrary criteria.
In fact, what we have discovered as we have gone through this long review process is that there is no requirement at all for Canadian magazine publishers to either write about Canadians or to employ Canadian writers. The only requirement is that the publisher meets the arbitrary definition of "Canadian" in Bill C-55.
Bill C-55 will not benefit Canadian culture. Bill C-55 does not deal with Canadian culture. Bill C-55 will mostly benefit existing owners of large publishing interests who meet the bill's narrow and arbitrary definition of Canadian. Bill C-55 will benefit them whether or not their magazines ever print a Canadian story.
The second myth is that Bill C-55 is all about preventing split-run magazines. The government defends Bill C-55 by suggesting that it is necessary to level the playing field so that Canadian periodicals can compete with so-called low-cost U.S. split-run periodicals. Bill C-55 does not speak about split runs. As with culture, the term "split run" does not appear at all in the bill. In fact, the phrase "split run" does not appear in any Canadian legislation. Nothing in the proposed legislation targets magazines with minimal editorial costs or minimal original editorial content. Rather, the bill divides the periodical world into foreign and Canadian magazines on the basis of arbitrary criteria.
For example, under Bill C-55, magazines with 100 per cent Canadian editorial content and 100 per cent Canadian ownership are foreign magazines if the publisher's chairperson happens not to be a Canadian.
As another example, under Bill C-55, magazines with 100 per cent original Canadian editorial content are foreign magazines if Canadians own only 75 per cent of the publishers voting shares. In fact, under Bill C-55 none of the following factors has any bearing on whether a magazine is Canadian or whether it can sell advertising space to the Canadian market. These are whether the magazine has any Canadian content or in any way contributes to Canadian culture or identity; the number of Canadian writers employed; and the presence of Canadian editors.
Under Bill C-55, the definition of "Canadian" bears little resemblance to what ordinary Canadians would consider Canadian. Bill C-55 determines the Canadianness of a magazine by examining factors entirely unrelated to the Canadianness of the stories it tells.
This legislation is not about so-called split-run magazines from the U.S. that have minimal editorial content; it is about drawing an ever-tightening circle around what kind of magazines are Canadian and about which magazines Canadian advertisers can use to sell Canadian products and services.
Myth number three: This bill will stimulate the growth of new Canadian magazines. In introducing Bill C-55 in the House of Commons, the minister said that the legislation will ensure the future flourishing of Canadian magazines. It will not. In fact, we are concerned with the slow expansion of magazine titles in Canada in spite of more than 30 years of protection that the Canadian government has provided to the Canadian periodical industry. More titles would mean that Canadian advertisers would have better access and coverage of their key target groups. This view is supported through the studies of Canadian Heritage.
Much reliance has been placed on the study predicting Canadian advertising reaction to foreign magazine incursion which my own company, HYPN, completed on behalf of Canadian Heritage to investigate the market effects of unfettered access by foreign magazines into Canada. While our study underscored the need for some protection for Canadian magazines, other important but less reported conclusions speak to advertisers' concerns regarding an inadequate supply of Canadian magazine titles.
I quote from the study as follows:
We conclude that the share of media dollars being allocated to the magazine medium in Canada, which is underdeveloped relative to other countries, is repressed by a number of factors. Some of these factors are systemic (government spending habits, product restrictions, retail focus), but the major reason for magazines' underdeveloped state is lack of advertiser available titles and little or no Canadian title coverage for many editorial segments. The advertising community will avoid recommending the magazine medium if lack of advertiser available titles prevents proper execution of their plans.
For instance, the lack of titles in English Canada for all but general and women's publications negates the opportunity for reach of target groups and competition for those dollars.
Today, advertisers are seeking ever more narrowly defined target audiences for products and services. Bill C-55 will not deliver against this need. Essentially, the bill simply protects the status quo. It protects publishers, not only from foreign interests, but also from potential Canadian competition. In this way, it does not ensure the future flourishing of Canadian magazines. Bill C-55 effectively shuts the door to many new and creative ways to improve the range of magazines available for advertising access.
Mr. Stoakes: Myth number four: Bill C-55 will direct Canadian advertising revenues to Canadian magazines. In introducing Bill C-55 into the House of Commons, the minister said that it will ensure that Canadian advertising dollars will go to Canadian magazines. It will do nothing of the sort. It is important to understand that Bill C-55 is built on the flawed premise that if Canadian advertisers can no longer advertise in foreign magazines, they will instead advertise in "Bill C-55-approved" magazines. Our business world simply does not work that way.
Canadian advertisers are business people who select the advertising vehicle that most effectively markets our products and services. Under Bill C-55, for example, Canadian Tire will not be able to insert a hardware advertisement in Popular Mechanics. Faced with this wall, it clearly will not insert the same advertisement in Toronto Life Fashion, no matter how low the price.
Bill C-55 will continue to make periodicals a less attractive advertising vehicle. Over the last 30 years, Parliament has drawn an ever-tightening circle around the kinds of magazines that are available to Canadian advertisers. As a result, over the same past 30 years, advertising in magazines as a proportion of total advertising expenditures has dropped from 11 per cent to 6 per cent. Bill C-55 limits advertisers' choice more than any previous regime. Accordingly, the most dramatic impact of this bill could be to redirect advertising revenues away from periodicals entirely and into other media like specialty television channels. In doing so, we submit that Bill C-55 will in fact harm the Canadian periodical industry.
Myth number five: Bill C-55 will not hurt Canadian advertisers. What a curious situation we have here today. Publishers state that advertising revenue is in fact their lifeblood, yet these same magazine publishers have been meeting over the past two years, without any input from us, and have successfully lobbied our government to restrict the rights of us, their very own customers.
To provide a simile, if we were talking about television today, it is as if we could only advertise on Newsworld and Traders, but were not allowed to advertise on 60 Minutes or Ally McBeal.
To effectively reach consumers, Canadian advertisers require access to the greatest range of magazines that can best deliver our messages in the most efficient manner possible. Canadian advertisers do have the right to reach their target audiences. We understand from our investigations that we clearly have this right. In fact, Professor Patrick Monahan of Osgoode Hall Law School also confirmed this with this same committee. In his Senate testimony of April 27, he said:
In my view, it is likely that Bill C-55 does infringe the guarantee of freedom of expression...because clause 3 of the bill prohibits Canadian advertisers from purchasing advertising from a foreign publisher of a periodical... In my view, that constitutes a limit on freedom of expression because our courts have held that commercial speech, including advertising, is a protected right. Therefore, this limit would be an infringement of that right of advertisers to communicate with consumers.
Advertisers want to advertise in the magazines of our choice, regardless of from where they originate. However, neither our publishers nor our very own government appears to want us to enjoy that right.
It is a fact of business life today that many Canadian companies have chosen to target only the Canadian market to sell their products and services. Some organizations that readily come to mind include The Bay, Eatons, Zellers, and so on. It is also a fact of business life in Canada that Canadian businesses compete with the very best of the large multinational corporations.
We believe that laws that hinder the ability of Canadians to sell their products and services in Canada will hurt Canadian businesses and the literally hundreds of thousands of people they employ. We contend that Bill C-55, if enacted, will indeed have this harmful effect.
Bill C-55 in fact disadvantages purely Canadian companies. As an example, companies such Eatons, The Bay, Canadian Tire, Zellers, and so on, will be prohibited from advertising in magazines such as Sports Illustrated and Vanity Fair. However, their multinational competitors such as Walmart will reap the benefit of their foreign magazine spillover as well as being able to reach the consumer through the use of Canadian publications. Clearly, they have an advantage over purely Canadian companies.
Additionally, Canadian readers of these magazines would be forbidden by Bill C-55 from seeing the products and services sold by purely Canadian companies. Bill C-55 then gives large foreign companies with international presence an additional advantage over distinctively Canadian businesses.
While those in favour of Bill C-55 would trample on advertisers' fundamental rights within the magazine media, you can be certain that advertisers will continue to exercise our full rights and our full freedoms as we, and only we, will determine where and how we allocate our media funds.
Mr. Clifford Sosnow, Lang Michener, Association of Canadian Advertisers: Honourable senators, I will be talking about the trade implications of the bill.
I wish to preface my remarks by saying that we are not here to discuss whether or not trade law as it currently stands is appropriate for cultural goods. There have been reports and a variety of committees examining the issue in the WTO. Nor are any of us indicating that we are against the idea of promoting Canadian culture. Frankly, that is an important issue and a laudable goal.
The question is: What is the law that currently exists right now? Furthermore, as Canadians and as law-abiding world citizens, are we acting in compliance with that law? In our view, you do not have to get into the fancy niceties of the law to realize, even from a common sense perspective, that we are violating that law. I will now discuss that from three aspects.
The Chairman: Mr. Sosnow, I am sorry to interrupt you, as I do not want to be impolite, but the panel was advised that there would be about 15 minutes for presentations and then a period of questions and answers. Since we do want to have time for questions and because our next witnesses will be heard around 12:30 p.m., I wish to point out that the time is getting short.
Mr. Sosnow: I can be very quick, and I assure you that you are not being impolite at all.
The first point is that, although there is talk of the bill being about advertising services, the simple fact of the matter is that it is all about magazines; it is about the protection of Canadian magazines and about keeping split-run magazines out of the Canadian market.
Politicians talk about it in terms of protecting magazines. The media talks about it in terms of protecting magazines. Why is that important? Because there is a thing called the GATT. That has been put into this new World Trade Organization agreement. It has one simple rule, and Canada is bound by that rule, that says that, when it comes to goods like magazines that contain advertisements, "Thou shall not discriminate."
Frankly, the bill discriminates. The whole point about it is to keep out split-run magazines. It is the common sense perspective, so when you hear that it is all about advertising services and has nothing to do with magazines or with goods, frankly, it has everything to do with magazines. It has everything to do with goods and it has everything to do with the non-discrimination rules, and Canada violates those non-discrimination rules.
The next point is also a common sense way of looking at the issue. We have this old split-run legislation that was a tax on foreign publishers of split-run magazines who went to Canadian advertisers and tried to sell Canadian advertising space. They were slapped with an 80 per cent tax. Canadian government lawyers came to the Senate and went before the House of Commons and said, "Do not worry, it is okay. It is all about advertising services." The WTO said, "Yes, it is about advertising services, but it is also about magazines. You are putting foreign magazines at a disadvantage and you are violating the non-discrimination rules." You now have a new law and that new law, compared to the old law, is in our view more punitive and restrictive because, whereas before you could go to advertisers on pain of paying an 80 per cent tax, now it is actually illegal. It is an indictable offence.
From a common sense perspective, does anyone think that a more punitive restrictive law than the one that was struck down will, all of a sudden, meet WTO approval?
