Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 22 - Evidence - October 18, 2005
OTTAWA, Tuesday, October 18, 2005
The Standing Senate Committee on Transport and Communications met this day at 9:35 a.m. to examine the current role of Canadian media industries; emerging trends and developments in these industries; the media's role, rights and responsibilities in Canadian society; and current and appropriate future policies relating thereto.
Senator David Tkachuk (Deputy Chairman) in the chair.
[English]
The Deputy Chairman: We have quorum. We call the meeting to order. I would like to welcome our witnesses, and those of you who may be watching on TV, to the hearings on the state of the Canadian news media and the appropriate role of public policy that we are grappling with here in our committee, and have been over the last year.
I am pleased to welcome as witnesses today representatives of Magazines Canada, a national non-profit association representing Canadian magazines across the country. The member magazines span a wide range of topics: Sports, arts, culture, lifestyle, the whole works. Whoever has a magazine and wants to join the association will join.
Today we are joined by Jim Everson, Executive Director of Public Affairs for Magazines Canada, and John Thomson, who is in front of us here in the witness chair. Mr. Everson will be sitting to the right of us. We are also joined today by Ms. Sylvaine Gombert, who is a former board member of Magazines Canada.
John L. Thomson, Chief Executive Officer and Publisher, Canadian Geographic, Magazines Canada: Thank you for inviting Magazines Canada to provide our views and recommendations to the Standing Senate Committee on Transport and Communications as it examines Canada's media industries and the role of public policy in ensuring that Canadian news media remain healthy, independent and diverse.
I would like to provide some background about Magazines Canada and then move on to address the committee's current areas of interest. I will talk specifically about the current state of magazines in Canada, the kinds of challenges we face, and the kinds of public policy that Magazines Canada believes would best help the industry deal with these issues.
Magazines Canada, formerly known as the Canadian Magazine Publishers Association, is the leading consumer magazine industry association in Canada, representing 90 per cent of all paid circulation consumer magazines. Member magazines span a wide range of topics, including business, news, politics, sports, arts, culture, leisure, lifestyles and the environment, just to name a few.
Canada has a vibrant and culturally rich magazine industry with more than 2,300 titles and more than 777 million copies distributed annually. The industry employs more than 9,400 people through full-and part-time work, plus an additional 5,000 freelance contributors. These are writers, editors, photographers, designers, illustrators and artists.
The industry generates more than $1.5 billion in revenue, making a significant contribution to Canada's economic growth. The Canadian magazine industry is a knowledge-based sector with a highly skilled smart-job workforce, including editors, writers, artists, photographers, art directors, executives and managers.
In addition, magazines generate significant revenue within other Canadian sectors through print production and distribution. In total, the industry spends more than $1.4 billion in Canada.
However, because of intense price competition from foreign titles for copy and subscription sales, for advertising from other Canadian media and, increasingly, from foreign magazine split runs, profitability of the Canadian magazine industry is very modest. It is 6 to 8 per cent, according to Statistics Canada. This leaves Canadian magazines of whatever size vulnerable to even small shifts or downturns in the advertising market and to changes in government policies and programs.
In terms of where we are at today within the Canada magazine industry, there are three important points I would like to make.
First, Canadians love Canadian magazines and Canadian content. In a tough, competitive environment awash in titles from the United States, Canada's magazines continue to deliver Canadian perspectives to Canadians better than any other cultural product. Canadian magazines account for roughly 41 per cent of all magazine reading in Canada, versus Canadian films, which occupy 3 per cent of screen time. That is a vast difference.
Ninety-two per cent of Canadians agree that Canadian magazines play a significant role in informing Canadians about each other; 88 per cent feel it is personally important that a magazine have editorial content created specifically for Canadians; 90 per cent say that U.S. titles do not effectively cover Canadian issues.
Today, more than 90 per cent of Canadian magazine content is created by Canadians, and 99 per cent of the magazines published in Canada are Canadia controlled. Canadian magazines consistently average more than 80 per cent of Canadian-authored content, with approximately 400,000 unique pages of original editorial content created every year.
Having access to Canadian perspectives through the medium of magazines continues to be exceptionally important to Canadians. It also directly supports the Canadian government's cultural objectives of connecting Canadians to one other and helping to ensure there is a choice of affordable Canadian content available across the country.
The second point I would like to make is that the world of magazine publishing in Canada is both diverse and accessible. Magazine publishing is a highly entrepreneurial activity with low barriers to entry, allowing for magazines to be published in all regions of the country.
In fact, more than two-thirds of Magazines Canada membership is made up of independently owned titles with circulations of less than 10,000. It is in these small to medium-sized publications that we see Canada's rich diversity displayed to advantage. For almost every area of interest, there is a magazine to tell the story, from Inuit art to horse breeding to Canadian business to diversity itself.
Small magazines provide an essential voice for minority interest communities. Many focus on new Canadians, keeping them in touch with world developments and relating their experiences with news about their new Canadian home.
