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Posts Tagged ‘cultural sovereignty’

Price Differential is Actually a “Subsidy” According to Globe & Mail

As a follower of the publishing industry, the Globe and Mail is about as good a source as you can get, but this editorial is phrased somewhat awkwardly to the point of misinformation.

The premise of the opinion piece is that the difference between retail prices in Canada and the U.S. not accounted for by currency fluctuation is actually the retail book consumer “subsidizing” the Canadian industry.

The writers then go on to say that if you remove the provision in the copyright act granting exclusive distribution to contracted rights-holders, you eliminate the subsidy and prices will get closer to the actual exchange rate.

Wrong.   While the distributors are free to use the difference to support the proliferation of their Canadian authored titles, some of it just boils down to additional shipping contingencies and the paper burden imposed on importers by Revenue Canada and Statistics Canada for items which are otherwise duty free.

Take away the Canadian distributors, and allow stores to buy direct — even as many “buy around” currently — and those individual stores would face the same, if not higher costs of importation.

Perhaps what they are terming “subsidy” has more to do with “profit” or even “opportunism.”

But there are limits to the Copyright Act’s authority as the article points out:

The Canadian-based publisher can charge up to 10 per cent more than the American price; if they charge more, then what the Copyright Act calls “parallel importation” is permitted – the same is true if a specific book is simply not being distributed.

In other words if the book says $14.99 US / $18.99 CAN above the bar code, and the Canadian distributor isn’t putting a sticker on top of that price with something closer to [Exchange Rate + 10%] then you can treat that title the same as one for which there is no Canadian distributor.

In our industry, some companies, like Thomas Nelson hold proprietary rights for Canada, but service orders from a U.S. base.   A letter from Baker Books originating shortly after the 2008 R. G. Mitchell receivership, clearly offered a choice between direct service and using the Canadian distributor and almost expressed a “we don’t care where you buy our books from, as long as you carry them” kind of attitude.

The two large Canadian Christian distributors, Foundation and David C. Cook, are quick to adjust pricing across the board when exchange rates move significantly, though this writer preferred the approach of R. G. Mitchell the last time around, where 50% became the normative trade discount.   Unfortunately, that generosity combined with already lower pricing (and, to be fair, many other factors) to contribute to their demise.

(And one distributor, Augsburg Fortress, applies the exchange rate conversion formula to its church supplies and giftware, a rarity in an industry where giftware prices are often locked in for years at a time.)

The article in the Globe also rightly points out that the Copyright Act is in place to protect the “cultural sovereignty” of Canada’s publishing industry, and therefore, with the recent Amazon decision, which is seen by some as an “overturning” of cultural protection, almost everything is now subject to renegotiation.

To read the Globe piece, link here.

Amazon Becomes First Foreign Owned Book Distributor in Canada

Back on March 9th, we reported here that Amazon was wanting to hire its first ever Canadian employee and ship its first book from a distribution base located on Canadian soil.    Last week, that desire became reality.

The Globe and Mail reports who capably handled the earlier story — Omar El Akkad and Marina Strauss — continued with it on April 12th; choosing a quotation or two wasn’t easy; these are highlighted paragraphs only, you should click here to read the entire article:

Ottawa said it will allow U.S. on-line bookseller Amazon.com Inc. to set up its own distribution centre in Canada, a second major move in recent months by the federal government to effectively override foreign-ownership rules.

The ruling allows the Seattle-based firm to cut its costs significantly, prompting heavy criticism by local booksellers who say it will allow Amazon to price Canadian businesses out of the market…

…“This signals a government of Canada policy change confirming that a company no longer needs to be Canadian-owned to sell books in Canada,” said Heather Reisman, chief executive officer of Indigo Books & Music Inc.

The government’s approval of Amazon’s plans follows a surprise December decision that opened the door for Globalive Wireless Management Corp. to begin operating a wireless network in Canada, overturning a ruling by the Canadian Radio-television and Telecommunications Commission that deemed Globalive to be a foreign company because of its Egyptian financial backing…

…Amazon.ca is a website that has no physical presence in Canada. Had Ottawa rejected Amazon’s shipping centre application, the government would have found itself in the untenable position of saying the company’s business runs afoul of Canadian rules, while at the same time allowing Amazon.ca to operate outside those rules.

Instead, the Conservative government secured a number of “commitments” from Amazon in exchange for approving the distribution centre.

