EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, November 23, 1995

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[English]

The Chair: Colleagues, I'd like to bring this meeting to order. Today we're delighted to have a number of guests to talk to us and to update us on a particular issue that has arisen in the bookseller field. I suppose most of us are not experts when it comes to bookselling and perhaps we don't know that much about the market and how it operates. Perhaps some of us don't even appreciate the enormousness of the industry, the importance of the industry, and especially its enormous contribution to Canadian cultural life.

When it was brought to my attention some time ago that there is a particular kind of commotion, if I can put it that way, in the bookseller field, I thought it behoves us as a committee to find out from some of the major players in the field what's going on, what their concerns are, so perhaps we're just a bit more enlightened about what's going on. That explains the presence of the witnesses today.

I want to tell you who is appearing. David Peterson is the chairman of the Chapters board. His president and CEO Larry Stevenson is here as well. He'll be joined in a few minutes by John Finlay, the executive director of the Canadian Booksellers Association, and Richard King.

Mr. Peterson is under a bit of a time constraint. He's one of those lucky individuals heading for Vancouver some time early this afternoon, where I'm sure it's sunnier and has less snow. So I've indicated to Mr. Peterson and his colleagues that I would let them go first, followed by Mr. Finlay, from the Canadian Booksellers Association. Then we can have some discussion. After their departure, if they have to leave, we can hear from the remaining witnesses. That's how we've set it out.

Without further ado, I will invite Mr. David Peterson to begin the proceedings.

Mr. David Peterson (Chairman of the Board, Chapters Inc.): Mr. Chairman, may I thank you very much for inviting us today, and thank you and the committee for putting together this discussion on short notice.

I join common cause with a number of my colleagues in the book industry. I think this is the first time I've ever sat before a parliamentary committee as a book pedlar. But I can tell you it's not that bad a life, Mr. Chairman.

We're with the booksellers and the publishers to bring to your attention, sir, an issue we believe is of enormous cultural import for this country. The reason the issue is important today is that at this very moment two major U.S. book retailers are poised for entry into Canada.

One of the difficulties in making this discussion public is the fact that they are before Investment Canada. As you know, under the Investment Canada rules there is no disclosure, so we cannot tell you absolutely for sure at what stage they are. Certainly the rumours abound about their entry. There are even rumours, and there will be an announcement this Friday, about the entry of one of the major U.S. book retailers into Canada. We regard the distribution side of the book business of Canadian culture to be extremely important, particularly at this enormously sensitive time in the history of our country.

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I come to you, sir, as chairman of Chapters, which is the largest book retailer in Canada. It's an amalgam of SmithBooks and Coles. It is a business that is being substantially updated as we speak, into the superstores. We're going to Burnaby tonight to open another superstore to give wider access for Canadian authors and publishers.

As you know, sir, as we speak, there are serious cutbacks in the cultural industry, both for the authors and for the publishers. It is a fragile industry at the best of times and it is extraordinarily important in our view that this issue have a thorough airing. To your credit, sir, this is the first time recently that we've had a thorough airing of this. At the end of our submission today, we will urge you to spend some time on this and make sure Parliament fully understands all aspects of this industry before something superficial or precipitous is done, i.e., letting in a U.S. book retailer that could destroy our industry.

I remind you, sir, that in the movie industry today, only 3% of the content distributed in this country is Canadian. The rest is American. In the book business today, 30% to 35% is Canadian and we believe that with the potential of foreign entry into here, that could seriously deteriorate over time. You will see an erosion from the publishers and the authors as well, and could again at the end of the day.

I come to you, sir, unabashedly as a cultural nationalist, something I was in my public life and I am in my private life. I believe passionately in the need to share ideas and to make sure we hang onto the threads of this country at this time.

I want to present to you, sir, Larry Stevenson, who is the president and chief executive officer of Chapters. Larry was born in Chibougamau in Quebec. He went to RMC. He went to Harvard. He came back to Canada and it was his dream to put Canadian book selling into the modern age, putting Smith and Coles together and bringing modern distribution systems, in conjunction with our authors and our publishers, to be a major force in Canadian publishing.

Ours is a 100% Canadian-owned company. We're enormously proud of what we have and we're enormously proud of the vision we have for the future. This was really Larry's vision, and I present him to you, sir, to add a few remarks.

[Translation]

Mr. Larry Stevenson (President and Chief Executive Officer, Chapters Inc.): Mr. Chairman, ladies and gentlemen, thank you for inviting us to appear before the committee today. I would like to make a few opening comments.

The first is that Canada is already the most open market in the world for books. If we look at the number of books exported from the United States to Canada, we see that it is five or six times higher than the number of books exported to countries such as the United Kingdom. Canada's problem is that it is located right beside the largest country in the world in cultural terms.

[English]

I really think it's worth emphasizing, as people talk about protecting the Canadian book industry, that it is already almost certainly the most open market for export products into this market. I think we suffer from a number of disadvantages that have led to that statistic. First, obviously it is primarily anglophone and we happen to be right next to the largest anglophone cultural juggernaut. Second, we have a very small market, and therefore on a marginal basis it's always easier to just do the print run from the United States.

We also have the disadvantage, I think, of being very close to the United States. The Australians have the advantage of at least having a few oceans separating them. Therefore, as a result of that, we have already been the most open market that exists. So when people talk about prying the market open more than it is today, I seriously question that. Open compared to what? No other market is as open as this market.

The second point I would like to make is that we sincerely believe that it is impossible to pair a U.S. book retailer - either one of the two large U.S. book retailers, each of which are larger than the entire Canadian book industry - with a financial partner and believe that the control of that entity is going to be in Canada. I'd submit to this group that the decisions will be made south of the border if you pair someone that is a $2 billion or $2.5 billion book retailer with a financial partner.

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I would use this as my example: does anybody around this table believe AT&T combined with a bank does not have control of a telecommunications company? They bring operational expertise. They bring management. They bring the brand name. It is impossible for that financial partner to be able to control the other partner. I think that is the key issue, since effective control, or control in fact, will be the central issue I would hope Investment Canada would be looking at.

The third is that if you assume any joint venture or partnership that looks like a Canadian entity and that ends up having a U.S. book retailer as a partner...I think will lead to some pretty devastating things, not only for retailers but also for publishers. I won't spend a lot of time on the publishers, obviously. They are much more qualified to talk about the impact on their business. But I see two of them that have an impact on us.

One is that a lot of the purchases that are already being made by the likes of Barnes & Noble or Borders are from very large suppliers that live south of the border. They will have tremendous purchasing leverage vis-à-vis us, given that we are buying from those same kinds of companies, which are actually foreign publishers, by and large.

Secondly, as for the smaller U.S. publishing houses that are currently relying on Canadian distributors, I think there will be tremendous will on the part of that entity to buy direct from those people and therefore take out the middleman cost that is currently being paid to Canadian distributors. It's not clear that we would be able to match that kind of leverage, since we don't buy as much from those small and medium-sized U.S. publishers.

I know there is a belief in parts of the industry that enshrining distribution in copyright solves the problem. I submit that it's not possible, because two U.S. companies are not under Canadian jurisdiction. There is nothing that would prevent a Barnes & Noble that is a U.S. company from going to a U.S. publishing house and saying ``do not sign an exclusive distribution deal with a Canadian publisher'', and there's nothing in the Canadian laws that would allow us to control that. So we would have gone from a situation today where effectively the companies are within the jurisdiction and control of this body to one where that would no longer be the case.

I would also say that as a result of that, it clearly would hurt us as a retailer. I would also submit it would be devastating for the publishers. One might argue that in the short term it would lead to the sale of more books. In the long term, as a result of the combination of the government funds, which for fiscal reasons have not been available, and the loss of distribution revenue, both of which have been used to subsidize the publishing of very good Canadian works, those two would disappear and we would have fewer and fewer Canadian works.

The statistic our chairman David quoted for the film industry is the perfect example. We already have the model of what would happen to the Canadian book industry if we let distribution fall into foreign ownership and control.

The bottom line for me is if we do not control distribution, we do not control content. I would submit that if you look at the mega-mergers that are happening in the entertainment industry south of the border, they prove that point. Disney, which previously thought content was enough, bought ABC. Why? Because content is not enough and you will not get to control the content if you don't also have access to the final customer. What is true in the film industry is true in entertainment.

I would just submit that as Canadians, if we want to control - and I would have thought some of the lessons over the last three or four weeks have been that we as Canadians do want to have a culture distinctive from that of our colleagues to the south - we need to control distribution to be able to control that cultural distinctiveness.

Mr. Peterson: In summation for us, Mr. Chairman, in my view this is a profound issue. It goes to the soul of our nation and needs the kind of scrutiny you're bringing to bear. Our greatest fear is that something will happen on commercial grounds through Investment Canada. It will become a fait accompli, and once Canadians have had time to analyse it, a year and a half from now, it will be impossible to unwind.

So our greatest hope is that you take the time to look at this issue and do a thorough scrutiny on it. We'd be happy to work with you in any respect during that discussion. But we hope that will be done before there is any kind of decision, and I think that has to be registered with Investment Canada.

The Chair: Before we go to questions, I'll invite Mr. Finlay, of the Canadian Booksellers Association -

Mr. Hanrahan (Edmonton - Strathcona): On a point of order, we were made aware of this topic essentially -

The Chair: On Tuesday.

Mr. Hanrahan: - on Tuesday and have had very little documentation or information on the significance of it. I would like an opportunity for clarification of some of the issues made by the last two speakers. It's not in terms of philosophy or anything like that. I just want to check out some of the relationships that were mentioned, because they went by rather quickly.