Because magazines operate in an open sector, the industry is very accessible to prospective publishers and writers interested in giving voice to new interests, lifestyles, news and information. In fact, the number of Canadian titles continues to expand, offering even more choice to readers and benefiting the development of small and medium-sized magazines.
The number of Canadian magazine titles has gone from just 660 in 1960 to 1,500 in the mid-1990s, and higher still, to 2,300, in 2004.
The third point I would like to make is that the magazine industry cultivates a great diversity of ideas, perspectives and viewpoints. Without the time constraints faced by the broadcast world, for example, magazines are able to make a deeper dive into a variety of subjects and important issues of the day and yet still be more timely than books. Magazines provide more in-depth analysis and knowledgeable, well-researched content. Often, the goal of these publications is to inform debate and encourage dialogue amongst Canadians. While many of these magazines may not have a broad circulation base, the more important point to note is they continue to thrive and multiply in the noisy, fragmented and competitive media marketplace.
As we look to the future of the magazine industry, our members are focused on attaining an ambitious 50 per cent share of the magazine market in Canada. This means that Canadian magazines will be more aggressive on newsstands, buying space occupied by foreign publications and making Canadian magazines more accessible. This goal can only be achieved if it is undertaken in partnership with government and supported by sound cultural policies, something to which I will speak a little more in a few minutes.
In terms of challenges facing the Canadian magazine industry, the most significant one by far is the heavy concentration of U.S. magazines on Canadian newsstands. To help provide some additional context, think of this: Canada is an open market for U.S. magazines. We have a large English-speaking audience, educated and affluent, living right next door to the audience already being served in the United States. If you then factor in the easy flow of cultural materials, the common interest in language in most of North America, the enormous influence and size of the U.S. entertainment industry, you can begin to appreciate the implications of the overwhelming foreign presence on Canadian newsstands, where U.S. magazines account for a staggering 95 per cent of English-language sales.
We noted in the committee's interim report that the committee heard from both Rogers Publishing and Transcontinental Media about the importance of the Publications Assistance Program, or PAP, and the Canada Magazine Fund. Magazines Canada would like to reiterate how critical both these programs are to the success of the Canadian magazine industry.
The Publications Assistance Program meets the challenge of Canada's geography. It is critically important to the magazine publishing industry because it guarantees that Canadians have access to affordable Canadian magazines in all parts of the country. Put another way, it allows subscriptions to Canadian magazines to be competitively priced against foreign titles with much lower cost structures.
Producing a high-quality Canadian magazine is one thing, but it is another challenge all together to move it physically from the printing plant to individual addresses across Canada's enormous territory at a price consumers will pay. Maintaining an efficient and affordable distribution system for Canadian magazines continues to be of critical importance.
We would also agree with what Brian Segal of Rogers Publishing said about the PAP when he appeared before this committee in October 2003. He said at that time that the PAP represents one of the most efficient of our Canadian cultural policies. That is still the case today. The Publications Assistance Program is a market-driven program that helps to create a stronger and more competitive industry. Based on the design of the program, a publisher must have a prepaid subscription contract with a reader before the magazine can be delivered. Subsidies are drawn only once revenue has been secured, which means every penny of subsidy goes toward the affordability of a subscription Canadians have first chosen to purchase with their own money. From an economic and productivity standpoint, the Publications Assistance Program is highly efficient and helps the magazine sector drive its own performance and pursue increased circulation revenues.
The solid growth of the magazine sector over the last 30 years owes its success in large part to programs like the Publications Assistance Program that have provided a supportive, predictable business environment shaped by federal government policy and programs. During that time, Canadian magazines have been able to double their share of domestic readership from 20 per cent to more than 40 per cent.
Yet one area of extreme concern to Magazines Canada is that the Publications Assistance Program is currently at risk. In fact, the program is in crisis. This is because its budget has been fixed for many years, even as postal rates have increased annually at several times the cost of living. In fact, the postage rate for mid-sized magazines has more than doubled just in the last five years. This makes it ever more difficult for Canadian publishers to remain viable, and for smaller publishers, who might eventually lose their capacity to compete in the Canadian market at all.
[Translation]
Ms. Sylvaine Gombert, as an individual: Today, 59 per cent of magazines sold in Canada are foreign titles, mostly originating in the United States. Canada is a profitable market for our neighbours to the south and it is easy to market in Canada the same product designed for the U.S. market. The size of the U.S. market allows for economies of scale.
Canadian publishers have a difficult time competing with the U.S. giant without government support. A trip to the newsstand provides a glimpse of the market share taken up for foreign titles, particularly by U.S. magazines.
There is only so much newsstand space available and small magazines that cannot match U.S. magazines in terms of overall sales will be pulled by the distributor. In addition, small publishers cannot afford to pay for newsstand space.