My last point deals with the issue of retaliation and raises the question of whether or not it falls within the cultural industry exemption. That exemption means that under the NAFTA, if you fit into certain industries, you are no longer in the NAFTA but are in the old Canada-U.S. Free Trade Agreement, which, by the way, has incorporated the goods rules of the GATT. To fall into the cultural industry exemption, you must be under one of the following industries: Books, magazines, films, music, radio, television, cable, satellite broadcasting. "Magazines" is the logical place to put this bill, if it is to fit into the cultural industry exemption.
"Magazines," as I said before, deals with goods and goods laws. We are into the old free trade agreement under the cultural industry exemption and into the GATT law that says, "When you are dealing with goods, thou shall not discriminate." As we have said before, you are dealing with a discriminatory bill, when it comes to magazines.
What is the significance of that? Under the old free trade agreement, the United States could retaliate against Canada, if Canada violated any of the rules in the free trade agreement, including the GATT rules that are brought into the free trade agreement. Because this bill violates those goods rules the, United States threatened to retaliate.
Frankly, the magazine publishers have been somewhat contradictory on the point as to whether or not the bill falls within the culture industry exemption. They have come before you and said that this bill falls within the cultural industry exemption. That was the submission of the Canadian business press. However, two months earlier they said to you, "No, no, no. This bill is all about advertising services and it does not fall within the cultural industry exemption." Which one is it? If it is all about advertising services, then it does not fall within cultural industry exemption. If it does fall within the cultural industry exemption, as the business press and the Canadian magazine people will tell you, then it deals with goods and it violates those goods rules.
Mr. Lund: We will have about a one-minute wrap-up and then we can go to questions, Madam Chair.
I will skip to the second last page, which asks what we, as advertisers, want. Frankly, an issue as important and as complex as Canadian culture deserves a considered response that results from the participation of all stakeholders. There are ways to protect Canadian culture without restricting the choice of us advertisers. We are just asking the government to slow down.
Bill C-55 represents a panic response, when there is really no need to panic. There are not magazines knocking down the borders right now. We encourage you to ask Minister Copps and the publishing industries, and all those who support Bill C-55 why the existing measures -- that is, section 19 of the Income Tax Act, the revised postal subsidies and the long arm of Investment Canada -- do not in total offer the protection necessary to encourage a Canadian and thriving magazine industry?
Ask them why our rights as advertisers are limited in such an unreasonable way in order to protect their economic interests; why such important stakeholders of ourselves have been excluded from this discussion from day one; and, most important, ask them why we cannot develop a made-in-Canada solution that will be acceptable to all stakeholders and fulfil our international obligations at the same time. We believe we can accomplish this.
We would also be delighted to work with the government and with the magazine industry in creating a win-win result, and developing a solution that promotes Canadian culture, the Canadian periodical industry, maximizes choice for Canadian advertisers and complies with our international trade obligations. We cannot do so while this sword of Damocles, Bill C-55, hangs so precariously over our heads.
Finally, honourable senators, we respectfully request that you conclude, on balance, that Bill C-55 will create more harm than good, and we ask that you recommend to the minister that she consider means other than Bill C-55 to promote the Canadian periodical industry.
Madam Chair, we are sorry for taking so much time, but we had a lot of concerns to give voice to.
The Chairman: Thank you. We will have about thirty minutes for questions
Senator Adams: Will the brief be considered as evidence, Madam Chair?
The Chairman: It will be filed as an exhibit.
Senator Perrault: Madam Chair, this is a strong and interesting brief. The panel has produced a good deal of material that should be considered by members of the committee.
I wonder if we are facing a total revolution in multimedia, in communications and all the rest. Do you not think the shape of the future will be the Internet? Maclean's magazine can now be downloaded entirely every week. Time, Newsweek and Sports Illustrated are all there in their entirety.Does that not profoundly change the position that you have with respect to your advertisers? Is it really a serious concern in view of the revolution which is about to take place? The global village of Marshall McLuhan has now become a reality.
Mr. Harrison: Senator, you are absolutely correct. We are living with this revolution. One extremely important point to make is that the potential beneficiaries of this revolution, the Internet vehicles of which you talk, are not subject to any restrictions whatsoever.
Senator Perrault: That is right, and that is an important point.
Mr. Harrison: So here we are trying to help the Canadian Magazine Industry by loading on yet more punitive measures. To us it seems to be going in the wrong direction.
Senator Perrault: It is impossible to establish any kind of world controls -- or it is nearly impossible. Some people have been discussing how this may be done, but it will be a wide-open market, will it not?
Mr. Harrison: I believe that is the case. No one seriously believes that you can control the Internet successfully. We do have a record in this country of being able to control and maintain our cultural industries. When we look to broadcasting, we have to congratulate ourselves on how we have managed to maintain a strong and significant broadcasting industry, by having the kinds of measures we have in place, program substitution being the most dominant, allowing us to compete with the Americans and to use their programming to our advantage. We wonder why, as we look at the situation of Canadian magazines, we are not considering at a model that looks a little more like that.
Mr. Lund: As one of my colleagues just reminded me, that is one of the reasons we are very concerned, because this type of legislation sends us away from magazines not towards them. Bill C-55 is not a piece of legislation whose time has come; it is a piece of legislation whose time has passed. We are dealing with constrictions and frameworks that are 30 years old. We now have to look to the future.
Senator Perrault: That is a concern that I share with you. This legislation seems to be obsessed with the past rather than the future. As far as the makers of CCM skates are concerned, for example, all they have to do is establish a CCM site on the Internet and they can sell all the goods they want to sell, without any reference to any government department or anything else.
Mr. Harrison: If CCM can demonstrate that they are selling their goods to Americans, they can be in American magazines.
Senator Lynch-Staunton: Will you challenge this bill if it goes through? Will you do so on constitutional grounds?
Mr. Lund: Our legal counsel wrote me a note -- knowing how volatile I can be -- indicating that that is a hypothetical question, but my chair over here says, "Absolutely!"
Senator Lynch-Staunton: I want to quantify some of the things you have said. I have not seen any figures, but perhaps we can get them through questioning. When Sports Illustrated was able to have a split-run edition, by doing it through electronic means, how many advertising dollars were shifted from the Canadian Magazine Industry to Sports Illustrated? Do you have any idea?
Mr. Lund: No, we do not.
Senator Lynch-Staunton: There is a theory out there that says that split-run magazines draw Canadian advertising dollars away from the Canadian periodical industry to them. What are we talking about?
Mr. Lund: Actually, part of the HYPN study indicates that more than likely the total advertising pot would stay the same. However, if there were more magazines to target the consumers, then the dollars would be shifted from other media into the magazine medium. As a model, it forecast an increase of upwards of 60 per cent in the Canadian magazine publishing industry. It also did say that a lot of that could go to the split-runs, if we did not have competing magazines, and it indicated as well that the Canadian magazine publishing industry is actually severely underdeveloped.
Mr. Stoakes: Could I add to that? Sports Illustrated delivered a male audience to advertisers that was previously very difficult to get at. There is not a comparable Canadian product. In our particular instance, we did not divert dollars from existing mediums into Sports Illustrated. We added to our advertising budgets, because we were reaching an audience that heretofore we had not been able to reach. I would submit that in the case of Sports Illustrated, which you cited, it will add to the overall magazine revenue base because of the CCMs or the Canadian Tires of this world, who will not advertise in Toronto Life or Toronto Life Fashion, but will advertise in issues of Sports Illustrated because of the audience it delivers.
Senator Lynch-Staunton: If a Newsweek magazine came in, rivalling Time Canada, Maclean's and other general interest magazines, where would they be getting their Canadian advertising from? Would that be new dollars or dollars shifting from existing?
Mr. Harrison: That is a category we feel is well served in Canada, so I guess they would be competing rather more with the existing magazines. In fact, Newsweek did come into Canada and left again.
Senator Lynch-Staunton: That field, then, is generally covered. What field is not covered, which would encourage split-run editions in Canada?
Mr. Harrison: Certainly, the area of men's magazines has been highlighted as one.
Senator Lynch-Staunton: You mean sports magazines and the Playboy type of magazine?
Mr. Stoakes: Popular Mechanics, Sports Illustrated, Field and Stream. Those sorts of magazines that talk to the activities that Canadians from coast to coast enjoy: fishing, hunting, sports.
Senator Lynch-Staunton: I am trying to get an idea of what we are talking about. What is the magnitude of the problem of split-runs and advertising dollars? What is the fear here, if there is one? Perhaps I should ask the Canadian magazine people that question. They are having enough time to think them over before coming to the table.
Mr. Stoakes: One of the answers you might get from them, senator, would relate to the concept of dumping. The reality is that in the past, when we have had split-runs such as Sports Illustrated or grandfather products such as Time, their cost per thousand has been much higher than Canadian products. For that reason, in our opinion, the concept of dumping is misleading.
Senator Lynch-Staunton: I think Time magazine made that point as well.
Mr. Lund: We can only deal with reality, and the reality is that the only magazine that is a split-run edition right now is Time, and it co-exists nicely with Maclean's in terms of reaching those audiences. If Time did go away, IBM, General Motors and other companies that advertise in both magazines would not put twice as many ads in Maclean's. In categories where there are no vehicles reaching the consumer, they will become additive; but that is hypothetical.
Senator Lynch-Staunton: Who are the biggest Canadian advertisers for magazines? If you cannot name them, what industries would the be? Would it be the automobile industry mainly, or the liquor industry or the government?
Mr. Harrison: Well, the government could do more for the Canadian Magazine industry.
Senator Lynch-Staunton: Then who are the major advertisers in Canadian periodicals?
Mr. Harrison: Automotive companies, liquor companies, high-tech.
Senator Lynch-Staunton: Are they mainly foreign-owned.
Mr. Harrison: The majority of all advertising is by foreign-owned companies, no matter what medium.
Senator Rompkey: I want to tell our witnesses of the testimony of two other witnesses and get their reaction to it. Some of the issues are those that Senator Lynch-Staunton just raised.
The first item is with regard to the choice of vehicle. The issue is that this is not the right vehicle to do what the government wants to do or to do what publishers or what writers want. We heard from Gordon Ritchie, who was Simon Reisman's deputy in the negotiations with the U.S. He paraphrased Winston Churchill on democracy by saying that this may not be perfect legislation, it may even be odious legislation, but he does not know of any other means to accomplish the objective.
That is the first item I would like you to comment on. This may not be a perfect vehicle, but no one has come up with a better vehicle to do what we want to do.
