[Recorded by Electronic Apparatus]
Wednesday, October 18, 1995
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[English]
The Chair: Please come to order. We are continuing our hearings on Bill C-103. The Bloc has informed us its members will not be attending today, but we may start in their absence without waiting the usual 15 minutes.
Appearing before us from Time Canada Ltd. is Sandra Berry, managing director; and from Sports Illustrated Canada, Nicholas P. Wattson, sales manager. Also with them from Osler, Hoskin & Harcourt is the Hon. Ronald G. Atkey, former distinguished member of cabinet and Parliament; and Mr. Alan Young, lawyer. We welcome you and look forward to your presentations.
Mr. Nicholas P. Wattson (Sales Manager, Sports Illustrated Canada): Mr. Chairman, hon. members of the committee, ladies and gentlemen, my name is Nicholas Wattson. I'm a Canadian working in Toronto and I'm responsible for Sports Illustrated Canada.
Thank you for giving us the opportunity to appear before you today so we can provide you with our views and concerns regarding Bill C-103.
Before getting into the substantive portion of our presentation I would like to introduce the other people who are appearing with me today. First, we have Sandra Berry, who is a Canadian and is managing director of Time Canada Ltd. Sandra was involved in the early planning for Sports Illustrated Canada and presided over its launch in 1992-93. Next is Ron Atkey, senior partner with the firm of Osler, Hoskin & Harcourt, Time Canada Ltd.'s legal counsel in Toronto, and finally we have Alan Young, a lawyer with Osler, Hoskin & Harcourt's Ottawa office.
We have provided a written brief in both official languages to the clerk of the committee. I trust that each member of the committee has received a copy. I do not propose to repeat all of the points made in our brief. However, I do have some opening remarks, following which we would be pleased to take questions from committee members.
Simply put, we believe that Bill C-103 is seriously flawed. Certain of its provisions are aimed specifically at Sports Illustrated Canada in direct response to the commencement of publication and distribution by Time Canada Ltd. of Sports Illustrated Canada on April 1, 1993.
We believe that under the guise of a tax measure, the bill is really intended to cause Time Canada Ltd. to cease publication of this periodical. This is a challenge to the principles of fairness and rights protected under Canadian law.
I think it might be helpful for committee members if I provided some historical perspective on this issue. When we began planning the publication of Sports Illustrated Canada over five years ago, we observed that there was no general sports magazine published by Canadians in Canada.
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We also observed that there was considerable consumer demand in Canada for sports news analysis and features. This demand was not being adequately fulfilled on a timely basis, even with our U.S. edition of Sports Illustrated shipped in from the U.S.. This consumer demand was fueled in large measure by the national and international successes enjoyed by Canadian athletes and teams, and the Toronto Blue Jays in particular.
Moreover, in recent years we have observed the expansion into Canada of two new franchises in the National Basketball Association, the Toronto Raptors and the Vancouver Grizzlies, as well as the expansion of the National Hockey League and of the Canadian Football League into new cities in the United States. In other words, the Canadian public's interest in cross-border sports was beginning to grow significantly in the early 1990s and it continues today.
It is important to note that the same market analysis and data that were available to us were equally available to Canadian publishers and the Canadian Magazine Publishers' Association, who I believe will also be appearing before you. It chose not to respond to the growing consumer interest in the expanding Canadian sports market. Mr. Chairman, we did respond. Moreover, we saw an opportunity to create jobs for Canadians in printing and distribution, as well as professional opportunities for Canadian sports writers and photographers.
As we proceeded with our planning of Sports Illustrated Canada, I want to emphasize to all members of the committee we at all times carefully observed and complied with Canadian law and government policy. It may not be generally known that in 1990 we sought and obtained from Investment Canada confirmation that Sports Illustrated Canada would not be subject to the Investment Canada Act. This was after a full disclosure to the government of our business plan for the new magazine. The reason for that is because Time Canada was already established in this country, having commenced publication in 1944. Sports Illustrated Canada was simply an expansion of that existing business.
Committee members may not know that as far back as December 1992 we advised the Minister of Communications, now Canadian Heritage, and his officials that we would be announcing the launch of Sports Illustrated Canada in mid-January 1993. At no time did Time Canada Ltd. receive notification from the Minister of Canadian Heritage or from Canadian Heritage officials that the plans to publish Sports Illustrated Canada were in contravention of Canadian law or government policy.
Furthermore, at his request we advised the deputy minister of Revenue Canada in January 1993 of our business plans. Less than three months later he confirmed that we were in compliance with Canadian law and were not violating the tariff code. With respect to each and every edition of Sports Illustrated Canada we have published during the past two and one half years, we have sought and received similar confirmation from the deputy minister of Revenue Canada.
Sports Illustrated Canada was planned and launched in accordance with Canadian law and regulations, in accordance with government policies applicable to magazines printed in Canada, and with the full knowledge and concurrence of the government at every stage. In fact, the task force established by the government in March 1993 acknowledged the principle that retroactive application would be unfair, and specifically recommended that Sports Illustrated Canada be grandfathered at the number of issues published at the time of its report. Despite the legitimacy of its introduction, Parliament is now considering a bill that we believe is aimed at ceasing the publication of Sports Illustrated Canada.
Why do we believe this is the case? There are three reasons. First, proposed section 39 of Bill C-103 would grandfather all split-run periodicals that were published and distributed in Canada prior to March 26, 1993. It is no mere coincidence that this is only five days before the inaugural edition of Sports Illustrated Canada was available on news-stands. We find it interesting that the government apparently believes split-run periodicals published and distributed in Canada on or before March 25, 1993, do not pose a threat to the Canadian cultural industry, whereas split-run periodicals published and distributed in Canada one day later would pose such a threat.
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Second, Bill C-103 exempts Canadian-owned and -controlled split-run publications that distribute product into the U.S. market. These are reverse-market split-run periodicals. This reinforces our conclusion that Bill C-103 is aimed squarely at Sports Illustrated Canada. It also means Bill C-103, if enacted in its present form, is probably actionable by the U.S. government under the North American Free Trade Agreement.
Finally, the guidelines under the Investment Canada Act were changed in July 1993 to provide that an investment by a non-Canadian to publish a periodical in Canada would be subject to formal notification, thereby making such an investment reviewable by Investment Canada. Contrary to what Ms Katz of Heritage Canada indicated to you yesterday, this has effectively closed the door to other non-Canadian split-run periodicals. I would urge members of the committee to challenge the government to produce evidence of potential new entrants who would not be blocked by the Investment Canada guidelines.
Because of these factors, we can come to no conclusion other than that Bill C-103 is directed squarely at Sports Illustrated Canada. This is unfair and discriminatory and represents the effective confiscation of a commercial enterprise that was legitimately established in Canada and meets a significant consumer demand in this country.
Sports Illustrated Canada has been well received by Canadian readers, who have appreciated the speedier delivery permitted by production in Canada and the increased Canadian coverage. In its first year of publication, 1993, there were seven issues. In 1994 and 1995 there were twelve issues per year, roughly one per month. In 1996 the interim business plan calls for a significant increase in the number of issues per year. We are working towards the ultimate goal of weekly publication contained in the business plan presented to Investment Canada in 1990.