U.S. magazines account for 95 per cent of newsstand sales. However, when it comes to magazine subscriptions, the ratio is different. In fact, 70 per cent of subscriptions sold in Canada are for Canadian magazines and this is largely due to the Publications Assistance Program which enables Canadian publishers, both large and small, to sell their magazines across the country at competitive prices. Many small magazines depend on their list of subscribers for their survival.
Magazines Canada emphasizes that the Publications Assistance Program is critically important to the Canadian magazine industry because it guarantees that Canadian readers have access to affordable, high-quality magazines that are in keeping with their interests.
When Brian Segal appeared before this committee, he stressed that the Publications Assistance Program represents one of the most effective Canadian cultural policy tools. The survival of the PAP is threatened at the present time by regular increases in postal rates. Small publishers are finding it hard to turn a profit and their survival is threatened as well.
Consequently, we recommend that public funding of the Publications Assistance Program be increased to ensure the effective Canada-wide distribution, at affordable prices, of Canadian magazines.
We also recommend that clear rules be set down, rules that cannot be changed without sufficient advance notice, so as to allow publishers time to deal with the situation. This would be in the best interest of Canadian publishers, whether large or small.
[English]
Mr. Thomson: It is our recommendation in the strongest possible terms that public investment in the Publications Assistance Program be increased to help ensure the competitiveness of and affordable access to Canadian magazines in all parts of the country.
The other critically important program to the Canadian magazine industry is the Canada Magazine Fund, or CMF. The CMF is a vital program that helps magazines in the all-important area of producing competitive, high-quality editorial content. U.S. magazines with open access to the Canadian market are spared the cost of producing Canadian editorial content. American magazines typically have editorial budgets that are, per page, several times greater than those of their Canadian competitors. Yet, because of their economies of scale and their hugely populous home markets, these larger editorial budgets are actually a lower percentage of total costs than in Canada, leaving more money for aggressive marketing and healthy profits.
This highly competitive operating environment, also featuring relentless, large postal increases, puts the pressure on Canadian magazines to cut back on editorial expenses, one of the few non-fixed costs a publisher can reduce. Yet such a move would clearly not be in the best interests of Canadians, who have unequivocally stated that they want and need to read relevant Canadian content.
The Canada Magazine Fund also plays a critical role with its program components to support the health and growth of small-circulation titles by providing financial assistance, allowing them to attract new subscribers and generate awareness of their existence.
Best of all, the Canada Magazine Fund achieves what it was designed to do. Canadian content makes up 93 per cent of the magazine contents supported by the fund.
In terms of where Canada's magazine industry is headed, I mentioned earlier that Magazines Canada has set an attainable but ambitious goal of reaching 50 per cent market share of magazine reading in Canada. This is what we call our "Fight for 50" campaign.
I also mentioned that in order to do this, the magazine industry would be getting more aggressive on newsstands and making Canadian magazines more accessible. Taking back our place on the newsstands and in mailboxes can only be achieved if it is approached in partnership with the federal government and supported by sound cultural policy that includes an enhanced investment in the Publications Assistance Program and a renewed commitment to the Canada Magazine Fund.
The PAP and the CMF are tremendously successful programs, which I think is best illustrated by the following example: In the face of one of the world's toughest competitors, Canadian magazines continue to outpace American publications in terms of page growth. Only eight U.S. titles have been able to penetrate the top 100 list of magazines in this country and spillover from the U.S. is in decline. The reason for this is more and more great Canadian magazine titles continue to emerge and thrive. Even more importantly, Canadian magazines feature editorial content that is uniquely relevant to Canadians. Clearly, the federal policies and programs for magazines are working, and working well indeed. These programs should be sustained and enhanced, certainly not curtailed.
Both the Publications Assistance Program and the Canada Magazine Fund support, predictably, Canada's largest magazine publishers. It is important to realize that these publishers are but minnows in the American publishing ocean. Each of the five largest U.S. publishers is, by itself, bigger than the entire Canadian magazine industry. Even more significantly, the government programs are essential to the survival of smaller magazines, which represent more than two-thirds of our membership in Magazines Canada.
We are talking about investments that drive not only the performance of the magazine sector, but also increase revenues in Canada. In the case of the Publications Assistance Program, it is a subsidy that actually makes money. In the case of the Canada Magazine Fund, it is an investment that directly supports the government's cultural objectives, supports content creators and helps relate news and information the Canadian way. It also helps Canadians to share their diverse perspectives and viewpoints with one another and to ensure that all voices have a place to be heard.
A strong and thriving Canadian magazine sector is good for Canada. It is good for Canadians who want and need access to Canadian perspectives, information, products and services. It is good for ensuring that Canadian magazines can continue to be an engaging, thoughtful voice for Canada's culturally diverse populations and the wide variety of interests and viewpoints that go with it.
The Government of Canada's magazine programs have played a crucial role in fostering the wonderful diversity of news, viewpoints and opinions found in Canada's magazines today. Looking to the future, they will continue to be invaluable in supporting the health and future growth of diversity in Canadian magazine publishing.
We thank the committee for the time you have given us today and we look forward to your questions.
