HERI Committee Meeting

STANDING COMMITTEE ON CANADIAN HERITAGE

COMITÉ PERMANENT DU PATRIMOINE CANADIEN

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, March 2, 2000

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[Translation]

The Chair (Mr. Clifford Lincoln (Lac-Saint-Louis, Lib.)): I call this meeting of the Standing Committee on Canadian Heritage to order.

[English]

The purpose of the meeting today is to continue consideration of a study of the Canadian book publishing industry.

[Translation]

We are resuming our study of the Canadian book publishing industry. Mr. de Savoye, you asked me if you could have the floor briefly.

Mr. Pierre de Savoye (Portneuf, BQ): I'd like to raise a point of order. I know that I had to interrupt an intervention on Tuesday because there was no quorum. The quorum for hearing witnesses and the quorum for a debate are different. Obviously, I will not resume this debate until we have the required quorum.

Thank you, Mr. Chairman.

The Chair: Thank you, Mr. de Savoye, for your clarification.

Today we have the great pleasure of welcoming, from the National Library of Canada, its National Librarian, Mr. Roch Carrier, whose well-known reputation precedes him. Thank you, Mr. Carrier, for joining us.

Before the round table begins, we had agreed to devote half an hour to Mr. Carrier. We will, first of all, listen to him for about 10 minutes and then we will be able to ask him questions.

Mr. Carrier, the floor is yours.

Mr. Roch Carrier (National Librarian, National Library of Canada): Mr. Chairman, ladies and gentlemen of the committee, thank you for this honour to address you this morning. At the National Library of Canada, we prepared a series of documents which have been or will be distributed to you. I will not, therefore, be repeating exactly what can be found in these documents.

Over the past 40 years, I have worked in the field of books. I have been a rejected writer, a published writer, a popular writer, a writer on the decline and a writer on the come-back trail. I have been a publisher, I have been the director of the Canada Council for the Arts and I must tell you how proud I am to have participated in this industry.

I hear that we have problems today. I remember 35 or 40 years ago, when the situation was much more difficult. Thanks to the work of our creators, to the ingenuity of certain business people and, in particular, the visionary policies of a government, which invested venture capital to support the talent of our Canadians, we created an industry that now has members who are, according to some people, too strong. Perhaps this is a problem, but it's a pretty nice problem to have.

I experienced another period where the problem we faced was weakness. While we found solutions, in the past, that lead to this wonderful success, 30 years ago, when we talked about Canadian literature, we didn't know what it was. It barely existed, with the exception of a few pioneers that I would like to salute today.

Children's literature was imported. When my children were growing up, they read books that were imported from other countries. Little Canadians were never the heroes; the young heroes were always from foreign countries. We have to be open to the world, but we also have to know who we are.

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Today, Canadian literature is international literature, literature that is read everywhere. Perhaps the greatest success is in children's literature. Why? Because we had a visionary policy, a policy that considered the ecology of the entire publishing system.

My fear is that in analyzing the situation, we focus too much on the more visible issues.

[English]

But I believe that if we want to solve those problems, we have to think of the whole ecology. First, the country is big, so when you put a book on a truck in Toronto and bring this book to Yellowknife, it's costly to move the book. We have two official languages, and some people who speak one language don't read what people write in the other language. This is another challenge. We have cultural diversity.

I'm very sorry to be saying this in a room where I see on the wall the painting entitled The Spirit of the Printed Word, but in this country we have an illiteracy rate of around 26%. In a rich country like Canada, with its good educational system, this is a challenge. We have, however, the privilege of having institutions such as libraries. We have all over Canada perhaps 22,000 libraries. We don't know exactly, because our statistics are poor and weak. I would suggest to this committee to really pay attention to the statistics you're being given. It is with the best will, I understand, but the information we have is weak and poor. Those 22,000 libraries are making great efforts to promote literacy.

[Translation]

A great many local libraries run absolutely terrific programs to promote books and reading. IÂm very enthusiastic about and supportive of such initiatives because books changed my life. Had I not opened a book, I would not be addressing this distinguished gathering of people today. I would probably be a forestry worker, like all of the good friends I had back then. Books changed my life. When I visit a library and see the librarian give a child a book, I wonder if she is about to change that childÂs life too.

We cannot consider the broader issue of books without giving some thought as well, quite naturally, to this extraordinary network of libraries that do a remarkable job promoting books and reading and distributing information. They too are part of this whole ecology I talked about.

We cannot forget either the Canada Council which years ago invested $4,000 in me. I wonÂt say whether they made a good investment or not. That is for someone else to judge.

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Often, by taking carefully calculated risks, the Canada Council gave raw talent the opportunity to be discovered. Certainly the solution to the problems the industry is currently experiencing is not to take away the support that coaxes this talent along and affords it new opportunities.

The National Library of Canada administration lends considerable support to the book industry.

[English]

We provide the ISBN system, CIP. You will find the information in the material we distributed to you.

We also have this wonderful system called AMICUS, by which everybody in Canada can have access to the catalogue of the National Library and to information about those books and access to the books in the collections of 500 libraries in Canada.

I must say that after the tour of Canada, I came back a little bit saddened by the fact that when everybody is preaching about free access to information, we have to charge a fee for the use of AMICUS. I am going on a campaign to convince everybody that this service to Canadians should be free, and I would be honoured if this committee would give me some support on that one. Some libraries across the country don't have the money to access this system, so what do they do? They go to the Library of Congress to get the information for free. I think it's something you would want to know.

I would like to mention again, even if I'm repeating myself, that we need some support to be able to provide better statistics. The cost is not high, but there is a cost. Because of the budget cuts, it became very difficult to provide the service.

I will conclude by saying that it has been an honour talking to you. Please don't focus too much on big and small, but think of the whole ecology of this system. We have in our directory a list of 20,000 publishers in Canada. You have big ones, small ones, and very small ones. With the new technology you will see a diversification of this industry. I heard that the industry is having difficulties, and yes, the industry is having difficulties. But if I look at some figures we have, I see that there is a kind of positive explosion in publishing, and it's something you have to take into account.

Thank you for listening to me.

[Translation]

I hope that I have not taken up too much time, Mr. Chairman.

The Chair: Thank you, Mr. Carrier. It's an honour to have you here.

[English]

We are going to allow 15 minutes or so for questioning, maybe 20 at the outside, because we have scheduled a round table following this presentation. Perhaps we could be concise and maybe have one question per political party, if that's okay. We'll start with Mr. Mark.

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Mr. Inky Mark (Dauphin—Swan River, Ref.): Thank you, Mr. Chairman.

I welcome you both here. It's a privilege to have you come and speak to us.

I believe the National Library does have a leading role to see that our whole library system in the country is organized and remains coordinated. There's no doubt that with technology changes there's a huge challenge ahead of you.

You mentioned the Library of Congress, and I have used the Library of Congress basically because it's free.

My question to you is how much money do we need to upgrade or reinvest in our library systems so that we do have access throughout the country and throughout the system for Canadians?

Mr. Roch Carrier: Thank you very much for your question. And in fact it would be perhaps a good experience for you if you came to visit our organization and we could tailor something for you and you would see how it works.

You also mentioned electronic publication. I should have mentioned that one of the most difficult challenges we have is the preservation of electronic publishing. And, again, if you are as a committee—and I think you are—preparing a vision for the future, or even a vision for the present, you have to take this challenge into account. Because preservation, even if it's not sexy—nobody wins votes, no one is promoting preservation—is very important. Preservation is access.

And what will happen two or three years later, after some electronic book has been published? It's a real challenge and one that will be costly. I cannot put a figure on that.

How much will it cost to upgrade our library system? I think it will cost a lot.

I like to talk about the future, about the kids. During the tour of Canada I did, I visited a number of schools. I must report—and it will be one of my campaigns as national librarian—that nationally we have a big problem. Our school libraries are in bad shape. There were cuts all over the place.

Sometimes in some libraries—and I'm not talking about poor areas, I'm talking about areas where you can see two cars on the parking pad—in those areas there's no budget for books. There is an alibi. The alibi is today we have Internet and everything is free on the Internet so you don't need a budget to buy books.

Books are there, and books are there to stay for a long while.

The Chair: Mr. Carrier, I don't want to interrupt you, but I think it might be interesting and very useful for members if when you get back to your office—and not today, I know you can't answer precisely to Mr. Mark today—but in time perhaps you could send us an idea of what we're talking about in terms of a plan, if such a thing exists. I don't mean a one-year plan, but maybe a plan over a stretch of years of how much it would cost, so that at least members would have an idea of size and time and so forth.