The second point is that we heard from a coalition of artists, writers and creators from across the country, including photographers and so on, headed by June Callwood, an eminent Canadian who supports the legislation because it protects the magazine industry. They held the belief that, if the magazine industry were not there and the Canadian advertising dollars were able to go to dumped American magazines, we would not have Canadian magazines. There would not be a forum for those Canadian writers and artists who want to express their point of view, which they believe is a great deal of the content of Canadian culture.
I would like your reaction to both testimonies -- first, the testimony of Gordon Ritchie that there is no better solution than the one before us, and, second, the testimony of June Callwood that writers and artists and creators in Canada need that vehicle and that ,if the advertising dollars are not there, the vehicle would not be there and their forum would cease.
Mr. Lund: I will try to address those questions quickly. First, I will comment on Mr. Ritchie's position that this is the only way to do it. We have had one problem with this going back to June, when we first met with Canadian Heritage. We are trying to understand what the objective in fact is. If people tell us that the objective is to protect Canadian culture, I will link them under the second point. If that is the objective, we have clearly demonstrated, as have others, that this bill has absolutely nothing to do with Canadian culture. That is clear from the reading of it.
If the goal of protecting Canadian culture is what we are trying to do here, then let us look for the solutions that do that. We have seen in other industries -- film, television, the CBC, the book industry -- that when we provided direct subsidies to those people it enhanced quite well the Canadian culture.
We are saying, and we have suggested to the industry, that they should consider subsidies as well. Of course, they say no, because they are a business interest and if anyone were to see subsidies on their balance sheet the investments might be withdrawn. If it is Canadian culture, then we say it is dumping. If it is dumping, we all know that there are laws that deal with dumping. If there are not laws that deal with it, then let us look for a framework for pricing when we are negotiating or discussing with the U.S. We can seek to agree with them that they will not significantly undercut us and therefore we will go away.
This is a big premise that suddenly we will have low rates and we will run to some other publication. First, in real practice, which is Time versus Maclean's, it does not happen. Second, if the hypothesis is that the cheapest magazine will get all the advertising, then there are again real world things to look at. There are magazines, and I can provide you with the evidence, that could cost two and three times as much to get to an audience, but we still put our advertising in them because they in fact reach the target. The cheapest vehicle to advertise in would be matchbooks, because you can get a lot of those matchbooks out there.
We have to understand what the objective is and then deal with it. In terms of the cultural side, let us look at ways of promoting it. There are other vehicles to promote culture. Let us not do it on the backs of the advertiser. If it is a public good, a public interest, let us deal with it with public money, not our money and not at our inconvenience.
Mr. Harrison: If I may, senator, I will respond particularly to point one, Mr. Ritchie's testimony. With respect to our position, "What do we want?" we want to find out why we even need this legislation. If there were never to be a Bill C-55 or any replacement legislation, we would still be operating in an environment where there is the Income Tax Act, which restricts what we could deduct as a business expense for advertising on the basis of Canadian ownership; there would still be the revised postal subsidies, which the magazine publishers would be able to enjoy, and there would still be Investment Canada, which would look to see what the benefits would be if any new enterprise were to come into this country and seek to do business here. To us, perhaps it is not even necessary to have a Bill C-55.
Senator Callbeck: I want to ask about the cost of advertising. If we did not have Bill C-55, if split-run magazines were to come into Canada, how would that affect advertising costs in Canada?
Mr. Harrison: Actually, we do not know. That is the fairest answer of all. I would refer again to the question of what is deductible as a business expense under the Income Tax Act. There is a definition under section 19 of the act that requires that a magazine have a certain level of Canadian ownership in order for us to buy space in it and be able to deduct it on a full basis. Even if there were a free market of magazines coming across here, the foreign publishers would still have to deal with the non-deductibility issue.
Mr. Stoakes:To add to that, when advertisers look at any given magazine, it is never the cheapest magazine that they buy space in. You look for the audience that that magazine delivers. Companies will pay from $7.00 to $9.00 per thousand in mass circulation magazines if they happen to have a mass circulation product. We will also pay $40.00 to $80,00 per thousand for a niche or targeted magazine that will deliver the audience that is appropriate for the product, and both of those magazine types are alive and prospering very well in Canada today.
Senator Callbeck: Mr. Stokes, in your earlier remarks you mentioned Sports Illustrated Canada. I heard you say that the costs were lower. Did you mean production costs or the advertising costs or what?
Mr. Stoakes: When I was referencing Senator Lynch-Staunton's comment on Sports Illustrated, I believe I mentioned that our advertising budget increased because we suddenly had access to audiences that existing Canadian magazines did not deliver efficiently or effectively -- and in fact still do not deliver efficiently and effectively. Our actual budget increased.
I made the observation that, as an individual company, we are not alone in this regard; several other manufacturers of products that were directed at primarily male consumers took advantage of Sports Illustrated, when in fact they would not have been advertising in existing Canadian magazines like Maclean's, Homemakers or Canadian Living, for example, because they would not deliver the appropriate audience.
Senator Callbeck: So you did not refer to the cost of the ad as being --?
Mr. Stoakes: I did not, but I can tell you that the cost of the ad to us was comparable on a cost-per-thousand basis to other vehicles that we had available and that we buy. We buy a lot of different magazines, depending on the target audience. We also try to reach the male consumers in different ways because the magazine environment in Canada today does not effectively deliver that audience for us.
Senator Callbeck: You say that the advertising cost is comparable, but the documentation that I have before me says that in 1993, in the first issue of Sports Illustrated Canada, the advertising rates were $6,250 for a full-page colour ad compared to $25,400 for the same advertising in Maclean's.
Mr. Harrison: You would have to compare that to the circulation of those two magazines; then you would have to build in the non-deductibility factor from the tax issue.
Senator Callbeck: If we do not have Bill C-55, how will that affect Canadian publishers?
Mr. Harrison: It is up to Canadian publishers to say how it will affect them. In our view, it will do nothing to encourage the addition of advertising funds to the magazine. In fact, we think it will detract from that.
Senator Callbeck: Mr. Harrison, you did a study for Heritage Canada. I understand that one of the conclusions was that, if U.S. publishers could access the Canadian advertising services market, a significant portion of the Canadian advertising pie would go to those publishers and many Canadian publishers would fail.
Mr. Harrison: We had many conclusions. Part of that conclusion was on an unfettered basis. We have never advocated having an unfettered market. The discussion there revolved round there being no restrictions, but we do have some restrictions.
Beyond that, we think that the whole magazine pie would grow, because there would be an expansion of the number of titles and the number of target groups that were available through magazine advertising.
Senator Callbeck: This conclusion was based, then, on no restrictions?
Mr. Harrison: That is correct.
Senator Tkachuk: I will preface my remarks by saying that I think that the way to destroy culture is to protect culture. I have a lot of problems with Bill C-55 and many suspicions, because of the politics that I see incorporated into the bill.
I want to go over a couple of the same questions I went over with other witnesses regarding the purchasing of advertising and subscriptions. I was told that subscriptions do not have much to do with how advertisers decide how they will advertise. Rather, they have more to do with readership. I was not quite sure what that witness meant by that. Could you explain that to me and maybe comment on that?
Mr. Stoakes: About 15 or 20 years ago, the currency, if I can use that term, for an advertiser to select a given magazine was circulation. In other words, how many copies of that magazine did they have in circulation? Over the past 25 years, there has been another vehicle put in place, which is a tripartite organization called the print measurement bureau. It relates to magazines and it includes publishers, advertising agencies and advertisers.
Most magazines of any consequence subscribe to and are members of the print measurement bureau, which measures readership. It tells the advertiser in the advertising agencies not whether the magazine got there, but what happened to the magazine either when a consumer picked it up or it was delivered to the door. Did the advertisement have an opportunity to be seen? In short, did the subscriber or the reader pick it up and open it? That is called readership. In other words, they had an opportunity to see our ads.
Senator Tkachuk: Do you have a camera in their house?
Mr. Stoakes: No, but we have several thousand patient Canadians who go through all of these lists. The reality is that the currency over the years has changed. So that the advertiser today does not really care how it got there. The advertiser cares if his ad had an opportunity to be seen. The only measurement we have at that point in time is: Was the magazine read? Consequently, readership is the currency to buy. In any media buying plan, when going after consumers you will measure what the PMB delivers against the specific target audience that you are seeking in readership terms.
Senator Tkachuk: When the minister was before us earlier, she said that 80 per cent of the newsstands had foreign publications. However, in further questioning of those same witnesses after the minister came, there was discussion about the other magazines that are out in the industry. In other words, those that did not reflect readership. Readership was reflected by the amount of circulation and free magazines such as Western Living, for which there is no subscription. What is the number?
Mr. Harrison: In the brief we gave you this morning, we make some reference to that. If you start at 80 per cent foreign sales from newsstands, you quickly move to 50-50 when you add in subscriptions. When you add in the estimate of all the controlled circulation magazines, you might well conclude that 75 per cent of circulation in Canada is Canadian and 25 per cent is foreign.
Mr. Stoakes: As an adjunct to that, it is important to understand that, historically, Canadian publishers have focused on circulation-building schemes as opposed to fighting at the newsstand. Basically, they ceded newsstand sales to American publications and focused on trying to get their product into the hands of the Canadian consumer. As a result, we have the advent and emergence of free-circulation or controlled-circulation magazines that do not cost Canadians anything. They are totally funded by advertising dollars.
Senator Tkachuk: In response to a question by Senator Lynch-Staunton, you stated that speciality magazines such as Field and Stream and Sports Illustrated would, perhaps, be the ones that would take advantage of this open market. Would Sports Illustrated be more of a threat -- and, I always think there is a lot of synergy in these things -- to taking revenue away from the established magazines like Maclean's or would it be more competition to TSN?
Mr. Harrison: As Mr. Stoakes referenced before, when he, as an advertiser, had the opportunity to consider Sports Illustrated, he increased his advertising budget to take advantage of it. He did not take away money from anywhere. We think it is quite clear that, unless there are more titles dealing with more target groups, money will continue to diminish for the magazine industry and will go somewhere else. Where it has gone in the last few years is to speciality television channels. For magazines to thrive, they must get some of that money back. The pie does not get bigger in total; it is how the pie is cut up.
Senator Tkachuk: There has been a huge growth in television and cable as a result of all these speciality channels, such as those on fishing and on sports. It is unbelievable. My opinion is that they are not that good, but, nonetheless, they are out there. Did we get a lot of the magazine industry lobbying to say that this would destroy the magazine industry because it was direct competition?
Mr. Harrison: I have no idea whether the magazine industry lobbies against other media forms. You would have to ask them that. They will be here in a couple of minutes.
Senator Tkachuk: I will ask them. I have another question. Does Rogers Cable now own Maclean's and all of their magazines and also all of the cable industry magazines?