The Deputy Chairman: I forgot to mention in the introduction that Mr. Thomson is the CEO and publisher of Canadian Geographic.
[Translation]
Senator Chaput: If I understand correctly, Magazines Canada currently represents over 300 magazines and approximately 2,000 titles. Regarding the Canadian magazine industry, are the magazines not among the 300 represented in fact news magazines? What type of publication are we talking about?
Ms. Gombert: They would be magazines not specifically intended for consumers, that is more specialized magazines or those in free circulation.
Senator Chaput: Of the 300 magazines represented by Magazines Canada, what percentage would you say are sold through subscriptions? Are these magazines also available on newsstands?
Ms. Gombert: All are available either through subscription or on newsstands.
Mr. Thomson: The percentage is between 80 and 95 per cent.
Ms. Gombert: So then, 90 per cent are sold on newsstands or through subscriptions. We cannot say what percentage subscriptions represent exactly. All we do know is that Canadian magazines account for 70 per cent of subscription sales in Canada.
Senator Chaput: I have one final question. The goal of reaching 50 per cent market share for magazines in Canada is laudable indeed. In your opinion, what actions need to be taken as soon as possible in order to reach this goal?
Ms. Gombert: The PAP is critically important to subscription growth.
[English]
Mr. Thomson: We hope to work in partnership with the government through the Canada Magazine Fund to obtain a larger share of the newsstand market. In the last several years we have done some test programs through a partnership between the Canada Magazine Fund and Magazines Canada members that have been successful in increasing marketing and market share. We would like to do more of those, which is why we think the Canada Magazine Fund is important and should be reinforced.
[Translation]
Ms. Gombert: Magazine quality can also contribute to increased sales.
[English]
Senator Munson: You just said you wanted a larger share of the market, yet when any one of us walks into a magazine or a newspaper store on a Saturday or a Sunday morning, the saturation of American magazines, trash magazines and others is sitting there. How do you go about marketing to, with or without this subsidy, hundreds of news magazine stores to get Canadian Geographic or other magazines out there front and centre? In a free, entrepreneurial marketplace, it is that glitz that seems to sell. The portion of titles from the United States is right in our faces. I do not know how you would ever get 50/50 in the present climate.
Mr. Thomson: Let me start by saying that we have a 41 per cent share of reading now because we have about 80 per cent of the subscription market. That subscriber is our heartland for Canadian magazines. They often find us on the newsstand, but they stick with us through subscriptions. Our subscriptions are able to be competitively priced with American subscriptions because of the Publications Assistance Program.
On the English-language newsstand, American titles have 90 per cent of the dollar volume. Most of what you see there is paid-for display. They have glitzy covers, but Canadian magazines have attractive covers too. They are literally renting that shelf space. They are renting those checkout stands in the supermarket. They are paying to be there. As they have much larger margins than Canadian magazines and belong to much bigger consortia with much wider buying power, they can pay for more display space and more prominent locations than Canadian magazines normally can. That is why, through partnerships within the industry and between the industry and the Government of Canada, there is the opportunity to expand that.
One other thing that is important to this understanding is that Magazines Canada as an association provides a subsidized distribution service to its small magazine members. The big magazines within Magazines Canada pay disproportionately for the costs of the association. One of the most important services the association provides is a targeted distribution for small magazines that gets the diverse viewpoints among our 300 members out to newsstands, bookstores and specialty retailers, to all of those places where people are looking for variety.
That is done thanks to the cohesion and the collective activity of the industry itself. It is supported through the Canada Council for the Arts and, to some extent, Canadian Heritage.
Senator Munson: I understand that. I am hard pressed in small-town Canada to walk into any particular store and find any Canadian magazine, with the exception of Maclean's, The Walrus or Saturday Night thrown into the newspaper. Canadian titles do not leap out at you in a little store in this country, so there are some marketing issues there.
Mr. Thomson: It is a vicious circle. It is a result of the fact that Canadian magazines have smaller profit margins and, therefore, smaller marketing budgets.
Senator Munson: Could you be more specific on the Publication Assistance Program and the Canada Magazine Fund? How much money does the federal government contribute to either fund? What is the percentage that goes to your magazine association? Does it go directly to the association or to the individual magazine?
Mr. Thomson: Let me begin with the Publications Assistance Program.
The funding goes to magazines and is paid into their accounts at Canada Post to offset the net amount payable for mailing. It is directly linked to the physical distribution of the magazine and goes to Canada Post to reduce the mailing bill.
The budget for that program has been at $49 million for a number of years. It was slated to drop to $45 million this year. That drop has been postponed for one year. Even so, we learned on September 2 of this year, to the complete surprise of the industry, that there was not enough money in the fund even for this fiscal year.
For example, at Canadian Geographic, for the second half of the year, on 60 days' notice we have a 35 per cent increase in our cost of mailing magazines. That will rise to 52 per cent next April 1 as compared to the prior year.