[Translation]

Mr. Roch Carrier: Mr. Chairman, thank you for the confidence you have placed in me. I have less confidence in myself than I do in my team, which will be working very hard in co-operation with the various educational bookstore associations. We will be pleased to provide you with a document.

The Chair: Thank you.

[English]

We have the round table coming, so could we just go quickly through—

Mr. Cliff Breitkreuz (Yellowhead, Ref.): Maybe just at the end a short question.

The Chair: Okay.

[Translation]

Mr. de Savoye.

Mr. Pierre de Savoye: Mr. Carrier, it's a pleasure to hear you today. You told us that we should consider the overall picture. You even used the word "ecology".

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What I have gathered from the witnesses who preceded you, is that there was a kind of emergency, as if the ecology were being disrupted in a selective but extremely urgent manner. These small bookstore owners feared that they would disappear and be replaced by the big box stores or by other book distribution means, especially electronic means. Are you not concerned that the ecology will be so disrupted by these new means and that the result will be that children will have less access to the real books that we know? You yourself mentioned that some schools are no longer buying books because they can now obtain content free of charge through the Internet. Do you think that this is really the right approach? If not, can we do something, on a very short-term basis, that will enable us to make a harmonious transition that will be beneficial to all of society and to youth?

The Chair: Could I suggest that you make a mental note of this very pertinent question? I will then turn to other colleagues so that they can ask their questions and you can provide an answer as a conclusion. I will now turn the floor over to Mr. Bélanger and Ms. Lill.

[English]

Madame Lill, could you frame your question so that we'll take one reply from Mr. Carrier?

Ms. Wendy Lill (Dartmouth, NDP): I want to thank you very much for coming here. It's an honour to have you here.

I have to say that I have spoken to many teachers and librarians in my community who are alarmed at the fact that they do not have any books in their libraries. They are using dog-eared, old, half-books. They're literally using bits of things that don't have any appeal to children. The idea of a book at this point is becoming pretty remote as a really desirable object.

The sense you had in finding a book that moved you on your way is a wonderful image. And if we want that to be the case for children in 2000, then, as you say, we have enormous work to do. I would be so pleased to think that the National Library was going to start some kind of crusade on that, because I would certainly jump on the bandwagon and I would love to do that.

One of the problems we have heard of in the past has been the warehousing of books, that in fact there are hundreds of thousands of books at your facility that are in danger of disintegrating because they have not had the correct treatment and protection. How much is that problem being addressed, or is it still out there?

The Chair: Mark Muise.

[Translation]

Mr. Mark Muise (West Nova, PC): Mr. Carrier, you have told us that we are dealing with a very different problem today than the one we faced in the past. Two days ago, the independent bookstore owners explained that they were in real danger of losing their ability to service their small niches. I agree with you that the problem is different than it was 35 or 40 years ago. You said: "don't focus on the small, but let's look at the big picture of the ecology".

I would like you to clarify your thoughts on the matter because, as far as I am concerned, these two things go hand in hand. It is important to promote authors that are not as well known, but we must not forget about the small independent bookstores that are being prevented from playing their role and leave the entire market open to one or two chains, thereby jeopardizing all of the good work that has been accomplished over the past 35 or 40 years.

The Chair: Mr. Bélanger.

M. Mauril Bélanger (Ottawa—Vanier, Lib.): Thank you, Mr. Chairman. I have no questions, however, I'm going to be very opportunistic this morning, if I may. Sometimes we just get lucky.

Further to what I've just heard, I'm going to take advantage of this opportunity, particularly since the media are present in this room, to tell you that my colleague Nancy Karetak-Lindell, the member for Nunavut, and I announced this morning a small initiative which will be undertaken in March. We are going to be inviting the residents of the national capital region to donate books which we will be sending to the school libraries in Nunavut.

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Canadian North Airlines has agreed to transport the books, and five Chapters stores and the regional independent bookstore association have agreed to receive the book donations, during the month of March from those people who would like to help the schools in Nunavut. I am, therefore, taking full advantage of this opportunity to announce, once again, this initiative which we launched this morning. Thank you.

The Chair: Thank you, Mr. Bélanger. Perhaps in April or in the months that follow other members will do the same thing to help other regions.

[English]

Mr. Breitkreuz, I'll allow a very brief question that you asked for, very brief.

Mr. Cliff Breitkreuz: Thank you very much, Mr. Chair.

I appreciate you coming to this committee hearing.

Certainly the printed word now faces more competition than it ever has in any kind of history. Before the advancement of the technological age there was only one way to communicate if you weren't talking directly, and that was by writing, and it just isn't the case any more.

I'd like to know a little more about the National Library, how comprehensive it is. This is just an informative thing. Does it contain Canada's literary treasures that go back to when the country was first discovered centuries ago? Would it have some of those kind of documents in there?

The other more specific question is you talked about AMICUS, and because we don't have that we can't compete with the library in Washington. What kind of money would it take to bring that online here in this country so that, yes, Canadians don't have to go across the line?

[Translation]

The Chair: Mr. Carrier, I appreciate the fact that you were able to summarize all of these questions. I know that this is sometimes a difficult task. Perhaps Mr. McCormick could deal with it, if you wish.

Mr. Roch Carrier: First of all, further to Mr. Bélanger's announcement, I would like to mention that we, at the National Library of Canada, have the program

[English]

the “Great Canadian Book Exchange”. We are receiving books from all over Canada from libraries and whatever, and we are giving those books back. In fact, after my visit to Nunavut we are in the process of getting some books to them. So it's a great service that's not well known.

How much will it cost to revamp our school library system? Not much. I think in every community, following a national campaign coming from Ottawa saying how bad the situation is, perhaps every father, mother, and grandfather would accept to invest a little money. You invest somewhere in the market and you lose; invest in your children, you will win.

I'm not talking about a fortune. We will not go into bankruptcy if we put some money into buying books in the school libraries and it's not big money. To get AMICUS for free, it's not big money. It's not $1 million; it's not $500,000. It's just a bit of political will and a bit of information. And I think it will be done, because everybody I'm talking to says yes, it should be free; Canadians should have access to their own information. So perhaps it will be done soon, because there is a lot of interest. If you are putting some suggestion on top of that, it will be great.

Is the printed word disappearing? Based on our experience at the National Library, the word is no. We have a collection of 18 million items. Every year this collection grows by 500,000. This printing business—paper or electronic—based on what we see and what we get on our shelves, is growing. Do we have the facilities to take good care of that? The mandate of the National Library is to preserve Canadian heritage. Do I have the facilities to do that? I'm sorry to say the answer is no.

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Some part of our collection is kept in almost the worst conditions. As the national librarian, I must say it's not something I will be able to accept for a long time. I have the responsibility, so please give me the tools.

Perhaps you read in the paper last week that there was a flood. We have a flood every month, perhaps. If you like, I can provide you with a list of 50 accidents. There was not too much damage because our team is very competent, but one day there will be an accident and we will lose thousands and thousands of dollars.

The last thing I would say is we have documents from the beginning of our history. Just last week, for example, we bought the most ancient document written about Canada, from 1628. Those two pieces are about Kirke invading Quebec. If you want to read the document, you just have to walk 10 minutes to 395 Wellington and the document is there, visible.

[Translation]

The Chair: Thank you very much, Mr. Carrier, for appearing before us today. We are very pleased that you were able to do so. We would also like to thank you for the very useful information that you provided to us. If you would like, you may stay as a guest of honour to listen to the round table. We would be pleased to have you.

Mr. Roch Carrier: Thank you, Mr. Chairman.

[English]

The Chair: Would the invitees of the round table please come forward and take their places?

I have just a few bits of information about the order of procedure, so everybody knows what the rules of the game are. We have several groups, as you can witness, so to allow for you to express yourselves and for questioning by the members, please take no longer than five minutes each to make your presentations. It's a round table, so just give brief outlines of the salient points of your texts.

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[Translation]

We will give five minutes to each individual representing a group of witnesses. During the last round table, two or three individuals per group spoke and it was very difficult for us to abide by our schedule. If I may, I'm going to be a bit of a stickler about this principle, which will enable us to ensure that each group has an opportunity to express its point of view.