Mr. Sosnow: Absolutely. They do. Quite honestly, however, we know that Rogers does not mind too much if magazines do go down, because maybe the audience will go to the specialty channels on Rogers. That does not work for everyone, though, so we are really concerned about the magazine industry and its currency in today's world.
The Rogers type of situation, in terms of duopolies or almost monopolies in cable, is fundamentally where much of the advertising money goes. Approximately 50 per cent of the advertising dollars go between two companies, Rogers and Telemedia. The study that Mr. Harrison referenced said that the small publications that are highly targeted to their audiences will not be affected by split-runs. They are highly focused.
Last week, in Marketing Magazine, one of the Maclean Hunter magazines, there was a letter to the editor from a western publisher, I believe out of Alberta, who said that, after deliberating about Bill C-55 quite extensively, she had concluded that she was against Bill C-55. When she looked at the argument of pricing, she said that that was something she was quite familiar as a publisher of a regional edition, because, when the national magazines came in, they were much cheaper than her edition was, but she managed to hold her own by delivering the readers, by having stories that her readers wanted to read.
I don't think I even answered your question because we just segued around, but the long and short of it is that, yes, these guys are Rogers.
Senator Tkachuk: So it is possible that this whole bill may not be about saving the magazine industry, but rather about ensuring that the money is flowing to one big pot, which is the Maclean Hunter pot, and whether it goes to TV or goes to all their other holdings, they do not really care?
Mr. Lund: You could twist my arm to agree with you.
Senator Joyal: I have two quick questions. I would like to refer to paragraph 16 of your brief. Is the definition of "Canadian" given in that paragraph your definition of what would be Canadian content, if there would be any need to revisit the legislation in terms of Canadian content?
Mr. Lund: It seemed to us to be logical that you would want to talk about those particular areas in any definition of what is Canadian.
Senator Joyal: That in your view is the main point? There is no other one you would like to draw to our attention?
Mr. Harrison: We could provide a more detailed answer to that. I would like to consider that. We were simply referencing the fact that there is no definition, beyond ownership, of what "Canadian" means. It has rather astonished us, as we, like others, have become more aware of this world.
The Chairman: You can table that with our clerk, Mr. Harrison.
Senator Joyal: My second question is an appeal to your knowledge of the advertising market. Would it not be possible to get from you a comparative list of prices of the 10 top American magazines versus the 10 top Canadian magazines in terms of advertising costs, taking into account the circulation and the tax deductibility you mentioned in your previous answers?
Mr. Harrison: I do not believe so, because there is no rate card in Canada for American publications.
Senator Joyal: I mean the American publications that are sold in Canada. You would know their rates. If you sell advertising in Time magazine, in Sports Illustrated, or any of those, you must know the rates.
Mr. Harrison: They are prohibited from selling advertising in Canada, so the only one that we would have knowledge of would be the short life of Sports Illustrated. Time is grandfathered.
We could have a look at that to see if we could answer that. I cannot guarantee that we will get an answer.
Senator Joyal: You can only do your best. If it were possible to get that in the forthcoming days, I would appreciate it.
Mr. Lund: Senator, I believe that would be appropriate, but, just so you know, we would probably need to take the U.S. advertising rate and boost that up into Canadian dollars, because now you will be selling at Canadian dollars so that will really increase the rate of that ad, and it will probably be pretty expensive. That is really the argument in terms of this whole notion of dumping; if the advertiser paying for that ad in the United States became a split-run and Canadian ads went in, those Canadian editions, those split-runs, would not only need to get advertising dollars, but would need to repatriate those advertising dollars back into U.S. dollars. That is why there is really not this juggernaut of 50 or 60 magazines waiting at the border to come across.
Mr. Stoakes: Madam Chair, just to recapitulate, it is very simple. We are not here and we are not working to destroy the Canadian publishing industry. A healthy growing, fruitful Canadian publishing industry, quite frankly, is very much in our best interests. We want to work with government and Canadian publishers to find ways around this issue. We support Canadian magazines. We simply do not wish to continue to support their bottom lines at our expense.
The Chairman: I should now like to call our next panel to the table.
[Translation]
We have with us today representatives from the Canadian Magazine Publisher's Association chaired by Mr. François de Gaspé Beaubien.
[English]
Mr. François de Gaspé Beaubien, Chair, Political Affairs Committee, Canadian Magazine Publishers Association: Honourable senators, following my presentation, Mr. Bernier and Mr. Tunley will speak briefly to the trade and Charter issues respectively, and then the panel will be pleased to respond to your questions.
[Translation]
The CMPA is a national organization that represents small, medium and large Canadian publishers. The membership of the CMPA has unanimously endorsed Bill C-55 as vitally important legislation. I am aware of the testimony you heard from Mr. Terry Malden on behalf of the Canadian Business Press. There is no need for me to repeat the detailed analysis he provided on the economy of magazine publishing and the unfair cost advantages U.S. publishers would have in our advertising market. Instead, I would like to make a final effort to put this whole issue into perspective by reviewing what we believe to be the key points of fact and principle.
[English]
Before turning to these points, I should like to make some general remarks in response to the testimony you have heard over the last two weeks and reports that a deal is about to be made with the Americans. First, Time Canada and some other witnesses have attempted to minimize the gravity of the issue, suggesting that the risks addressed by the bill are not real and that no action beyond, perhaps, some subsidies is necessary. Such assertions fly in the face of past experience and current U.S. behaviour.
We must not lose sight of the history of this file. Successive Canadian governments, and the royal commissions, task forces and independent economic analysts who have advised them consistently, came to the conclusion that the threat of unfair competition from U.S. publishers in our advertising market posed a real and serious risk to the future of magazine publishing in our country.
Have Canadian governments been wrong over this issue for the past 30 years? Are we now to suddenly believe Time Warner, who tries to tell us that U.S. publishers are not really interested in our advertising market and that no one would come in?
[Translation]
If this is true, why has the U.S. government, prodded on by Time Warner itself, been so intent on dismantling Bill C-55? If there is so little interest in the advertising services market, and if huge U.S. multinationals like Time Warner have difficulty competing there, as Time Canada would have you believe, why is the U.S. government threatening to start a trade war by retaliating, illegally I might add, against billions of dollars worth of Canadian exports?
[English]
Canadian publishers urge you not to be misled by the false claims of those who oppose Bill C-55. Make no mistake about it, Canada has not been wrong on this issue for over three decades. If Bill C-55 is not passed, the future viability of magazine publishing in this country and the availability of meaningful Canadian content in the magazine sector are seriously at risk.
Let us also be clear that opposition to Bill C-55 by the U.S. and their agents in Canada is not only about magazines. It is part of a broader attack against all of our cultural policies that help us maintain a distinct and independent identity in the world of increasing globalization and economic integration with the United States.
We must say "No" to this U.S. campaign against our cultural policies in the interests of all Canadians. This leads me to a final general comment on recent indications that a deal is about to be struck with the Americans. Our understanding is that there is, in fact, no deal. As press reports have indicated, possible alternatives have been discussed at the official level. The Canadian government has made it clear in the context of these discussions that any alternative must uphold the policy objectives of Bill C-55. In order to do so, an alternative would have to rest on an explicit requirement that, if U.S. publishers are to benefit from access to our advertising services market, they will have to provide a majority of Canadian content in the resulting Canadian split-run advertising editions of their magazines. It seems clear that the United States has so far refused to accept such content requirement. We understand that the government is now waiting for a final response from the Americans on this key issue.
As far as Canadian magazine publishers are concerned, we have indicated all along that, if an effective alternative to Bill C-55 can be found that meets this essential requirement, we will be open to its consideration. Unless and until that happens, there is no deal that Canadian magazine publishers and other cultural sectors could support. Indeed, any agreement that was not based on an explicit content requirement would be a complete capitulation by Canada. We trust that this is not what the government intends to do.
[Translation]
It is perhaps useful to begin with a basic question some Senators have raised. Is Bill C-55 about culture or about trade and the commercial interests of Canadian publishers? I submit that it is about both and that the trade and culture dimensions of the issue are inseparable. They represent cause and effect. The cause of the problem we face is the threat of an unfair trade practice and the effect is a loss of cultural sovereignty if the problem is not addressed. Let me try to summarize the key points.
[English]
First, magazines are an important channel of communications that we Canadians rely on for information, reporting, stories and images about our own society.
Second, the only viable means to preserve this channel for Canadian communication is to ensure that Canadian publishers have a fighting chance to survive in our own market so that we can continue to do what we have always done and what U.S. publishers cannot be expected to do of their own volition, namely, bring Canadian stories to Canadians.
Third, the best means to allow Canadian publishers to be viable is to prevent what would be insurmountable and unfair competition from U.S. publishers in our advertising services market.
Fourth, Bill C-55 delivers on both the trade and cultural policy objectives that Canadian governments have adhered to for over 30 years in a way that places no new restrictions on Canadian advertisers, does not involve any extraterritorial application of Canadian law, and is fully consistent with our trade agreements and the Charter.
The first point, that magazines are an important channel for Canadian communication, is recognized and accepted by all. Let me turn immediately to the second of my points.
[Translation]
The only viable means to preserve this channel of Canadian communication is to ensure that Canadian publishers have a fighting chance to survive in our own market so we can continue to do what we have always done, bring Canadian stories to Canadians. Critics of Bill C-55 have argued that there are no provisions in Bill C-55 that require publishers to create Canadian content or hire Canadian writers. They claim that Bill C-55 will therefore not deliver this result. They point to the fact that the bill is based on ownership alone and suggest that no relationship can be established between ownership and the creation of Canadian stories. It is certainly true that Bill C-55 does not contain any Canadian content requirements. This is because it is not necessary to require Canadian publishers to create Canadian content. We already do. There is a strong demand in Canada for Canadian stories and it is Canadian publishers who respond to that demand. That is our strength in the market. Foreign publishers do not now and will not in the future play this role. Ownership therefore is central to the policy objective.
[English]
As an aside, people talk about this effervescence of split-runs creating more Canadian content. Let me give you a concrete example. Sports Illustrated came into our country in 1993 and stopped publishing in 1995. In seven of the last nine spit-run editions of Sports Illustrated, that had promised to be a great Canadian sports magazine, the amount of Canadian content was zero. There is no profit motive for U.S. publishers to create Canadian content. The average Canadian content in Time Canada is one to two pages per issue.
The best means to allow Canadian publishers to be viable is to prevent what would be unfair and insurmountable competition from U.S. publishers in the Canadian advertising services market.