In the space of 12 months, we have a 52 per cent increase in the cost of mailing our magazines. This is what we mean when we say it is in crisis. For most Canadian magazines, this really is a crisis. We have nothing like those kinds of profit margins or the ability to cut costs when we are already hard-pressed.
Senator Munson: Could you comment on the Canada Magazine Fund?
Mr. Thomson: That was originally a $50-million program. It was cut to $25 million, and half of that goes toward content creation on a pro rata basis. All participating magazines file what they have spent on content creation in the prior year, and then they get a pro rata share from the pot.
Senator Munson: Do you want that increased?
Mr. Thomson: Yes. It was originally twice as much. The Canada Magazine Fund deals with the economic challenge. Foreign competitors have more money to spend on content than do we. The fund allows us to invest in content, whereas PAP deals with the geographic challenge that we face as Canadians spread across 5,000 miles of country; it is very expensive to communicate with each other back and forth.
Senator Munson: Do you know if any of your members feel any pressure at all because of the subsidies and this fund to be nice to the federal government by placing the odd news story in Canadian Geographic, for example, about good things that are happening? Is it just a hands-off situation — here is the money, print a good magazine? Here is taxpayer money to help you out. Is there a quid pro quo there from time to time?
Mr. Thomson: I have been on the board of Magazines Canada for almost 10 years and I chaired it for two years. I have never heard of a single instance of any editorial considerations being asked for or even hinted at.
It is well understood in the industry and by the government officials who implement these programs that they are precisely about fostering a diversity of viewpoints and a healthy debate about public policy in Canada. I do not think there is any perception anywhere that there is any kind of trade-off here.
As you have no doubt heard, we have lots to say about government policy that may sometimes not be entirely welcome.
Senator Phalen: When Mr. Ken Alexander, publisher of The Walrus magazine, appeared before this committee, we had an interesting discussion about launching a new magazine, the expenses and the length of time to see a profit.
Could you give us some idea of the number of magazines that are starting up in Canada and what their success rate is?
Mr. Thomson: There are certainly several hundred a year of all sizes and types. Most of them are very small.
Jim Everson, Executive Director, Public Affairs, Magazines Canada: We do not have specific numbers on start-ups, but there are many of them, with quite a significant failure rate.
Senator Phalen: Mr. Alexander also brought to our attention that the Publications Assistance Program does not kick in until a magazine has been in operation for a full year. Do you believe making this program available earlier would be of any help?
Mr. Thomson: Yes. Magazines Canada has for many years advocated that postal assistance subsidy should be available on any paid circulation as soon as that circulation is achieved.
As you say, right now you have to be in business for a year. You also have to be more than 50 per cent paid to get a subsidy at all. Getting to 50 per cent is a huge barrier.
One of the reasons there are so many unpaid magazines and so many start-ups of a free distribution is it is just too expensive to do enough marketing to become more than 50 per cent paid.
Senator Mercer: I want to follow up on Senator Munson's last question about editorial content.
You said earlier that the Canada Magazine Fund supports high-quality editorial content. I would like to know how the Canada Magazine Fund defines "high quality." How do they distinguish between high and low quality? What I would consider high quality may not be considered high quality by the chairman because of our political differences. I am puzzled by the use of the words "high quality."
Mr. Thomson: The Canada Magazine Fund does not attempt to distinguish among grades of quality.
The purpose of the program is to allow Canadian publishers to produce competitive content. Our challenge in the Canadian magazine market is that our foreign competitors have larger budgets than do we so they can have bigger, better photos, bigger-name writers, more illustrations, higher production values, thicker paper and more gloss.
The Canada Magazine Fund provides a small enhancement to our editorial budgets — as well as us working a lot harder — and allows us to be a little more competitive by investing a little more in Canadian content creation. I think it is every editor's judgment what constitutes high quality for that magazine's readership.
Senator Mercer: Perhaps it is in the eye of the reader as well. What I consider good or bad is subject to my own tastes.
We have talked a lot about English-language publications. We have not talked at all about French-language ones. I am somewhat anticipating the answer to this question.
By concentrating on the English-language market, are we saying that the French-language market is a little more secure in this country because of the uniqueness of our French marketplace? While there is competition, it is across the ocean as opposed to here.
Mr. Thomson: I will let Ms. Gombert speak to that as well.
It may be true to a small degree, and the circumstances are somewhat different.
It is important to remember that while there may be less direct same-language competition on this continent, it is also again a much smaller market. It is perhaps 20 to 25 per cent of the English-language market in Canada, which means that the lack of economies of scale is that much greater. There are enormous challenges in producing high-quality competitive content in a market of that size.
[Translation]
Ms. Gombert: I admit that French is the dominant language in Quebec. However, French-Canadian magazines must compete for their share of the market against a number of European and U.S. magazines.
As for placement at checkouts and newsstands, even French magazines must compete against U.S. magazines. If a magazine sells well, the distributor is keen on having it displayed prominently to increase sales and revenues. Magazines are constantly vying for space. The distributor maintains the displaying a magazine prominently will boost sales. However, the reality is that if a U.S. magazine posts better sales, then it will likely enjoy the better placement on newsstands.