Starting today, we will be distributing, to the members of the committee, the briefs that have been tabled in both official languages. Those that have been tabled in only one language will have to be translated first.

[English]

If you have produced briefs and they are in the two official languages, they will be given to the members today. If they are in only one of the two official languages, they will have to be translated, according to our rules, before they're given to the members. So they will be given to the members later.

[Translation]

We will begin by hearing from the representative of the Association nationale des éditeurs de livres, Mr. Gaëtan Lévesque.

Mr. Gaëtan Lévesque (Vice-President, Publishing of General Literature, Association nationale des éditeurs de livres): Good morning, Mr. Chairman. I would like to introduce my colleague, Benoît Prieur, who is Assistant Director of the Association nationale des éditeurs. Since I have very little time, I will deal with your questions immediately.

You asked us about the main difficulties facing publishers and distributers of Canadian books. I would say that one of the biggest problems we face is the smallness of the national market and the fierce competition of foreigners.

As for the national market, in Canada, we have seven million Francophones, six million in Quebec and one million outside Quebec. For most of our publishers, the small size of the national market and the tremendous territory that separates them limits circulation and, as a result, reduces the profitability of our businesses.

With respect to foreign competition, I would say that many works are produced outside the country and are distributed very effectively on the Canadian market. These foreign competitors have the advantage of a much bigger national market than ours, enabling them to cut their costs and have better distribution and marketing in Canada. It is estimated that, in Quebec, our publishing sector, with the exception of the educational sector, has 30% to 35% of the market share, whereas foreign publishers have obtained 65% to 70% of the market share.

Given the magnitude of the problem and the tremendous difficulty we have in reaching our readers, we would recommend to your committee that the PAP increase its promotion budget to include publishers for the national market, that the BPIDP provide better export support to enable publishers to gain access to the international market and to augment the budget of the AECB, the Association for the Export of Canadian Books, so that it can continue supporting book fairs in foreign countries.

Your second question was about the impact that new technologies have had on our business practices over the past few years. Many large Canadian publishers already have an Internet site to promote their titles. This is a new type of advertising for them. However, most Quebec publishers are reluctant to sell books directly to the public via these Web pages because they do not want to violate the spirit and the objectives of Bill 51, nor do they want to bypass bookstores and distributors. This is a very sensitive issue in Quebec.

In Quebec, most of the on-line sales are made through the websites of the Quebec bookstores Archambault and Renaud-Bray and the Canadian bookstores, including Chapters. In addition, some Quebec publishers have their books advertized on the US Amazon or Barnes & Noble websites, as well as on the European Bibliopolis and Zéro-Zéro-Heure websites.

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It is important to mention that a poll conducted by ANEL and SODEC, last November, revealed that scarcely 2% of Quebeckers had bought a book over the Internet over the past year. We are, therefore, talking about a very marginal percentage but we do realize that this is a sector that is going to develop. A few attempts have been made, in Quebec, by Groupe Beauchemin, Presses de l'Université de Montréal and Éditions Québec-Amérique, but we don't know the results yet.

Given the significant growth in electronic commerce, what initiatives do you plan to take in the immediate future? As I said earlier, we are aware of the importance of electronic commerce, and Canadian publishers have to take their place. We will do this, at least in Quebec, through the bookstores, in order to safeguard Bill 51.

Individual publishers must try to be listed on as many virtual bookstores as possible, both in Canada and elsewhere and, collectively, they must hope that a Canadian bookseller will become the unavoidable reference in this sector, like Amazon, for instance.

What type of relationship would you like your business to have with independent bookstores, the large bookstore chains, the writers and the public libraries? Publishers would like to see bookstores and Canadian libraries give priority to national publishing, in all its diversity. They're also hoping that the large bookstore chains will not take advantage of the situation by asking for additional discounts from the publishers. The Competition Bureau will have to closely monitor the wholesalers in order to avoid monopolies.

What role do you think the government of Canada should play in order to serve properly the interests of writers, readers, publishers, distributors and bookstores? Obviously, we are hoping that the Canadian government will continue to support creation and national publishing, that it will promote the distribution of French books in the other Canadian provinces and territories, that it will support the establishment of Canadian virtual bookstores through already established bookstores and, in addition, that it will support the development of publishers' individual sites for international promotion as well as collective sites, for example, for the sale of rights, or thematic sites.

Thank you for attention. I hope that I have not taken up too much time.

The Chair: Thank you very much, Mr. Lévesque. On the contrary, I would like to thank you for your discipline.

[English]

I will now ask the president of the Association of Canadian Publishers, Mr. Michael Harrison, to take the floor. The mike is yours.

Mr. Michael Harrison (President, Association of Canadian Publishers): Thank you, Mr. Chairman, and thank you for inviting us to this session.

I'd like to introduce Susan Renouf, the vice-president of the Association of Canadian Publishers, who's with me today.

It's important, I think, in going into this to understand a little bit of the ecology, as Mr. Carrier presented it—to understand the world in which we live and what our ecology is.

In December this committee heard from members of the Department of Canadian Heritage, and we commend to you the report done by those officials as being very good background material for understanding our industry.

Let me just remind you of a couple of quick points. The ACP has 145 members. We're spread right across the country in all provinces and certainly one of the territories. The Canadian-owned publishers represent 80% of the titles that are published in this country, and that's been an ongoing fact for many years now.

Last year the Book Publishing Industry Development Program, which has perhaps more precise statistics than Statistics Canada and certainly more up-to-date statistics, looked at 201 companies that benefit from their program—that would be the significant portion of our own membership—and noted that their total revenues were $570 million. They paid about $50 million in royalties to authors. But the fundamental point behind all of this was that the profit margin before tax for this group at large was less than 2%.

I think it's absolutely vital to understand that point, if you want to understand our industry. Why is this? We think it's not because we're bad business people; we think it's because we publish books in this country. Fundamentally, we have a problem in the environment in which we live. That is, we have an open market. This country has easy and completely free access to books from all over the world. In our case, this means essentially that our neighbours to the south dominate and set the price under which we can sell our books.

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Yet if we're publishing for the Canadian market, as we passionately want to do, and do, we have to live within much smaller print runs. In other words, the economy of scale in Canadian book publishing is dramatically different from what is enjoyed by our major competition to the south. That really explains why those margins are so slim. In many ways, anything else falls from just that key point.

In recent years we have had ongoing problems, constantly, as any business does. Basically the industry is made up of small businesses. Even the largest companies within the Canadian-owned industry are relatively small, certainly in contrast to the Time Warners and Random Houses of the universe. But we've had to withstand mergers within this group, and we have incredibly well-heeled competition who can afford to pay higher advances for authors who are free to go to any publisher they wish. Of course, this creates pressure on our business. It's much harder for our companies to gain access to the authors to make the real success stories in the business that help pay for the broad sweep of the titles we do.

In the middle of all that, of course, we also have technological change. There has been the advent of online selling. There's no question that we would agree with Canadian online distributors that Amazon.com and barnesandnoble.com can pose an interesting challenge for book publishers in this country. They can sell directly to our consumers, so they are in fact competing with retailers in this country.

On another point, though, if we see the advent of electronic distribution of books, in either instant print or, more to the point, even in today's Globe and Mail there's an article about the advent of the rocket book, an electronic digital distribution of books. This is something we welcome, of course, but it costs money to be able to participate in this. A publisher with a very slim profit margin has not a lot of room to move into new ventures. It's very hard to compete in new ways when one has to mind one's traditional business, which is still significant.

Chapters came into this, and along with Chapters, other box stores, megastore or superstore retailers, and had an impact on the ecology. We still don't know what the final answer will be there, but as this committee well knows, there is no question that it has put significant and long-term retailers out of business—the Britnells, the Duthies, the Writers & Company kinds of operations, which have done an excellent service in distributing books to Canadians.

At the same time, there's no question that Chapters has done an enormous job at making book retailing exciting. It has drawn attention to the idea of books, it has built impressive stores, and it has induced competition from other major operations. As we know, certainly in the English market, Indigo is also doing a good job at these big stores.

In the process of creating Chapters—originally, of course, this stemmed from the merger of two independent companies, Coles and Smith—Chapters automatically ended up with an enormous part of the Canadian market. There's always a dispute over numbers. Chapters will say they have 25% of the market. But as we can see, that is 25% of all the market, and they're including textbook sales at the elementary and post-secondary level, which is clearly not part of their business. More real, we believe, within the trade sector they command something between 40% for maybe the smaller publishers to 60% or even 70% in the larger publishers. This is the major company for the trade publishers in this country, certainly the English ones.