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The Chair: Your turn is coming. You can ask for the clarification when it comes. I think that's best.

I should indicate to you, Mr. Hanrahan, that Mr. Peterson is on a very tight schedule as he has to take a plane to Vancouver. If you don't mind, let's hear from Mr. Finlay, because I gather his presentation will be fairly close to that of Chapters. Then we can get into questions, clarifications and so on. Is that fair?

Mr. Hanrahan: I'll accept that, but you understand what we're all dealing with here.

The Chair: Yes, I understand.

Mr. Finlay, I hope you can make your presentation fairly short.

Mr. John J. Finlay (Executive Director, Canadian Booksellers Association): Thank you very much, Mr. Chair, and members of the committee.

First of all, I would like to thank you for inviting us here today. We share the view of everybody else in the industry, I think, that the issue now arising of the potential entry of U.S. chains is really of major concern to the whole industry, and not to just one segment.

We also share the view of the member who had expressed concern about the material. We do have some material we prepared, but because of the timeframe we were not able to get it translated in advance. We apologize to you, but we have prepared a brief. There is also a letter supporting the position we're presenting this morning from our sister association in Quebec. That is also on file with the clerk.

The person you really want to hear from is not me, because I'm a staff person with an association. I think it will really serve you far better and will be put far more eloquently if you hear from our past president and the current chair of our government relations committee, Richard King. He has a very well-known and successful independent book store in Montreal. I'll pass the presentation of our brief to Richard.

Mr. Richard King (Chair, Government Relations Committee, Canadian Booksellers Association): Thank you, Mr. Chair. We are very happy to be here to make this presentation.

Speaking on behalf of the booksellers, we're obviously opposed to the entry of American bookstore super chains. We think it will severely damage the Canadian book industry in general and decimate the Canadian book retailing industry in particular.

Just to tell you who we are, the Canadian Booksellers Association represents somewhat over 1,200 booksellers in Canada, large and small, campus and trade. Our stores, our members, are found in all regions of Canada, and as John pointed out, we have a letter of support from the Association des libraires du Québec. It's nice to see that

[Translation]

all Canadian booksellers agree on this point.

[English]

We have learned at street level in Quebec we don't have problems on cultural issues. We understand each other very very well and had no trouble agreeing on this. It was a matter of a few phone calls.

The Chair: You should talk to the politicians.

Mr. King: Well, maybe Louise Rochon should go into politics.

As Larry pointed out, each of the two super chains is twice the size of the entire Canadian book retailing market. They have the economic staying power and working capital to drive us all out of business. In their home market in the United States, with every super store they open, they're in effect eating their young. They have to compete with their mall stores.

In Canada they don't have such a problem. They'll compete with Chapters stores; they'll compete with my store; they'll compete with any bookstore they're near, but they won't be hurting themselves, they'll only be hurting us. I think it won't be long before we're gone.

In the United States the independent bookseller has lost 44% of the market share. This is while the super stores claim they're growing the market. So in fact all the growth is at the expense of the independents. In this context, when you're looking at a company with $2.5 billion in sales, Chapters is an independent by comparison. To us it's very big, but I don't think the behemoth to the south would consider it that large.

I agree with Larry that a study has to be done before they open, and it's worrisome. I read in the current issue of Quill & Quire, which is a trade publication, there's some implication that Barnes & Noble at least may be opening without going to investment review. They may just put up a sign on the door and say we're open for business, and it becomes the problem of Canadians to then close them if they're found not to meet our model of ownership. It'll be impossible by that time, and in fact there will be no bookstores left to compete with them. We'll be forced to let them stay open.

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Larry spoke about the distribution clause, and that's important. The distribution of Canadian books and American books in Canada works because all of us in the industry want it to work. There's no rational reason - as opposed to an irrational reason, I suppose - that it should work except by agreement. It's a house of cards. We know that we can buy books, American imports, from an American supplier and get them to our doorstep a lot faster, in some cases, than we can get them from Toronto.

If all the publishers and distributors were as good as General Publishing or HarperCollins, there'd be no problem. Unfortunately they're not, but we stay in Canada out of a strong commitment to Canadian culture and we'll put up with a certain amount of inconvenience in order to support our culture.

Once that system falls apart, it can't be replaced. It's the foundation upon which our businesses and our literary culture survive. We can't tell an American retailer not to purchase their product from an American publisher, which amounts to an American manufacturer. The whole notion of the distribution clause as part of the Copyright Act rests on exclusivity.

There's nothing to stop an American retailer who does $2.5 billion worth of business south of the border to say, look, we already buy enough to stock our Canadian stores; we'll do that from overstock in our warehouse. In the case of Borders, if they can ship books from Ann Arbor to Hawaii or Alaska, they're not going to have any trouble shipping books to Toronto.

So regardless of what legislative possibilities are discussed, I think they'll have no effect. In the end, I think our legislation won't have any impact on American companies.

You asked us to be brief, and I will by skipping many pages.

There is another big loser in this. It's not only the Canadian people, not only an industry that has survived some tough times, but there's a risk now to college and campus bookstores. Barnes & Noble has about 300 campus bookstores in the United States. There's no reason to assume they won't try to expand that market into Canada, which will mean that the selling of Canadian textbooks to Canadian students will be in the hands of an American super retailer.

At this point, only two Canadian campus bookstores are controlled by an American retail chain. This is wonderful, but there's a risk that the entire textbook industry, publishing and distribution, will be controlled by Americans.

The other loser, of course, is the Canadian consumer. If Canadian publishers or Canadian bookstores are forced out of business, there'll be no access to our literary culture.

Finally, the Government of Canada and provincial governments have invested heavily - and wisely, I'd like to add - in the book industry. The money that goes into the book industry is spent in Canada to promote Canadian books. The government grants are being cut back by as much as 54% or 55%, but the investment that's made is still doing its good work. If super retailers move in and kill our industry, all that money will have been wasted.

Thank you.

The Chair: Thank you. Because of our time constraints, I want to thank you for not giving us the entire book, but I appreciate the strong forward.

I think what we should do is have one full round to hear from all the parties so that we can put questions to the two groups. After that, I think we should hear from the publishers, because the publishers are not in total agreement with your presentation, or at least they have some different views.

I think we should start with Madame Tremblay for eight minutes, followed by a representative of the Reform Party.

Madame Tremblay.

[Translation]

Mrs. Tremblay (Rimouski - Témiscouata): I'm both pleased to see you again - I met several of you earlier in another context - but I am rather sad to see that we have reached this point.

We anticipated what would happen two years ago, when Ginn Publishing was sold and other similar things happened. That was the beginning of the process leading to the American bulldozer that wants to take over Canada.

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What can the Official Opposition do in concrete terms, starting today, to find out exactly what is going on?

Mr. Stevenson: I would say that you should at least do a complete study of the impact of the arrival in Canada of Barnes & Noble and Borders, because it will be too late to do one after the fact. I know that we are going through very difficult times, but I'm afraid that a decision might be made before all the consequences are considered in a full study.

I would advise government and the Official Opposition to protect canadian culture.

Mrs. Tremblay: Have you approached the Minister of Canadian Heritage and Mr. Manley to ask them to set up a committee specifically to look into this matter?

Mr. Stevenson: We have had some meetings with Mr. Manley and with Minister Dupuis.

Mr. King: We are in the process of doing that at the moment. I would also add that I am in full agreement with my colleague. If a study is done after Barnes & Noble is open for business, it will be too late. The study must be done beforehand, either this week or next. The study must be carried out as soon as possible, because Barnes & Noble and Borders are ready to open their doors for business. Borders has already signed a lease for a 100,000 square foot area at Bloor and Bay. It has a warehouse in Michigan, and is ready to distribute its books in Canada. I just hope it's not already too late to do something.

Mrs. Tremblay: Which company rented the space, Barnes & Noble?

Mr. King: Borders.

Mrs. Tremblay: Borders.

Mr. King: Yes. It is located in the Manulife Centre.

Mr. Peterson: I should also mention that everything involving Investment Canada is secret. We do not know exactly what is going on at this time. And since things can be decided very quickly, it is crucial that the issue be studied so that there can be a public discussion of everything that is at stake here. That is also why your committee is so important.

Mrs. Tremblay: What was the reaction to your request from Mr. Manley and Mr. Dupuis? Did they imply that they would set up a committee?

Mr. Peterson: I don't know whether Mr. Manley is aware that this committee is meeting today. However, I do know that he and Mr. Dupuis realize how serious this issue is. But Mr. Manley's jurisdiction and considerations are different. The fact is that this problem is not just an economic one; it is also cultural in nature. That is why it is somewhat more difficult for them to understand that it is for you.

Mrs. Tremblay: That will be all for the time being.

[English]

The Chair: Mr. Hanrahan.

Mr. Hanrahan: As I mentioned earlier, gentlemen, this is all happening very fast for us too. A lot of our questions will be informational rather than perhaps ideological or whatever.

Mr. Peterson, what I want to look at is the question of business versus culture. You mentioned - and this is a fairly widely known fact - that in the film industry 3% is now Canadian, and in the bookselling industry 35% is Canadian. Is that a significant change? In other words, do you see the same thing happening with the Canadian content of the bookselling industry as happened with the film industry?

Mr. Peterson: May I just say at the beginning that I'm enormously sympathetic, because I don't think we've been fair with you. This committee meeting developed very quickly. There is an enormous amount of information and background, and it is a difficult and complicated issue to understand. We will happily to provide copies of all of our submissions and a great deal of other background work. I apologize to you for that, sir.