Publishers serve two distinct markets. We provide magazines to consumers and advertising services to advertisers. Although we are best known for our magazines, it is the advertising services market that is the key to our viability, as our friends have demonstrated in the previous panel. Canadian publishers depend on advertising revenues for, on average, 65 per cent of their income, and as much as 100 per cent of their income. If we could not survive in the advertising services market, we would be out of business and could no longer produce Canadian stories for Canadian readers, notwithstanding strong demand for those stories.
People may ask, "Why is it that you do not build a better magazine?" The reality is that we do. We are in the most competitive market in the world. Fully 80 per cent of a newsstand, as you have heard, is foreign product -- mostly American. Approximately half of all the magazines -- and this information is from Statistics Canada -- sold in this country are foreign, mostly American. We compete against that every day. The reader decides. This is not a reader issue, it is an advertising issue. The key point is that if the reader wants the magazine, it does not mean that we can produce it. If we have no advertising revenue, then we cannot produce that magazine, even if the reader wants to buy it.
Let us be very clear on a central fact. If U.S. publishers could access our advertising market, they would dump advertising services here and push Canadian publishers out of business. This is because they would have virtually no costs in our market. They would be offering an advertising service based on recycled editorial content from their U.S. editions, which would already be bought and paid for in the U.S. market. With their main costs covered, they would achieve profit margins of up to 80 per cent, allowing them to undercut advertising rates in order to gain market share. The resulting split-run advertising editions, however, would not replace the Canadian content that would be lost with the demise of Canadian publishers.
[Translation]
The example of Time Canada and plain common sense tell us that this is true. Despite the impression that representatives of Time Canada attempted to convey to you last week, the reality is that, on an on-going basis, less than 10 per cent of Time Canada's editorial can be said to have anything to do with Canada or to present Canadian perspectives.
The explanation for this is simple. The only reason Time Warner has for producing a Canadian split-run edition is to enjoy incremental profits in our advertising services market. These incremental profits rely on the recycling of the editorial content of the U.S. edition and the fact that most of Time Warner's other costs of being in the Canadian magazine market are covered in any event, we are of course talking about overhead, printing and distribution. The editorial content of Time Canada is therefore usually 90 per cent or more identical to the U.S. edition.
[English]
Notwithstanding this huge cost advantage in the advertising market, Time Canada claimed in its written submission to this committee that its advertising rates are in fact 11 per cent higher than other major Canadian magazines such as Maclean's. Is that believable? No.
There are two things to be aware of in the Time Canada numbers game. First, the rates quoted by Time Canada indicate cost to the advertiser based on circulation of their magazine. However, as our friend Mr. Stoakes from the previous panel was explaining, that is not how rates are actually charged in the market. They are negotiated with advertisers on the basis of measured audience, which is a much higher number than circulation. Published rates on the basis of audience show that Time Canada's advertising rates are, in fact, 31 per cent below Maclean's.
Time Canada may not need to further discount its rates, because it currently faces no lower cost competition in the Canadian market. Rest assured that there is room in its margins to do so if other U.S. publishers were in the Canadian advertising services market seeking to obtain market share and driving ad rates down in the process.
Time Canada argues that it must absorb the lack of access to section 19 and Canadian postal subsidies. They claim that these two measures are sufficient to create a level playing field in the advertising market. These arguments have no credibility. With available profit margins of up to 80 per cent in the advertising market, Time Canada underprices Canadian publishers notwithstanding section 19 and postal subsidies. If you do the basic math using an 80 per cent margin and back out the tax deductibility, you still have 50 per cent margins. If Time Canada is unable to price beneath Canadian publishers, it would have to be one of the most inefficient companies in Canada.
Bill C-55 delivers on both the trade and cultural policy objectives that Canadian governments have adhered to for over 30 years in a way that places no new restrictions on Canadian advertisers. It involves no extraterritorial application of Canadian law. It is fully consistent with our trade agreements and the Charter of Rights and Freedoms.
I should like to address some of the points made by Canadian advertisers.
The option of placing advertising directed primarily at the Canadian market with foreign publishers has not been available for over 30 years. This issue of losing something is a specious issue.
Bill C-55 simply maintains longstanding policy and the exact same environment that Canadian advertisers have operated in for those 30 years. It places no new limitations on advertisers. The advertisers and Time Canada have urged that the Canadians magazine sector does not get as much of the advertising pie as it should because of an absence of Canadian magazines in some market segments. They suggest that if split-run advertising editions of U.S. magazines were available, this situation would somehow be rectified.
[Translation]
It is true that the Canadian magazine sector has a smaller share of the overall advertising pie than magazine sectors in other countries. But let's be clear on the reasons for this. The first has to do with the impact of spillover generic advertising into the Canadian market through the large number of foreign, mostly U.S., magazines sold here. If you are a major advertiser who is already reaching the Canadian market through advertising in U.S. magazines sold here, you are not going to duplicate that effort through Canadian magazines. You might place some of your advertising budget in Canada, but less than would otherwise be the case. The second main reason is the difficulty that Canadian publishers face in entering certain niche markets already dominated by imports. The costs and risks of launching a new magazine are simply prohibitive in a small market segment where economies of scale are not available and imports dominate.
Would these realities change if split-run advertising editions of U.S. magazines that are already available came into the under-represented market segments? Some additional portion of the Canadian advertising pie would go to magazine publishers. But it would go primarily to U.S. publishers with no net benefits for Canada.
[English]
Moreover, access to the advertising services market is an on-off switch. If we allowed foreign publishers to come into underrepresented market segments, we would have to allow them into the entire market. That is required under our trade agreements, but opening the market completely would push Canadian publishers out of business.
There are two points I should like to make in this regard. First, I urge senators to read the HYPN study from which David Harrison quoted. In that study, you will note that one of its conclusions is that, indeed, the vast majority of the ad revenues would flow to split-runs. That is common sense. If you are offering a huge discount and getting the same basic audience -- and I ask you to remember that 50 per cent of magazines sold in this country are foreign -- then you, the advertiser, have the fiduciary responsibility to go for the cheap bargain prices. He used the word "devastating." The lion's share of advertising revenue would go to cheap split-runs, as any common sense person would realize when looking at a dumping issue.
The second point has to do with the question: What are the largest industries? The cosmetics industry, for example, is a huge industry. What do you think the Americans would do with their magazines coming in here, or already being sold here, at the kind of rates they could offer? You would see devastation across the entire Canadian media landscape for our magazines as ad revenue would flow into a very cheap U.S. products.
I will ask Professor Bernier and Mr. Tunley to address some of the key legal points for you. I would like to make a few brief comments on the trade question, however, to help keep it in perspective.
First, contrary to what the U.S. would have you believe, Bill C-55 is not about simple protectionism. The Canadian magazine market is and will remain completely open. I have talked about this with you before. We have one of the most open magazine markets in the world. The United States dominates our market more than they do in any other country in the world. The great thing about Canadians is that we want to have a choice. We want to be able to choose between U.S. product and Canadian product. We want both.
However, the reality is that they dominate our newsstand. They have 80 per cent of it. Thus, we go more in subscriptions in order to be able to make up. Just so you are clear, senators, they buy those newsstand racks.
As a publisher, I sell more copies at newsstands than any other Canadian publisher, and it is a fight to maintain that rack space. American publishers with their U.S. dollars buy that racking space, which is why we have to fight in subscriptions in order to get readers. One of the great success stories of our country is that we have a 50 per cent market share when you consider that there are over 5,000 U.S. titles coming into our market-place. We compete openly for the reader. This has nothing to do with readership. It has nothing to do with creating Canadian content. We do that, and they do not. It has everything to do with cheap ad rates.
Second, the issue in the advertising services market has to do with the prospect of insurmountable and unfair competition akin to dumping. Free trade does not mean that countries have to accept unfair trade. Taking steps to prevent unfair competition is not protectionism. Under international trade agreements on goods, there are remedies available to counter practices like dumping. Mr. Lund mentioned that point.
However, our agreements do not yet provide such remedies for trade in services. I think that Mr. Lund's suggestion that we wait around for those agreements to be marshalled out is illogical, given the nature of the time lines we have for this issue.
[Translation]
Third, in the negotiation of the WTO agreement on services, the GATS, Canada did not offer, and the U.S. did not obtain or pay for, access to our advertising services market. Canada did not put our advertising services market on the table precisely in order to preserve important Canadian cultural policies in the magazine and broadcast sectors. This was made clear to the U.S. and our other trading partners doing the negotiation and Canada's Schedule of Commitments under the GATS makes it clear that we assumed no obligations in this area.
Fourth, it would not be in Canada's interest to make a unilateral trade concession by now opening our advertising services market. Canada has a right under the GATS and NAFTA to regulate access to our advertising services market. We need not be apologetic or defensive about exercising this right.
[English]
Finally, all countries, including the United States, draw some lines in the course of trade liberalization to preserve domestic policies in areas of vital interest. No country, especially the United States, sacrifices vital national interests on the altar of free trade.
For Canada, preserving cultural policies that promote an independent identity has long been seen as one of our vital interests. No one has questioned that in this debate on Bill C-55.
At the end of the day, one simple question must be answered: What is in the Canadian interest? Canadian publishers submit that opening a market to which the U.S. has obtained no right under any of our trade agreements so that U.S. publishers can achieve incremental profits through unfair competition, threatening the viability of Canadian publishers and availability of meaningful Canadian content in the process, is not in any way in the Canadian interest. Failure to pass Bill C-55 would be an abdication of Canada's rights under international agreements and our right to cultural sovereignty.
Mr. Ivan Bernier, Professor of Law, Laval University, Canadian Magazine Publishers Association: I will use the few minutes that I have to answer some of the arguments that have been made suggesting that Bill C-55 will be incompatible with our obligations under GATT.
I think that this argument is based on the case that was heard before the WTO, where an excise tax and other measures were considered. It is important to keep in mind that in that case the appeal board decided the case having in mind that the excise tax was a measure concerning essentially goods. On that basis, it found it was incompatible with article 3 of the GATT.
In the present instance, we have a measure, Bill C-55, which is essentially linked to or related to trade in services. In the bill, you will see no reference to trade in goods. It is all about services, service providers, et cetera. Nothing in the bill concerns trade in goods.
The situation, if brought before the WTO again, would be quite different. It is obvious that the court would have to find that this bill is related to trade in services. As such, Canada, having made no commitments concerning services for advertising, would not be found to be in violation of its obligations.
The real problem that is raised is whether it could be examined under the GATT. The situation of conflict between trade agreements has been examined at some length in the banana case, which really develops the approach to looking at these problems. A three-prong approach is suggested, and I will go through that with you and give you the findings that come from that.