Sports Illustrated Canada is not depleting the Canadian advertising pool available to Canadian-owned magazines. Many advertisers in the magazine do not advertise in any other magazine in Canada. The majority of Canadian readers of Sports Illustrated Canada do not regularly read any other magazine.
Yesterday Mr. Walker, the parliamentary secretary to the Minister of Finance, suggested Sports Illustrated had an inherent advantage because of its lower marginal cost. Ms Katz suggested the magazine had effectively paid for itself in the U.S. market before being exported. These suggestions are simply untrue. We do pay our fair share of costs for editorial content at Sports Illustrated Canada - not to mention significant costs for printing, distribution, and postal charges. This leads to the result that our advertising rates are at least equal to those of Canadian magazines of similar size; and this does not take into account the section 19 gross-up our advertisers have to endure.
We believe the government's existing policy objectives to promote and protect the Canadian magazine publishing industry are already comprehensive and effective, as follows: first, section 19 of the Income Tax Act, which restricts the deductibility by Canadian advertisers of expenses for advertising in non-Canadian periodicals; secondly, tariff code 9958, which prohibits the importation into Canada of split-run editions of periodicals; thirdly, the guidelines to the Investment Canada Act introduced in 1993, which make clear the government's authority to reject new split-runs from being published and distributed in Canada; and fourthly, existing postal subsidies for Canadian-owned magazines.
In closing, we would ask the committee to ensure a legitimate commercial enterprise is not punitively discriminated against and that government policy respects principles of fairness.
The Chair: Thank you very much, Mr. Wattson.
Mr. Solberg.
Mr. Solberg (Medicine Hat): I welcome the people from Time Canada Ltd. today.
Yesterday we talked at great length about what we in this corner felt some of the problems with this legislation were. Your panel has just gone through a number of the concerns you have. Instead of going back over some of the things you've said and reinforcing them, I want to explore some of the things you've mentioned just a little more deeply.
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You said that you felt the actions being proposed by the government are actionable under NAFTA. There is a cultural exemption under NAFTA. Why do you feel that they are actionable by the U.S. government? Can you elaborate on that a little bit?
Mr. Wattson: I'll ask my legal counsel to answer that question for you.
Hon. Ronald G. Atkey (Osler, Hoskin & Harcourt): Mr. Solberg, you're quite right. NAFTA does provide that cultural industries in Canada are exempted from the provisions of NAFTA.
However, where there is a violation of a provision in NAFTA that otherwise would be actionable, in which case the violation here is a violation of the national principle of treatment of non-discrimination, if you will, then the other party to NAFTA, which is the United States, is enabled to take action of equivalent commercial effect. That is to therefore suggest that it's actionable by way of retaliation in the event that this is found to be a violation of the national treatment doctrine.
Mr. Solberg: One of the things that was discussed yesterday was the 80% tax and whether that was a tax designed to gather revenue or whether it was a punitive tax. I understand you have some obviously grave concerns about it. I understand that this is something you feel you could pursue in the courts. I want to know why you feel that and whether there are precedents for this.
Mr. Atkey: If I may continue, Mr. Solberg, the legal issues here are complex. This committee is not a court of law. It's difficult to argue the legal issues in the context of a bill, which may or may not become law and which may be changed before it becomes law.
At this point, we simply signal that there are some legal issues that this committee and legislators on this committee should give serious consideration to, particularly violations of tax principles where this is clearly not a measure intended to raise revenue but is directed against a specific taxpayer. You might look at the Charter of Rights and Freedoms violations and freedom of the press, of readers, advertisers, and Sports Illustrated Canada, and of course the trade law issues.
These are also issues that I would hope committee members would address with representatives of the Department of Finance and the Department of Justice. As we have found in Canada, there are legal issues with other major pieces of legislation which, if not properly addressed at the committee stage in Parliament, become subject for adjudication by the courts at great cost and inconvenience and disruption to the public.
Mr. Solberg: I don't know if you're prepared to talk about this, but I'm interested in just exactly how much money Sports Illustrated spends in Canada every year. I don't know if you want to get into your budgets and that kind of thing.
How many employees do you have? How many people are employed by the printing company who works for you? What are your advertising rates and that kind of thing? I just want to get a rough idea of what your contribution is to the economy.
Mr. Wattson: Obviously there are financial areas that we would not be willing to disclose due to confidentiality, but I can certainly tell you what our advertising rates are. Our page rate is $7,645 for a four-colour page, which is comparable to magazines in Canada of similar size.
Mr. Solberg: Is that comparable before the tax deduction is taken into consideration?
Mr. Wattson: It's comparable before, but once the tax deduction is taken into consideration theirs would be substantially less than our rate.
Mr. Solberg: What about employees? How many employees do you have in Canada?
Mr. Atkey: Mr. Solberg, I might help you here by referring to the information filed with Investment Canada in 1990, which was also given to the task force. Each issue of Sports Illustrated Canada produces 650 person-hours of work, largely at the Richmond Hill printing plant of Quebecor.
In addition to that, there are another 45 to 50 person-hours per issue of the magazine to handle materials, affix labels, and coordinate shipping. Then in the case of the sale of advertising, there are roughly ten employees in various parts of Canada. So while it's not a large employer, it is significant.
Mr. Solberg: I want you to touch a little bit more on the whole issue of deductibility. One of the arguments that the Canadian magazine industry is making is that you are debauching the advertising market in Canada because you have significantly lower costs. You're arguing that because you don't have the deductibility other magazines have, you have roughly the same rates, or perhaps your rates are even higher. Do you have some kind of empirical evidence you can point to that this is the case?
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Ms Sandra Berry (Managing Director, Time Canada Ltd.): I think we could from an experience point of view, because Time magazine has been operating with section 19 for a number of years.
The empirical evidence is that in the marketplace we're clearly aware, from the clients we deal with, that the tax issue is a major consideration for them when evaluating the cost of doing business with our organization. If $10,000 spent on Time magazine and Sports Illustrated magazine is a non-deductible expense, they will gross that up to $18,000 and allocate $8,000 for a tax account to ensure they cover the fact that it was a non-tax deductible item.
It's a function of us doing business in Canada. It is a piece of legislation we work with and have worked with for a number of years and have to take into account on all elements of pricing for the market and advertising revenues.
Mr. Grubel (Capilano - Howe Sound): I'd like a bit of information that I think the people who are in support of this legislation are using all the time. It is true that since your copy is written and there are pictures and all that, the cost of that is practically zero for paying the plates and putting them into the printing plant, right?
Mr. Wattson: We do pay a fee for those particular things, from SI Canada into the U.S. edition. They do charge us for that. There is cost associated with it.
Mr. Grubel: But that cost is not really a true cost to your parent corporation.
Mr. Wattson: Yes, it is. It is a true cost.
Mr. Grubel: Well, we're getting into the issue of transfer pricing in this case. The argument Canadians are making is that the true cost to the mother corporation of the supply of the plates or the typesets, or whatever you wish to do, is in fact very low.
Mr. Wattson: It's probably low compared to other publications, but it is a cost to us, absolutely.