According to Heritage Minister James Moore, those “commitments” include a $20-million investment in Canada…

…However it’s unclear how much of the $20-million investment is new money. In addition, many of Amazon’s commitments are vaguely stated, such as “increased visibility for Canadian books on the Amazon.ca Web page,” “increased availability of French-language Canadian cultural products” and “making more Canadian content available on the Kindle e-reader.” Neither the government nor Amazon supplemented these promises with hard numbers, or indicated when they would begin to take effect…

…Again, you’re encouraged to check out the entire story.

Meanwhile on Saturday, also at The Globe and Mail, columnist James Adams suggests much more is afoot:

…Still, the decision, announced Monday, is important, momentous even. It may be the case that the Conservatives were bowing to the reality that Amazon was already in Canada as an e-tailer (albeit working through a subsidiary of Canada Post, a Crown agency, rather than a retailer with hundreds of physical locations). But some are arguing the decision is nothing less than a reversal of the cultural protection policy that’s been in place since the Trudeau era. For Heather Reisman, CEO of Indigo Books & Music, the situation is pretty clear. This week’s decision “signals . . . a policy change,” she said in an e-mail. “[It confirms] that a company no longer need to be Canadian-owned to sell books in Canada.”

A change in culture policy?

…Heritage Minister James Moore would allow, during Question Period in the House of Commons… “We will create new Canadian jobs in Mississauga.” The same went for Paul Misener, Amazon’s vice-president for global public policy: “We believe that a local fulfilment center will enable us to even better serve our customers in Canada as well as our customers in other countries who seek Canadian books and other cultural products,” he told The Globe and Mail in a statement.

Could there even be more than one facility? In the United States, books are only a small part of Amazon’s retail offerings (a low-margin one at that) – and you don’t earn gross annual revenues of $25.3-billion, as Amazon did last year, by selling Dan Brown’s The Lost Symbol at a 42 per cent discount.

Over the years, Amazon has steadily increased its choice of wares to American consumers to the point that there’s pretty much nothing they can’t order – baby food, toilets, musical instruments, faucets, beauty aids, power drills and, of course, the Kindle e-reader. Asked about future plans to expand their offerings in Canada, an Amazon spokesperson would only say: “We don’t have anything to add at the moment – I’ll let you know should that change.”

Changes might not be too long in coming. Last December, when The New York Times asked Amazon.com chief executive Jeffrey Bezos, “What is your goal, exactly?”, he replied: “We want to have Earth’s biggest selection.”

Continue reading that piece here.

For our industry, Heather Reisman’s concerns are representative.   This is a selling out of Canadian sovereignty over a “cultural industry” and opens the floodgates for Borders, Books-a-Million and Barnes & Noble to look north for expansion; stores which carry a much, much larger percentage of Christian book bestsellers than our own Chapters; not to mention chains like Family Christian Bookstores.

Don’t assume that won’t happen.

Amazon Seeks Canadian Distribution Base

In what could prove to be the most significant story of the year for authors, publishers, distributors and retailers of all kinds of books, Amazon, which established a Canadian website in 2002, is now seeking to distribute its books from a Canadian warehouse.

This would appear to infringe on a longstanding Canadian position of “Cultural Sovereignty” designed to protect the book and music industry here.

Furthermore, if the government approves this, it would be somewhat powerless to stop Barnes & Noble, Borders and Books-a-Million from establishing an overt retail presence in this country.

Years ago, when I worked for the company that later became known as The Master’s Collection, Pilgrim Records U.K. had a financial stake in Pilgrim Records Canada, which, when the government became aware of it, forced the company to jettison their British owner or shut down.   International companies trading here have had to establish Canadian identities, such as Random House of Canada or HarperCollins Canada.

Big box stores like Indigo and Chapters exist here because Barnes & Noble can’t travel north of the border; Chapter’s shopping-mall incarnation, Coles Bookstore, means that the company has a virtual monopoly when it comes to book retail chains.   Some have argued that breaking that monopoly would increase competition, but Coles has exclusive lease agreements with every major shopping mall in the nation, and one expects that Indigo or Chapters has negotiated similar security with the developers of big-box- and power-centres.

Today’s Globe and Mail spells out the issues involved in Amazon story: (These are selected paragraphs only in a very thorough and recommended story…)

Canada’s booksellers are urging Ottawa to block Amazon.com from building a distribution network in Canada, raising the stakes in a showdown over government restrictions on foreign control of the cultural industry.