As I look at this, it is a commercial issue; but it is also a cultural issue, and it goes right to the root of this country. I tend to view it, where I come from, with my background, as a cultural issue. If people don't care about culture, they say, well, forget it, that's the name of the world; the big American box retailers are taking over everything. You can say they own Wal-Mart, they own Toys-R-Us. If that's one's vision of the world, the Americans taking over the book industry would conform with that vision.

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Mr. Hanrahan: But there is a difference, sir, between selling a tire or a toy and selling a book.

Mr. Peterson: I agree with that, absolutely. What's at stake here, particularly at this most sensitive time in our history, is that the things that bind us together as Canadians are Canadians explaining Canadians to each other, understanding, building respect in this great diverse country in both official languages and in all ten provinces and all regions. I personally view this as fundamental to that, shall we say, crazy glue that keeps this country together. That's why I think the fight is so significant. That's why your committee is so important to this discussion.

Mr. Hanrahan: Yes. Now let me carry that just one step farther. If we look at the history of book publishing, Canadian content, and the situation we have now, which is obviously somewhat protectionist, has that protection been breeding, in your opinion, over the last thirty or forty years, mediocrity or excellence in Canadian content and the glue you speak of, bringing this together?

Mr. Peterson: I say this with some pride. Last night a number of us were at the great literary dinner in Toronto, where they had seventy of the leading authors in Canada. It was a fund-raising do. It would have made your heart sing to know as a Canadian what enormous talent we had in that room, from all types: from the Pierre Bertons to the Maggie Atwoods to the Carol Shields and everybody else across the country. It was a great Canadian celebration. We have an enormous amount....

I'm one of those people who always think we're pretty hard on ourselves. We don't celebrate ourselves enough. But the reality is 30% to 35% of the books sold in this country are Canadian. We have an enormous amount of productive talent. But it has to be nurtured.

We have had government programs in the past - they are being cut - that have helped publishers. The publishers are under a lot of threat today. In many ways they're the key to the book business. We have wonderful authors. But it's fragile. Without the support mechanisms, the right distribution policies....

Just to put this in context, this was a major discussion during the free trade debate, and even the hardest, toughest-nosed free trader said we have to protect Canadian culture. There we are, right today: a major threat to Canadian culture, in our view.

Mr. Finlay: I wonder if I might add to what Mr. Peterson is saying. I'm an immigrant. I came to Canada in 1963. In 1963, for those of you who are close to my age, the country and the cultural industries in the country were in a very different position from the one they're in today. If we look at the book industry in particular, the strides that have been taken between 1963 and today have been enormous, because Canadians are recognized internationally, as well as throughout the country, as being leading writers in all sorts of fields, whether business, whether the traditional literary area. That was really achieved by nurturing the industry to a significant degree.

The problem now is a question of whether we are willing to put all that at risk. I think we have to realize we really are putting it at risk with the size of the types of operations that would come in from the U.S. What ultimately will happen, we believe, is you will see damage to all aspects of the industry, whether the bookseller, the publisher, or the author. There will not be the support for Canadian culture. Americans are not recognized for having a particularly strong commitment to other cultures, and I don't think they would be different here in this situation.

The Chair: Mr. Abbott.

Mr. Abbott (Kootenay East): Someone made the comment that if you don't control distribution you don't control content. I'd like that to be broadened, because I have to tell you I'm very skeptical about that comment.

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I take a look at money - the investment in the retail book business or in the book publishing business - I take a look at money around the world as having no nationality nor morality. In other words, money is a commodity, a medium of exchange only.

I'd like to come back to what I happened to see on television - I believe it was on Sunday night - where although it was considered that Wal-Mart was going to wipe out Zellers, the Bay, and Canadian Tire, in fact Zellers and Canadian Tire are doing very nicely, thank you very much, and Wal-Mart has not been able to adapt to Canadian commerce as easily as it had anticipated, and in fact the juggernaut did not happen.

I need some credibility to be brought to the statement ``if you don't control the distribution, you can't control content''. I'm not buying into that at this point.

Mr. Stevenson: Could I start with your comment on Wal-Mart? Wal-Mart's market share in one year went from 22% to 39% of discount department stores. Most of us would be doing back flips if we could achieve that kind of success. Secondly, Zellers' profit fell 38% percent. We're in year one, and I would submit to this group that five years from now I'd be surprised if we are still saying that Zellers and Canadian Tire are thriving Canadian retailers.

Secondly, I do think there is a real move in the United States, by virtually everybody who's in the entertainment business, to get into distribution. Now, maybe they're all wrong; maybe they're spending $17 billion to buy the likes of the ABCs of the world and the cable companies because it's an investment. I believe it is because they have figured out you can have all the content in the world, but if you don't have a way to get that content to the customer, you're out of business.

We might disagree on that, but I absolutely think at least the last four or five major mergers in the entertainment industry in the south would prove that you need to have distribution. The film industry is a classic industry of the fact that if you don't have distribution, you're not going to have Canadian content.

A voice: Can I add to something?

The Chair: I'm sorry, this round is finished with Mr. Abbott. Before I turn to Mrs. Gaffney, may I ask one question, because I think it's important to understand the context here.

My understanding of the current regulations is that before Borders or Barnes & Noble are able to come into Canada, they would have to form some kind of partnership with some Canadian-controlled company.

If I'm right in my premise, my question then is this. Would any kind of partnership with those kinds of chains satisfy you? Or are you so fearful that any kind of partnership just would not be possible because of the possible consequences to booksellers, to publishers and of course to authors?

Mr. Stevenson: Mr. Chairman, I guess my answer would be that it would depend on the expertise of that Canadian partner. To take the example of AT&T and the Bank of Nova Scotia - in all fairness, the Bank of Nova Scotia is a hell of a bank, but I don't think they know a lot about telecommunications, so I can't imagine the two of them sitting around the table, with the Bank of Nova Scotia running Unitel. It's a little bit of the question of who is the partner? If the partner is strictly a financial partner, and it's just money, then I believe it will be controlled by the U.S. partner in that joint venture.

The Chair: Allow me to be hypothetical for a moment. Let's say it was good old Eaton of Canada, a good Canadian company.

Mr. Stevenson: That's a very good example; I think that is closer to control. If it was Eaton, I'd say, well, at the very least they know about retailing. So when they sit around the table, they don't know a lot about book retailing but they do know retailing, and so I would be less concerned, and I'd be less concerned the lower the percentage that is owned by the U.S. partner. If it was 80% owned by Eaton and 20% owned by Borders, and Eaton was going to run it and they were going to use an Eaton distribution centre in Canada - we'd have a tough time being against that. That's a Canadian control; Eaton is a Canadian company.

At the other extreme is one that's 51% owned by a Canadian company that knows nothing about retailing, nothing about books, and is going to put in some token Canadians to run what is in effect a company run out of Ann Arbor. That would be a sham.

The Chair: I guess that leaves me out. I won't have a chance to link up with Borders.

Mrs. Gaffney.

Mrs. Gaffney (Nepean): Thanks, Mr. Chair. I think all of us around this table have not been briefed on this issue at all. We haven't any literature to read to bring us up to snuff on it, so I do appreciate your coming here. But it makes it difficult to ask those tough questions that -

Mr. Peterson: We don't want tough questions.

Mrs. Gaffney: Yes, but there are questions that need to be asked. I know how fragile this industry is. In my other life, prior to being here, I was chair of the region's advisory committee on the arts, and we recognized the fragility of the book industry. We promoted literary awards and book awards. It was very important, so all levels of government have been involved.

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The two issues I see that you're asking here are that it's going to destroy the small booksellers, hurt them very badly, and also destroy the Canadian content.

I guess one of the questions is this: has Chapters Inc. to a certain degree not already established itself - I'm talking about through the amalgamation of Coles and Smith - as controlling a very large portion of the Canadian market, thus putting money...? I suggest that the small booksellers already had been put out of business.

The second thing is this: is content, for example, not determined by consumer demand? Could you elaborate on how distribution controls content?

I'll do all of my questions at once, and then you can do all your answering at once.

Through the free trade agreement we were very concerned about protecting Canadian culture. That was a major issue. I thought to a certain degree that we had protected it under the free trade agreement, but how can we protect literary culture, the industry? You mentioned Investment Canada as maybe being the vehicle through which we can do it, and I would like you to elaborate on that.

Mr. Peterson: May I make just one point? We're very grateful that this committee hearing came together, and we were inadequate in not getting the information. We will undertake to do that and, should you so choose, we will be delighted to come back for another discussion of these issues.

Maybe Richard can answer some of those questions.

Mr. King: Speaking for the smaller booksellers, you're quite right: a year ago when we saw the merger of Coles and Smith into one big company, we were worried. We had a year, or six or seven months anyway, to start the preparation. Now we're a year later.

As a result of the proposed merger, a quite intense study that lasted six or seven months was done of our industry. A lot of what we know about our industry comes out of that study. We were forced to answer some very hard questions about market share and so on.

The risk now is that a company that's over twice the size of the entire Canadian industry can open its doors tomorrow. There has been no study; there's no time for anybody to prepare. I'm not confident that without our distribution system, protected not in law but in fact.... It's worked by people, and it works because we make it work. Without that willingness to cooperate, it won't work. The risks are too great.

I agree with Larry in that regard. If there's no distribution system, then there's no way for Canadian books to get to Canadian bookstores.