Ms Berry: That was the purpose and that was the discussion when section 19 was originally debated under Bill C-58. The 48% tax mark-up was meant to level the playing field between American publishers, offshore publishers and Canadian publishers in that original discussion. There was a recognition that if the tax legislation were enacted, there would be some cost differential to correct that, and it was debated subsequently and extensively in the 1960s and 1970s.
Other costs, however, are incurred that are not necessarily relating to editorial. Cost of printing obviously becomes an issue. If you have a start-up issue in a plant separate from your mother plant, then you're in start-up costs that are much more expensive than end-of-run costs in the U.S. Those costs are incurred.
We have additional distribution costs because we're shipping now from an additional distribution centre rather than from a central distribution centre in the U.S. So whilst there might be some editorial savings, it has been looked after at that point in section 19 that other costs are incurred.
Mr. Grubel: Yes. I just wanted to bring that out for people at this point, because I've found that, perhaps because of envy, people just don't want especially a foreigner to be having all this extra profit that is not available to them because they have to incur those editorial costs and so on.
So I am very pleased with the way you assured me that in fact the Canadian edition of Sports Illustrated or its subsidiary, because of the technology, is not an enormously profitable cash cow. The answer you have given to me appeals to me and makes sense.
In fact, the real cost of the advertising, the revenue gained, is half of what the competition gets. That was designed originally to take care of this extra profit that exists in principle by being able to draw on editorial work that was done elsewhere. I just wanted to bring that out.
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I personally think that if somehow you could find the numbers for this that some independent organization could put out in order to assure the members of Parliament and the general public, then in fact the playing field has already been levelled. In Canada we're very concerned about being fair. Therefore, the levelling has already taken place. If this could be established, if this is the case, then it would be very helpful to your case.
Mr. Wattson: We would like to get you that information as a follow-up. We just want to make sure you realize that we do pay our fair share of editorial and production costs for the magazine.
Mr. Grubel: Not to me, but on the record, for people who wish to use this, I urge you to demonstrate that this is not a cash cow where Canadians are being exploited, where somebody is getting enormous economic rent by using this technology.
Mr. St. Denis (Algoma): I'm imagining that the situation the Canadian periodical consumers face vis-à-vis U.S. periodicals - in this case it's a split-run periodical - is faced by consumers in Europe, where periodicals from one country may be sold in a neighbouring country. Are you familiar with any situations in Europe, maybe between mainland Europe and Britain? Are there any situations like this one, and if so, have there been solutions there that are different from this, or in your view more appropriate than the one that is proposed here?
Mr. Wattson: I'm not familiar with any situations that are similar to this.
Mr. St. Denis: So, to your knowledge, this is unique in the world?
Mr. Wattson: To my knowledge, yes.
Ms Berry: When I was working in the U.K. a number of years ago, there was an absence of free trade with Europe. There was no legislative or punitive aspect, as there is here, against foreigners either owning or being part of the media scene, advertising from one country to another.
Certainly we could ask counsel to check that for us.
Mr. St. Denis: I was just wondering if there is something you could get to us later, through some helpful experiences elsewhere, to provide some experience for us.
You suggest in your presentation that there is an attempt here to attack specifically Sports Illustrated Canada. You mention the five-day differential in the end of March versus March 25. Your first issue came out on April 3, and the grandfathering day is just prior to that.
Are you the only ones caught in the net, so to speak?
Mr. Wattson: I believe so, yes.
Mr. St. Denis: Is it just a strongly felt opinion that you have, or are there things besides that that support your view that you're being unfairly attacked?
Mr. Atkey: I think it's fair to say that the strong move for this legislative initiative came from the Canadian Magazine Publishers' Association. They have taken a fairly active role in consultations with the government to promote this particular issue.
If I can quote from their 1993-94 annual report, they talk about the political affairs committee taking a position respecting Sports Illustrated. It relates to politics, not policy: ``The Association continues to lobby the government to enact the excise tax measure without exempting Sports Illustrated''. Sports Illustrated is listed as the target in the annual report of the Canadian Magazine Publishers' Association.
That's the best example, but there are several others.
Clearly, Sports Illustrated has become a target because it proceeded in a way that was not to the liking of the Canadian Magazine Publishers' Association.
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Mr. St. Denis: What would be a couple of examples of U.S.-based split-run periodicals that are grandfathered?
Mr. Atkey: I believe the two most obvious ones - there may be others - the best known, would be Reader's Digest and Time.
The Chair: Mr. Fewchuk, please.
Mr. Fewchuk (Selkirk - Red River): You stated earlier that in the early 1990s you saw there was the potential for a Canadian magazine. Why did you not try to create a Canadian magazine here in Canada?
Mr. Wattson: Magazine start-ups are very expensive, as I'm sure you're aware. We already had a circulation base of subscribers in Canada. We were already sending a magazine to them. We felt we could enhance the product and get it out to them more quickly by publishing it in Canada and having it printed here. There was a demand from our consumers themselves, from our subscribers, for an enhanced edition of Sports Illustrated with a Canadian flavour to it.
Mr. Fewchuk: How many U.S. jobs have you created because of the Canadian investment in this magazine?
Mr. Wattson: How many U.S. jobs have we created? We haven't created any in the U.S.
Mr. Fewchuk: It didn't cost you anything to create this magazine?
Mr. Wattson: Yes, it does cost money. We pay, as I mentioned earlier, a fair share for editorial costs. But there is an inherent cost in publishing the magazine.
Mr. Fewchuk: So you did not create one job in the U.S. because of this magazine?
Ms Berry: The jobs have been created in Canada for the distribution and publication of the magazine.
Mr. Fewchuk: That's not my question.
Ms Berry: In the U.S. no jobs have been enhanced. It's only the jobs in Canada, for example printing, publication, and obviously editorial reporting jobs as required. So U.S. jobs, no.
Mr. Atkey: I think the strongest case you could make is that additional responsibilities were given to existing U.S. employees in New York as a result of the new Canadian magazine. The primary employment creation was in Canada.
Mr. Fewchuk: I heard you talking to Mr. Grubel.... So the Canadian dollar that's going across the border does not make your investors rich at all? You're not getting any Canadian dollars to support your investors; it ends up on an even keel in the balance? You're not making any money from this magazine from the Canadian dollars?
Mr. Wattson: Obviously whether we're making money or not is a confidential matter. But it's a long-term investment for us, and we hope down the road it will be a profitable situation.
Mr. Fewchuk: Are you losing money now or are you making money now?
Mr. Wattson: I can't divulge that information. That's confidential information.
Mr. Fewchuk: You also mentioned something about the law. As a small businessman, I know if I were to go ahead and start a magazine or some type of business...it's not the fault of the government, but the fault of the businessman...to do his homework in investing and know what the law is before he starts. You mentioned in your brief that it's the government's fault about the law. It's your fault. You should have investigated the law before doing your magazine.
Ms Berry: Right through this process, starting in 1990 with Investment Canada and on a regular basis, the government was updated, both government and relevant departments, on every step we were taking for the launch of this magazine. No element of the launch or the preparation of the business plan was a surprise to anybody at governmental levels or at departmental levels.
I'd like to ask counsel if he'd like to add anything to that.
Mr. Atkey: A very simple proposition. This magazine was started in accordance with the law, with full disclosure to the government, and it has complied with the law throughout. This company has complied and always will comply with Canadian law, full stop.
