The 80% Solution

Amid a rising tide of nationalist sentiment, a committee of Canada's House of Commons is expected this week to end work on Bill C-58, which at first glance looks like a relatively minor amendment to the tax code. Yet the measure, introduced by Pierre Elliott Trudeau's Liberal government last April and virtually assured of passage, could profoundly alter the shape of Canada's magazine industry.

The government wants to prohibit Canadian companies from deducting, as a business expense, the cost of buying advertising space in the Canadian editions of Reader's Digest and TIME. The two magazines, which are published in separate editions for Canadian readers, were exempted from a 1965 law that ended the tax-deductibility privilege for foreign-owned magazines. Since Canada's basic tax rate on corporate profits will be 46% in 1976, the new law would have the effect of almost doubling the cost of advertising in TIME Canada and the Canadian Reader's Digest. The two publications together accounted for one-quarter of the estimated $75 million in ad revenues placed in Canada's 21 leading magazines last year. Obviously, supporters of the bill hope that it will divert these advertising dollars into Canadian-owned publications. Said Secretary of State J. Hugh Faulkner, the minister in charge of cultural affairs, when he announced the bill: "It is my hope and expectation that the decision of the government will result in the creation of a Canadian newsmagazine."

The bill has already had that effect.

Hoping to pick up advertisers who would no longer be able to afford TIME Canada, the editors of Maclean's, the nation's largest monthly (circ. 900,000 in English-and French-language editions), acted two months ago to capitalize on the situation. They transformed their English-language edition into a biweekly newsmagazine. The new Maclean 's has a circulation of about 750,000 (v. TIME Canada's 525,000).

For TIME Canada and Reader's Digest to qualify as Canadian magazines under the new bill, and thus afford advertisers the advantage of a tax deduction, they would have to be 75% Canadian-owned, show editorial content "substantially" different from their parent editions, and demonstrate that their editorial control is in the hands of Canadians. Time Inc. has been prepared to meet the 75% ownership rule, and the company last spring produced a sample issue of a newsmagazine that devoted 41% of its space to Canadian news, instead of the present 12% to 15%. But in October, newly named Minister of National Revenue Jack Cullen, who would be in charge of enforcing the law, announced that "substantially" different editorial content meant at least 80% different. Both publishers insist that figure is unattainable. Says Stephen S. LaRue, president of TIME Canada Ltd.: "We'd be wallpapering the magazine with filler, and it would no longer be a global newsmagazine of quality."

American Threat. That prospect does not trouble those Canadians who believe that their national identity is seriously threatened from south of the border. "We have to create our own identity," said Faulkner in a recent interview. "We have to protect ourselves. The alternative is to be simply overrun by the American arts and cultures."

If the law goes into effect Jan. 1 as expected, TIME will continue to print in Canada, but without the present five to seven pages of Canadian news and with its 62-member Canadian staff cut by as much as 90%. TIME Canada has offered to reduce its advertising rates by half to offset the increased net costs to advertisers when the tax-law change takes effect. Canadian subscribers will be asked to pay a sharply higher subscription price to offset the expected loss in advertising revenues.

The Reader's Digest Association which sold one-third of its Canadian operation in 1968 has steadfastly refused to meet the 75% ownership rule. The firm also refuses to change the editorial content of its Canadian edition or to give effective editorial control to Canadians. As E. Paul Zimmerman, president of the Reader's Digest Association (Canada) Ltd., said last week: "We cannot survive under the present terms of Bill C-58, and we must plan for winding up our operations as soon as possible."

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