Historically, our constant struggle on this in Canada, not only for the book industry, has been to keep east-west links open when the strong pull has been north-south. We've been successful. This is another case where a north-south link is threatening our traditional east-west links.

I don't know if I've answered your questions.

Mrs. Gaffney: Yes, partly. There are a few more in there. Who else is going to answer the rest? In terms of Investment Canada?

Mr. Stevenson: On the one question that consumer choice will drive the purchasing of fine Canadian books, I actually am not as confident that that is possible in the long run, because if the books aren't published then there isn't that availability. It depends on the publishers being in business so that they can publish fine authors so that Canadian consumers can see their works on the bookshelf.

There are two steps to consumer choice. Unfortunately, sometimes in the book industry they didn't know that they wanted it until they saw it. They probably didn't go out and say what they wanted was Margaret Atwood until Margaret Atwood had been developed by her publishers. Carol Shields published a lot of books by very small Canadian publishers before she won the Pulitzer prize. There wasn't a demand that said what we need is Carol Shields. So I think consumer choice comes from the nurturing of that author community.

My fear is that as one looks at how successful the publishing community has been in developing Canadian authors, there is a risk of saying, gee, that's fine; now we can pull everything. But that means that this generation of authors will survive. Margaret Atwood, Carol Shields, and Robertson Davies will survive, but that is because they were nurtured by an industry for 25 years. The next generation won't be there. So there won't be consumer choice 25 years from now if the fine Canadian publishing houses aren't in business.

In terms of the Investment Canada process, my understanding is that there is meant to be an application, if you are coming in even as a minority investor, to prove that effective control is in Canada, but there have been instances in which people have opened their bookstores and then have been reviewed after the fact. The problem is - I agree with Richard - that if you open a 55,000-square-foot bookstore at the Manulife Centre in Toronto, then that's going to be a really tough one to close after the fact, even if you determine that control is in Ann Arbor.

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The Chair: I must ask another question, because you're talking apocalypse, and I'm just wondering whether you can base this apocalypse on precedent. That great writer Robert Fulford points out that when the old chains such as Coles came on the scene, there were all kinds of predictions that the small independent bookstores would close and disappear - vanish from the landscape. But he points out that even after many years of the old chains being in the market, there are even more small independent bookstores now than before their emergence. Can you address that?

Mr. King: What we have to remember is that Classic and Coles started off as small independent stores. I worked for Classic for a long time. It started off as one store in Montreal. In fact, it started off as a second-hand bookstore, and then there were two. Then it opened one up at the National Arts Centre and that was its third store. It grew its business. It was 100% owned by Canadians, by the Melzacq family.

The same is true of Coles, which started in Toronto as one store and grew to the chain it is. It wasn't the case of this multibillion dollar company coming into the market in one go. It started the way all the independents started, and with luck, good management skills and the right time, it grew. It was 100% Canadian-owned.

I read Mr. Fulford's column, and I don't think his point is very well taken. I'm sorry he had a bad experience when he was 17 years old. I'm sure we can find many 17-year-olds who have had good experiences in independent bookstores.

Mr. Stevenson: Mr. Chairman, I have just one addition, if I could. Richard referred to the six- or seven-month study in the case of the Coles-Smith merger. The fundamental issue the independents raised - which I think was a valid issue - was to make sure there was a level playing field between what was going to be an entity that was much larger than them and the individual bookstores. I think we collectively are now asking for the same thing. We don't think there will be a level playing field, and the same amount of study should go into this issue.

The Chair: I had an experience when I was 17, but it's so darn long ago I can't remember it. I should have put it down in a book or something.

Can I just get a sense of how much more time we have? We have questions but we also have to hear from the publishers. I want to hear from Mr. Loney, and then I think we should go to the publishers.

Mr. Loney.

Mr. Loney (Edmonton North): Mention was made that there are two book outlets controlled by American distributors. Could you tell us where they are and who they are?

Mr. King: Do you mean Barnes & Noble? It's American. It's all over the United States, with over 1,000 stores.

Mr. Loney: Yes, but I thought you were talking about outlets in Canada.

Mr. King: It's not here yet. This is our problem. If it were here, we'd be having a very different discussion at this point.

Mr. Loney: That clarifies things.

Mr. Hanrahan: Can I just add to what Mr. Loney was asking? Did I understand correctly,Mr. Peterson, that you don't know what the time line is.

Mr. Peterson: This is the real dilemma we have. We don't know. We hear these rumours -

Mr. Hanrahan: Could it be tomorrow, or in a month or a year?

Mr. Peterson: It could be tomorrow. There are rumours right now that there will be an announcement on Friday. There are rumours that some are going to avoid Investment Canada and just open up anyway. There are rumours about who the financial partner in Canada is. That's the real dilemma. It makes it so difficult for us. There are rumours it has taken up a lease in the ManuLife Centre, and there are rumours it hasn't.

If we had full information, or you did, we would ask for a full hearing on this issue and flush it out. Investment Canada is statutorily protected from any public information. If we're selling widgets, that's one thing. But we're not selling widgets; we're selling, I would argue, the soul of our nation here. This requires far more scrutiny than that. At the end of the day, you may come to the conclusion it's the right thing to do for the country, but at least there would have been a highly informed public discussion with lots of input.

Mr. Peterson: I think some smart entrepreneur should get out there and write a paperback on the rumours.

The Chair: Do you mind, Mr. Peterson and company, just sitting aside for a moment so we may hear from the publishers?

Representing the publishers is Jack Stoddart, chairman of Stoddart Publishing. He's accompanied by Paul Davidson, the executive director of the company, and Roy MacSkimming, policy director.

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We also want to hear from the Canadian Book Publishers' Council, with John Neale, Ann Ledden and Jacqueline Hushion, who is the executive director.

Are you starting the presentation, Mr. Stoddart? I hope you can keep your presentation as short as possible. Then we'll go to questions. Is that fair?

Go ahead, Mr. Stoddart.

Mr. Jack Stoddart (Executive Council Member, Association of Canadian Publishers): Thank you, Mr. Chairman. I'm Jack Stoddart, chairman of the Stoddart and General Publishing Companies. I'm here as a member of the Association of Canadian Publishers. We represent 145 Canadian-owned publishers. Our members are in every province and territory. We represent companies as small as $50,000 per year to as large as $30 million per year, so there is an incredible spread. We're into all types of publishing, etc.

Before I talk about the impact of major American retailers entering Canada, I want to underline that over the last 25 years Canadian publishers, together with writers, illustrators, and designers from across the country, have created a national literature in both official languages. Our literature introduces Canadians to each other and Canada to the world. One of our great accomplishments as a nation is what we have accomplished in the writing and the publishing of books.

Retailers and the distribution channels developed in those 25 years have been critical to our success. About one-third of the book sales in Canada are Canadian-authored titles. Compare this with Canadian films, with only 3% of those movies seen by Canadians. A major reason for the difference is that in books Canadians today have control of their distribution network, which is, of course, bookstores, whereas in the movies we lost it decades ago.

When a third of the Canadian sales are Canadian-authored books, there is clearly no shortage of creative Canadian talent. We have that talent as writers, as film producers, etc. The difference is who distributes those books. In this particular category it's the bookstores.

Distribution does matter, and it is fundamental to our ability to communicate to one another across this vast land. It is fundamental to the economics of publishing in Canada. Publishers distribute foreign titles in Canada and do so profitably. For some of our members, this accounts for 50% to 65% of total revenues. Those profits go directly toward the cost of discovering and developing new Canadian writers.

The key threat from American retailers coming into Canada is the loss of control of our distribution system. The defining characteristic in the American retailer system is U.S.-based centralized buying and distribution. Canada will be treated as another American city or state.

We have spent generations developing some of the world's finest writers. We've built an infrastructure that enables people from across the country to tell their stories to one another. Canadians take pride in these accomplishments and today that is in jeopardy.

My major concern is that members of this committee know what is at stake if a major retailer is simply allowed to open in Canada. It is about more than retailing. It's about the future of our national literature and our ability to communicate with one another.

Our association takes this issue very seriously and in our view there are four key points. We support a healthy, dynamic and competitive book retailing environment. We welcome excellence in retailing and the competitive nature of it. As for the current policy prohibiting foreign entries into the book industry as opposed to book retailing, we must remember that the same rules are supposed to apply to bookstores, wholesalers and publishers.

Some people try to differentiate in some way and say it's more important for the publishers to be Canadian-owned than it is for the book sellers. The regulations, as we understand them, apply to the whole industry and that's a very critical point.

The current policy prohibiting foreign entries into the book industry must be rigorously applied. That would mean that there should be no foreign entries into this Canadian market, as the law stands as we understand it today. Clearly, any proposed joint venture must be Canadian-controlled and that control must be real.

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The CRTC has had no problem defining and insisting on true Canadian control of the media - the radio, television, newspaper and magazine industries. In books we're left out to hang a little bit. We say we're supposed to be Canadian, but some of the new entrants don't see effective control as a part of the mandate of this role.

One test of Canadian control must be a long-term and binding commitment to source books in Canada. Ownership alone is not the answer. Cineplex Odeon has had a Canadian ownership base for many years, but I don't believe they have demonstrated a commitment to the Canadian film industry in the sense of show time in their theatres.

Fortunately, up to this point in time we've had a very strong and committed book retailing community that has backed the publishing of Canadian books and has sold them in both official languages. It's been very strong support, and that's really why the writers and the publishers have been able to flourish and develop this work.