Mr. Fewchuk: I didn't disagree with that. It's just that you seem to blame our government.
The Chair: Ms Brushett, please.
Mrs. Brushett (Cumberland - Colchester): Thank you for coming before this committee today.
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You make a very honourable statement here on this first page of the presentation which says:
- Moreover, it saw an opportunity to create jobs for Canadians in printing and distribution as well
as assignment opportunities for Canadian sports writers and photographers.
Mr. Wattson: We have already given that information.
Mrs. Brushett: We heard something like 650 person-hours, but I'm asking how many people, how many bodies? Is it 10? Is it 20?
Mr. Atkey: Let me explain why we quote this in person-hours per issue. There are a number of people who work to print Sports Illustrated who also do other jobs at the same printing plant. They'll print Sports Illustrated on Tuesday. They'll print Time magazine on Monday. They'll print the North York voters' list on Wednesday.
So you can't measure it in terms of the number of people at the Quebecor plant. The principal jobs relate to creation of this product. The best and most accurate description we can give you is 650 person-hours per issue. If you want to multiply that through to the full creation of the business plan, which is 52 issues per year, you multiply 52 by 650 person-hours. That's the employment in printing alone.
Mrs. Brushett: Do you believe in your heart that merits this profound statement in your opening remarks?
Mr. Atkey: Yes. The facts speak for themselves.
Mrs. Brushett: To advance that a little bit, you say in terms of your publications in the first year it was seven issues, in 1994-95 it was twelve issues, and for significant numbers of issues you are proposing to move towards one per week. How many Canadians subscribe to this issue that you're printing?
Mr. Wattson: We have 145,000 for this issue.
Mrs. Brushett: Thank you, Mr. Chairman. That's all for now.
The Chair: Mr. Solberg.
Mr. Solberg: Thank you very much, Mr. Chairman. I want to summarize here. I understand that when you first conceived this idea in 1990 there was no sports magazine in Canada. You subsequently investigated and received permission from the government. It was recommended by the government's task force that you be grandfathered into legislation.
There has been a convergence of the sports market in North America. We have all kinds professional sports teams in Canada now and there has been, to my knowledge, still no competition to SI Canada in Canada. Now we find the government is going back with this legislation, possibly violating NAFTA and possibly violating the charter, which brings us to this point.
What is the opinion of the company on all this legislation in terms of the message it sends to people who want to do business in Canada and in terms of the message it sends to people who are concerned about protectionism and the possible effect it will have on Canadian markets in the United States?
Mr. Wattson: Yes, this protectionism is of great concern to the company, as I'm sure it is to other companies either doing business in Canada or wanting to do business in Canada.
Mr. Solberg: What effect will this have on your company with respect to any other possible magazines down the road that could possibly bring jobs to this country and possibly help out advertisers who are seeking ways to reach markets currently not filled by Canadian magazines?
Mr. Wattson: We have no plans to launch any more magazines.
Mr. Solberg: In your judgment, as somebody who's in this industry, what kind of effect would it have on anybody else who wanted to start a magazine using the split-run technology? We even have Canadian magazines who are trying to do this. What kind of message will they get from this? Obviously it's going to be extremely difficult with an 80% tax on their revenue.
Mr. Wattson: They just won't be able to do it.
Mr. Atkey: I can add to this, Mr. Solberg. The message about establishing a new magazine has already been given to the international community. It was given in the summer of 1993, with the previous government still holding office. Investment Canada guidelines were introduced that essentially make it impossible to introduce a new magazine without Investment Canada review; and because it is a cultural industry, effectively it will be blocked.
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So quite frankly, over two years ago the message was given. This is just overkill.
Mr. Solberg: Let me call on your expertise. We have a situation where we have at least one Canadian magazine using split-run technology; possibly two. Harrowsmith uses split-run technology, publishing out of the United States back into Canada. A Canadian company, Telemedia, runs this operation. In my understanding, unless all Canadian companies are grandfathered in - and there's no suggestion that's going to happen - effectively this legislation kills any opportunity for Canadian magazines to expand into the North American market, therefore making them viable. Isn't that correct?
Mr. Wattson: Yes, that's correct.
The Chair: Mr. Grubel.
Mr. Grubel: I have a couple more questions. One of them is to read into the record again and explain for people who may not have fully understood it the concept of clause 19.
As I said earlier, when your company applied, a commission was struck to look into the unfairness of the idea that a Canadian magazine would have to pay reporters and typesetters and proofreaders and everything else, whereas Sports Illustrated would not have to do so and that would give them a competitive advantage. Now, the Canadian solution to this was what; and what did you agree to at that point?
Ms Berry: It is a complex issue, and I appreciate the opportunity to review it. So thank you for this opportunity.
In essence, in the 1960s and 1970s, when this subject was debated very much in these terms of lack of costs of editorial for U.S. magazines to operate in Canada, it was agreed and decided through many debates in the House, all of which are obviously on the record, that section 19 would rectify and put into effect a level playing field. Very simply put, as simply as this can be, any advertiser who advertises in Time or in Sports Illustrated at this point, non-Canadian owned, cannot claim that as a legitimate business expense. Therefore for every dollar he or she spends in our magazine they allocate another 75¢ or another 85¢ into a reserve, because they know they're not going to be able to claim that original expense as a deductible business expense.
What that means for us, knowing that advertisers are concerned and they're quite correctly making the allocation they should be for tax return time at the end of the year...it means we have to put our rate card, our costs, at a level that allows for that mark-up and still keeps us competitive with Time and Maclean's. To take it away from the Sports Illustrated argument, Maclean's being our major competitor, what we have to do is to make sure we are priced within a competitive environment. In theory, then, our rate card is priced lower than the Maclean's one to allow for the tax to be grossed up on that price...when making a cost assessment.
It is a complex issue, however.
Mr. Grubel: Maybe I can simplify it a little bit; and correct me if I'm wrong. If I am advertising beer and I buy a page and it costs me $10,000 and I place this advertisement in Maclean's, then I as a beer brewery will be able to deduct this $10,000 from the calculation of my tax base. In other words, it's deductible.
Ms Berry: Absolutely.
Mr. Grubel: Therefore, if the corporation pays 50% of its profits as taxes, the after-tax cost of placing that advertising is exactly $5,000.
Ms Berry: Absolutely correct.
Mr. Grubel: Now, if that same brewery chooses to buy a page of advertising in Sports Illustrated and it were to be charged $10,000, then the cost to that brewery would be $10,000, because section 19 says if you, Canadian Brewer, make an advertisement in Sports Illustrated, you will not be allowed to take that $10,000 and deduct it as an expense.
Ms Berry: Absolutely.
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Mr. Grubel: Now, the problem you're facing is that in order to be able to be competitive and get the brewery to place an ad, you have to price it at such a level that after consideration of the tax payment differences treatment in the two cases, the costs are approximately the same.
Ms Berry: Correct; to even cost the client the same at the end of the tax day, the Sports Illustrated rate would have to be $5,000 as opposed to the $10,000 rate in a Canadian edition.