The first thing we must look at is whether Bill C-55 could be considered as being exclusively a GATT matter. In my view, this is totally excluded in view of the content of Bill C-55. It is too obvious. All of the things that were found to be indicators of measures related to trade in goods with respect to periodicals are absent in Bill C-55. As a matter of fact, all of the things that should be done to be confronted with essentially trade in service measures are there. The first measure is obviously not exclusively related to trade in goods.
The second aspect we must consider is whether it could be exclusively related to trade in services. This is an interesting question. In the banana case itself, the problem was examined, and the appeal board suggested, when looking at those questions, the following approach. The issue is whether the GATS and GATT 1994 are mutually exclusive agreements. The GATS was not intended to deal with the same subject-matter as the GATT 1994. The GATS was intended to deal with subject-matter not covered by the GATT 1994 -- that is, with trade in services. Trade in services is just not part of GATT 1994. The GATS applies to the supply of services. If you look at Bill C-55, it is exactly that. It is a prohibition to supply services coming from foreign publishers. In a sense, there will be the argument that Bill C-55 is exclusively a matter related to GATS and not to GATT. Other cases would support that view, I believe.
The third possibility also must be considered, and that is that Bill C-55 should be considered under both GATS and GATT. For that, it is necessary to look at what it means. If we consider Bill C-55 as being a GATT matter, it means that we must distinguish and examine the veracity of Bill C-55 under article 3, national treatment obligations of GATT. We would need to distinguish the markets, because the prohibition of national trade presumes that there is a competition on the same market.
I suggest that in the case of periodicals, the competition is not on the same market. We have competition on the goods market, which is the periodical as such, and competition on the advertising market. Those are two quite different markets. They have different actors and different supply structures. What we have heard before is, in my view, quite indicative of the difference of markets. The discussion when you talk about advertising has nothing to do with the price of the periodical itself or with the readers themselves. It has to do with the advertisers, the service providers, et cetera.
In my mind, in order to prove that article 3 of GATT could apply, you would need to show that there is only one market and in this market there is a competition that is unfair because of Bill C-55. I think that is impossible to prove.
Even if it were possible to look at Bill C-55 from the perspective of article 3, one would still need to consider that the competition taking place on the Canadian market is itself subject to the "access to the market" rules of Canada. "Access to the market" rules are important because they are different from national treatment obligations. They relate essentially to the possibility of entering a market. National treatment considerations apply once you have entered the market.
In this case, for the foreign periodical publishers to enter the Canadian advertising market would go against the prohibition on access to the market. They will be free to come in with foreign publicity, non-Canadian publicity, but they will not be able to do it with Canadian publicity. This is, I believe, an important consideration.
Even if it were found under GATT that there was a conflict, this conflict would be such that it would be impossible to maintain the GATT obligations and the GATS obligation. A solution will have to be found, presumably by looking at the specificity of the GATT and its more recent origin. In the end, I think we will be back to the trade confrontation, and service would apply instead of trade rules.
Mr. John Thomson, Publisher, Canadian Geographic Magazine, Canadian Magazine Publishers Association: Honourable senators, I will deal with the Charter issue. I have handed out a brief outline of the legal analysis. I will not go through that, because on review you will see that it is essentially the same as Professor Monahan's analysis. I cannot do better than agree with what you have already heard from him in terms of the legal analysis.
The perspective that I can add to this debate is as a practising litigation counsel charged from time to time with actually presenting these cases to the courts for consideration. From that perspective, I would urge senators to consider that at each stage of the legal analysis you have heard there is evidence available to be presented to the courts that overwhelmingly supports the conclusion with respect to Bill C-55 and its consistency with the Charter values. Let me deal briefly with that point.
In terms of the objective, senators have raised concerns that the bill does not speak directly to matters of culture. Clearly, however, the evidence that will be available to the courts shows that this is not simply a bill protecting the magazine industry for its own sake.
First, there are numerous royal commissions and task force reports from Parliament and elsewhere attesting to the cultural significance of magazines as a vehicle for expression in Canada, and a uniquely Canadian expression.
Second, in those reports and elsewhere there is evidence that fully 92 per cent of the content of Canadian magazines is produced by Canadians.
Third, there is further evidence throughout those reports that 60 per cent of the subject matter of those magazines on an editorial basis is directed, one way or another, to Canadian events, issues and perspectives. The evidence, therefore, is available readily for the courts to conclude that Canadian magazines produce Canadian expressive content -- and they do a good job of that -- and that Bill C-55, in protecting the industry, is serving a vital cultural objective.
Turning to the second branch of the analysis, "rational connection," we have economic studies of the magazine industry showing not only that it is a matter of supporting the financial viability of the industry, which is essential to its survival, but that doing so through advertising maintains a market discipline and a readership discipline so that the mechanisms securing the availability of Canadian perspectives are not driven by government intervention and subsidies directed in some bureaucratic fashion; rather, they are controlled by the market and by readership forces, thus satisfying the Canadian demands.
When one goes to the third branch, "minimal impairment," overwhelmingly there is evidence to show that the alternatives put forward to Bill C-55 are simply not effective. That evidence includes the Harrison study with respect to existing measures that are available apart from Bill C-55. It includes analyses of tax subsidies and other options.
When one comes to the proportionality analysis, there is evidence available that can be and will be presented to the court, no doubt, to show that the consequences and the deleterious effects of having no protection beyond existing measures are disastrous. The conclusion of the Harrison study is that Canadian magazines will fail. That is an irreversible effect. Once those magazines are gone, the evidence shows, there are barriers to recreating those vehicles for Canadian expression.
I agree with Professor Cameron that at the end of the day it is the evidence to which the courts will look. Overwhelmingly, and at every stage of the analysis, that evidence supports the views put forward by Professor Monahan, and I commend them to you.
Senator Lynch-Staunton: Mr. Tunley, I am interested in your analysis that the courts, if they were to be asked to rule on the constitutionality of this bill, if passed, would certainly take all that surrounded it and preceded it. I am wondering why there is no reference in the bill to Canadian identity, Canadian culture or the survival of the Canadian magazine industry. The summary is rather bland. It states:
This enactment establishes a regulatory framework for the advertising market services in Canada.
There is no preamble. There is nothing to tie in all that we are talking about and all that you, in particular, are concerned with in the bill to confirm all that. We should ask that question of the drafters of the bill. I believe preambles do not have the force of law, but at least they help explain the purpose of the law. Why was that not included?
Mr. Thomson: From the perspective of the courts, they are a mixed blessing. They are another clause of the bill to interpret the choice of language. When you use a purpose clause, it is critical. There is no room for error.
In a case like this, where the evidence, the background and the circumstances surrounding the bill are very well understood and very clear, you can find yourself limiting the arguments and limiting the evidence available on crucial issues with too narrow a purpose clause. I would just simply say that they are very much a mixed blessing for litigation counsel dealing with a court challenge.
Senator Lynch-Staunton: Mr. Beaubien, I should like to ask you one or two questions on Canadian content, which, according to your presentation, is now being considered in the discussions between the American and Canadian negotiators. Do I understand from what you said and what I am reading that, if there were an agreement on Canadian content on the part of American publishers, you would be willing to accept this bill?
Mr. de Gaspé Beaubien: Senator, we have always felt that Bill C-55 was the best measure. I have yet to see any proposal in writing that is being discussed that said, "My understanding is that that very topic has been raised between the two countries."
From a business standpoint, at the end of the day we would welcome, at the very least, a majority of Canadian content being created in split-runs, because, right now, for an American publisher coming into our market, with the magazines already being sold here, and just selling Canadian ads, there would be no cost structure. No one in the world can compete against a competitor who has no costs. If they were there to create a really Canadian Sports Illustrated, like they promised last time but did not do, then they would be hiring Canadian writers, journalists and photographers. They would then have a cost structure. That would mean for us, as business people, that they would no longer be able to discount 80 per cent ad rates and adopt predatory pricing practices.
Senator Lynch-Staunton: I will interrupt you, because I do not want to get into particularities. I simply want to know your view on the requirement for foreign publishers, as defined in the bill, to meet a Canadian content requirement. What do you see as the minimum?
Mr. de Gaspé Beaubien: We have said that 60 per cent would work for us.
Senator Lynch-Staunton: The advertising people included in their brief today a letter from the Minister of Canadian Heritage addressed to Mr. Ronald Lund, dated April 21, 1999, which is only two weeks ago. In the letter, Ms Copps says:
You --
-- meaning the advertisers --
-- also suggest a minimum Canadian content quota for all magazines, both foreign and domestic, circulating in Canada. Such a measure would unduly restrict consumer choice <#0107> Canadians want to continue to have access to a broad range of magazines. The intent of our cultural policy is not to make all foreign magazines resemble Canadian magazines, but to preserve a space for Canadian ideas, alongside foreign ones.
In this letter, she quite obviously is against having Canadian content.
Mr. de Gaspé Beaubien: Our point is that right now we would like a continuation of the policy that has been in place for over 30 years.
If that policy were to change, which is obviously not our prerogative, and if you are going to let split-runs come in, you have two choices. Either you can let them come in, in which case you will no longer have Canadian magazines because they will price underneath us, and that is quite clear, or you can at least ensure that they have a cost structure and are providing Canadian content. That is our point to you as business people.
Senator Lynch-Staunton: Her point to you is that having a Canadian content quota for all magazines would make foreign magazines resemble Canadian ones, which does not seem to be very helpful for the Canadian magazine industry.
Mr. John Thomson, Publisher, Canadian Geographic Magazine: That is why we prefer Bill C-55.
Senator Lynch-Staunton: Yes, but they are negotiating now, according to Mr. Beaubien's brief and what we read in the papers, a solution by using Canadian content to avoid retaliation.
Mr. de Gaspé Beaubien: We can only answer from our perspective, and it would be two things. First, we prefer Bill C-55.
Senator Lynch-Staunton: Sir, I am interrupting not to be rude but because we are short of time. Do you agree with the statement that Canadian content quota would harm Canadian magazines by making all foreign magazines resemble Canadian magazines?
Mr. de Gaspé Beaubien: If an American publisher had 60 per cent Canadian content, I would welcome the competition.
Senator Lynch-Staunton: What do you define as Canadian content? What are we talking about?
Mr. de Gaspé Beaubien: Sir, I am not a policymaker. I am waiting to hear the proposal.
Senator Lynch-Staunton: In your brief, you talk about Canadian content.
Mr. de Gaspé Beaubien: Yes. Apparently, there are discussions going on, which we are all aware of. Minister Copps said in the House of Commons, if I recall, that if the Americans agreed on a majority of Canadian content it would open the door for discussions. We have yet to see that proposal; we are waiting to hear it. It seems to me that the Americans have budged not one iota on that topic. The reason for that is that there is no profit motive for the American publishers to create Canadian versions -- witness Sports Illustrated.
