BUSINESS

Time Warner’s gambit

Sports Illustrated challenges Ottawa

TOM FENNELL April 5 1993
BUSINESS

Time Warner’s gambit

Sports Illustrated challenges Ottawa

TOM FENNELL April 5 1993

Time Warner’s gambit

BUSINESS

Sports Illustrated challenges Ottawa

TOM FENNELL

The reception at Toronto’s upscale Four Seasons Hotel sent a tremor through the Canadian magazine industry. Sports Illustrated, the New Yorkbased weekly, had invited representatives from the country’s major advertisers to promote the magazine’s first Canadian edition. The video presentation on Jan. 11 was part of a sales effort that generated 40 pages of ads in Sports Illustrated Canada, whose first edition was due on newsstands this week. But the first edition could also be the last. In January, Revenue Minister Otto Jelinek sent a letter to Time Warner Inc., the media and entertainment conglomerate that owns Sports Illustrated, warning that the firm could be violating Canadian tariff laws. Said Jelinek: ‘We may have to seize the next four issues coming into this country.” Last week, Jelinek and Communications Minister Perrin Beatty also announced that they had established a task force to examine how to protect the Canadian magazine industry from unfair competition. Added Beatty: “The government wants to ensure that the policy frame-

work that fostered this industry is effective.”

The decision to launch Sports Illustrated Canada, which Time Warner says will be Canadian because it will be printed in Canada and have a certain amount of Canadian and international editorial copy produced by the parent magazine in New York, is a major test of current federal law. In 1965, the Liberal government amended the Canada Customs Tariff Code to keep socalled split-run editions of foreign magazines out of Canada. As well, the cost of advertising in foreign publications could no longer be claimed as a business expense. However, special “Canadian” editions of Time and Reader’s Digest were exempted.

Previously, foreign publications, mainly American, with little Canadian content, could simply insert Canadian advertisements into their magazines and distribute them in this country without producing Canadian editorial material. In 1976, the Canadian industry received additional protection under Bill C-58, when Time lost its Canadian status. But last week, Catherine Keachie, executive director

of the Toronto-based Canadian Magazine Publishers Association, said that Sports Illustrated’s attempt to launch a split-run edition in Canada underscores the need to toughen both laws.

And Jelinek said that the task force will examine ways to update the legislation to prevent split-runs.

Meanwhile, Sports Illustrated editors in New York last week were preparing the first Canadian edition. The first cover image and story in Sports Illustrated Canada will feature a freelance article on Toronto Blue Jays manager Cito Gaston, said Sandra Berry, Torontobased managing director of Time Canada. And although she would not disclose the amount of Canadian content in the whole magazine, she added that five subsequent Canadian issues due to run in 1993 will also carry more Canadian content. Said Berry: ‘We want to give our readers more information on Canadian sports.”

Berry said that one of the reasons Time Warner decided to launch the augmented Sports Illustrated was because the magazine’s

newsstand sales jumped from 7,000 to 40,000 copies for the issue following the Blue Jays’ victory in the 1992 World Series in October. “It became apparent that there was a great desire on the part of Canadians to read more about

their own teams,” said Berry.

As well as claiming that the Canadian content of Sports Illustrated Canada exempts it from the provisions of the 1965 and 1976 legislation, Time Warner points to its decision to beam editorial copy to Canada via satellite to a Toronto printing plant. The company now does that with its Canadian edition of Time magazine. And Keachie points out that once Time Warner has established the same system for Sports Illustrated Canada, it could easily continue using it for the regular U.S. edition. That would make it impossible for the federal government to retaliate because I authorities would effectively be unable to intercept the 1 transmission of pages. Said James Warrillow, president of Maclean Hunter Canadian Publishing, which publishes Maclean’s'. “We already have Time taking millions out of this market and sending it down to New York.”

Other Canadian publishing executives say that Sports Illustrated Canada is nothing more than a thinly disguised split-run edition. The

company sold about $240,000 worth of ads in the first edition at $6,250 a page. By comparison, a page in the U.S edition, with a circulation of 3.1 million, was selling last week at $134,620. James McCoubrey, president of Toronto-based Telemedia Communication Inc., says that in most split-run editions, production costs are largely covered by U.S. advertising revenue and, as a result, they can sell ads in Canada at rates well below those reflecting the magazine’s actual cost of production.

Warrillow added that if Sports Illustrated is not stopped, a number of other U.S. publications could also start selling their magazines in Canada. Their only real investment in Canada, he said, would be in freelance writers. ‘To be a Canadian magazine you launch a magazine here, and have management and editorial offices,” said Warrillow. “But that is not what Sports Illustrated is doing.”

Jelinek said that even if the first edition of Sports Illustrated does not break any Canadian laws, the government does not intend to let the matter die. A task force is needed, he said, because neither the tariff law nor Bill C-58 are equipped to deal with such advances as satellite printing technology. “The government will review the whole policy,” said Jelinek. ‘We are not going to let Time Warner run over our laws.” The Sports Illustrated issue will clearly be a major test of that expression of resolve.

TOM FENNELL