Mr. Grubel: May I make one last point? We know that Reader's Digest reprints a number of articles that originated in their American edition or in fact around the world, but it also commissions Canadian authors.
Now, if and when Sports Illustrated becomes profitable, do you envision that Sports Illustrated would develop its own editorial staff, especially since there is increasing interest with the integration of the hockey, basketball, and baseball leagues and all that? In fact, would it be profitable to write articles here specifically for the Canadian edition and possibly to have some of those articles, with royalties going to their writers, published in the United States? Is that in your plan?
Mr. Wattson: It's absolutely in our long-term plan. We would definitely hire writers and photographers here in Canada and have them based here to cover the Canadian sports.
Mr. Grubel: Do you do any of that now?
Mr. Wattson: We do, yes. We have an editor who is based in Montreal, Michael Farber. To go back to the gentleman's earlier question about creating jobs, Mr. Farber actually works for the U.S. edition of Sports Illustrated but lives in Montreal and does write most of our Canadian-based stories on hockey or basketball or features on baseball. He also goes to the U.S. and does stories there, but he lives and works out of Montreal, and he came on board when we launched Sports Illustrated Canada.
Mr. Grubel: When you were having these discussions at the outset on whether or not you could go ahead, was there any stipulation from the commission or from the government in power at the time as to what level of editorial content should be Canadian? Did they specify what you should strive for that they would be happy with or at what point they would relinquish section 19 requirements?
Mr. Wattson: Absolutely not.
Mr. Atkey: Section 19 is pretty clear, Mr. Grubel. You have to have 80% Canadian content in order -
Mr. Grubel: You have to have 80%?
Mr. Atkey: Yes. It's a hurdle that would take some achievement.
The Chair: Thanks, Mr. Grubel.
Mrs. Stewart, please.
Mrs. Stewart (Brant): Thank you, gentlemen, for being here. I must confess this is a very complex and confusing issue for me, so bear with me as I try to fathom my way through it.
I've been particularly interested in the approach you've taken when we looked at the legal issues, the constitutional issues. The implication I get from this is that this is somehow a new philosophy that this government has applied and that this bill is trying to create something completely new.
In fact, we know that's not true. The notion of not wanting split runs in this country has been here for a long while, and the strategy of using tariff codes to stop that has worked quite well for the last 30 years, but all of a sudden it's not working because times have changed. There's new technology that's now available to publications like yours, and here again we have split runs.
It seems odd to me that you would argue that we not take legislative action to try to maintain a position that we have held for many, many years. I'm trying to understand what positioning you're coming from at this point.
Ms Berry: We're regrouping on that question. I think what's perhaps distracting it and what we're wrestling with here at the table is that the issue of new technology has impacted significantly. The technology was not developed to allow for split run; the technology we use for Sports Illustrated is the same as that for Time Canada, which is the same as we use around the rest of the world as well.
I think the position we're taking here - and again I will defer to the people on my left as I try to respond as straightforwardly as I can to your question - is this. There is enough legislation in place to prevent the development with section 19 - and we list here the postal subsidies and all the other issues - that this piece of legislation, should it be enacted, is superfluous and not required.
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Mrs. Stewart: How can you say that when the philosophy, as we agree, has been that we don't want split runs? And if the legislation were sufficient, we wouldn't have Sports Illustrated Canada. We wouldn't have the split run.
I'm confused that at this juncture, just because the legislation is coming in to continue the intentions of this country when it comes to cultural material, all of a sudden it's constitutionally inappropriate and from a tax point of view it's inappropriate. All we're trying to do is keep legislation current with technology.
Mr. Atkey: I wonder if I can offer this word of explanation. The notion that split runs have to be stopped at all costs is a dangerous proposition when you think about it.
Pick up this morning's The Globe and Mail or Report on Business Magazine and you'll see a split run. There's a direct reprint sent in by satellite to The Globe and Mail from The Wall Street Journal.
Pick up Report on Business Magazine from last January, where they do a split-run edition with The Economist. Half of the articles are from The Economist and half of them are from The Globe and Mail*to. There are Canadian ads. That's a split run.
Parliament is on a slippery slope here in dealing with something that may be more difficult to accommodate than you want it to be. Use of a device such as an 80% tax, in my opinion, is very dangerous in both political and legal terms.
Mrs. Stewart: But I am again wondering if we're really talking about apples and apples here. We have a very small percentage of a Canadian-produced publication selectively putting pieces in.
Let's look at that. Some of my colleagues have pointed out the importance of Elvis Stojko and the Toronto Blue Jays. What percentage of the content of Sports Illustrated Canada is about Canadian sports?
Mr. Wattson: The percentage varies by issue.
Mrs. Stewart: So there's no stated percentage. You don't have a policy on that.
Mr. Wattson: No, it would vary.
It depends on whether you're talking about Canadian sports or Canadian sports personalities. The Toronto Blue Jays have all Americans on the team. Are you writing about Canadians if you're writing about Joe Carter? If you're writing about the Toronto Blue Jays as a Canadian baseball team, is it a Canadian story?
Mr. Atkey: Sports Illustrated Canada is as Canadian as the Toronto Blue Jays, when you think about it. Examine the ownership, the players, the content and the league. When you think about it in philosophical terms, there isn't a lot of difference.
Mr. Walker (Winnipeg North Centre): But you're not in last place, are you?
Some hon. members: Oh, oh!
Mr. Atkey: We're the only player in the league, Mr. Walker.
Some hon. members: Oh, oh!
Mrs. Stewart: I'd like to make one other point of clarification, as we talk about percentages and concrete figures here. Again on page 1, it says ``Many advertisers in the magazine do not advertise in any other magazine in Canada.'' What's ``many'' as a percentage of those that advertise?
Mr. Wattson: It's about 50%.
Mrs. Stewart: Can you put a number on that, or is that telling secrets?
Mr. Wattson: Off the top of my head, I couldn't put a number on that at this time, no.
A voice: What about giving some examples?
Mr. Wattson: I can give you some examples of the kinds of companies that advertise. They would be sports apparel manufacturers that tie in with retail chains that have no other avenue to promote their goods in a magazine.
Mrs. Stewart: Yes, but 50% would only advertise with you and 50% would advertise in your magazine as well as in others.
Mr. Wattson: Correct, yes.
Mrs. Stewart: Thank you.
The Chair: Could I ask you a question? On page 1 at the bottom you say you saw an opportunity to create jobs in printing and distribution ``as well as assignment opportunities for Canadian sports writers and photographers''. Have you been able to create any opportunities for sports writers and photographers?
Mr. Wattson: We have had Canadian freelance writers write stories for us and photographers whose pictures have appeared on the cover of Sports Illustrated Canada.
The Chair: How many such jobs or opportunities were created?
Mr. Wattson: I can get that number for you, but I don't have it here.
The Chair: Are there any split-run editions coming into Canada today?
Mr. Wattson: No.
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The Chair: On page 4 you say it is discriminatory when we select the date of March 25, 1993 as the cut-off. We apparently believe split-run periodicals published and distributed before then are okay. Were any published before then?
Mr. Wattson: Yes, Time Canada.
The Chair: Is that the only one?
Mr. Wattson: There's Reader's Digest as well.
The Chair: So those two were grandfathered. Was it 1965 when that law was originally passed?