Senator Lynch-Staunton: What obligation do Canadian magazines have to hire Canadian writers and photographers and to tell Canadian stories? What obligation is there for you to do that?
Mr. de Gaspé Beaubien: The obligation of the market. I will give you an example. Woman's Day is an American magazine. In 1972, it sold 500,000 copies in Canada. We launched a small magazine called Canadian Living. Today, we sell 600,000 copies. Woman's Day today in Canada sells 80,000 copies. When you provide good Canadian content from Canadians for Canadians, with a Canadian perspective, you will outsell Americans. The problem is that there are so many U.S. magazines coming in here. If Time Warner went to the advertiser and offered a bundle for the audience and discounted it 60 per cent, we could not compete. We would go out of business. We have no mandate to create Canadian content. We do so because it is to our competitive advantage.
Senator Lynch-Staunton: You define Canadian content strictly in market terms, not as a responsibility towards Canadian culture.
Mr. de Gaspé Beaubien: I think that is for to you decide. We are sharing with you two perspectives, one from that of a businessperson and one from that of a citizen. As a businessperson, our competitive advantage is exactly that, to provide Canadian perspectives. That is what makes us unable to sell our magazines. From a citizen's standpoint, frankly, if you want to read U.S. perspectives only, that is what you would get.
Mr. Rick Salutin, Freelance Writer, Media Columnist for the Globe and Mail: As a writer with 30 years experience at various magazines, big and small, I can say that one writes about what one knows. We write for the people we know. What is remarkable about the magazine situation, unlike all the other cultural situations, is that it has risen to a very good place and provides a vital function in the country, without Canadian content regulations and without serious subsidy. Somehow the system is working. So let us dismantle it? The notion that subsidy would be the answer and that film is somehow a great exemplar is ridiculous. Canadian film has been subsidized. There are many Canadian filmmakers and many Canadian films that Canadians do not see, for whatever reason.
Here you have a scenario that has been working on market principles. It supports writers and magazines, not just big ones but small ones. There is a terrific interaction between the large magazines and the small ones. It does not require the heavy hand of Canadian content regulations or of a lot of subsidy. It is working.
Senator Lynch-Staunton: I will end here. That is a good plea, and I accept it. I just think we are talking about Canadian content but not too sure what it means. It means different things to different people. I always thought it meant that there was an obligation, in order to take advantage of section 19, to have a minimum amount of Canadian originality in Canadian magazines. It turns out that it is not that at all. As long as it is prepared in Canada and printed in Canada, it could be an American writer talking about a European subject, and still qualify.
Mr. de Gaspé Beaubien: Sir, what is the reality of today's market-place? The reality of today's marketplace is that we provide Canadian perspectives. Look at Maclean's versus Time Canada. Time Canada runs a story on banking, and there is not one mention of a Canadian bank. Maclean's runs a story on banking, and it talks all about the mergers. When Time Canada talks about banking, it talks about the top 20 U.S. banks. Why is that? Because recycling U.S. editorial is cheaper. There is no incentive to do otherwise. The reality of the market-place, sir, is that we produce Canadian content because it is to our competitive advantage. I thought the discussion today was about Bill C-55 and not one of content, which is yet to come before this committee or ourselves.
Senator Lynch-Staunton: You brought it up in your brief and I am commenting on your brief.
Mr. de Gaspé Beaubien: Yes, but the reason is that if they came to us with majority content we wanted you to know that we would be in favour of it.
Senator Lynch-Staunton: If next week we have an amendment before us on Canadian content, your views on that will be very important in making our decision.
Senator Fitzpatrick: We heard testimony earlier that Bill C-55 is not necessarily the best instrument to protect Canadian cultural heritage or Canadian content, that subsidies might be more effective. I have heard the comments of Mr. Salutin on subsidies. Apart from the politics and the impact of politics on subsidies, I would like to know, Mr. Beaubien, your views, from a business assessment, on subsidies and the impact you think they would have on your business and your future business.
Mr. de Gaspé Beaubien: First, the administration of such a thing would be a logistical nightmare. If American magazines were able to come in with split-runs, you would see the migration of ad dollars. How do you compensate for that? Is it $200 million? Is it half the market? As you know, our market is $600 million Canadian, and they have 50 per cent, so they would take half the market away. Who would get that money? How would it be administered?
Second, I find it unusual that we would be debating the fact that Time Warner and other large multinationals should be getting incremental profits at the expense of the taxpayer, because we are talking about a flow-through to them. To put things in perspective, People magazine, which is one magazine of the entire stable of Time in the United States, makes U.S. $350 million profit per year, whereas the entire magazine industry in Canada makes Can. $70 million. This is analogous to the Giant versus David.
Third, as an owner and investor, why would you invest in a business that is fully subsidized? People talk about the postal subsidy. That subsidy varied from time to time. After all, governments change; as such, subsidies change. Do you really want to have the Canadian government subsidizing the Canadian magazine industry? What would investors do? I do not think they would invest in Canadian magazines. It would be too risky.
Mr. Thomson: To add to that, in the magazine sector we have a simple, elegant solution that should be a model to other cultural sectors. We have no subsidies and no administrative burden. We have this very simple solution that Canadian advertising dollars end up going to Canadian content creation. For our own magazine, the ratio is almost 100 per cent. What we net on advertising is almost exactly equal to our editorial budget. It works very well.
We would end up paying twice. We take the Canadian advertising dollars and export them to the United States. They become windfall profits for already very profitable corporations that are profitable in the Canadian market. Therefore, those dollars leave Canada, and then additional dollars from Canada would be paying again, in the form of subsidies to create Canadian content. It is just an impossible solution.
Mr. de Gaspé Beaubien: Our magazines would get thinner because we would lose the ads. You would be subsidizing us, but the magazine would get thinner and thinner. As you know, editorial content is the essential driver to renewal of subscription; however, magazine thickness is also a driver of subscription renewal. If it gets thinner, there would be a downward negative spiral on renewals.
Mr. Thomson: The idea that there could be some pool of hundreds of millions of dollars for creating Canadian magazine content out of the Canadian taxpayers' pockets is ludicrous.
Senator Fitzpatrick: I think we got into the politics of the situation somehow, but I take it from your other comments that you are not of the philosophy that your business could grow with subsidies in the same way it could grow under Bill C-55.
Mr. de Gaspé Beaubien: Yes, sir.
Senator Tkachuk: I want to make it clear that I have a lot of faith in the Canadian publishing business. I also have a lot of faith in Canadians. I am getting very confused about the reasons for the bill.
You are making a business argument, saying that this bill is needed so that these businesses can survive. The minister is saying we need this bill so that Canadians can read Canadian stories. The minister's concept of the bill is not as much business-oriented as it is culturally oriented.
I will ask you the same question I asked her. Take Sports Illustrated or some computer magazine, of which we have no Canadian example. How would it affect our culture if those magazines came into our marketplace?
Mr. de Gaspé Beaubien: Senator, first, the magazines are already here. Sports Illustrated already sells in Canada, as you are aware. Every American magazine has access to the market.
Senator Tkachuk: I understand that.
Mr. de Gaspé Beaubien: Perhaps you are asking about the effect of Canadian ads in a U.S. magazine. Sports Illustrated was already here as a split-run edition, so we have an actual example and not a hypothetical one.
As I shared with you, the last seven of nine issues had zero Canadian content. Let us put that one to bed. There is no profit motive for a U.S. publisher to create Canadian content.
Second, you asked why we would speak from a business perspective while Minister Copps speaks from a cultural perspective. Here both issues are intertwined. We as Canadian publishers create Canadian stories. That is our competitive advantage vis-à-vis our brethren from the South who send all their magazines here. We produce our stories for a profit motive, not because we are cultural nationalists -- although we are that, too. From a business standpoint, our products sell magazines.
If you take away our advertising revenue, as our advertisers know quite well we will go out of business. Who then will tell the Canadian stories? Will it be the U.S. publishers? No.
Mr. Salutin: I will say something from a cultural perspective and about writers. Writers will always write. There is a sort of writing urge. If only American split-runs are sold and all the Canadians magazines go down, then writers will continue to write. However, they will not write about the Canadian reality.
The debate on this bill and the ongoing debate on magazines has an effect on writers. Writers do not just write in the abstract. They write about situations and they write with feeling, with pride or with pain. The inspiration comes from their culture and society.
Every time the bully to the South ups the ante, and every time our government backs down and finds collaborators in this society, the result is that after a while we will have a sort of depressed cultural situation. Irish literature thrived under severe oppression; Polish literature thrived for 125 years when the country did not even exist, because they had a sense of pride.
Senators have an opportunity to play a role culturally as well. Writing is not just a profession. Writing is often based on how one feels about the society where one lives.
Senator Tkachuk: I read your articles actually, Mr. Salutin. I do not agree with you politically, but I read your articles because you have something to say about the country and I want to know what that is. The fact that I do not agree with you does not make me less of a Canadian.
Mr. Salutin: I am not suggesting that. I actually do not know what you think.
Senator Tkachuk: Let us go back to Sports Illustrated, because I want to follow this through to its logical conclusion. We must take at least one example.
Right now, Sports Illustrated sells their magazines on newsstands as well as through circulation, be it through schools, door to door, via Publishers Clearing House or by telemarketing. Do they not?
Mr. de Gaspé Beaubien: Yes, but in Canada they sell more at the newsstand. At this time, they do not make a big push for subscriptions in this country.
Senator Tkachuk: Yes, but they do sell through all those vehicles.
Mr. de Gaspé Beaubien: Yes, sir, they do.
Senator Tkachuk: They are on the list, along with Maclean's magazine, at every high school in this country that is serviced by the distribution company. That distribution company is an American company owned by Reader's Digest.
What if that company were suddenly allowed to sell Canadian advertising in their magazine?
Mr. de Gaspé Beaubien: They were so allowed from 1993 to 1995.
Senator Tkachuk: Yes. How would they increase their circulation?
Mr. de Gaspé Beaubien: There are many ways to do that. They can decrease subscription rates. They can make it far more attractive for subscribers to sign on to the magazine.
The game plan in the United States is that most American magazines make all their money from advertising. We charge higher price points for subscribers here than they do in the United States, so they could just lower their price points on subscriptions and use promotions to increase circulation.
The real issue is what happened with the rates. Here is a concrete example. Sports Illustrated has a split-run edition for California. While they were here in Canada with their split-run, the cost they published for here was one quarter the cost they were charging in California. That gives you an idea of what they would do with their pricing structure for advertising.
Senator Tkachuk: Canadians do not read Sports Illustrated because they know it has cheap advertising. They have no idea what those ads cost.