I think that in itself causes difficulty, because there are all sorts of minute details in how a company does its business. How do they order books? How do they handle payments on invoices? I can speak for my own company, and I can assure you that we have a significant part of our invoices out to Chapters that have not been paid for over 120 days. Somebody has to cover that, the cost of carrying that money. That, of course, is expensive as well, putting further pressure on publishers' bottom lines.

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Moving ahead, we have to understand that as an association we can't orchestrate action on our members. This is something that is between individual publishers and the major retailer. So that causes us difficulty. But I can say that at the advent of the wholesale operation, the announcement that was sprung on us last year, our association received more phone calls from concerned members than on any other issue in the last five years, including, I might add, the period through which program review saw a 55% cut in grants to publishers. It was a significant issue for our publishers, and it continues to be, yet we feel like we cannot speak out on this issue. This is our major customer; we want to do business with them, but it can become very difficult.

I think the major issue that has come more recently is the request for higher discounts from Pegasus for publishers that want to deal with Chapters. There's a lot of detail in here that is worth exploring, but there's no question that if you raise your discounts from 45% to 50%, it's going to cause real damage.

Moving on to what we would like this committee to do, we obviously would like to see continued support on the financial and policy level, from government, for the Canadian industry. We believe this is a vital industry and important for the national culture.

I think we have to wonder about the strength of the Competition Act. We would wonder whether there should be some further investigation of that act to see whether it can be strengthened in various ways. I'm not an expert in this, so I don't have suggestions as to how that might happen.

Although the Competition Bureau allowed the expansion of Chapters to include Pegasus, we welcome the fact that they are going to continue to monitor that situation. But we would ask this committee to ensure that this monitoring continues, and continues diligently.

Finally, it seems to us that our industry has undergone many reports and studies. We think it's perhaps time there's a major study on the business of book retailing in this country.

Thank you very much.

The Chair: Thank you, Mr. Harrison.

[Translation]

I would now invite the spokesperson for the Regroupement des éditeurs canadiens-français, Mr. Marcel Ouellette, Consulting Publisher, to speak.

Mr. Marcel Ouellette (Consulting Publisher, Regroupement des éditeurs canadiens-français): Thank you very much. First of all, Mr. Chairman, I'd like to thank you for consulting the Regroupement des éditeurs canadiens-français about book distribution in the country. I'd like to state that the Regroupement des éditeurs canadiens-français represents francophone publishers outside of Quebec. You can already surmise, therefore, that the conditions that these publishers experience are unique and quite specific to them.

My colleague, Gaëtan Lévesque from ANEL made a quick calculation of the francophone book market in the country: 6 million in Quebec and one million outside of Quebec, given the magnitude of the territory, we can conclude, as you all know, that French Canadians are scattered. The big challenge facing francophone- Canadian publishers outside of Quebec is reaching their main market, which is both scattered and limited.

One of the main challenges facing French-Canadian publishers—please excuse me for excluding Quebec when I use the qualifier “French Canadian”, but I am doing this to make things simpler—, in the Canadian publishing industry, is that many of the issues pertaining to books distribution are being discussed to great depth and reviewed by committees in Quebec and that, by definition, we don't have any say. Quebec is asking itself some very big questions. For instance, there is the issue of fixed price, a principle that is applied in many countries, and which is a real possibility for Quebec and which will have a major impact on us. Indeed, Quebec represents a large percentage of our market, and this principle of a fixed price would also have an impact on the French-Canadian book sector in French Canada. Since borders are not totally sealed, we too, would have to adapt our business practices. This principle would also be very significant for the anglophone publishers in Quebec who, as you can guess, would find it very difficult to have their practices in Quebec jive with those outside of the province.

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I don't want to criticize this principle of a fixed price, but I do believe that the federal government should examine these issues and not leave it up to the Quebec industry alone to decide on these major questions.

Obviously, I'm going to touch on one of the main difficulties facing the French Canadian publishers, namely working in a very small market where the book distribution networks are more or less non-existent. In French Canada, the number of exclusively Francophone bookstores can be counted on the fingers of one hand. Needless to say, given the circumstances, one of the main objectives of the regroupement is to help publishers reach this market and to help these communities gain access to books.

In the preliminary documents, you asked us about the impact of new technologies. Undeniably, the new technologies have had an impact on the entire publishing industry. We know how important Amazon.com is in the book market. Amazon.com has been developing a service for French-language books for the past year. In my opinion, this initiative is threatening for two reasons: first of all, book sales over the Internet will be concentrated in the French market, even if the Amazon.com is in the United States, and secondly, Amazon.com will integrate mainly the so-called French books from France, leaving very little room for the French Canadian books.

Nevertheless, the Regroupement des éditeurs canadiens français considers the arrival of new technologies as a real opportunity that will enable it to reach a scattered market. In order to do this, the regroupement has set up, over the past year, a direct sales business, a business which, using two distinct means, will reach the French Canadian community. We printed 45,000 copies of a catalogue which we sent to targeted locations bearing in mind—and I must point this out—communities where a bookstore is already present. Secondly, we are in the process of setting up an Internet site which will enable us, we hope, to reach communities. I would remind you of the twofold objective of this project: obviously, we want to enable our publishers to reach the market which is often their main market; and secondly, we want these communities to have access to books.

Another obstacle that French Canadian publishers have to deal with is the fact that they have to work in an industry where 95% of the players can take advantage of Bill 51 in Quebec. While we do not criticize Quebec for implementing policies to develop the book industry, these policies really do create conditions of unfair competition for our publishers. We acknowledge we are all trying to implement book policy initiatives in each of our provinces, but we do deplore the fact that this initiative is not more uniform across the country.

If your committee or the Department of Canadian Heritage were to ask us to make recommendations, we would tell you that we are in favour of maintaining the support that the Department of Heritage and the Canada Council for the Arts has given to publishers, be they French Canadian, Québécois or English Canadian.

In addition, publishers have an urgent need for funding assistance. We have noted that businesses are underfunded and that ownership is passing from one generation to the next—perhaps this is not the proper way to describe this—, which creates situations where publishing houses are either closing shop or being sold.

Some people defend the amalgamation of publishing houses. We believe, however, that these amalgamations result in a concentration of power in the industry, making it possible for certain players to impose their vision on the rest of the industry. I do not share the enthusiasm expressed by the National Librarian of the National Library with respect to this issue.

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We would also recommend that the debate, which is currently taking place at the provincial level, be broadened, so that French Canadian publishers can participate in establishing policies that will govern the industry over the next few years.

Thank you.

The Chair: Thank you very much, Mr. Ouellette.

I would now like to turn to

[English]

Canadian Publishers' Council, Monsieur Claude Primeau, president and CEO of HarperCollins Canada Ltd.,

[Translation]

the immediate past President of the Canadian Publishers' Council.

Mr. Primeau.

Mr. Claude Primeau (President and CEO, HarperCollins Canada Limited, Immediate Past President, Canadian Publishers' Council): Mr. Chairman and members of the committee, the Canadian Publishers' Council would like to thank you for your invitation to appear today.

[English]

Our members have published more than 1,500 new Canadian-authored titles a year. We spent $50 million to manufacture these publications. We paid nearly $25 million in royalties to Canadian authors. I'm very happy to work in this business and to talk about numbers such as these. Our members employed nearly 3,000 employees at an annual payroll of more than $100 million.

You asked us several questions. You asked about technology, the effect it will have on us, what we need to do, and how this will affect book publishing in the future. It will affect us very directly and very profoundly. We don't know the answers to many of these questions.

There are Internet book retailers. Students are buying books off the Internet instead of going to their university bookstores, etc. There's the e-book—I'm just learning about it myself, and I'm the president of a company. Instead of going through all these remarks, I encourage you to read the report on business, section T of the National Post today. It's all about the e-book. There it is. It will answer many of our questions on technology.

You know, everybody wants to sell books today. That's great. Grocery stores are doing it, wholesale merchandisers are doing it, hardware and home furnishings stores are doing it.

