PUBLISHING

Plugging a loophole

Ottawa moves to protect Canadian magazines

PATRICIA CHISHOLM August 2 1993
PUBLISHING

Plugging a loophole

Ottawa moves to protect Canadian magazines

PATRICIA CHISHOLM August 2 1993

Plugging a loophole

PUBLISHING

Ottawa moves to protect Canadian magazines

When it appeared on newsstands early last April, Sports Illustrated, the 39-year-old weekly magazine owned by Time Warner Inc. of New York City, bore the word “Canada” above its cover logo. The advent of Sports Illustrated Canada caused consternation among the publishers of Canadian magazines, who have long objected to wealthier U.S. publications attracting revenue from Canadian advertisers by printing so-called split-run editions that contain little Canadian content. Although the Income Tax Act and Customs Tariff both contain provisions to protect domestic magazines, Canadian publishers argue that the rules are not strong enough. Last week, while taking no immediate steps to banish Sports Illustrated Canada, the federal government finally said that it agreed. In a Toronto announcement made jointly by Deputy Prime Minister Jean Charest, Communications Minister Monique Landry and Revenue Minister Garth Turner, Ottawa introduced new measures to block other foreign publishers from following the route taken by Time Warner.

The issue came to a head last spring. On March 26, the federal government announced that it planned to appoint a task force to study the Canadian magazine industry and the regulations affecting it. A few days later, Sports Illustrated Canada went on sale across the country and on April 8, the federal government named Patrick O’Callaghan, former publisher of The Windsor Star and The Edmonton Journal, and former deputy minister of justice Roger Tassé to head its task force. Although O’Callaghan and Tassé are not due to issue a final report until December, they decided to issue interim recommendations “requiring early government action.” Warning of “devastating” consequences for domestic magazines, they recommended that foreign publications be immediately prohibited from following the Sports Illustrated example.

Last week’s response by Ottawa effectively did just that by revising guidelines contained in the Investment Canada Act. That act permits foreign companies already established in Canada to expand existing businesses without being subject to review by Investment Canada. But from now on, a Canadian—or split-run—edition published by a foreign magazine already established in Canada will be regarded as a new business and therefore subject to review. And if any foreign publisher applied for permission to start a split-run magazine, “it is very unlikely that the government of Canada would authorize such action,” Charest said. Although the new measures are not retroactive and therefore do not apply to Sports Illustrated Canada, Landry indicated that even tougher measures were likely to follow because the latest changes would not fully accomplish Ottawa’s goal of blocking split-runs in Canada. Said Landry: “The measures we have announced today are not sufficient to achieve the government’s policy objective.”

In fact, magazine publishers say that a thorough overhaul of outdated legislation is needed to shelter their industry, which, on average, earns profits of two per cent—or about $18 million in 1991. That leaves one of Canada’s cultural industries in a precarious position, said Catherine Keachie, executive director of the Canadian Magazine Publishers Association. “A three-per-cent shift in advertising revenues can wipe out our profits,” said Keachie. ‘When you live beside the biggest producer of English-language magazines in the world, you need smart legislation.”

The federal government first enacted legislation to protect Canadian magazines in 1965. It declared that Canadian companies advertising in foreign publications could no longer deduct those costs for income tax purposes. At the same time, it introduced other changes giving customs officers the authority to seize foreign magazines containing more than five per cent Canadian advertising. Government analysts said that the 1965 legislation discouraged most split-runs and helped create a more vigorous domestic industry. But since then, changes in technology have weakened the barriers. Satellites now allow foreign publishers to beam editorial content directly into Canadian printing plants. That new technology helped Sports Illustrated to print split-run editions in Canada.

Among older publications, there has been a tradition of compromise. Reader’s Digest prints a Canadian edition containing Canadian advertising—it, along with Time, was exempted from the 1965 federal constraints because it had been in business long before they were enacted. Reader’s Digest also gives journalism-oriented educational grants and often reprints Canadian magazine articles, two factors that have helped to mollify domestic publishers. Time magazine produced a Canadian edition until 1976, when new federal legislation took away the magazine’s status as a domestic publication. Time then shut down most of its Canadian operation and virtually eliminated its Canadian content.

Meanwhile, some Canadian magazine publishers say that Ottawa should never have allowed Sports Illustrated Canada to get started. Said James Warrillow, president of Maclean Hunter Canadian Publishing, which publishes Maclean’s: “This was a clear violation of Canadian government policy on magazines. We are not objecting to U.S. magazines, just to double-dipping.” But Sandra Berry, the Toronto-based managing director of Time Canada Ltd., says that its parent company, Time Warner, has always acted within the law. Said Berry: “Our advertisers’ products sell and that’s what we’re in the business of doing. They are happy with us and our readers are happy, so we are happy.” And while Canadian magazine publishers are still some distance from happiness over foreign inroads, they appear at last to be getting some of the help from Ottawa they have long been demanding.

PATRICIA CHISHOLM