Mr. de Gaspé Beaubien: You are correct.
Senator Tkachuk: Sports Illustrated is already here selling magazines on the newsstands. I do not buy your argument that they would discount their subscription rate because, right now, subscription rates for Sports Illustrated and other U.S. and Canadian magazines can be discounted and are discounted by half or three-quarters to entice readers to buy. Everyone does that to get into the market-place.
How will they increase their circulation so that Canadian advertisers will want to advertise in Sports Illustrated?
Mr. de Gaspé Beaubien: Time Warner would offer a package. They offer to customers who buy on an audience basis all the particular magazines that are attractive to that audience, and they offer them at a heavy discount.
The advertising revenue is our bread and butter, yet we are having this debate in front of the advertisers. It does not make for a comfortable conversation. The reality is that heavy discounts will be offered and the advertiser would be very happy to have those deep discounts.
Senator Tkachuk: Would they sell magazines to me that I would not necessarily want to buy?
Mr. de Gaspé Beaubien: No, they would offer you an audience target, as the HYP&N study shows. They would discount your cost across all the titles.
The Chairman: Mr. Thompson, the publisher of Canadian Geographic Magazine, has been trying to answer.
Mr. Thomson: I will just answer in a slightly different way the same question. I may even anticipate where you are heading with your line of questioning.
We are not discussing per se the need to sell additional circulation. We are talking about American titles that already have, as often defined, 50 per cent of the Canadian market.
If you look at the English language, the percentage is more than 60, but for the sake of argument, we will say they have a 50 per cent share.
Right now, Canadian advertising dollars go into Canadian magazines and make their existence possible. Every customer reads more than one magazine, some Canadian, some American. We are not describing direct competition. We are talking about titles coming into a household and being read by individuals. Advertisers are buying a route to a pair of eyes, a route to a mind.
The American titles are already here and already profitable. They already have 50 per cent of the market. The advertising dollars that currently make Canadian titles viable would move over into the American magazines that are already here. There is space to absorb those dollars.
The Canadian magazines would disappear. The American magazines would export all of that money as windfall profit over and above the desirable profits from newsstand or subscription purchase in this market.
Senator Tkachuk: The reason I do not watch hockey on the Fox network is that they are terrible at it. I watch hockey on CBC because they are really good at it.
My supposition to you is that the way Sports Illustrated will expand their circulation in this country is to have Canadian writers writing about Canadian sports.
Mr. de Gaspé Beaubien: They were here and there was no Canadian content. That is not hypothetical; that is the reality.
Senator Tkachuk: Were they successful?
Mr. de Gaspé Beaubien: My point is they were thrown out with Bill C-103. They were asked to leave the country.
Senator Tkachuk: My view would be that Canadians will read about Canadian things if there are good Canadian stories. Sports Illustrated will need to print good Canadian stories if it is to become a popular magazine in Canada.
Mr. de Gaspé Beaubien: Sir, I am sorry, but your supposition is countered by the reality that that organization was here from 1993 to 1995. They did exactly the opposite of what you are decreeing.
Mr. Salutin: I have subscribed to Sports Illustrated since 1954. I read it because of the sports that are in it. It does not have to be Canadian. Canadian readers will read Canadian stuff if the magazines exist. I do not understand why this is such a difficult point to understand. This is about survival of magazines. Canadian readers will read Canadian stories if there is a place to read them in.
If Canadian magazines are destroyed by a ruthless undercutting of pricing, there will not be a place for them to read those stories. They will still want them, and they will not need to read them in Sports Illustrated. They will read something else.
Mr. de Gaspé Beaubien: The publishers of Harpers Bazaar in the United States were recently quoted as saying that they found the whole debate surrounding Bill C-55 unconscionable. They queried why it was that predatory pricing was illegal in the United States, but large multinationals like Time Warner are arguing that they are allowed to do it other countries like Canada. That is an American publisher talking about our market.
[Translation]
Senator Joyal: I have three questions and I will ask them one after the other. The first one deals with the constitutionality of the bill regarding freedom of expression. To avoid the argument of total prohibition of access contained in the bill and mentioned by professors Monahan and Cameron, if there was to be an exemption for foreign specialized magazines printed in very small numbers, let's say less than 1,000, don't you think that the prohibition would not be absolute, the negative impact under Canadian market would be minimal and we would avoid a possible challenge of the law which could lead in fact to the nullity of the law because there would still be doubt? I agree with you but there is still a doubt in the definition of the constitutionality of the bill. Would such a limit to the bill be so damaging that the whole objective of the bill would not be reached?
My second question has to do with paragraph 5 of the brief of your predecessors at the table referring to the Harrison study that you quoted yourself. According to the witnesses we heard this morning, as there are not enough magazines on the Canadian market for men, and that if we forbid advertising in corresponding American magazines, that advertising will not necessarily be published in Canadian magazines to be created. It will rather find its way in other media that prove that they reach the targeted market.
My last question is for Mr. Salutin.
[English]
Mr. Salutin, you heard the statement by the American ambassador last fall that he had lived in Canada in his earlier years, and had studied in Canada, and in his opinion there is no distinction between Canadian and American culture. In his opinion, they are the same. He made that assertion quite publicly. His opinions were reported in magazines, the press and in the electronic media. What is your response to that? How do we address that issue with the Americans?
Mr. Salutin: I lived in the United States for 10 years. My response to the ambassador's comment is that no one but an American would make a statement like that about another country. That is not a hostile comment; it is just that living in that country you are so overwhelmed with the sense that you are the centre of the universe, the greatest nation in the history of the world, which they always say, and that everyone in the world will be fascinated with you, that you barely comprehend that other societies exist. I do not think they really believe France is a different society. They sort of know it exists in movies, but not in reality.
Canadians on the other hand are diffident, and the difference is that diffidence. If you put a television camera or a microphone in front of any American at any point in their lives, they are ready, because they think they are so important. Canadians, even in public situations, still have this diffident kind of pull back, "Oh you really want to hear from me?" That is one response to your question, senator.
Mr. de Gaspé Beaubien: Senator, on your question of whether a thousand or less would be acceptable, I would turn the floor over to our experts.
Mr. Phil Tunley, Partner, McCarthy Tétrault, Canadian Magazine Publishers Association: Honourable senators, I certainly do not understand or accept the analysis that Bill C-55 offers -- what has been called a total or absolute ban. It seems to me that the measure leaves open a range of options to foreign magazine publishers to bring into Canada their magazine content, fully expressive and fully financed with appropriate advertising.
Similarly, it leaves open to Canadian advertisers the option of going to those magazines and placing an ad in them. It may cost a little more than it would in a special split-run edition, but the option is there. It will reach the same audience in Canada if they really wish to use that vehicle to reach that audience. Therefore, I do not see this as a total ban at all. I do not think that the courts would see this as a total ban.
It is unlike the other total ban cases where you simply could not speak on the issue at all in any medium. That is a total ban. This is very different. This is a market balance measure, not a ban.
[Translation]
Mr. de Gaspé Beaubien: As for the Harrison study, from what my advertiser colleagues are saying, it is as if the right to advertise in American magazines was taken away from them. As you know, this policy has been in effect for over 30 years. Nothing has been taken away from the market. This is the policy in effect and that is the medium as it exists today.
As for the problem of advertising in men's magazines, for example for the Americans in our market, I would ask you to please read this report. The thing is that there will be discounts and the advertising will migrate from Canadian to American magazines. We always get back to the on/off switch. We are not going to let only a split-run American magazine enter this niche market. It is all of them or nothing. This is the unfortunate situation we are in. There will be migration because they will offer incredible discounts. They have no cost whatsoever.
[English]
Senator Callbeck: If we do not pass Bill C-55 and split-runs are allowed, how do you envisage the Canadian magazine industry 10 years from now?
Mr. de Gaspé Beaubien: If split-runs were allowed to come in with no restrictions, senator, the result would be disastrous. Our colleague David Harrison was speaking about that issue. His study would come into effect. That study talks about the migration of ad dollars to U.S. titles because they can discount so heavily.
The net result would be, in my opinion, that few, if any, Canadian magazines would be left standing that depended on national advertising revenues. If your competitor has no cost and can discount heavily and you must pay for Canadian writers, journalists and photographers, because that is your competitive advantage, how can you survive?
My prediction is that in 36 months from now, if split-runs are allowed in unhindered, we will not have a Canadian magazine industry left that is worth mentioning.
Mr. Thomson: From the point of view of a smaller company, it may be true that nearly half the Canadian titles are produced by two companies, but the other half are not, and small companies like ourselves, with one title, are equally threatened. The small amount of national advertising that goes into a regional title is often the difference between success and failure. We are talking about an industry with an average profit margin of 5 per cent or 6 per cent. They may be getting 10 per cent of their revenue from national advertising. If that goes, they go.
The B.C. Magazine Publishers Association unanimously supported this measure. There are about 30 member in that association, most of which have circulations of under 5,000, and some of which have circulations of under 1,000. Everyone across the country is threatened by this in some way, and it will not matter how great a job we do on editorials or how tightly focused our niche is. We all have the same to lose: that being everything.
Mr. Salutin: This bill would devastate a generation of young writers. It is like the ecology of a marsh. Young writers and publishers can currently start their own magazines and get by on some work for the big magazines. This would kill it at all levels.
Senator Callbeck: One of the witnesses said that we have a much higher percentage of free magazines in Canada than other countries have. Why is that?
Mr. de Gaspé Beaubien: It has to do with the way Canadians read magazines, but I can tell you that that is on the wane. I published some of those controlled circulation magazines. Western Living was one of them and Homemaker's was another, but it has gone to fully paid. That is because not everyone who gets a free magazine reads it, so you have to produce many copies for a low audience, and the advertiser only buys the audience.
Controlled circulation magazines do get an audience, but from a publishing standpoint it is so expensive to produce that those numbers decrease as we go forward. As a case in point, Homemaker's is going from a free magazine to a paid magazine.
In closing, we understand that this is a very difficult issue. At the end of the day, we wear two hats. We are primarily here as business people telling you about the economics of our business, which is that we are highly dependent on advertising revenue. If our competitor can come in with no cost structure, you know what will happen. We thank you for the opportunity to share with you the economics of our business.
As a last point, we produce Canadian stories because that is our competitive advantage. It makes us different from our U.S. brethren. That is why people purchase our products. This has never been a case about getting to the reader; this has always been a case about the advertiser. This is an advertising service issue, and it is a dumping issue. Unfortunately, dumping measures do not exist for services.
If Bill C-55 is not passed, we who depend so heavily on advertising will be forced out of business by people who can price gouge while we cannot.
The Chairman: Thank you, gentlemen.
The committee adjourned.