But this also illustrates a problem, because presently there is no publicly available set of criteria for determining Canadian control in fact within the book industry. It appears a company can simply assert it is a Canadian company and commence operations. We would be pleased to work with the government and others in the book industry to develop such a set of criteria.

Effective control or Canadian control in fact must be determined before the enterprise begins retailing. The stakes are too high to let a company in and let it operate while it is being studied.

Finally, we call on the government to act on its stated promise to introduce the distribution right as a matter of a real urgency. The measure was promised by the Minister of Canadian Heritage almost a year ago. In a year when direct federal funding to our industry has been cut by a gigantic 55%, this distribution right will not cost the government a cent, and the publishers I think uniformly feel it is an important one barrier to ensure there will be in fact a Canadian publishing industry following.

Implementing a distribution right will ensure the publishers have the right to sell foreign titles in Canada and not be deprived of that revenue by the practice of buying around. Also - and this to many of us is even more important - it will prevent American editions of Canadian-authored titles, which are published simultaneously in the states by others, from being shipped into Canada from the United States. It is fundamental that when you publish a book in this country, you should be able to control your market, and today there's dispute on whether that can be done.

The stakes in this debate are enormous for publishers, for our writers, for our booksellers and we think for our country. We appreciate your concern. The problem is of course this was called very quickly. I've tried to keep it to five minutes. I honestly think I could talk for five hours and not repeat a whole lot, but I won't.

I think that shows, though, what the problem is. It is a complex issue. It is not just retailing; it is not just publishing; it is not just writing. It is a cultural industry; it's national; it's in two languages. I don't think anything we're saying today in an English presentation would be unusual for our associates in French-language publishing to be saying. We know from working with them they have similar viewpoints.

It is necessary to have something such as the magazine industry had, which was a task force on the magazine industry when it had to deal with the split run Sports Illustrated issue. Or we could have a royal commission or something along that line that has a body that can go on and set policy.

The problem we have today is if Borders and Barnes & Noble enter - and I believe they will make those announcements within the next week to two weeks - it will set a precedent that applies in all parts of Canada of equal value, and basically the deal will have been done. Since publishing is under the same rules as bookselling, it seems to me if the booksellers can change the rules, so can the publishers.

Of Canadian-authored books, 80% are published by Canadian-owned houses. Those Canadian houses today cannot be sold to foreign entries unless in dire straits, etc. That will fundamentally change, and I think you would see an exodus of ownership from the Canadian houses very quickly.

The precedent that would be related to publishing and to both languages I think is an important one.

Thank you.

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The Chair: I notice Mr. Peterson and his colleagues are leaving now.

Mr. Peterson, just before you leave, I want to thank you for coming on such short notice. I really appreciate it, on behalf of all my colleagues. It's not very often we can develop such a strong line-up in a matter of a couple of days. I really appreciate it, Mr. Peterson.

Mr. Peterson: Thank you, sir. We'd be very happy to come back for another meeting at your pleasure.

The Chair: Thank you.

Now, before we go to questions, we have to hear from Mr. Neale.

Mr. John Neale (President, Canadian Book Publishers' Council): This year I'm serving as president of the Canadian Book Publishers' Council. My part-time job is as president of Doubleday Canada Ltd. and Bantam Books Canada Inc.

With me I have Ann Ledden, who is vice-president of sales for Little, Brown; and Jacqueline Hushion, who is our executive director. We also solicited input on such short notice from Avie Bennett, who is president of McClelland & Stewart. He couldn't be here with us today.

A lot of reference has been made to the little time for preparation. I won't go over it again, but we do have a formal submission for what we will be saying here today and a rationale for our position on the right of importation. We've not had a chance to have this translated into French, but we are taking steps to do that.

We all know how quickly this meeting came together. In reference to that, I can also tell you that some of the rumours circulating about Barnes & Noble and other developments are now hinging on the fact that this meeting is happening here today. Therefore something big is going to happen tomorrow. So you can see how these things operate. I think we're all as dismayed by these rumours as anybody. There's no doubt this is an important topic, because Barnes & Noble, and Borders, through meetings they've had with the publishing industry in Canada, have certainly made it known they're seriously looking at coming to do business here.

I'm not going to read our formal submission, because the tenor of this meeting so far has been more informal than I had expected. I will refer to parts of it.

We're not here to stress the limiting of retailing of books in any way. This is not something we put on the table first and foremost, that we're looking in some way to limit who can sell books in this country. There are already government regulations dealing with the ownership of retailers of books and those involved in book distribution, and we are assuming they are in place and will be effective to a certain degree.

Our stance on this is that ownership alone and government regulations on the ownership and control of these companies would still not be sufficient to determine whether Canadian publishing and Canadian writers will benefit from the expansion of the retailing of books in this country. There are already significant book retailers here, such as Wal-Mart and Price Costco, where the ownership issue obviously is not involved in their doing business here. What has been involved in their doing business here is a significant commitment by them, so far, to adhere to the distribution rules as they exist in Canada now, or the common practice of the industry. Most of the books that go into these outlets are being sourced in Canada, either through their understanding that it's the smart way to do business or through undertakings they have given the government in order to sell books here.

What we are looking at really is something that will enable our industry to survive and to prosper, and Canadian writers to expand the opportunities at retail. What we think is really needed to make this possible is a distribution, or, if you will, an importation right, whereby everyone who is involved in book distribution and retailing in Canada is committed to and must source their books in this country. The threat from the major U.S. retailers is real if they indeed use their own distribution channels and bypass those of us who have made investments in Canadian publishing and investments in distribution of books in this country.

The organization we represent here is one of approximately forty Canadian and internationally owned companies. We all publish Canadian books and pay royalties to Canadian authors. In fact, together our member firms have more than 13,000 Canadian titles in print. In 1994 our nearly 3,000 employees produced and sent to the domestic and international marketplace more than 1,100 new Canadian titles and paid royalties to Canadian authors exceeding $22 million.

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In addition, our members also act as exclusively contracted Canadian agents for the books of many foreign-based publishers. We bring the best of international titles to this marketplace. In fact, a large percentage of the total dollars invested in the publishing of original Canadian fiction and non-fiction flows from the sale of imported titles.

The distribution business underpins our industry's economy and infrastructure. I think that applies to both Canadian-owned firms that are distributing American books or British books with an exclusive distribution arrangement and foreign-owned firms that are very active and involved, obviously in selling their parent companies' books, but also in the publishing of Canadian authors.

I think I'm just about up in terms of my time and I'd just like to read the statement we would like to leave with you. As I've mentioned, we have other material for you to refer to. When you're dealing with publishers, you will never have a shortage of material printed for you to refer to in making any decisions. We just didn't have time to get it out before this meeting.

We believe Canada must have a viable and robust book retailing sector. It must be competitive. It must operate on a level playing field. While we are supportive of Investment Canada Act regulations around de facto Canadian control, it is clear that ownership regulation will not in and of itself secure the Canadian markets to Canadians.

It is also clear that Canadian control is hard to define, hard to regulate, and hard to enforce, at least in operational terms. The existing rules on ownership must be combined with a right of importation. That right will be as useful to existing Canadian retailers as it is to us. It does level the playing field.

Thank you.

The Chair: Thank you, Mr. Neale.

Can I just get a tiny clarification on this question of distribution right? As I understand it, if I were to write a book under a distribution right, a genuinely, truly Canadian-controlled publisher would have the publisher's rights insofar as Canada is concerned.

Mr. Neale: Not necessarily so. I think there are two levels of protection here, if you want to use that word. One is the protection of copyright, where an author enters into a contract with a publishing company for a certain territory. For instance, Margaret Atwood is published by Doubleday publishers in the U.S. and McClelland & Stewart in Canada. The law protects the Canadian edition of that book. The copyright contract makes it illegal to import the Doubleday edition into Canada.

What the importation right is looking to do is to expand that to a situation where a Canadian firm may have an arrangement with another publishing company, such as St. Martin's Press. It would prevent other people from importing, parallel to that arrangement, the books into this country. We want to protect the Canadian agency system in that way.

The Chair: Do other countries have that?

Mr. Neale: Yes.

The Chair: Thank you.

Suzanne Tremblay.

[Translation]

Mrs. Tremblay: At the time Ginn Publishing was sold, the Minister of Heritage promised he would come forward with a policy. I would not want to discourage Mr. Stoddart, but we have been waiting for the Copyright Act for ten years now. Each year the promise is put off until the following year.

The first time we met with Mr. Dupuy in 1993, we asked him when he would be tabling the copyright legislation. He said it would be within a couple of months. When he appeared before us again in 1994, he said the bill would be tabled in the fall of 1995. And we are still waiting! This was one of the promises contained in the Red Book!

I must confess that I'm somewhat disturbed by this meeting. Before leaving my office this morning, I was given an article from the Toronto Star of June 24, 1995. It was entitled: ``Border Crossing Could Damage Publishing''.

June 24 was Saint-Jean-Baptiste Day and after that, as you know, we were concerned about other matters, namely saving Quebec, since Canada was letting everything go! So the issue we are dealing with today was drawn to our attention on a green sheet which simply stated: Briefing session on possible changes to retail bookselling in Canada and its culturel implications. Witnesses to be announced - Témoins à être déterminés. We only found out who you were when we got here this morning.

This meeting may be one last effort, because my impression is that it is already too late. Of course, as long as nothing has been done, it is not yet too late. But I must say that I find what is going on rather sad.

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Mr. Stoddart, I would like you to explain something on page 4 of your statement. I don't understand what is meant. You say: The current policy prohibiting foreign entires into the book industry must be rigorously applied.

