On May 28, 2013, the Globe and Mail reported that Simon & Schuster Canada had received approval under the Investment Canada Act to commence full publishing operations in Canada. This is the most recent in a series of Canadian Heritage approvals permitting foreign controlled companies to carry on publishing and book distribution activities in Canada and raises the question as to what exactly is the Government’s current policy on foreign ownership in the book publishing and distribution industry in Canada.
What purports to be Canada’s current policy dealing with the publication, distribution and sale of books in Canada (“Book Publishing Guideline”), first issued in 1985 and revised in 1992, still appears on the Canadian Heritage website. The Book Publishing Guideline provides that:
- Foreign investment in new business enterprises will be limited to Canadian-controlled joint ventures.
- Direct acquisitions of existing Canadian-controlled businesses by non-Canadians will generally not be permitted although, in extraordinary circumstances, the Government may consider an exception to the Guideline. In such situations, the Government would need credible evidence from the vendor that the business is in clear financial distress and that Canadians have had a full and fair opportunity to purchase the business. The foreign purchaser would also be required to satisfy the “net benefit to Canada” test provided in the Act.
- Direct acquisitions of existing foreign-controlled businesses by non-Canadians will be permitted provided that the foreign vendor can demonstrate that potential Canadian investors had a full and fair opportunity to purchase the business and that the non-Canadian purchaser can satisfy the “net benefit to Canada” test.
- Indirect acquisitions by non-Canadians will be permitted if they meet the “net benefit to Canada” test.
The Guideline concludes with a statement that it “will be strictly enforced”.
The approvals under the Investment Canada Act of Amazon’s proposal in 2010 to establish a physical book distribution center in Canada, Apple’s proposal in 2010 to establish iBookstore Canada, Random House of Canada’s proposal in 2012 to acquire Canadian publisher McClelland & Stewart, Penguin and Random House’s proposal in 2013 to merge in Canada and now Simon & Schuster’s plan to commence full publishing operations in Canada raise the question as to whether Canada’s policy on the publication, distribution and sale of books has been changed and, if so, in what way.
In 2010, Canadian Heritage issued a discussion paper entitled Investing in the Future of Canadian Books: Review of the Revised Foreign Investment Policy in Book Publishing and Distribution. That document was intended to be the first step in the Government’s review of the Book Publishing Guideline and invited Canadians to put forward their views on the subject. Feedback from Canadian and other stakeholders including the public, publishers, distributors, retailers and associations was then to be used to develop any required adjustments to the Guideline. To date, no official statement has been issued with respect to the status of the review or as to any conclusions that may have been reached. However, despite this silence, recent allowances under the Investment Canada Act suggest that, in fact, there has been a change in or a softening in the Book Publishing Guideline.
Foreign investors have constantly commented about the lack of transparency in the Investment Canada Act review and approval process. The Book Publishing Guideline was intended to provide some level of transparency at least with respect to that industry sector. Now it only serves to confuse investors as the Government is making decisions that on their face appear inconsistent with the current policy, a policy that the Government had expressly stated that it would strictly enforce.
The publishing industry has evolved considerably since 1992 when the Book Publishing Guideline was last revised. Words such a “blog” did not exist and “ebooks” were in their infancy. The completion of the Government’s 2010 policy review and, coming out of that review, an announcement as to what is Canada’s policy for foreign investment in the Canadian publishing industry would be welcomed by both Canadians and non-Canadians alike.