PUBLISHING

The issues at stake

BARBARA WICKENS April 4 1994
PUBLISHING

The issues at stake

BARBARA WICKENS April 4 1994

The issues at stake

PUBLISHING

BARBARA WICKENS

As wishes go, Roger Tassé might have known his would not be granted. Last week, he and Patrick O’Callaghan, co-chairmen of the task force on the Canadian magazine industry, released the results of a year-long study. Among its 11 recommendations, their 96-page report proposed a tough new tax measure designed to deter so-called split-run editions of foreign magazines in Canada. (In a split-run, a publisher inserts new advertisements aimed at one market into editorial material already prepared for another market.) But the report, titled “A Question of Balance,” also recommended that split-runs already distributed in Canada be allowed to operate at their 1993 levels. That would effectively exempt Sports Illustrated Canada—the split-run publication that prompted formation of the task force in the first place when Time Warner Inc. of New York City introduced it a year ago. Tassé, a former federal deputy justice minister, said he anticipated dissatisfaction with the suggested exemption. But, he added, he hoped that it would not make Canadians overlook the report’s other recommendations.

It was a difficult request for many in the magazine industry to accept, even those who otherwise praised the report for its solid research and sound conclusions. Former Toronto Life managing editor Lynn Cunningham, one of seven industry advisers to the task force, said she was “surprised and dismayed ” by the exemption proposal. If accepted by the government, it would allow Sports Illustrated to continue selling advertising in six split-run editions a year at deeply discounted rates. It can afford to sell its space cheaply because it recovers the cost of most of its editorial material in its U.S. home market. Canadian publishers call it dumping and say it drains revenue from domestic publications. “Since there is a finite pool of advertising dollars in this country,” Cunningham said, “even six issues of Sports Illustrated can do a great deal of damage.”

Many observers maintain that the $846million Canadian magazine industry is ill-

The government considers proposals to protect the Canadian magazine industry

equipped to absorb any more body blows. The recession, the Goods and Services Tax (GST) and increased mailing costs for paidcirculation magazines have all taken their toll in recent years. O’Callaghan, former publisher of The Windsor Star and The Edmonton Journal, told reporters in Toronto that less than half of Canada’s 1,440 magazines make a profit. Among those that do make money, profit margins average a meagre 2.4 per cent. Said O’Callaghan: “The industry is already perched precariously on a tightrope.”

Canadian magazines, however, need to survive because they play a fundamental role in the country’s cultural identity, O’Callaghan

said. Given that premise, the report went beyond the issue of split-runs. It proposed comprehensive measures that included halting the erosion of postal subsidies to avoid raising magazines’ delivery costs, and encouraging federal and provincial governments to place their advertising in Canadian media. It also recommended better enforcement and policing of tax provisions that prohibit Canadian companies from claiming deductions for ads placed in foreign publications. Said James Warrillow, president of Maclean Hunter Canadian Publishing, which publishes Maclean’s: “They made many practical suggestions that should benefit the magazine industry.”

The Sports Illustrated controversy arose because of new technology that enabled the magazine’s editors to prepare it in the United States, then beam it by satellite to a Canadian printing plant. In that way, it bypasses Canadian customs— and the three-decade-old regulations that effectively barred split-run publications from Canada. To close that loophole, the report recommends changes to the Excise Tax Act. It calls for a new tax, equal to 80 per cent of the value of the advertising in an issue, to be levied against any new magazine that contains less than 80 per cent “original content.”

The exemption would also spare the long-standing Canadian edition of Time. But the task force recommendations would affect Sports Illustrated Canada in another way. It plans to double its frequency from six to 12 issues this year, and those six additional editions would be subject to the hefty new tax. Sandra Berry, Toronto-based representative of Time Warner, criticized the proposals but expressed doubt that they would become law. Said Berry: “We do not believe the government will act on any recommendations that would amount to a confiscation of our business.” Heritage Minister Michel Dupuy gave no hint of how the government will proceed on the report, aside from saying that he would respond quickly. But some industry insiders privately expressed doubts about the Liberals’ commitment to supporting Canadian cultural industries. Ottawa’s approval of the sale of Ginn Publishing Canada Inc., an educational publishing firm, to U.S. giant Paramount Communications Inc., in February, they say, sets a disturbing precedent. The government will have to juggle those concerns—and the sensitivities of a big trading partner to the south—when it deals with “A Question of Balance.”

KEY RECOMMENDATIONS

■ An excise tax on the printer or ■ No increase in postal rates distributor of split-run magazines for Canadian paid-circulation equal to 80 per cent of the value magazines.

of the advertising in them.

■ Federal and provincial

■ A review of GST on all reading governments should advertise materials, including magazines. in Canadian media.