If we have a stringent policy and apply it, we can apparently stop people from coming into Canada. Why are we worried about people coming into the country if we have a policy that can prevent them from doing so? I would like an explanation, please, because I'm having trouble understanding that.

[English]

Mr. Stoddart: Thank you for the question, because it really goes to the heart of it.

When the so-called Baie-Comeau policy was in place, there were actually very strong regulations having to do with the entry of foreign corporations in the field of book publishing. When Perrin Beatty brought down his revision in 1992-93, or whenever it was, those regulations were very much softened. Although there is, for instance, a 51% threshold, there is no way to define and it is not effective control, in the sense that Investment Canada is not applying it as effective control.

I shall give you an example. Barnes & Noble have not applied to Investment Canada, but they have seen Peter Caskey at Investment Canada. According to their conversation with Mr. Caskey, he said, ``If you fit within the 51% and do two or three things, then you don't have to come for review; as long as you are 51%, you're a Canadian corporation and we don't have to pull you in for the review process''.

If there is no review process, then how do we know where effective control is?

It's significant, because Barnes & Noble, as we've heard before, is a huge American corporation and the three Canadian partners were ex-Coles employees, fine people who've worked in this industry for a long time. But to suggest that three individuals who have worked in the industry would be 51% of a corporation that sells books in this country with effective control stretches my imagination, and perhaps others' imaginations, too.

If I ask Peter Caskey what the rules are, I don't get an answer. If someone sits down and asks, ``If we do the following, will we be acceptable?'', and they give an informal answer, and then those companies, whether they are Borders or Barnes & Noble or anyone else, set up their plans and go forward, it leaves the Canadian publishing scene and the Canadian bookselling scene with no clear set of guidelines, and that's one of the problems.

If we all knew what the rules are, if they were in black and white and we understood and we participated in the process of setting those rules.... Regardless of ownership and regardless of the part of the industry, we've all asked for participation in setting guidelines so that the ground rules will be set.

There are no ground rules that are understood in the industry, and that's the fundamental problem. So if tomorrow Borders announces its entry into Canada, I am sure it will have done it within what Investment Canada has said are the guidelines, something I can't get my hands on, in a real sense, that they have.

The regulations they have agreed to are considered private corporate information, so I don't even know what undertakings they've made. When Chapters was created out of Coles and Smith, there was a whole hearing process and they had undertakings that are clearly understood by the industry, and Chapters, as part of their responsibility in being allowed to combine, have to report on a quarterly basis, etc. The book publishing industry has basically to come in and say, ``We understand there's less competition, but they're acting in a responsible way''.

If I understand the Investment Canada policy, that is not the case. Foreign entries will be able to come in but not have even to explain what their undertakings are. That has happened in publishing over and over again, so I don't see why there would be any difference in bookselling.

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[Translation]

Mrs. Tremblay: Would it be a good idea to model a future policy on the CRTC's policy and require, for example, 75 to 80% Canadian ownership, and allow only 20 to 25% foreign ownership?

[English]

Ms Jacqueline Hushion (Executive Director, Canadian Book Publishers' Council): In and of itself not necessarily, because if a retail book chain is 100% Canadian owned we cannot assume they will support the Canadian marketplace, they will still buy in Canada, they will source in Canada the books that are available here through exclusive contracts. For us that is the larger issue.

The United States has a distribution right. We cannot flood their marketplace the way they can flood ours. The United Kingdom has a distribution right. Almost as we speak, the Berne Union is considering, through a committee of intellectual property and copyright law experts, a protocol to Berne, which Canada would sign and which gives a distribution right to the world, because we recognize divisibility of copyright is the economic backbone of our industry.

I don't have any confidence that 100% Canadian ownership will secure the domestic market for Canadians. Canadian publishers need to go to bed at night knowing that when they wake up in the morning they have customers who will buy from them, as opposed to buying on a north-south axis.

Mr. Stoddart: I'd like to add another viewpoint on that. From a Canadian ownership point of view, the Association of Canadian Publishers sees nothing but logic in the fact that 51% is not control in any sense. In industries such as cultural industries the 75% or 80% that all the other industries enjoy - and that's why strong industries have been built with Canadian ownership. That is certainly a much stronger position for all parts of this country.

The Chair: Thank you.

Just for the benefit of Mrs. Tremblay, I want to try to explain why this meeting was such a rush job.

When I came to work Monday morning, I discovered we were not going to be having any witnesses for this Thursday meeting. I had counted on the Canada Council coming on Thursday and discovered they couldn't come until Tuesday. So I was looking at an empty slot.

Being somewhat concerned about productivity and so on, I scouted around late Monday morning and early Monday afternoon and discovered some of these people might be available. I apprised my committee members of that Tuesday, when we met. They indicated I should go for it and we should have this meeting.

So it is a rush job, but I think it does help us fulfil our mandate. I'm sorry for the rush job, but I can tell you that if we hadn't had them today, I've been looking at my schedule and I don't think we would have heard from them, probably, until February. That's just the way it is.

But I'm sorry for that.

Mr. Hanrahan.

Mr. Hanrahan: I appreciate what you're saying, Mr. Chairman. Under the circumstances we're all rushed, and we have to maximize what we have.

Gentlemen, I thank you for your presentation.

You mentioned, sir, you could go five hours without repeating yourself, in the content. I'm sure we could go the same distance without repeating a question.

I'd like to follow up a little on what Mrs. Tremblay was directing her attention to.

I'm quoting from your handout, I believe, which comes from Maclean's, November 20, 1995. In bold letters it says that Ottawa's decision could change the face of the book business.

Then on page 4, I see the current policy of prohibiting foreign entries means no foreign entries into the Canadian market and you understand this to be the law. Now what you're telling us is that you're not quite sure what the law is. The previous group, and you guys as well, tell us this could happen tomorrow, because of the rumours of this meeting going on today.

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My question is as follows. Ottawa's decision could change the face of the book business. Ottawa's decision might not have anything to do with this. Ottawa might not even have a decision, because if these guys set up tomorrow and they're established within a year, then, as the previous witnesses indicated, it will be very hard to take them apart again.

Mr. Stoddart: We understand that, and that's why we appreciated the meeting today.

It might seem like a conflict in those two articles, but I believe it isn't. The two departments give two quite different answers on this issue, and that's why there is the confusion in it. If I'm asking Investment Canada, they will tell me that as long as you hit the following, etc. If you ask the Department of Canadian Heritage, they say that everybody has to be reviewed, that you have to have substantial undertakings, that you have to do the following, etc.

The Department of Canadian Heritage, which is responsible for the cultural well-being in this country, is saying a thing different from what Industry is saying, but Industry and Investment Canada are the ones who make the approval. I suspect that it is the frustration of the Department of Canadian Heritage, as well as those of us in the industry, that the people making the decisions have no allegiance to the cultural industries as a unique entity. They are running it like a business. Whether we're producing widgets or books doesn't seem to be of significance.

It is a problem in the sense that I know that Minister Manley feels that he's a great Canadian nationalist. They told me that. Every decision they have made, including in particular Ginn, Maxwell Macmillan.... If you go through the whole list of them, every one has been to diminish the presence of Canadian publishing, Canadian authors, and Canadian work.

I don't think we can leave the decision-making of our culture to Investment Canada and the Department of Industry, who in the last five years have not shown any sense of commitment to the continuation of the cultural industries here under Canadian ownership. Under foreign ownership, there doesn't seem to be a problem.

Ms Hushion: It's very important that we have the support of both Heritage and Industry Canada on this particular issue, because of the Copyright Act reform involvement within Industry Canada.

I also think it is important for this committee to know that Assistant Deputy Minister Alan Nymark at Investment Canada and Assistant Deputy Minister Victor Rabinovich at Heritage are in fact discussing the distribution rights matter, which we've raised before you again today.

We don't want you to be led to believe that nothing positive is going on, that no one is looking at this, because we've basically asked everyone to pitch in and to look and to study and to act.

Mr. Neale: I think we are indeed in a crisis situation, because, while I do not disagree with Mr. Stoddart, the reality is that other retailers who are significant players in the book business are already here, as in Price Costco and Wal-Mart. What will prevent us from losing our industry is quick action on the distribution right. It was going to be included in the copyright amendments, or copyright revision, which we know may take significantly longer than anyone expected.

What we're looking at now is an opportunity - and there seems to be some sort of willingness to do this - to step in and take some concrete steps in regulating how book distribution will happen in this country. We could be discussing the ownership issue and how you could perhaps make Wal-Mart be 75% Canadian owned in order to sell books. It boggles my mind.

We have to look at the reality of who is selling books and what we need to do to protect our industry. We have a lot in common in this area. We are not trying to accentuate where we differ. We're looking toward the distribution right as being what we need to do right now.

Mr. Hanrahan: I'm extremely frustrated here by a lack of understanding. This is more a philosophical issue than an economic issue.

If I look on page 6, at the last paragraph, it says that the stakes in this debate are enormous (a) for publishers and (b) for writers. I would go back to (a) for booksellers and then (b) for our country, and the distinction between the writers and the cultural aspect of our countries, and the economics of the publishers and the booksellers.

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I'm not going to ask you to answer that now, but I would ask you to reflect on it - because of time limits - and somehow get some response back to our committee on that issue.

I would like to turn the rest of the time over to Mr. Abbott.

Mr. Abbott: I suggest, with the greatest respect, your presentation goes against the presentation that was made previously. I understood one of the presenters to say that 100% Canadian ownership will not necessarily confirm that there will be Canadian content. It seems to me there are clearly two issues here.