Superstores are going up everywhere. They have activities that entertain, there's a lot of pizzazz. It's a cheap date on a Saturday night. If you want to bring your wife, you buy her a coffee, then browse for books. It's cheap. It's wonderful. They attract first-time consumers. They showcase Canadian writing. They also put big pressure on Canadian publishers' operating systems, our distribution and replenishment procedures. They put a great deal of pressure on our cashflow. We need to pay our bills. We need to pay our employees. Everybody is just pulling to and fro. Who's going to pay who first? Well, I like to be paid every two weeks, when I take my salary home. So do our employees.

At the same time—and you've had all kinds of people before you—our marketplace of traditional book outlets is shrinking. Longstanding customers, referred to by my colleague Michael, have gone bankrupt. A hundred-year-old bookstore in Toronto is gone. Market share has become a commonplace term. Our marketplace is blurred. We feel we have less control of our businesses, and we need more information, etc.

You asked us to make some recommendations. We think we have to be able to launch writers into new markets without putting them at risk of losing the traditional markets. We want a strong public library community. And we say yes to Mr. Carrier's intervention.

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We need, in this country, a strong bookselling and library community in our schools. I've been selling books for a long time, some 30 years. And if I might go into nostalgia for a moment, I can remember when public libraries and school libraries would phone me in November saying “Have you got any books? We have to spend our budget.” Then all that disappeared, of course.

So now we really have to dig. They have no money. We need to start the kids selling chocolate bars and so forth. That's not very healthy for our children, and my grandchildren.

What we need, in my opinion, is a very, very strong industry. We need some support and help in developing those technological instruments that will help us monitor our systems, etc. We're willing to invest money in that. We need a climate created.

One of my esteemed colleagues who sits on the other side of the fence but with whom I do business ended his submission to the committee by quoting an English poet. Now I would like to end my submission. And Mr. President, you won't have to do this to me; I'm coming near the end. I would like to end my submission by quoting somebody else, not an English novelist, but a Greek philosopher—Plato.

Plato, in his dialogues, said “If you teach people to read and write you'll do away with poetry, because the best way to pass on poetry is through oral tradition.”

Well, Plato was wrong. People learned to read and write. We published poetry books. We sold poetry books, as well as other books. And that's why we're here today, because Plato was wrong.

We're not the first industry to resist change. Changes have engulfed industries since McLaughlin made Cadillacs in Oshawa. There have been all kinds of changes. The best way, however, in a changing world is to get aboard that change and control it and channel it in a direction that helps people.

Publishing and the publishing world is changing. It cannot be stopped, I'm sorry. I've been around long enough to know that.

Those who predict the death of the book and the booksellers, no matter how small or large they might be, are, in my opinion, wrong. I'm very optimistic.

When people talk about booksellers dying, and that this is the end of this and that's the end of that, it reminds me of a topic I heard as a youngster when they were developing astronaut food. We were told you're going to have a full-course meal with a pill and a glass of water. Thirty years ago the first man walked on the moon. And today, when people sit down to an old-fashioned dinner, it is still a plate of roast beef and mashed potatoes, not a pill, that we eat.

Do you know why that is? It's because people like the thing itself. You don't eat mashed potatoes with gravy because you need to be nourished, but because mashed potatoes and gravy are wonderful in so many ways—the heat, the texture, the taste, etc. And that is the way it is with books and booksellers. We buy a book not simply because we need information, but because we want to savour it, we want to carry it, we want to feel it, we want to feel the weight under our arms, and we like the thing in itself.

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When I first started to sell books, an old salesman told me that if you want to be a good book salesman, you have to like the feel, the touch, the texture of a book. I keep telling that to our salespeople.

I continue to buy books in individual bookstores. I'll continue visiting individual small bookstores because I like to talk to a bookstore owner about the books and about their ambitions and what's being read and so forth. I also like to visit the superstore, where I can browse around among 20,000 books.

What we need from the committee, if I might be so bold and humble and so forth as to ask, is to encourage Canadians to stop and to read. We need to do what Mr. Carrier says and has pleaded with you. We need to create in this country a wonderful climate of kids wanting to read books.

Thank you very much.

The Chair: Thank you very much, Mr. Primeau. You must be quite a salesman. I thought you were concluding with Plato, but then you were off again. You fooled me.

Mr. Claude Primeau: Well, I was—

A voice: Now you can have your roast beef.

The Chair: Mr. Siegler represents the Literary Press Group of Canada. Our esteemed colleague Mrs. Lill advised me that Mr. Siegler's publishing house, Talonbooks, published four of her plays.

You must be pretty proficient to have done this, to have spread her plays around. We're very happy to have you here.

You produced a brief, which is extremely beefy, 30 pages. I hope you won't read it this morning. Perhaps you'll summarize it. We have to give some time to the members. It's nearly 12:30, so I leave it to you to summarize your brief. Thank you.

Mr. Karl Siegler (Chair of the Policy Group, Literary Press Group of Canada): Thank you very much, Mr. Chairman.

Ladies and gentlemen of the committee, fellow colleagues, I'm here today to represent the interests of the Literary Press Group of Canada, a national association of publishers specializing in poetry, fiction, drama, and belles lettres. I did not come here today to talk about culture, but about that other C-word, competition.

As a member of a national association of book publishers, I am neither a stranger to nor am I the least bit adverse to competition. On the contrary, I have made my living by competing with my colleagues for the interests of a Canadian and an international readership every day for the last 26 years.

Surely we as a society do not value competition for its own sake, but rather for the sake of some larger public or social good. In order for competition to serve that greater public good, we must ensure that it takes place in the open, on a level playing field, and according to the rules developed for combat engagement by the eighth Marquess of Queensberry, the current and relevant commercial version of which is presumably to be found in the Competition Act of Canada.

I'd like to beg the indulgence of the chair of the committee for a moment by asking the members of the committee why we as a democracy place such a high value on competition. In other words, what are the four most significant public benefits of competition in our society? The answer, of course: diversity, a wide range of products to choose from; access, a wide range of outlets from which those diversified products are available to all consumers; economy, the lowest possible price for products of equal intrinsic or utilitarian value; and innovation, the ongoing development of new and diverse products.

Thus, surely the intent of any domestic trade law like the Competition Act is to ensure that the competition between all players within any industrial sector be fair and equal so that the sector can continue to deliver these four fundamental social benefits that automatically flow from such free market forces to all Canadian citizens.

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In a rather detailed paper we have prepared for the committee, I believe we have shown that over the last five years the activity of one of the players in the Canadian book trade, Chapters, has increasingly created a situation in which the diversity of, access to, and innovation among books in Canada has tended to decrease, while at the same time the cost of books to the consumer has tended to increase.

We believe the origin of these negative forces within the Canadian book market can be traced directly to the misinformed and misguided approval by the Competition Bureau of the merger of SmithBooks, Librairie Smith, Coles, The Book Company, and Classics bookstores into a single anglophone national retail chain, Chapters Inc., in 1995. This merger has resulted, over the last five years, in the closure of hundreds of these former chain bookstore outlets by Chapters Inc. itself and in the further closure of hundreds more independent bookstores because of the predatory trade practices of the superstore portion of Chapters Inc., an unequal competition internally subsidized by its other chain outlets, which Chapters calls its “traditional stores”.

We also believe the recent creation of Chapters Inc.'s majority-owned and vertically integrated companies, Pegasus Inc. and Chapters online, has accelerated these negative market forces and that the Competition Bureau should therefore have ruled against their creation by Chapters Inc.

Finally, we believe that Chapters Inc., in all of its iterations, has evolved into such a dominant force in the Canadian book trade that should this vertically integrated set of companies ever become financially threatened or unstable, it has the capacity to drag the entire Canadian book trade down with it. For this reason, any attempt to dismantle the current monopsony and the growing monopoly of Chapters Inc. and its vertically integrated companies should be approached with the greatest imaginable caution.

Clearly, if we are saying the Competition Bureau's decisions with respect to Chapters Inc. have been consistently misinformed and misguided, we are also saying that the issues involved in this debate are technical, complex, and subtle. We do not believe that the five minutes we have been given today, or a series of lay questions directed to us by this committee, can come anywhere near to addressing these issues adequately. We therefore urge this committee in the strongest possible terms to study the paper we have prepared for it and to conduct the further research it suggests needs to be undertaken in preparation for the task of repairing the damage already done to the Canadian book trade.

Finally, let me return briefly to the question of competition at a very personal level. The committee should ask itself why I or any of my colleagues are here today. If Chapters really does have the power we have ascribed to it, any attempt to challenge its market dominance could be perceived as a direct threat to its existence and its reaction to such a perceived threat could be retaliatory action.