[English]
Senator Mercer: What percentage of your membership would represent French-language publications compared with English language?
Mr. Thomson: It would be about a quarter.
Senator Mercer: Anecdotally, one of the struggles you have mentioned yourself is getting the magazines in front of Canadians, because the quality is there once we see them. I subscribe to at least two Canadian magazines that I was introduced to because they were on the rack on the airplane that I travel on every week. I enjoyed the magazines and then subscribed to them. There is that issue of trying to get them in front of us.
Mr. Thomson: Again, if I might add, that is another example of pay for display. All of us on Canadian airlines have to pay to be there.
On the subject of diversity of Canadian titles, there is a large pile beside Mr. Everson that I invite all of you to peruse after the formal proceedings here. It will give an example of the range of news and opinion in Canadian magazines.
Senator Mercer: Madam, you indicated that there was competition with U.S. English-language magazines, and U.S. magazines translated into French. Is it English-language U.S. magazines to which you refer?
Ms. Gombert: Yes.
The Deputy Chairman: You do not represent all of the magazines in the country, or do you?
Mr. Thomson: We represent paid circulation consumer magazines. All of the major magazines with paid circulation are members, as well as hundreds of smaller magazines.
The Deputy Chairman: Does each magazine belong to the association directly or through the company that owns it? In other words, how many of the magazines in your association are owned by, say, Maclean Hunter or one of the other corporate holding companies that own many of the magazines?
Mr. Thomson: Our members are owned individually, and there is a member catalogue that serves both as a marketing device and a directory where you will see all of the member magazines.
A little less than one third are from major companies such as Rogers; Rogers Publishing is now what used to be Maclean Hunter; Rogers, Transcontinental and St. Joseph Media are the three biggest magazine clusters. However, all of their titles together comprise less than one third of our membership. There are independents such as Canadian Geographic and others that are medium size. Then there are many individual ones.
The Deputy Chairman: How much of the circulation percentage does that one third make up?
Mr. Thomson: I do not know if I can tell you off the top of my head.
The Deputy Chairman: They would be the ones who own all the big players, such as Maclean's.
Mr. Thomson: That is correct.
The Deputy Chairman: These three or four companies would get the major pots of cash, would they not, from the magazine fund and the postal fund?
Mr. Thomson: I think they are producing the largest circulations and often the highest frequencies. Again, it is important to put them in the continental context. They are neither big publishers nor big titles by North American standards. Their competitors are vastly better funded and equipped. They are competing for readers with American titles and with each other. It is an extremely competitive market.
The Deputy Chairman: You talk about 41 per cent of the newsstand marketplace. Take away all of the pornographic crap such as Maxim, Playboy and Hustler — Canadians do not seem to be big in the pornography industry — as well as things like Hollywood entertainment, because there is much of that: That material may be part of the cultural expression of North America, but we are interested in the news business. We do pretty well in that area, do we not? If we took the other magazines away, would Canadian magazines not hit the 50 per cent mark or more?
Mr. Thomson: No.
The Deputy Chairman: They would not. Who gobbles that up?
Mr. Thomson: Look at hard news. We have one major Canadian contender in Maclean's as an opinion magazine. They have several competitors, such as Time Canada, Newsweek and many American opinion journals. You see U.S. News & World Report.
If you go to the science and nature category that Canadian Geographic is in, after years of trying, we now outsell National Geographic on the newsstand, but they still have twice the circulation in Canada that we have. On the newsstand we face Scientific American, Discover, National Geographic, National Geographic Traveler and National Geographic Adventure. These are all around us. We have but a small percentage of the category and we are the only significant contender in English.
The Deputy Chairman: Do we have Canadian publications that succeed in the international marketplace? I have read stories about magazines such as Wallpaper, about some special interest magazines that are becoming successful in the United States.
Mr. Thomson: There are very few truly international magazines because they are relatively perishable in the sense of being time-sensitive to the week or month. They are physically heavy and expensive to move around. Typically, countries only export about 1 per cent of their magazine production. The only real exception in the world is the United States, which exports about 5 per cent of its production, and the 4 per cent difference is all coming to Canada, because we have the unique accident of geography that populous parts of the United States are just across the line from the populated parts of Canada. It is a short haul. It is the only area in the world, with the exception perhaps of Austria and Germany, where two countries speak the same language, share a border and have the ability to put large quantities of magazines cheaply across the line.
Even between Australia and New Zealand, the 600 kilometers of the Tasman Sea is a sufficient barrier that New Zealand has a robust domestic magazine industry, just because of the cost of moving magazines across from Australia.
The Deputy Chairman: How does Ireland do it?
Mr. Thomson: I am not aware of any facts from Ireland.
Senator Phalen: There are 2,000 magazines titles, and you represent 300 of them. Who are the other 1700? Are they smaller or more specialized magazines?
