Booksellers Urge Block On Amazon Distribution Plans -Globe And Mail

BY MARINA STRAUSS AND OMAR EL AKKAD

The Globe and Mail

TORONTO (The Globe and Mail)--Canada's booksellers are urging Ottawa to block Amazon.com Inc. (AMZN) from building a distribution network in Canada, raising the stakes in a showdown over government restrictions on foreign control of the cultural industry.

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

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

"To allow Amazon to enter the Canadian marketplace will detrimentally affect independent businesses and would raise serious concerns over the protection of our cultural industries," CBA president Stephen Cribar said in a letter to Moore.

The CBA said the federal government should reject Amazon's application partly because a U.S. online retailer can't ensure the promotion of Canadian authors and culture.

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

At the same time, foreign ownership limitations have barred Heather Reisman, the queen of booksellers in Canada, from teaming up with a foreign book retailer.

On Monday, Reisman, chief executive of Indigo Books & Music Inc. (IDG.T), called on Ottawa to level the playing field if it gives the green light to her rival Amazon to build a warehouse and shipping center in Canada. Indigo is a member of the CBA.

"Supposing I should decide three years from now that, in order to expand some of my capability, I'd like to partner up with a foreign company," she said in an interview. "I do not want to be disadvantaged."

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

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

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

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

In the midst of the face-off, key players declined to comment. An Amazon spokeswoman didn't respond to a request for comment Monday; the Web retailer has refused to say anything about its proposed Canadian business since the news broke last week.

Officials from Canadian Heritage Minister James Moore's office also didn't respond to a request for comment, instead forwarding the request to departmental staff.

Reisman, who runs Canada's largest bookseller, warned that Amazon's bid to set down physical roots in the country could put her and other domestic booksellers at a disadvantage.

"In the process of competing all kinds of new relationships and alliances may be important," Reisman said. "After all, when you're competing against huge players, you need to be able to do what you must do to compete.

"It is possible that some time in the future I may want a relationship or a partnership and that might mean I might sell part of the business. I do not want to be stopped from selling it on the basis that: 'Why should I be treated any differently from Amazon?'" In 1996, the rules blocked Reisman from teaming with U.S.-owned bookseller Borders. Instead, the following year, she launched Indigo. About four years later, with the help of her billionaire husband--and takeover specialist--Gerald Schwartz, her company snapped up the larger Chapters chain to become the dominant player in Canadian book retailing.

"The rules have been unevenly applied for as long as they have been in place," Reisman said Monday.

"A few years ago I was disadvantaged from having a partner. That's not to say I didn't succeed. I, as a competitor, was in a position to be able to invest for a long time--losing money--to get to where I got. Many people would not have had the deep pockets that I had and, as a result, may not have succeeded without...a U.S. or a foreign partner."

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

Now, in light of Ottawa's review of the Amazon proposal, Reisman has asked the government to clarify its position on foreign ownership in the book industry.

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