No Bite, No Bark: The Mystery of Magazine Policy

Abstract

It has been over one hundred years since the federal government first introduced policies aimed at managing magazine production and distribution (Canada 1999, 6). Since that time, successive governments have expressed concern over the extent of overflow and split-run circulation of American periodicals in Canada. (1) This has led to the introduction of an array of domestic policies that, over the years, have caused conflict between the two countries but most of that friction has been resolved by informal negotiations. The most recent case was referred to the dispute settlement mechanism of the World Trade Organization (WTO). Elsewhere we have examined these disputes and in the process have been struck by important details that the debate has either ignored or overlooked, our subject here (Acheson and Maule 1999, 186-205, 2000, 2001). Proponents of Canada's position have developed a consistent rhetoric along the following lines: the viability of Canadian magazines is threatened by foreign overflow and split-run publications that draw advertising revenue from their Canadian competitors; existing foreign magazines compete unfairly with their Canadian counterparts; and, in the absence of the array of Canadian policies (tax, tariff, subsidy, and ownership restrictions), a large number of new split-runs will enter Canada. But the evidence does not jibe with the rhetoric: governments introduced tax and tariff policies but appear not to have enforced them; entry was possible but no commercially significant American magazine other than Time has offered a split-run in Canada on a sustained basis; and dumping or unfair competition charges have never been laid. In this paper we focus on the failure of policy implementation, the absence of entry, the fairness of competition, and some of the anomalies of past policies. Policy Failure Over the years, successive Canadian governments have claimed that the policy package was necessary to provide support for domestic magazines. In 1993, the government announced that the electronic transmission of content into Canada to publish a Canadian edition of Sports Illustrated meant that the tariff item was no longer effective in discouraging split-runs. The puzzling aspects of this claim are that in the period up to 1993, prior to the entry of Sports Illustrated, neither the tax nor the tariff policy had been enforced and none of the interested parties had drawn attention to this failure of enforcement. (2) In the remainder of this section we address the tax and tariff issues. Income Tax Provisions: A Maginot Line The evidence is as follows. Subsequent to the amendment to the income tax act in 1976, Canadian advertising in the split-run of Time (or in any other foreign split-run publication) could no longer be deducted for tax purposes by the advertisers. Time reacted by cutting its advertising rates so as to compete with advertising placed in Canadian publications such as Maclean's. In January 1976, a comparable advertisement in Time and Maclean's was C$5160 and C$5185 respectively. (3) After the amendment, the rates were C$1880 and C$5608 respectively. On a cost-per-thousand (CPM) basis, which allows for circulation differences, Time went from having a CPM 40 percent higher than Maclean's to one that was 50 percent of Maclean's. The action was taken by Time in order to compete for advertising on an after-tax basis. Over the subsequent years, Time's advertising rates rose significantly, as did Maclean's. By 1986, on a CPM basis, Time's rates were almost equal to and by January 1991 were 18 percent higher than Maclean' s. Thus, despite the fact that advertisers could not deduct their advertising in Time, they were willing to pay a higher CPM on an after-tax basis. Two possible explanations are, first, that Time without tax deductibility is a significantly more attractive vehicle for advertisers than Maclean's and, second, that the tax measure was never enforced. …