In such a direct confrontation between Chapters and my own company, I am not even the mouse that roared; I am the flea on the mouse that roared. Yet still we are here because we believe this standing committee is providing us with the level playing field we need to restore the public benefits of fair competition to our industry.

We thank the committee for its interest and concern.

The Chair: By the way, Mr. Siegler, I should mention that your brief and all the other briefs will be distributed to the members. They take them very seriously. Obviously it's true that we can't go into an exhaustive hearing today, given the time we're allowed. At the same time, there are no less than four researchers working on the study for us. A lot of information has already been given. So this is being taken very seriously by the members, I can assure you.

I'll open the floor to questions by the members. Mr. Mark.

Mr. Inky Mark: Thank you, Mr. Chairman.

Let me first thank you and welcome you to the committee. Throughout this week we've heard about the changing business climate, not only in your sector but certainly throughout all industries in this country. We all know there's very little loyalty left in any customer base. Everybody looks at quantity, price, and speed of delivery. That has been addressed by our witnesses, including some of you just this morning. Mergers are a thing of the present, and they're going to continue to happen.

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I know that the finger is being pointed at Chapters and Pegasus and that we are here to make sure there is a level playing field. That's our job as government. The question I ask is why can't you beat them competitively on the same playing field? What's preventing you from doing that as an industry?

Mr. Karl Siegler: Are you asking me?

Mr. Inky Mark: I'm asking all of you.

The Chair: He is asking anybody who wants to pick up the question. Mr. Siegler, do you want to answer?

Mr. Karl Siegler: Yes, I can answer that. I think the essence of the Chapters problem is not in fact the current situation. The essence of the Chapters problem really goes back to 1995, when the Competition Bureau permitted the amalgamation of the book chains operating in Canada into one chain with 420 operating stores, which provided an infrastructure and the cashflow to the creation of the Chapters organization as it has unfolded. That gave them a huge competitive advantage from the beginning, in a context where no foreign company could come in and compete with them, such as Barnes & Noble or Borders, because of Canadian ownership rules. Starting out with a concentrated chain of 420 stores, which they were free to rationalize and restructure however they saw fit, gave them such a huge head start over anyone else attempting to do the same thing that it is simply not possible for any Canadian-owned company, any Canadian investor, to in fact effectively compete with them. That's the chief problem as I see it.

Mr. Inky Mark: Do you not think that somewhere down the road this is going to level off? The same situation happened when Wal-Mart came to a lot of the small communities in this country. There was an outcry by the small-business community. They basically predicted the death of a lot of the small businesses. Over time it has been shown that they can compete, because they found out that Wal-Mart isn't the cheapest in all the products they sell. I wonder if this is just at a transitional point right now where the whole industry is changing because of technology as well as business practices.

The Chair: Ms. Hushion.

Ms. Jacqueline Hushion (Executive Director, Canadian Publishers' Council): I think the sum of what I hear people saying is how do we get there from here. I think what we're looking at is the interim, the gulf in the middle. Yesterday there was a magnificent article in the paper entitled “Books without the corporate cover”. It was set out very well in the National Post backdrop on independent book selling, which covered several independent stores. It's clear, I imagine, from the committee members' experience and from the experience of consumers that, as Mr. Primeau said, some people go to Chapters or Indigo for one reason and to an independent for another reason. You are probably right that over time the situation will settle out. The problem is how do people who feel extreme pressure today get there from here? It's the transition that appears to be the problem.

The Chair: Mr. Breitkreuz.

Mr. Cliff Breitkreuz: Thank you very much, Mr. Chair.

I want to thank you all for appearing to express your views before this committee today.

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Mr. Primeau, you obviously had a very interesting career in selling books. Yes, Plato was wrong, but that wasn't the only time he was wrong. I suspect you're already thinking about writing your own works instead of just selling them, because I think they would make—

Mr. Claude Primeau: If somebody gives me enough money.

Mr. Cliff Breitkreuz: There you go. I think it would make pretty interesting reading.

I have difficulty understanding why every other industry in this country is competitive, not only nationally, but internationally as well, and basically has to make it on their own without any support other than an occasional incentive or something like that. Basically, they make it on their own.

The group that was representing the publishers in Quebec talked about a very limited market. Well, why would you limit your market to just here in Canada? Why not all the other French-speaking countries around the world? In fact, I think last fall there was a Francophonie conference here in Canada. How many books were sold, for example, to other French-speaking countries? Is there that kind of effort going on?

It seems to me that maybe a lot of the Canadian publishers, and hence the Canadian writers, aren't writing the kind of stuff Canadians want to read. There might be something to that as well, because the newspapers are all doing okay, and—

The Chair: Hold it. Okay, Mr. Breitkreuz, I can see that you've created a lot of excitement all around. We'll start with Mr. Primeau. I see requests to speak from a lot of people.

Mr. Primeau, I give you—

Mr. Claude Primeau: Canadians have won Booker Prizes in the U.K. They've won the Pulitzer Prize. Our books that win awards in Canada are sold internationally. So we have really, I believe, done a marvellous job with the resources we have.

Mr. Cliff Breitkreuz: Then what's the problem?

The Chair: Just hold it.

Monsieur Lévesque, Mr. Harrison, and then Madam Hushion.

[Translation]

Mr. Gaëtan Lévesque: Mr. Chairman, my answer will be very brief. Give me the means that you give to Bombardier Inc., Bell Helicopter, etc., and I will invade France.

[English]

The Chair: Mr. Harrison.

Mr. Michael Harrison: I actually touched on this in my presentation, but there are a couple of reasons.

One, there's no question we've had some amazing success stories in Canadian publishing. But anybody who actually looks at the detail behind those stories, the kinds of authors Mr. Primeau is talking about, will see that in terms of Canadian companies, we have rights to sell those books in Canada, but very seldom do we have rights to sell those same books outside this country.

Author agents will divide rights between this country and other countries. Those rights will sell to other jurisdictions, which means that the author, of course, benefits wonderfully, and we applaud that. From a Canadian industrial standpoint, though, it means that the Canadian house seldom gains benefit from those export sales.

From the point of view of our own membership—you talk about the necessity to export books—I can assure you that's something our membership has put a considerable amount of effort on. We've seen a threefold increase in our export sales over a very short period recently. I know my own company, for example, does almost 50% export sales outside Canada, mostly to the States, but also to other English-speaking countries.

The fundamental issue here, though, is that as Canadians, we publish on Canadian topics. These are books that we know are of interest to Canadians, and as Canadian publishers we have to do this. This is our mandate. American or British publishers are in the business of publishing for American or British markets. Yes, they have enormous export sales, but their primary markets are their domestic markets.

This is the same thing with us. The vast majority of the books we sell are going to be sold to Canadians. But the Canadian market is small. We don't enjoy anywhere near the unit cost advantage on the economy of scale that the Americans do. Yet the Americans set our prices. We have to live within an American price structure.

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The Chair: Next is Mrs. Hushion and then we'll pass on to Monsieur de Savoye.

Ms. Jacqueline Hushion: I believe you would acknowledge, Mrs. Renouf.... I just want to provide a backdrop statistic to her comment.

UNESCO says that in order for any country to sustain an independent book publishing industry that receives no support from the state, that country must have a population of no fewer than 25 million people who share a common language.

Ms. Susan Renouf (Vice-President, Association of Canadian Publishers): Thank you. That is a statistic I actually was going to use too.

I also wanted to say in response that developing authors is an expensive proposition. For all the Michael Ondaatjes and Carol Shields who spring finally into full flower and great sales, there have been many books behind them that have many more modest sales and many books behind them that perhaps have disappeared into the wilderness. Therefore, for the authors who are successful and for whom there are great sales there are all the costs that publishers put into developing authors who are new, less known, building their reputations, and their sales are much more modest. Those authors may become the next Michael Ondaatje, but it might take them six to seven books to get there.

You don't get a full-fledged industry unless you build authors from the bottom up and grow with them. It's very expensive to do that and we have a very small market in which to do it.

The Chair: Monsieur de Savoye.