Ms Berry: That's correct.
The Chair: So you're not the only split run in Canada.
Mr. Wattson: That's correct.
The Chair: Are Time Canada and Reader's Digest truly split runs?
Ms Berry: The Time magazine you see in Canada is different from the Time magazine you see in the United States. Time magazine in Canada is part of our international edition, as opposed to our U.S. domestic edition.
The Chair: Is it imported holus-bolus?
Ms Berry: No, the editorial make-up is beamed into Richmond Hill, at Quebecor, where it is printed and distributed in Canada.
The Chair: It's shipped in by wire from abroad in the same way as Sports Illustrated Canada works.
Ms Berry: Correct.
Mr. Atkey: Is it sent by satellite?
Ms Berry: Yes, it has been sent by satellite for about the last 10 years.
The Chair: I recall those days when there was a huge fuss and fight and stew about it. Those two particular split runs, as you want to call them, were grandfathered.
Is it your position that we should abolish tariff item 9958?
Mr. Atkey: That's an interesting hypothetical question. I wasn't aware it was before this committee. It has been there and is an absolute prohibition on the shipping into Canada of foreign-owned magazines that contain Canadian ads. That's not an issue this group has addressed. It's there and has been part of the regulatory framework for some time.
The Chair: So you're not advocating that we get rid of tariff item 9958 at all. You feel it's fair, proper and good policy.
Mr. Atkey: I think the position of the company is that it's part of the range of regulatory tools the Government of Canada has to ensure a fair balance to assist Canadian-owned publications. You take that with section 19, the Investment Canada guidelines and the postal subsidy. All those things together give Canadian-owned magazines a huge advantage, which is the offset for the other factors we've discussed.
The Chair: You agree then with the concept of tariff item 9958 and section 19 of the Income Tax Act.
Ms Berry: It has always been the opinion of the company that those are the rules we should play by if we operate in this country.
The Chair: Okay. So in the old days when tariff item 9958 was enacted, except for the two publications mentioned, Time and Reader's Digest, it effectively barred foreign publications from coming into Canada.
Mr. Atkey: That is true in large measure, but let me set the record straight. Time is not grandfathered under section 19 of the Income Tax Act; it's very much subject to it. There was no grandfathering at all.
The Chair: Okay. So you're saying it's just tariff item 9958.
Mr. Atkey: Tariff code 9958 does not apply to any publication printed in Canada. It's a tariff code item against imports.
The Chair: Yes, I understand that, and it's one you don't question, you said.
With the old concept of importing, you physically brought the product across the border by truck, railroad, ship or whatever. Correct? Now, because tariff item 9958 is fairly old, a new concept has been brought in. We don't have to transport the publication across the border; we simply wire to a Canadian printer from abroad everything that would otherwise be in it, so the printing and the paper can be Canadian but we are not really importing it.
This, of course, is what I think Mrs. Stewart was referring to; the advent of technology that allowed one to beam from a satellite directly to the printing press. The import is taking place electronically rather than physically.
Now there is a difference. There are a couple of jobs created in Canada through printing, correct?
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Mr. Wattson: Yes.
Mr. Atkey: But you must mention the fourth piece of the jigsaw puzzle, Mr. Peterson, and that is the Investment Canada guidelines proclaimed in 1993. Even if you do bring in the editorial content electronically and establish a business here, as a foreign-owned company, you must notify Investment Canada. They are mandated by this directive to review it and, in virtually every case, to block it. So it does you no good, given the legislative framework, to be able to bring it in if you can't establish and run your business.
The Chair: I remember that at the time, in 1993, you were already doing business in Canada. You were not barred by any type of review process. Correct?
Mr. Atkey: That's why we're here today.
The Chair: Okay.
I'm seeking your advice on what we should do to create a sound policy for Canada. If you agree that tariff item 9958 has merit, in conjunction with section 19, do you feel that other publications should be able to be imported electronically in a manner similar to the one you are using, and that we should open up the Canadian market that way?
Mr. Atkey: Mr. Peterson, you're asking an American-owned company with one publication here to take a position on some rather broad issues of public policy.
The Chair: We all have to do that, Mr. Atkey. We all live in this country.
Mr. Atkey: That's right, but you were elected to do that, Mr. Peterson. We were not. We're here just as taxpayers.
The Chair: Mr. Atkey, I've always turned to you for advice because you were an excellent member of Parliament and a first-rate minister, and I have the utmost respect for you.
Mr. Atkey: I don't think Time Canada Ltd. is going to give you policy advice on how to deal with the overall policy approach to this. You have a series of issues - I think the position is clear in the brief - four regulatory tools, to use to achieve a balance and to protect Canadian publications. Those regulatory tools are quite effective.
The Chair: And you're saying one of those is Investment Canada, which will not allow any more so-called SIs to come into Canada.
Mr. Atkey: That's correct.
The Chair: In other words, you don't oppose that policy.
Mr. Atkey: I don't think we said that. We said it exists. It was a policy decided by three ministers in a previous government, and it's now the law of the land.
The Chair: It's giving you a unique position, then, whereby you're in the barn and the door is closed.
Mr. Atkey: We came to the Canadian legislative situation and environment in 1990. We did our homework, investigated the market, told the government what we wanted to do, got the approval, and proceeded. On the basis of principles of fairness, we should be allowed to carry out our business plan.
The Chair: It was not without public controversy at the time, as you're aware, Mr. Atkey. There was due notice given, and I think the government of the day undertook at study as well.
Mr. Atkey: What was the due notice, Mr. Peterson? That's one of the issues that was mentioned in the opening -
The Chair: The due notice came when the issue was twice raised very clearly in the House of Commons by opposition members. It's not as if you received word from the government.
Mr. Atkey: I think the opening statement by Mr. Wattson is quite clear. There was no notification from the government that what this company was doing was improper, illegal or contrary to government policy.
The Chair: There was notice given in the House.
Mr. Atkey: There was a lot of concern from the opposition, and you were one of those concerned. I read your speech very carefully, as I do most of your speeches, Mr. Peterson.
The Chair: I'll make sure you're on the list for all of them, Mr. Atkey.
Mr. Atkey: I am already, sir.
The Chair: You have my condolences.
Mr. Atkey: I give full credit to the CMPA for looking after the interests they represent. They were very vocal and very effective in raising concerns, but the government of the day indicated, in formal terms and through two government departments, after full disclosure that what was being done was in compliance with Canadian law.
The Chair: They also set up a task force to look into it as well.
Mr. Atkey: That's right.
The Chair: They were concerned enough about the policy implications that the government of the day, which was of another stripe, certainly felt there were some things they had to investigate.
Mr. Atkey: Yes, a task force that incidentally did recognize the principle of fairness and the difficulties of retroactive impact in effective legislation.
The Chair: On one publisher, Sports Illustrated.
Mr. Atkey: That's because they were the one in existence. That's why we're here, Mr. Peterson.
The Chair: I understand your position, Mr. Atkey.
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Are there any other questions that anyone wishes to ask? Mr. Solberg.
Mr. Solberg: Thank you very much, Mr. Chairman.