Mr. Thomson: One large group is business-trade-professional titles, which are represented by another association, the Canadian Business Press. There are farm magazines, religious magazines and scholarly journals; then there are the free distribution magazines. Those categories make up the rest.
I think it is fair to say, when most people think of magazines they think of consumer magazines that are found on newsstands. Our membership includes 80 per cent of those that are Canadian.
The Deputy Chairman: I want to follow up on these government programs. There is the postal subsidy and the Canada Magazine Fund. Do all magazines make application for the content part of the cash, and at what percentage? How would that be distributed? What percentage of the cost would it make up?
Mr. Thomson: Any magazine that is aware of it and qualifies for it is applying for it. There are lower limits to qualification. It is based on size — you have to maintain 80 per cent Canadian content. You have to have less than 70 per cent advertising — and certain other criteria.
As to the funds themselves, while I said there is a pot of approximately $12 million that is divided among all qualifying magazines on a pro rata basis, there is a multiplier at the bottom end so that small magazines get proportionately more of their editorial budget than a large magazine.
The Deputy Chairman: What would the percentage be for Maclean's, for example?
Mr. Thomson: I could not speak for them, but approximately 15 per cent of the total content-creation cost for Canadian Geographic would come from the Canada Magazine Fund.
The Deputy Chairman: What about government advertising? Do you have some of the same complaints as the ethnic magazines, in that you are not getting a fair proportion; it is all going to television?
Mr. Thomson: It is negligible given the highly effective character of magazine advertising and its staying power in the home. We do not understand why the Government of Canada does not use more magazine advertising in more Canadian magazines.
Senator Munson: Some complain about subsidizing the CBC, so why should we subsidize Maclean's magazine? They are in the private sector. They are big boys. They are out there making money, yet some would say — I would not but some would — you are looking for a handout.
Mr. Thomson: I think that the critical issue here is the unique nature of cultural products. You may know that yesterday in Paris UNESCO approved, by a vote of 150 to 2, the Convention on Cultural Diversity. The only two against were the United States and Israel. This is about the right of countries to maintain cultural industries outside the trade rules and it recognizes that their unique character is about more than making money. They are about who we are, and our value systems as Canadians, or citizens of other countries, that we want to share with each other and the world.
American magazines are sitting across the border and are close to all our major population centres. Their economies of scale are 10 times greater than ours, and thus they are able to price their single copies and subscriptions at predatory levels. They could occupy the entire Canadian market if not for two things: One is resolute Canadians creating great Canadian content that is relevant to Canadians, and the second is magazine programs that have allowed the Canadian market share to double over the last 30 to 40 years. I think Canadians were just as creative and talented 40 years ago as they are today, but our market share is double what it was then because of some well-designed and well-targeted programs that do not amount to a lot of money but have been efficiently focused to achieve a large cultural result.
Senator Munson: What is your view of foundations? We were rather intrigued to hear that it does happen in the United States, for example, with Harpers. Is it a good idea to give tax breaks to people to put a charitable foundation together and then produce a good magazine?
Mr. Thomson: It is not something I have personally investigated or studied, nor is it something that Magazines Canada has a position on at this time.
Senator Munson: Another question has to do with freelance writers at these magazines that you represent. There are a lot of problems in the newspaper industry with freelance writers. We have heard that they do not seem to get the buck for the bang for the work they have done, and once it is gone it is gone. Are there similar rules in the magazine industry for freelancers?
Mr. Thomson: Most of the feature stories in Canadian magazines are written by freelancers whose rates vary with the title, the writer's ability, reputation and the amount of work involved in creating the piece. There is also a resale market through the access copyright system, where writers receive ongoing royalties whenever the material is reused, redistributed or photocopied.
Senator Munson: What one recommendation would you like this committee to put in its report and have the government implement?
Mr. Thomson: I would like to see budgets increased for the magazine programs.
Senator Munson: What percentage increase would be acceptable to Magazines Canada at this time?
Mr. Thomson: I think that it needs to be increased by one third to do a reasonable job in terms of the objectives and the industry that we have.
Senator Mercer: Not back up to the 50 million that it was?
Mr. Thomson: There is $45 million going forward in publications assistance for postal subsidy and $25 million in the Canada Magazine Fund, so that is $70 million.
Senator Mercer: You are talking about increasing both?
Mr. Thomson: Yes.
The envelope needs to be about one third bigger to properly address the objectives and the opportunity.
Senator Mercer: The Canada Magazine Fund was $50 million and now is down to $25 million, correct?
Mr. Thomson: Correct.
Senator Munson: If it does not happen, will we see the death of more Canadian magazines in this country?
Mr. Thomson: The Publications Assistance Program budget is being reduced at a time when costs are increasing dramatically and eligibility has been expanded. We at Canadian Geographic are facing, next April, distribution costs that are 52 per cent higher than the previous year, which is more than we spend on all the contributors to the magazine — all the freelance writers, photographers, artists and illustrators who contribute to Canadian Geographic — in a year. We are in a huge state of consternation because it is difficult to find that kind of money anywhere. It is more money than we make as a company and it means that we have to make drastic cuts across the board, including in content.