[Translation]

Mr. Pierre de Savoye: Mr. Primeau, I will begin with you for a very simple reason. I too enjoy the two pleasures you mentioned: first of all, roast beef and mashed potatoes—along with some green peas—and also the book, the book that we hold, the book that we smell, the book that we see, the book that even makes a noise, if you like. But I'm wondering if today, roast beef is taking a back seat to ground beef or whether the sales of mashed potatoes are losing ground to French fries. I appreciated Mr. Carrier's intervention, when he said that we had to intervene at the school level to ensure that the taste for mashed potatoes, gravy and roast beef carries on. I have completed your allegory.

Since all of these books go through your hands right from the start, or just about, do you know whether book sales are growing, whether they are stable, or in decline?

This leads me to my second question, that I will ask you right away. If the market is growing, we can understand that a big player may want to participate in getting some market share, however, if the market is not growing, then the big player eats up the market and will inevitably take the place of the players who were there beforehand. This question is addressed to everyone. I began with you, Mr. Primeau, because you really chased after it.

The Chair: Mr. Primeau.

Mr. Claude Primeau: I would like to respond by saying that our company's sales have grown. I'm not sure that the big player will eat up the smaller ones, because sometimes, to continue the allegory, I like to visit a chip wagon rather than a big restaurant, such as au Clair de lune, for instance. So I'm not sure about that. However, if we study history a bit, we see that Mercedes Benz and Chrysler today form one company. This is a big, big problem.

I can tell you that sales are climbing for us. Perhaps my colleagues may say the same thing, I don't know.

[English]

The Chair: Is there anybody else who would like to pick up on this?

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[Translation]

Yes, Ms. Renouf.

[English]

Ms. Susan Renouf: I think for the members of our association, the numbers are not in yet as to whether our sales are growing or whether they're transferring from one area of the sector to another. Some of us may be experiencing some growth. A lot of that is happening in our increased success in the export market and in non-traditional book retail outlets.

Unfortunately, many of the statistical figures available are two or three years behind, so it's very difficult to know. My company has experienced some growth, but we are very successful exporters and we've been very successful in non-traditional book outlets.

Also, it remains to be seen what is the impact of returns. Are the sales growing only to be taken away when the books come back to us? We don't know that yet.

[Translation]

The Chair: Go ahead.

Mr. Marcel Ouellette: Thank you. I can answer by saying that the market may be expanding in certain areas, but not so much in others. I fully agree that we are in a market where there's free competition and that, in the final analysis, if a firm is expanding, we shouldn't be sad. All the better if it is a Canadian company.

Nevertheless, I believe that we are here today because we have to ensure that these expanding companies do not dictate the rules of the game to the others. If these companies succeed in growing with rules that remain the same, with rules that are fair to everyone, well, that's great, great for the Canadian publishing industry. If, however, these companies impose their way of doing business on others, if they constantly reduce—earlier we talked about discounts—the revenue per book sold and, in doing this, eliminate the smaller publishers, there is a problem. I believe that this is the mandate of the committee and that there is agreement on this.

[English]

The Chair: We have Mrs. Hushion and Mr. Siegler and then we'll pass on to Monsieur Bélanger.

Ms. Jacqueline Hushion: Mrs. Renouf mentioned the success of her company in the context of non-traditional sellers of books. I think that's a very important point, because Price Costco, Wal-Mart, Overwaitea Foods, Loblaws, etc.... As Mr. Primeau said, everybody wants to be in the book business today. Those mass merchandisers, those clubs, as they're called, were a very small part of publishers' business literally three to five years ago, maybe a couple of percentage points. For some companies they're now 15% of their business. They buy firm, which means they don't return those books. If they buy them and they don't sell them, that's it, they have them.

I want to underline Ms. Renouf's point on returns. That's a very big problem for the industry. And it's not just a problem vis-à-vis Chapters or Indigo. It's a problem across the industry in every single segment of the market, in post-secondary publishing, in trade publishing, in reference publishing. Returns are a huge issue. And because this is a North American business practice, it would be very difficult for the Canadian industry to get out from under it.

Other industries in this country have successfully dealt with it. For example, the recording industry, not as a group but individually a few years ago, came to the conclusion that returns were unhealthy on both sides of the equation. They were unhealthy for the record stores and they were unhealthy for the music producers, the publishers. So in fact now they have a general best practice, which is you can return 10% to 15% of the value of your net receipts, your business with me, over your most previous fiscal year. That's a far cry from what commonly we may see in the mass market business as returns of 50% or more of the units that publishers put out there and in trade.... What, 25%—

Ms. Susan Renouf: To 30%.

Ms. Jacqueline Hushion: To 30%. It's a big issue.

The Chair: Mr. Siegler.

• 1255

Mr. Karl Siegler: Yes. There is, actually, a source that is fairly easily available to anyone for the kinds of statistics some of you may be looking for, and that source is at the Canada Council.

What's interesting about the Canada Council is that it collects data on all the titles that it subsidizes for the year of publication, plus two full subsequent calendar years. The Canada Council subsidizes only those of our titles that their juries consider to have a high cultural value, and that means what's included in there are poetry books, plays, fiction, short stories and novels, and non-fiction books of serious social interest or concern. That's the kind of book the Canada Council subsidizes. It does not subsidize the books one commonly finds in the Wal-Marts and Price Clubs and on the discount shelves of your local traditional classic variant.

It astonishes me how much of this debate drags in these huge discount retailers whose practice in trade is in fact to sell about the top 3% of the best-sellers in the English-language world and remainders in huge volume. And looking at the industry with that brought into it distorts the statistics profoundly.

I would suggest to the committee that you go and look at those Canada Council statistics for the books of serious cultural value in the literary arts. Look at that, and then go back and look at the figures for how much the industry has grown over the last five years. I think you will be surprised. As a literary publisher myself, I can tell you that my sales in the five years that Chapters has existed have been flat, absolutely flat. And what has simply happened is that the sales that used to flow through the independents in this country have shifted across to Chapters. Chapters has made no difference and made no contribution to my sales, except of course that they demand a higher discount than I used to give to the independents, so it has forced me to raise the prices of my books. What they have done has been of no benefit to anyone.

Let me please give you an example.

The Chair: Quickly, because time is running out.

Mr. Karl Siegler: Can I just give an example?

The Chair: Yes, very briefly.

Mr. Karl Siegler: A microcosm of what I'm talking about here and what is going on in the industry is in fact what happened to a mini-chain called Duthie Books, which had ten retail outlets in Vancouver. Those ten retail outlets were spread all over town and they had a different focus in each community. The ones close to universities had an academic focus, the one at the library had a different one, and so on. It was a very diversified set of ten stores, whose collections were not synonymous but quite different. And overall, among those ten stores, you had a much wider selection than the Chapters that exists now. Chapters came to town and opened a competitive bookstore one block away from Duthie's two chief stores. Duthie Books went into bankruptcy, or sought bankruptcy protection, and the chain shrank to one of its ten former stores.

The one Chapters store that was the straw that broke the camel's back—there were, of course, other business problems in the Duthie organization—the one Chapters store that remains, is not replacing the volume for my titles that the ten Duthie outlets were taking. I could sell every one of my books to all ten of those stores. Now there are only two: Chapters and the one Duthie store remaining.

That, in microcosm, is what the superstore portion of the Chapters operation is doing to the independents in this country. And I see no growth that Larry Stevenson continuously claims his operations are producing. For our kinds of titles, that simply is not true. Go to the Canada Council. Prove it for yourself.

The Chair: By the way, Mr. Siegler, we are picking up the data from the Canada Council and it's been circulated to the members.

[Translation]

Mr. Bélanger.

Mr. Mauril Bélanger: Thank you, Mr. Chairman.

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[English]

To the question we just had, whether the market is growing, we had another answer given on Tuesday by the gentleman who was here from the Retail Council of Canada. He suggested that the overall retail market in Canada, beyond the population growth, is not growing, and he said if there is a growth in the retail book industry, it's at the expense of other retailing merchandise.

Over the course of these hearings I've come to question indeed how much the retail market has grown, because the examples that have been given to us are based on one superstore in Burlington. I wonder how much of that can be applied across the country. But that's not what I want to touch on.

We're being presented with a bit of a problem, and people here today could help us.

Mr. Siegler, in your paper you're right about what spurred these discussions. It was a concern about the vertical integration. You've added concerns to me today about the nature of the retail, which we'll have to deal with in some other way. But this vertical integration and the concern from the independent booksellers and publishers, supposedly, with the introduction of Pegasus last May—in my mind, anyhow—is what has brought us here today.