Although the people at Sports Illustrated may be reluctant to comment on the policies of the government, certainly the advertisers in Sports Illustrated are quite happy that they have Sports Illustrated in Canada to advertise in because, as you pointed out before, this is the only magazine that they advertise in in Canada. Isn't that the case?
Mr. Wattson: That is correct.
Mr. Solberg: Right. So if SI should disappear, those advertisers quite likely won't be advertising in Canadian magazines, obviously, because there is no sports magazine that reaches their audience. I guess the point I'm trying to make is that although SI may be reluctant to comment on policy, I think it's a fact that advertisers would be very much in favour of allowing magazines to come into this country in order to permit them to advertise freely in whichever magazines they wish to advertise in. Wouldn't that make sense to you?
Mr. Wattson: That would make sense, but we're here on the position of Sports Illustrated Canada.
Mr. Solberg: I understand that.
Isn't it also true that by not allowing SI to publish in Canada, we would perhaps end up driving advertisers into other technologies? Some of them could easily end up advertising on American technologies to get back to audiences in Canada. They would thereby be doing exactly the same thing this legislation seeks to prohibit, but through different technologies.
Mr. Wattson: You're absolutely right.
Mr. Solberg: So if that's really the case, doesn't this just discriminate against a particular form of communication - in this case magazines - in favour of other technologies?
Mr. Wattson: Yes, it does.
Mr. Solberg: And of course it discriminates against consumers, those people who choose to read magazines, isn't that correct?
Mr. Wattson: Yes.
Mr. Solberg: Thank you.
The Chair: Mr. Walker.
Mr. Walker: I want to pick up on a point that Mr. Atkey mentioned. He considered the 80% editorial content to be ``a hurdle''. Would you consider that in the American market, having 80% of your content American would be a hurdle?
Mr. Atkey: I'm not in any way an authority on American publications. I do know there are a number of American publications with a great deal of information that is not American in content, if you will. Indeed, if you go back over several issues of both the U.S. and Canadian editions of Sports Illustrated, which I subscribe to, you'll find that in many editions, because of the advances made by athletes in other countries - such as the Russians in the field of hockey - the focus of the story isn't on Americans at all. It's on Europeans or Asians, depending on what the sport is. It's basically a news magazine based on sports, and it's on the world of sports, not the U.S. of sports or the Canada of sports.
Mr. Walker: Through your officials, would you be able to give us a year in which 80% of Sports Illustrated was not American in any given year?
Mr. Atkey: That's an interesting task, and I can certainly ask that question, but it's not the sort of analysis that American publications of any stripe have gone through in the past. The whole notion of national content in magazines is probably more of a Canadian notion, as you appreciate, than a U.S. or a European one.
Mr. Walker: I think it's very important that you should admit that this is a Canadian preoccupation, because this is the market that you seek to be involved with.
Mr. Atkey: There's no question about that. I don't deny political history in this country. Canadian content is very important. Gosh, you don't have to just go to magazines. Look at broadcasting and other forms of communications. Canadian content rules are extremely important. This company has observed that and is quite willing to live with it. Currently, this company has never suggested that it would be able to avoid section 19 of the Income Tax Act. It's not even going to try.
Mr. Walker: I'm just sort of surprised you described it as a hurdle. I would think that a magazine seeking to be effective in a market would consider it as an opportunity and an interesting target.
My other question stems from the impression I was getting from listening to your comment - and I just want to clarify this - that this legislation has caught you by surprise; that you think it's unfair that you had no warnings that this government was concerned about this; that the task force wasn't a warning that the Canadian people were concerned about this. Maybe you could just clarify what you thought has been happening for the last couple of years.
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Mr. Wattson: Going back to the initial presentation of our business plan to the government, we felt we were complying with the government's laws in effect at the time. We felt that, whatever this task force produced, we would be exempt because we had been upfront all the way along. We had sent our issues to the Department of Revenue. We had received confirmation from the Department of Revenue that we were not breaking any laws. We felt we would be exempt from that situation.
Mr. Walker: In the last couple of years, did you have no indication from government officials that they were concerned and that they were thinking about other options and so forth?
Mr. Wattson: Absolutely not.
The Chair: Mr. Pillitteri.
Mr. Pillitteri (Niagara Falls): I'm sorry I'm late, Mr. Chairman. I did not hear the full presentation, but I heard some of the remarks.
One wonders, with the remarks one hears, what Sports Illustrated has to do with a country or a team, what reference it would make. Let me say something, Mr. Atkey. You said the Toronto Blue Jays are just as much Canadian as -
The Chair: As the Raptors.
Mr. Pillitteri: - Sports Illustrated or the Raptors. Thank you.
Mr. Atkey: Sports Illustrated is as Canadian as the Toronto Blue Jays.
Mr. Pillitteri: Yes, that was the remark. I wonder what would happen to a lot of Canadians who adopt a team as a favourite, be it the Toronto Blue Jays or for that matter, the New York Rangers. When one engages to believe in one's home team, one wants to pursue it.
It's a funny thing. You said you went to the government, told them what you were going to do and played by the rules. Have you, on your part, done any study about being Canada Sports Illustrated instead of coming in as an American Sports Illustrated? How many readers would you have? How much purchasing of that magazine would be done here in Canada? It's more of a point rather than.... Instead of Canada's Sports Illustrated, I wonder if it were strictly an American magazine how much sales of that magazine here in Canada would be affected. Have you studied that?
Mr. Wattson: The subscribers receive an American edition three times a month. The fourth issue is a Canadian one. The American edition is printed on a Tuesday and shipped to the border to be put into the mail system. The subscriber does not get it until the following week, so he's getting reporting on games that were played two weekends previously.
When we do our Canadian edition, it's printed on Tuesday and the subscriber receives it on Thursday or Friday, so they get up-to-date information.
Mr. Pillitteri: That's not an answer to the question I asked you. I asked you if you had strictly American content - never mind having the Canadian part of the content - how many readers would you have here in Canada buying that Sports Illustrated?
Ms Berry: To a degree, I can respond to that because I was part of the original discussions when we were looking at the business plan for Sports Illustrated Canada. Obviously that's a question that is raised. My colleague addressed this. Our primary purpose was to put the magazine in the hands of the subscriber earlier rather than later.
Once that decision is made, the next one is what format that magazine should have. Obviously we defer to our editors. That is why we have the magazine that we do. It has incorporated traditionally Canadian news as appropriate for this market. That's an editorial decision.
Mr. Pillitteri: What a benefit.
Thank you, Mr. Chair.
The Chair: Thank you, Mr. Pillitteri.
Will you help me out? The task force appointed by the previous government to look in this issue recommended that Sports Illustrated be grandfathered and that it be limited to seven publications a year. Is that correct?
Mr. Wattson: That is correct. There were seven issues published in the first year.
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The Chair: Is your position that you should be given the right to go to 52 issues or that you should be limited to 7? It's obviously not that you should be limited to zero, the way we've drafted this bill. What is your position?
Mr. Atkey: Mr. Peterson, this is a complex question. As you would well know, the general principle with a tax law is that if it's a new tax, which this is, it would not apply until it becomes law, and those that carried on a certain type of activity would not be affected if they carried on that activity before it became law. The position would be that Sports Illustrated Canada, having received permission from the government to proceed, should be allowed to carry on that business which it was carrying on at the time this bill becomes law.