You are talking about distribution rights and right of importation, and that is one issue. But if we're talking about these U.S. superstores coming in, you're saying we have to fine-tune this whole issue of distribution rights and right of importation because there's no reason why Smith and Coles would necessarily conform anyway. It seems to me you are making a case against the position of the previous presenters.

Ms Ann Ledden (Immediate Past President, Trade Publishers' Group, Canadian Book Publishers' Council): We aren't directly, because we believe the right of importation would apply equally to 100% Canadian-owned or 51% Canadian-owned entities.

Mr. Abbott: I understand that.

Ms Ledden: Resident businesses in Canada would have to source their product here, regardless of their ownership. So Chapters Inc. would be offered a level playing field, the same as the superstores. That's one area where we differ with it, and it will have to be clarified with regard to Borders or Barnes & Noble being allowed to go to a U.S. parent company and say, just ignore that right of importation.

If that is enshrined in law it won't be an alternative. It's not an alternative, I would venture to guess, a lot of American firms would even want to consider. They do not ship books into Canada now. Borders and Barnes & Noble are two of their major customers, and I'm sure having a right of importation removes them from having to get into that situation.

Mr. Abbott: I suggest to you that in a perfect world, as far as you're concerned, if you achieved your objectives relative to distribution rights and right of importation, the ownership of the bookstores would be of absolutely no consequence.

Ms Hushion: We didn't say it would be of no consequence. It's not our priority.

Mr. Abbott: Well, it would be of little consequence.

The Chair: Can I just get a clarification? Do the witnesses agree that under the existing regulations or law, Investment Canada would have the full legal right to deny any application submitted by, say, Borders or Barnes & Noble, but that wouldn't satisfy you completely because of the belief there's ambiguity in the law, and if you won this particular round, you may not win the next round some other time down the road? Is that the correct understanding?

Ms. Hushion: I don't think there's ambiguity in the Investment Canada Act, or in the more recent amendments to the act that allow the government to go behind a joint venture, or get behind the corporate veil, to determine whether or not there is Canadian control.

I think the problem is that every case is different. Because of the secrecy provisions around the Investment Canada Act and the review process, the government does not feel confident or comfortable, or cannot even legally consult with us on the review process. I think that's one of the concerns Mr. Stoddart referred to.

In the discussion on the Bureau of Competition Policy vis-à-vis the potential merger of Coles and Smith, we had a role to play. We were part of that until the eleventh hour, when the bureau was finalizing the undertaking, so to speak.

So one of the difficulties for us is that because all cases are different, they won't be handled in the same way and we will have no input.

The Chair: Thank you.

Mr. Jackson.

Mr. Jackson (Bruce - Grey): I have three questions, although I may have heard the answer to one of them. I think I heard it said that one-third of its publications are Canadian. What percentage of the publishing it handles is Canadian?

My second question is, how many resources were dedicated to searching for this new talent? I know that in order to be competitive you probably have to have a global market and look for authors from all over the world. But I was wondering how many resources you use in searching for Canadian talent.

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Third, with regard to distribution rights and the rights of importation, how do we differ from the Americans?

Mr. Stoddart: Today we do not have a distribution right in this country. The United States has a very strong one and the proposed legislation is somewhat a mirror it but is watered down, so that it is significantly less stringent than the American law. At least it's going in that direction. Most countries do have a distribution right. We do not. It's kind of unique to this country.

The cost of finding talent is individual to every company. You would have to look at every company, at the publishing lists they bring forward and at the talent they develop. In some cases you will find most of the publishing program is mature authors who have published five and ten books. Some companies do nothing but developmental work. Most of their authors are authors of first, second or third books and in the end those authors move elsewhere to larger companies or whatever.

There isn't an absolute answer. I can only tell you that the publishing industry is one in which the vast majority of people do not make a tremendous amount of money. They put much sweat equity - as I think somebody said in an earlier presentation - into it.

Statistics Canada information on the publishing industry indicates that in English-language publishing the profit is about 0.5% a year for the Canadian-owned sector, yet it's doing thousands of books a year, so I think the track record is good. And a lot of the international companies do a lot of very fine Canadian publishing. I don't think there's a shortage of support for the writers and the culture part of this industry from the publishing participants in this country.

The first question was percentage of Canadian...?

Mr. Jackson: Yes. How much of your resources do you dedicate to Canadian publishing?

Mr. Stoddart: That would have to be an individual company.... I can say that as a corporation we do $30 million a year and $10 million of that is Canadian-authored work. Ten years ago it was about 90-10, so we've changed our balance very substantially in the last ten to eleven years as a Canadian company.

Mr. Jackson: I have one last question, Mr. Chairman.

How important is the American market to Canadian publishers? Do we really want to get after their markets?

Mr. Stoddart: For an awful lot of titles, it is clearly a very important development for us. Canada is exporting more and more books. We actually have a very successful track record for export of Canadian books. One of the areas that is pertinent is children's publishing. Canada is one of the prime publishers of children's books and of children's fine illustrated books. More and more we are finding that our books work extremely well in the U.S. It's a very active industry. The government has supported export very aggressively through two different programs, and I think the publishing industry has picked it up and run with it.

Statistically it's tripled in the last four years, so we have a great track record of exporting. And we're not just talking about Harlequin, which is of course a huge international company out of Canada; we're talking about a lot of those other areas. A lot of books just don't travel. Books about our culture as an entity don't travel very well. You have many different classes and types of books as far as the export ability is concerned, but for those books that are applicable for export I frankly think we have a great track record as an industry.

Mr. Jackson: Your industry is undergoing profound change. It may well be that people won't carry books around any more and that they're going to carry them in their laptops and things like that. Is that going to be a problem for you or as part of your publishing do you publish videotapes or any of that type of thing?

Mr. Neale: A lot of different firms are moving into electronic publishing. Audio publishing is certainly growing. I'd just like to expand on that a little bit in terms of the perception that everything is doom and gloom and we're in a total crisis situation.

Actually, one of the changes - Jack referred to it - is a growing awareness that we have a tremendous opportunity just south of the border. The world's largest English-speaking market is right there. I would suggest also that despite the supposed threat of the end of the book because of electronic media, certainly in the short to middle term we see all sorts of indications that there's a tremendous expansion of the people who want to retail books. The number of accounts we sell to now is much greater than it used to be.

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A lot of different retailers are involved in selling books. We as publishers - and from what we can tell of the Writers' Union of Canada, they also - look on the bright side of a tremendous opportunity for them in the future. Our main goal here is to try to broaden our market and broaden the number of retailers we can have selling books, so long as we can control the fact that they must source their books in this country.

Mr. Stoddart: I would agree.

If you look at the music industry, we've gone from 78s to 45s to 33s to tapes to CDs, and who knows what it's going to be next year.

The Chair: Digital.

Mr. Stoddart: DITs, yes, right.

Books have stayed pretty static for about 500 years or whatever the number is. It is moving and most of us are moving with it. We don't think tapes and discs will replace books; they will complement them. Some types of books in the future will be on CD, or whatever the next generation is, and some will not. We don't see it disappearing.

But it's the same function. Publishing is a dissemination of information, entertainment or whatever it is, and we don't think the format is that important a change.

Mr. Jackson: I have just one small comment for the record. Personally, I think books are very important, because the imagination is different. We are created a little differently, and that's where you get your creativity from. If everybody looks at the same screen and gets the same visual images and so on, we will have one hell of a world. So hopefully we can still have a lot of books around.

The Chair: In spite of those differences, we can still be equal, right?

Mr. Jackson: Right on.

The Chair: That fits into the larger Canadian issue.

Mr. MacSkimming.

Mr. Roy MacSkimming (Policy Director, Association of Canadian Publishers): I'd like to amplify the answer to that question about how much of our resources we devote to publishing Canadian authors and books. This really gets to the heart of the cultural matter, which is of equal importance here to the issue of the distribution or importation right.

The cultural issue is that the Canadian book publishing industry is the one that develops the Canadian writers. We have many companies among the 145 in our association that do nothing but publish Canadian authors, that do not in fact import books from abroad. So there's a mix here; some companies import and some don't.

The companies that exclusively publish Canadian writers are doing the cultural R and D for our literature, and they need a Canadian-controlled book retailing environment in order to get their books to the Canadian consumer. A giant U.S. mega-chain, owned and controlled abroad, would not be particularly sensitive to this network of Canadian-owned publishers who publish 80% of the books Canadians write.

So ownership is a problem, and it's complemented by the question of the importation right. We need the importation right so that our Canadian publishers who do distribute imported books can be sure of getting the revenues from those books, which is their right. They will use those revenues to cross-subsidize the publishing of Canadian authors. That's an important issue.

It's also a question of whether the book retailers are sensitive to and interested in offering Canadian books to the consumer, and our existing Canadian bookstores do that. So it's very important that the existing Canadian-owned bookstores are not driven out of business by these mega-chains.

The Chair: We're over on this round. We're getting to a close, but I understand Mrs. Tremblay has one question.

[Translation]

Mrs. Tremblay: I may be naive, but I think the language barrier protects Quebec more than the rest of Canada. Is my perception incorrect, and is Quebec just as threatened by a foreign invader?

[English]

Mr. Stoddart: Clearly Quebec as a province has certain regulations that also protect its culture in the book industry, and book retailing in particular, much more than the rest of Canada does. As to the language difference, as Marcel Massé used to say in his Baie-Comeau policy discussions, I'm not worried about the Quebec culture. It will survive. It's English I'm worried about, because there's a natural emigration of culture through radio, television and the whole thing.