On Tuesday I heard a gentleman, Mr. Nicholas Hoare, who was prepared to give an example, without saying who, a friend of his. Fortunately, CBC this morning said who that friend was. I hope that information is accurate, because if it is, then we're getting a first example of indeed some of the stories we've been hearing.

I've heard from you today, Mr. Harrison, that you hesitate to speak. Mr. Siegler doesn't seem to have that same hesitation, thank goodness, because if this committee is to take seriously the concerns that have been brought to us—and there are claims to that effect by the Canadian Booksellers Association and some publishers—and if the publishers are to make serious those claims, if they are to make good on them that their margin is being squeezed and this vertical integration and the power of the Chapters-Pegasus consortium is creating an untenable situation, then some of the publishers are going to have to come to the fore publicly and put some solid data on the table. Otherwise, we won't be able to push it any further.

The Chair: Ms. Hushion.

Ms. Jacqueline Hushion: I can't answer that directly, but I'm sure the committee knows the Competition Bureau does in fact have an ongoing investigation. While they have not yet made any decisions as to whether or not to go to inquiry, I can tell you that they have designed statistical analysis that is basically blank, and they will be asking the publishing community to fill in the blanks. So the publishers are being sought out for further information and I believe are compelled to provide it. That's different from volunteers stepping forward.

Mr. Mauril Bélanger: I'm really concerned that if indeed the allegations that have been brought to our attention are true, and the publishers are not prepared to come forward, then something is awfully wrong with this. There is a freedom of speech concept that we value in this country, and if people are going to be punished because they come out and speak, then that too has to be brought forward. I'm really amazed at some of the things we've been hearing here.

Ms. Jacqueline Hushion: Everybody here today said the pressure is big on our systems, our marketing dollars, our discount policies, and our cashflow. Everybody at this table said it.

Mr. Mauril Bélanger: But we don't get the specifics.

The Chair: Mrs. Hushion, and then Mr. Harrison.

Ms. Jacqueline Hushion: That's all I want to say. Everyone here has acknowledged exactly what you're saying, that the pressure is huge, but in terms of getting into all the specifics, I don't think we can do that.

The Chair: Mr. Harrison.

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Mr. Michael Harrison: That's precisely the comment I wanted to make.

As an organization, as a representative of the Association of Canadian Publishers, we feel constrained from speaking. Of course, in my own submission I did talk a little bit about our own personal experience.

I work for a house called Broadview Press. It's a textbook house, but we do in fact do business with Chapters, and I'm happy to talk about issues from my own house, as Mr. Siegler is for his own house. The difficulty is coming forward as an association. In many ways, I'm delighted to hear about that story on the CBC, and I'm well aware of the details there.

The Chair: Mrs. Lill.

Ms. Wendy Lill: Thank you very much.

This has been a very different event from the ones we've had in the last couple of days, in that the word “Chapters” and the word “Pegasus” have been very muted. We've hardly heard those at all. Again it seems to come back to this sense that we're not talking about what's really there to be talked about.

This whole thing was called because the Canadian publishing industry expressed alarm to the heritage committee about the growing presence of Chapters and related companies online, Chapters online and Pegasus, and how it disrupts competition. That's the issue here. And I think the whole concept of competition in the book industry, which we all support, means there will be access to a wide range of diverse books, that there will be fair prices, and that there will be no monopoly and no just cutting away at independent operators, and that there will be a continuation of Canadian content and support of Canadian content. That's what we're all about here. And if in fact these things are being undercut, we need to know the details.

I was delighted to hear the fellow from Nicholas Hoare come up with chapter and verse. He said this has happened to this person.

Mr. Harrison, you talk about the fact of a 50% discount on books, that a higher book discount is causing a real change. What kind of change? What's happening to the authors? What about this big chunk of royalties that has been referred to? Is that chunk of royalties disappearing? Is it going down? Is the publishing industry's amount of profit going down? Are the profits of Chapters simply being made by cannibalizing the profits of others?

I guess, somehow, if we decide there is an imbalance of one player who holds more market control, there is a very fragile ecology here that everybody keeps talking about. The fact is, how do we get off this horse? How do we somehow change the dynamic?

The article in the Globe and Mail—I see Mr. Siegler refers to it—talks about the fact that Chapters' sales are flat, but not to worry, because they can always return inventory. It scares me when I hear that, and it has to scare publishers, because that just means you're ending up with the books, and it doesn't sound like they're playing the same game. It doesn't sound like they're playing in the same arena, which is all about books and creating culture. It sounds like they're talking about money and the bottom line.

So after all that, I ask you, how is it that this committee is going to be able to get to the bottom of these allegations and these asides if we can't provide you with the protection that will allow you to come forward freely with information? What do you need as a comfort level to know this place is one that wants to know the truth?

The Chair: Mr. Harrison.

Mr. Michael Harrison: I'd respond in a couple of ways.

One, I think there is no question whatsoever that publishers are putting their prices up. I certainly know a major one of our members has done a 10% across-the-board flat price increase. I've talked to other houses in various situations, and I know they're all contemplating that, if they have not already put up their prices. So that's the first response to this situation.

The return situation, as several people have touched on, has to be a problem, and frankly, we don't have the solution there. We don't have the answer. It's a major problem we all work with, but there's no one overriding answer that I'm aware of to that question.

I think the solution right now is, as I've called on and I think Karl Siegler called on, to have a major study that really looks at the book retailing business. An independent group that comes forward will have the responsibility to talk to all players—authors, publishers, and so on. We should then feel free to speak.

The Chair: Mr. Primeau.

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Mr. Claude Primeau: I'd like to address Mr. Bélanger's question.

Nobody is going to tell us outright, “If you don't do this we won't buy your books”. Outright, I mean. We sell our books to Pegasus, to everybody. To be very fair, I can sell my books without going through Pegasus. At times we may wish to go directly to the Chapters stores because we can get our books in those stores faster than they can get them out of that warehouse.

One of our big problems, which you referred to on the other side of the table, is the returns. What happens in our business is that we're like lending libraries. I send you 100 books, you sell 50, you send 50 back to me. The difference between me and a lending library is that I can't fine you, I can't chase you. I just sent you 100 books, you sold 50, here's 50 back, Mr. Primeau, and here's a cheque for the difference. That is a monumental problem, and will only be exacerbated if people want to stock books in different warehouses. As they used to say, your books are in purgatory. They're over there. They're just waiting to get out.

These gentlemen both are saying we used to have a hundred bookstores. We used to have six or whatever, Duthie's in Vancouver, and now there's one. Problem, big problem.

I stand by my original statement that our sales are increasing. Maybe theirs aren't. Can I have a job?

The Chair: Mrs. Hushion.

Ms. Jacqueline Hushion: Someone who has nothing to do with this business, who's just been watching TV and listening to the radio and reading the newspapers and magazines, said to me the other day, “Isn't your problem just that everybody's not all hugging each other any more?” We always had an extremely friendly business. People weren't very close to the vest, there was a lot of camaraderie, etc. Then things got more competitive and people got bigger and stronger and they brought some practices to book publishing that have always existed in other industries, like paying to have your book positioned better than the other fellow's book or whatever.

Isn't a big part of our problem just that it's not so comfortable any more? It's no longer—I was trying to find a gender-free term—a gentleman's business. It's become much more competitive and there have been good things that have flowed from that. People have pulled themselves up by their bootstraps and there have been changes. There have been positive changes. Publishers have gotten better at a lot of the things they do. Absolutely that was needed, but along with that, as everyone here has said, came the pressures.

Now the issue isn't whether the pressures are any different from what they are in any other industry that undergoes this kind of sea change in the marketplace. The issue is how the pressures are brought to bear. Things get personalized, and I suppose we often do regret the fact that the business is without a lot of the conviviality we had in the past.

If that's the suggestion, if you're concerned about big pressure and new pressure tactics, you're right. There is lots of pressure and there are lots of new tactics.

Five minutes is never enough. This is a huge issue.

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The Chair: Thank you very much for coming.

I know you feel it's been a very short session, which it has been, considering the magnitude of the challenge and the task. I can assure you that we are studying this very seriously. We are taking it very seriously. We have heard from a range of people. I think we're getting a sense of at least what the problems are, and that will certainly help us in trying to define some practical things maybe to suggest to Parliament. At least we're going to try very hard.

Thank you very much for coming. We really appreciate it.

The meeting is adjourned.