In 1995 there are 12 issues per year; there will be a larger number next year. Already the advertisers have been advised that there will be a larger number. That announcement will be made in November, and depending when the matter becomes law, that should be the grandfathered basis for continuing. There is an argument that obviously our business plan, as approved and fully disclosed to the government, said ``weekly''.
Therefore, if the plan says weekly, you shouldn't be cut off at something less than weekly. There are those two positions that we would regard as fair: those numbers that were being published at the time the bill became law, or those that were in your business plan originally, approved by the government. Either way, it's a lot more than seven.
The Chair: If this law were enacted in the House tomorrow, what would that number be?
Mr. Atkey: We don't answer hypothetical questions, Mr. Peterson.
The Chair: I need your help -
Mr. Atkey: You've got a number of steps to go through before this bill becomes law.
The Chair: Well, okay. In your experience, if this were passed out of committee and it received third reading in the House tomorrow and had to go to the Senate, how long...? You've had legislative experience. Suppose it were four months from now that it were passed through.
Mr. Atkey: Well, on the day of proclamation, let's have a conversation and we can then discuss what is the principle.
The Chair: I want to know how many issues.... In 1995 you will have published 12 issues?
Mr. Atkey: That's correct.
The Chair: And you've published how many to date, this year?
Mr. Atkey: This year? Nine.
The Chair: So you have three more to go. Okay. You're saying that one possibility for us is that on the date of proclamation that number would be grandfathered in perpetuity. If by March you had gone to 2 issues a month, then you would be entitled to 26, or by the end of March you'd published 3, you'd be entitled to 3 issues a year. I'm trying to get the principle that you're working on.
Mr. Atkey: The principle is in the bill and it was also articulated by the task force. It's the date that was chosen. The date chosen was March 25, I believe it was, 1993, which just happened to be five days -
The Chair: No, no, I'm asking you what you're asking us. If you're saying an unlimited right to publish 52, you said there was another fall-back position. I'm trying to find out what that is. You said it would be the number of issues as of the date of proclamation of the legislation. What do you mean by the number of issues - the number published up to that date, or the rate at which they were published, or what?
Mr. Atkey: The annual rate of publication of issues.
The Chair: Okay, that's all I'm asking.
I have one last question. Your cost of advertising - how does it compare with Maclean's right now?
Ms Berry: The cost of advertising in Sports Illustrated compared with Maclean's is complex, and again I'll again try to keep it fairly simple. Maclean's has a much broader, much greater circulation. It has a circulation of just over 500,000 in Canada, and to compare the absolute cost of a smaller magazine with a larger magazine would be unfair. What is done in the industry is not to look at circulation ratios, but to look at costs for reaching every 1,000 readers, which is not the same as circulation. If it is based on an industry norm and the way that advertising is bought in assessing the price of reaching 1,000 readers, we are comparable in Sports Illustrated and Maclean's magazine - ``comparable'' meaning in the same range.
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The Chair: Okay. You have 145,000 subscribers?
Ms Berry: Correct.
The Chair: And Maclean's has 500,000, you say?
Ms Berry: Just in excess of 500,000.
The Chair: So they have more than three times the amount.
Ms Berry: Correct.
The Chair: So if your costs per 1,000 readers are comparable, your cost per ad would be about three and a half times less than that for Maclean's?
Ms Berry: About a third; that's correct. On a circulation basis, that's correct.
The Chair: I just want the facts. So if I'm a Canadian advertiser I can advertise to your 145,000 subscribers at about a third of the cost per page or per line, or whatever it would be, that it would take for me to advertise to Maclean's.
Ms Berry: And then you'd have to add the 45% gross-up, Mr. Chair, to allow for that.
The Chair: Yes, it would be about a third in cashflow, but because you don't get the benefit of the income tax deduction -
Ms Berry: That's right.
The Chair: If you're a corporation that is paying full taxes of say 50%, the cost would be all about two-thirds -
Ms Berry: That's right.
The Chair: - advertising to you compared to what it would be to Maclean's.
Ms Berry: Well, Maclean's is $29,000 right now. We're competitively in the same range. I'd be very happy to supply those on a breakdown issue.
The Chair: No, I'm just trying to understand these things roughly.
Mr. Wattson: We should actually compare apples to apples, and you would probably do better to look at Harrowsmith and Equinox magazines as being more comparable in cost and circulation to Sports Illustrated Canada than Maclean's would be. There really is no comparison between Maclean's and Sports Illustrated Canada because of that difference in the circulation and the cost.
The Chair: Do you want to provide us with those figures on Harrowsmith?
Mr. Wattson: Sure, we can get them for you.
The Chair: Okay. When will we have them?
Mr. Wattson: Tomorrow morning.
The Chair: Great. Thanks.
Are there any other questions from members? Oh dear.
Mr. Grubel: May I just have clarification? It is true that the cost per page of advertising in Sports Illustrated is one-third of that for Maclean's?
The Chair: Two-thirds after taxes, in a 50% tax bracket.
Mr. Grubel: But isn't it true that whether I place an ad in a magazine depends on how many people I reach? Isn't it true, Ms Berry, that in fact the cost per reader reached is essentially the same in the two magazines?
Ms Berry: Absolutely correct. To use round numbers, Mr. Chair, it's $7,500 for a page in Sports Illustrated for a circulation of 145,000. Maclean's is in the range of $28,000 for a circulation that is three times as great. Now, $7,500 multiplied by 3 is $22,000, but we have to add 50%; we have to say it's effectively $33,000 for the purposes of the comparison because of the tax disadvantage. At that point we are marginally more expensive, on those loose numbers, talking about circulation, than -
The Chair: I understand that -
Ms Berry: I'm just clarifying it for -
The Chair: - and I understand that if I'm an advertiser who's advertising baseball bats, I'm not going to be terribly interested in going to other than a very select clientele who might be interested in my product. So targeting for a sports producer can be very attractive - and I understand that.
Ms Berry: I think that's correct.
Mr. Grubel: Mr. Chairman, please, I believe that you have read into the record a totally misleading number.
The Chair: I'm happy to have you correct it, Mr. Grubel.
Mr. Grubel: I just do not believe that it is correct to try to convey the impression that Sports Illustrated is undercutting Maclean's. It is not.
The Chair: No.
Mr. Grubel: This is a competitive market and the cost is about the same per reader reached. It so happens that they address different audiences - a point you made which speaks in favour of keeping such a magazine. But it is not fair to establish here that the cost, the absolute dollar cost per page of advertising is different between the two magazines.
The Chair: Does anybody else have anything else they wish to ask these witnesses?
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Let me say in conclusion that you've made your case very clearly that you want to stay in Canada doing business the way you have been. You have not expressed any interest that we abolish tariff item 9958 or the section 19 provisions of the Income Tax Act as far as others are concerned. Your concerns are very narrow and relate only to Sports Illustrated.
I thank you for your candour, and on behalf of all members, I thank you for being with us today.
Ms Berry: Thank you.
Mr. Wattson: Thank you.
Mr. Atkey: Thank you.
The Chair: We adjourn until tomorrow afternoon at 3:30, same room.