The Canadian Booksellers Association says it wants Heritage Minister James Moore to reject Amazon’s plan to open a new business in Canada, which industry insiders say is aimed at boosting the company’s competitiveness and giving it more control of its book distribution here.

The booksellers association warned the Heritage Minister that allowing Amazon to operate here would contravene the Investment Canada Act, which requires that foreign investments in the book sector be compatible with national cultural policies and “of net benefit to Canada and the Canadian-controlled sector.”

The rising tension between Canadian booksellers and Amazon underlines the paradox in federal policy that allows Amazon to run a virtual business – Amazon.ca – as long as it does not have a physical presence in the country.

For consumers, Amazon’s proposed new business could be a benefit if the e-tailer were to pass on operational savings to customers. The “fulfillment centre” it wants to launch is believed to be part of Amazon’s move to cut costs by moving shipping in-house. Currently, Amazon has a distribution deal with a Canada Post subsidiary.

In regulatory terms, the business is significant. If Canadian Heritage allows Amazon to proceed, critics claim Ottawa will set a dangerous precedent, opening the door to foreign ownership in a Canadian cultural industry.

If Amazon’s proposal is denied, the government will find itself in the difficult position of simultaneously saying Amazon’s business runs counter to Canadian cultural regulations, while allowing Amazon.ca to continue functioning with few restrictions.

Either way, Ottawa’s final decision – coupled with its recent plan to possibly open the Canadian telecommunications sector to more foreign ownership – may herald a fundamental reshaping of Canadian foreign ownership and cultural protection regulation.

Though Canadian rules prevent book retailers from being foreign owned, some foreign companies are key in book retailing. U.S. chains such as Costco Wholesale play a big role in Canadian book merchandising, sidestepping the ownership rules since they aren’t squarely focused on book retailing.

Continue reading here…

Reuters Canada news service also reports on the story:

Efforts to pry open the culturally sensitive Canadian media industry to more foreign ownership took a new turn Monday when Amazon.com sought federal approval to start a new business in Canada.

The application to Heritage Canada, if approved by the Ottawa, would see the U.S. online retailer establish its own fulfillment business here after using Canada Post for product delivery since 2002 to serve a Canadian version of its U.S. website…

…Beyond book-selling, Canada also regulates foreign investment in the phone and broadcasting sectors, both of which face changing foreign ownership rules and landscapes as well. The conservative government last week signaled it would look to open the floodgates to more foreign investment in these areas.

In an earlier story in The Globe and Mail, the same reporters, Omar El Ekkad and Marina Strauss, provided this additional background:

“It’s full of contradictions,” said Carolyn Wood, executive director of the Association of Canadian Publishers. “It does highlight how the meaning of national borders is changing in a digital world.”

Ms. Wood said Amazon.ca is subject to no restrictions. “It is essentially only a domain name,” she said. “There are no offices or warehouses. … They aren’t subject to any restrictions in terms of carrying Canadian content or anything else.”

When Amazon launched the Canadian version of its website in 2002, Canadian Heritage conducted a review of Amazon.ca. Ultimately, however, the department concluded that the Investment Canada Act didn’t apply to the website – thus allowing Amazon to enter the highly regulated Canadian bookselling industry. Canadian retail chain Indigo and the Canadian Booksellers Association (CBA) took the case to court, but to no avail.

The key argument that the Canadian Heritage review rested on was the fact that Amazon had no employees or offices in Canada. It currently has a Canada Post subsidiary handle its shipping in Canada, but that relationship was deemed a contractual relationship.

But the proposed establishment of Amazon Fulfillment Services Canada Inc. changes all that. Even though the new company likely has almost no impact on Amazon.ca’s relationship with Canadian customers or the way the website’s front end operates, it does represent a physical business in Canada – that technicality prompted Canadian Heritage to revisit the 2002 issue.

Additional coverage in The Bookseller here and here.

Meanwhile, Amazon in the U.S. has other problems on its hands today, dealing with the issue of the vast number of websites and blogs that are part of its affiliate program.   These bloggers and online sellers provide additional presence and visibility for the company and sometimes the alternative sites create the illusion of competition, when in fact all Google searches lead back to Amazon.

The issue concerns affiliates in the state of Colorado and the collection of state sales tax on products Amazon ships in from out of state.   Rhode Island and North Carolina also have strict online sales tax laws, and affiliates there had to be cut of as well.   Read more about that issue in this Yahoo News report.