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We have chosen also to have very strong regulations in our media so that our media are Canadian-owned. I think that is one of the few things that has protected the English language culture as it is in this country today. But I understand that's about to change; the ownership regulations for newspapers, radio and television are about to go down and there will be more foreign ownership allowed.

I'm just wondering if that is in fact important for the future. Do we really care about our culture? I think that's a fundamental question. Can we protect it? I guess that's what we're trying to talk about today.

Ms Hushion: I would hope that the members of this committee do recognize, however, that the contribution to Canada's culture made by firms that are internationally owned is equal to the contribution made by Canadian-owned firms, and I'm not talking numbers. Our members are both Canadian-owned and internationally owned, and they all publish Canadian-written books for Canadians in Canada. We all have a lot at stake here, a whole lot.

The Chair: I think Mrs. Gaffney has a comment or a question.

Mrs. Gaffney: It's a comment. I think this issue is extremely important and I think we as committee members should move quickly to ask for a meeting with Investment Canada.

No criteria have been developed. We're saying Canadian control must be determined. We're talking about introducing distribution rights. There are a whole lot of issues here that they're suggesting should be on the table that Investment Canada has not really addressed.

It's unfortunate that you have not appeared or asked for an appearance before this committee. I congratulate the chairman for discovering that this issue was really on the table and is critical. I really believe that we as a committee should immediately ask for a meeting with someone, whoever is the appropriate person, whether it's Investment Canada or whoever. I don't think we can make a decision until we've heard from them.

I'm a new member of this committee. There's a lot of information I need that I don't have here. I've heard your side of it and I need to hear the other side of it.

I would make that recommendation if it's appropriate, Mr. Chair.

The Chair: Oh, I think it's appropriate. You might get into a scrap with your fellow Ottawa MP by the name of Mr. Manley.

Mrs. Gaffney: I'm sure we might.

The Chair: But certainly that's within our purview.

I do appreciate and understand the immediacy of the issue, or at least the immediacy portion of it because of this perceived threat from Barnes & Noble or Borders coming in the near future. This issue is going to come up when the copyright bill comes before us. I don't know when that's going to be, but you can be sure -

Mr. Neale: There may actually be a more immediate and definite situation to address. Tower Records, which is opening a superstore on Yonge Street within three weeks, has significant book sections in its U.S. stores. I've had conversations with the people at Tower Records, and I don't believe they're in any way malicious about this. They are totally ignorant of the situation vis-à-vis ownership in Canada.

I was there to discuss with them on the phone lobbying for them to buy and source their books in Canada. Ironically, the argument that was thrown back to me was that they're aware that the impending distribution right hasn't been passed yet. They really questioned why they as a retailer would be prevented from sourcing books in the U.S. if the Canadian-owned bookstores are allowed to do it at this point.

That's a difficult question to answer. I think once again it comes back to the fact that the industry needs the protection of this control over the distribution. I think we could debate ownership and the relative merits of ownership from here to the middle of the next century, and the industry could be severely damaged by not taking action right now.

The Chair: Of course we don't know at this point if there even is an application before Investment Canada.

Mr. Stoddart: They have stated they are not going to apply. The simple thing is that the person who will be the new president of Barnes & Noble Canada sat in my office and said, I've been told by Peter Caskey that I don't need to apply as long as I do the following five things. They are not planning to apply. Whether Borders will, we don't know.

Ms Hushion: That could be a move to disarm us and to make us feel that we have no control and that there's nothing that can be done. I don't think that just because somebody in the government says, oh, it's okay, we should believe that person. That's just an attribution. It's just more speculation and rumour.

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The Chair: But let me be hypothetical, although in politics it's always risky to be hypothetical. If one of these superstores from the United States showed up on our doorstep and didn't go through Investment Canada because they sincerely believed there is no requirement to go through Investment Canada and they have a full right to come in under existing law, is there nothing we can do?

Mr. Neale: It depends on which department you're talking to.

The Chair: Let me put it this way: what could you do?

Mr. Stoddart: As a corporation, we couldn't do anything. I don't think the industry as such...we might object to it, but it would have to be an Investment Canada ruling; and you would then have to go to the history of Investment Canada rulings.

The question was asked earlier, isn't that the law, and we talked about the two big views of the law. In the book I have here is a history of the Ginn issue. If the committee read it, they would see that even though the law was in place - and it was a different law at that time - in fact deals were made to get around the law, and then the law was changed.

We have no understanding that this is the intent here. We feel the law has been weakened enough that you don't have to do that; you can get around it without.

But the problem is, nobody can sit in this room and say categorically this is what the law is that's going to be applied and here are the rules and undertakings that a new entrant into this market is going to take. If we knew what the rules were, then we would have an ability to discuss this well. We can't do that. Two departments say different things.

The Chair: So we may quarrel over the rules, but at least we should come to some common understanding of what the darn rules are, or the rules should be changed so at least there's no disagreement over what they mean.

Mr. Stoddart: Yes.

The Chair: Mr. MacSkimming, just for a moment.

Mr. MacSkimming: Mr. Chair, I'll amplify on that last point. I think it's only fair to Minister of Industry Mr. Manley and officials at Investment Canada to say we have had verbal and written assurances that the existing regulations will be applied in these cases. That is clear up to the point where we know that a foreign-controlled enterprise in the book trade cannot come into this country and start up a new business. That is absolutely prohibited. So that is going to be applied.

If a foreign investor comes in, they have to be in a minority position, with a minimum 51% Canadian majority partner that exercises de facto or effective operational control. So that will be applied, we know.

The question then is what your criteria for determining control are in fact. If it's asserted that it's a Canadian-controlled company, technically the applicant would not have to go through Investment Canada. They could say they're Canadian-owned, so they don't come under review.

However, just as a point of information, there is a section in the Investment Canada Act that empowers the minister, as was mentioned by Ms Hushion, to go behind the share structure and investigate whether indeed operational control resides in Canada or it is truly held abroad. We would have to rely on the minister to do that if there were some question, and we would hope there would be rigorous criteria involving the measurement of operational control. We would be happy to participate in defining those criteria.

Mr. Hanrahan: Just one final question. It's very general.

Let's assume I'm a Canadian author. I write a book. I submit it. It's accepted by a Canadian bookstore. They will exclusively distribute it in Canada. You had mentioned earlier, I believe, that there was some subsidization of Canadian authors as a result of this process. Can you tell me how that process works? How much money are we talking about? How would the process be jeopardized, if at all, under this situation we're looking at now?

Mr. MacSkimming: Sir, there are programs of financial support to Canadian book publishers to assist them in publishing and distributing and marketing Canadian books.

Mr. Hanrahan: But is it coming from private industry or from government?

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Mr. MacSkimming: In the first instance, private industry is investing its own capital in publishing these books. A relatively small percentage of the industry's overall revenues comes from federal programs at the Canada Council and at the Department of Canadian Heritage. The bulk of the moneys, though, that develop these Canadian books are the publishers' own revenues from conducting their business.

Here is what would be put in jeopardy by the issue we're discussing: if Canadians lose control of our book retailing industry, you'll see fewer of those Canadian books in the stores. These are books that the Canadian taxpayer, in effect, has helped to get published.

The Chair: This has to be the last question. I think Mrs. Tremblay has a technical question.

Mrs. Tremblay: Yes. In your document, you referred to appendices B and C, but we don't have these. Judging from the content, these would be very interesting, so could you make sure we receive these?

Ms Hushion: I will indeed. Technology being what it is, last night at about 8 o'clock the machinery broke down and I couldn't copy any more.

Mrs. Tremblay: Okay.

Ms Hushion: I'll definitely send it to the committee.

Mrs. Tremblay: Merci.

The Chair: Just before I thank our witnesses, just let me make two observations. Neither one is that profound.

I do think that when it comes to the matter of the distribution right, I think you should give us some further paper on it and put it very much in layman's language so we can really, truly understand how it might work.

I've given it a quick read, Ms Hushion. Maybe it's just my thick head or something, but I think we need something that I can understand a little more. As for distribution rights, I have a great feeling for it, but I just want to know exactly how it might work.

Here's the other thing. Mrs. Gaffney, you suggested that Investment Canada perhaps should be invited. I certainly don't dismiss it.

I perceive one problem. As we've already been told, Investment Canada can't even divulge whether there is an application before them. So they may come, but they wouldn't be able to talk about something that they can't talk about. They can't even acknowledge whether there's something before them. So we would almost be forced to talk in the abstract, or we could talk about the existing rules.

There's nothing wrong, I suppose, in inviting them to come down to tell us what the existing rules are, but I guess my question would be: is that what we really want? I would have thought that we wanted a discussion around a company coming into Canada, but apparently under the rules they can't talk about it.

Mrs. Gaffney: But I think we could use a hypothetical case or example.

The Chair: Yes, but the thing is that you can come up with a zillion hypotheses as to ownership, content, and control and so on, so which hypothesis are you going to pick?

Mr. Stoddart: They seem to have been giving advice to the new entrants to the market as to the regulations that they would find acceptable. So they might be prepared to share the same thing with this committee.

The Chair: As I say, Mrs. Gaffney, I'm certainly not dismissing it, but I just thought I would raise that. We'll have to discuss it.

Anyway, I want to thank all of you for coming. I think we've done a public service. I particularly appreciate your coming on such short notice. Thank you.

The meeting is adjourned.