Senator Munson: Could you tell us about the distribution costs? Is it from gas to delivery? Why are they going up?
Mr. Thomson: The fundamental reason that postal rates are rising so dramatically is that Canada Post is distributing fewer pieces of mail to more addresses. They have gone from approximately 2.7 pieces of mail per address per day to 1.7 pieces of mail per address per day even as the number of addresses in Canada is increasing by millions over a certain period.
Therefore, their cost structure is out of whack. Their economic model is broken. Their only response is to relentlessly increase prices, which drives more and more businesses out of the system, including magazines. We cannot pay these prices, and are desperately looking for other means of distribution and putting more and more content elsewhere.
The Deputy Chairman: If a person starts a camera magazine and Maclean Hunter or Rogers buy them, what is the difference to me, as a Canadian, whether they buy them or some American does? Why does it matter?
Why do any of these special interest magazines have to do anything? Why are we paying subsidies to these people? Why is that more important to Canada than the guy who owns a machine shop that makes drill bits?
Mr. Thomson: Many things are different in Canada. The variety of products available here is different than in the United States. Conditions of use are different and users have different needs and desires. There is a need for a Canadian perspective on just about everything.
The Deputy Chairman: These magazines all talk about cameras that are made in Japan, China and Germany. What does that have to do with Canadian culture? Are we spending money on any of these things?
Mr. Thomson: You will see that successful Canadian magazines exist where they deal with the unique Canadian experience. It is true there are fewer Canadian titles in the generic subject categories.
The Deputy Chairman: Would you give an example?
Mr. Thomson: The automotive industry is one. North American cars are pretty similar. U.S. car magazines have gigantic economies of scale. There is not an automotive equivalent of a Canadian Living or a Canadian Geographic that deals with a uniquely Canadian lifestyle, living conditions and the space we inhabit here in Canada.
Mr. Everson: I want to clarify a question you asked about the size of programs. The Canada Magazine Fund has been at many different levels over its short life. It started, on paper, at a $50-million level but never achieved that. It achieved a level of approximately $35 million at one point. It is now a $16-million program, $10 million of which is for an editorial content program. The remainder is dedicated to small-magazine business development and to infrastructure improvement.
A recent campaign identified Canadian magazines on newsstands. We did it in partnership with the Department of Canadian Heritage, a promotional campaign to raise awareness of Canadian magazines. When you went to a newsstand at that time, you could see Canadian magazines were better identified.
The Publications Assistance Program's budget this year was supposed to be at $45 million. Minister Frulla, with the Department of Canadian Heritage, improved it to $49 million to maintain its budget from previous years. It is scheduled to be reduced to $45 million on April 1, 2006, which is a major concern for the sector. Approximately 80 per cent of that funding is for magazines. Community newspapers and newsletters also participate in that program. A major concern is that we do not envision a program that is indexed to the growth of the industry.
One of the success factors of the program has been its predictability over many years. Publishers could see a magazine launch opportunity and could plan their circulation and growth in the anticipation that when they reached 50 per cent of paid subscriptions they would start to receive the PAP subsidy.
They could outline a business plan in which PAP was a predictable part. One of the elements of the crisis in PAP at the moment is that there is no longer any predictability in the program. The budget is frozen. Formulas can change considerably overnight. Publishers lost the opportunity to plan their business strategy to launch a new magazine and create diversity through the use of the PAP program. We are looking to try to create a more predictable program on which people can base business plans.
Senator Mercer: I want to talk about economy of scale. I subscribe to several of the magazines that are members of your association. They are single issue magazines; one is Cottage Life.
Do they have their own print shop or do they buy time at another printer? Not specifically Cottage Life, but other magazines — do they have their own print shop?
Mr. Thomson: Normally not. A number of magazines are owned by companies that also have printing divisions, but a great many are printed independently. The vast majority are printed by printers who are not owned by the publisher.
Senator Mercer: There is no room for an economy of scale there?
Mr. Thomson: Because of competition, the printing industry is extremely cost effective. For example, over the last 10 years, the actual cost of printing Canadian Geographic has declined because of process improvements and equipment technology improvements in the printing industry. At the same time as we have seen an approximately 10 per cent decrease in the cost of printing our magazine over a decade, we have seen our postal costs nearly triple. One sector has competition, the other does not; what conclusions can you draw?
The Deputy Chairman: If no one else has any further questions, I thank the witnesses, Mr. Thomson, Ms. Gombert, Mr. Everson, for coming today. It was an interesting discussion. We will reconvene on Wednesday at 6:15. We will hear from the Canadian Broadcast Standards Council; Dr. Lydia Miljan, of the University of Windsor; and Dr. Barry Cooper, of the University of Calgary.
The committee adjourned.