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Publishers worry that Ottawa will allow more access to foreign firms

At a recent panel discussion about the book industry, publisher David Kent cut through the moderator's polite introduction and jokingly accepted the label Satan. The bubbly Kent might seem an unlikely incarnation of evil, but he's the CEO of HarperCollins Canada, a foreign-owned publisher, and his Canadian competitors were out in force that night in Toronto, ribbing him as they aggressively denounced foreign ownership - just in case anyone was thinking we might need more of it in the Canadian book industry.

That's the reason the publishers are so testy these days. Fresh from saving Saskatchewan potash from foreign control, the federal government is now reviewing its policy on foreign investment in the book business, and is expected to issue its conclusions this year. Ottawa has long argued culture needed special protection, but Canadian-owned publishers are worried the current government will open up the industry to competition in ways that might benefit foreign publishers and big bookstores, but might damage the Canadian sector. After all, unlike the future of Potash Corp., the fate of a literary press won't decide which federal party will win seats in Saskatchewan.

"Change is in the wind," said Margie Wolfe, owner of Second Story Press and president of the Association of Canadian Publishers, after she attended Ministry of Canadian Heritage consultations last month. Under a 1992 policy, the Canadian book industry is protected in theory, but it's governed in practice by a Byzantine mix of controls, exemptions and logical contradictions that aim to deliver those crucial "net benefits" on which Ottawa judges foreign investments. This patchwork system has served Canadian literature rather well over the years.

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But now, the advance of e-commerce is threatening to upset the equilibrium. After Ottawa allowed Amazon to establish a warehouse in Canada last spring, bypassing the policy that stopped foreign-controlled companies from setting up book-distribution businesses here, critics cried foul and Canadian Heritage belatedly launched the review that a federal panel had first recommended two years ago.

Currently, big, foreign-owned publishers that are grandfathered into the market publish both Canadian and foreign titles here while enjoying exclusive distribution rights that drive their businesses and provide distribution services for Canadian-owned publishers as well. Meanwhile, the Canadian presses, which benefit from government grants, play a crucial role developing Canadian authors and taking risks on less-commercial works.

The 2010 Giller Prize, dominated by nominees from Canadian-owned presses (including the victorious The Sentimentalists), reminded everyone of what that sector does for Canadian literature. But in most years, it is the foreign-owned publishers that vie for Canada's top literary prize.

This publishing ecosystem, built up by a mix of government grants and foreign investment, has been under threat since 2002, when Ottawa first let Amazon into Canada. The government ruled then that the online bookseller was not establishing a new Canadian business, so foreign investment restrictions did not apply. The arrivals of online retailing and, more recently, the e-book mean Canadian booksellers increasingly have to compete in an international marketplace.

Not surprisingly, one of the loudest voices calling for less restriction is the country's largest bookseller, Chapters-Indigo, which wants retailing and distribution opened up, saying it needs foreign capital to compete in the e-book market. It also calls for a loosening of distribution restrictions that require booksellers to buy from Canadian distributors rather than importing directly from the United States. That would require a revision of Canadian copyright law, and some participants in the consultations say the government has sent a clear message that such a change is not on the table. Others complain the government doesn't enforce the current law, alleging that some booksellers, especially those located far from warehouses in Southern Ontario, are already importing books from the U.S. They say the agency system, as the exclusive distribution rights are known in the industry, is under intense pressure.

Bigger publishers in this country, both foreign- and Canadian-owned, depend on their distribution of mainly foreign titles to produce the volume and revenues that enable them to publish Canadian books. But Indigo, in its submission to the ministry, argues the current rules allow the distributors an uncompetitive degree of latitude in pricing and delivery times. Many in the book business fear that if Indigo has its way, the agency system will crumble, taking not only Canadian distribution but Canadian publishing with it.

"I hope that is one thing we can hold on to," said Cynthia Good, head of the book publishing program at Humber College in Toronto and former president of Penguin Canada. "The books you distribute allow you to publish."

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Under current rules, bookstores also have to be Canadian-controlled, but Indigo, whose CEO Heather Reisman was not permitted to partner with the U.S. chain Borders in 1996, also wants to see retailing opened up. It's a move that would find favour with the Europeans. Canada is currently negotiating a trade deal with the European Union, and the EU negotiators are said to be puzzled as to why any government would care who owns bookstores.

Observers in the book industry, however, assume that if retailing were open to foreign investment, Indigo would eventually be sold to an American chain, not increasing competition among bookstores but instead putting more pressure on the agency system.

"Heather [Reisman]doesn't do a bad job of promoting Canadian writers, but more is done by the independents," Good said. "If Chapters-Indigo had more competition, of course, it would be good, but Heather is a strong Canadian, and I would hate to see there only being an American-owned chain here."

Good, however, is one of many observers who can't understand why the American giant Simon & Schuster isn't allowed to join the grandfathered multi-nationals and publish books in Canada. The company was permitted to create a distribution business here in 2002 when it bought out its Canadian-owned distributor Distican, and Kevin Hanson, president of Simon & Schuster Canada, confirmed the company would like to expand its activities here. However, he denied industry rumours that S&S had formally applied to Ottawa to become a publisher, but was recently refused.

As he did at the book industry panel, HarperCollins's Kent defends the multi-nationals' role. "I don't think anyone could look at a Random House, a Knopf, a Penguin and say there hasn't been a tremendous contribution to Canada," said Kent, adding that a third of his company's 150-title list is Canadian. "We are not a branch plant. … The only thing foreign is who is paying the mortgage."

But Canadian-owned publishers argue more competition from multinationals will hurt most Canadian writers.

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"Most Canadian authors would not get published in a world in which there was open ownership," said Carolyn Wood, executive director the Association of Canadian Publishers. She sees the multinationals, all of whom are located in Toronto, skimming the cream off the top while the Canadian-owned publishers do the crucial work of developing talent and publishing regional writers.

So don't expect tiny Gaspereau Press of Kentville, N.S. to publish Johanna Skibsrud's second novel after her Giller win last month: A multinational will likely swoop in with an advance that Gaspereau can't match. But if that's a bad development for a Canadian publisher, it might prove a great for at least one Canadian writer.

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