Evidence of meeting #17 for Canadian Heritage in the 40th Parliament, 3rd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was company.
A recording is available from Parliament.
12:10 p.m.
Conservative
12:10 p.m.
Bloc
Carole Lavallée Bloc Saint-Bruno—Saint-Hubert, QC
I have a brief comment as a follow-up to what I said earlier. Then you will have a chance to respond.
I tried to explain the uneasy feeling I had when I was listening to you speak. You do not appear to be at all interested in what Lionsgate does, in other words, film and cultural products, both Quebec and Canadian. I know this area well, as a member for Quebec. We are very proud of Quebec's cultural and film industry, and we want it to flourish in every way despite the pitfalls and obstacles in our way.
The way I see it, Lionsgate is a company that promotes cultural development and that cares about Quebec's and Canada's cultural growth. Listening to you speak, I do not get that same sense of concern at all. And that is why I have this uneasy feeling I was talking about.
12:10 p.m.
Associate General Counsel, Icahn Associates Corp. and Affiliated Companies
Let me try to respond to that.
I've spoken a lot about business. We're here. This is an investment. It's a business investment. But I don't want you to think that the Icahn Group people aren't interested in other things besides business and money. Mr. Icahn's on the board of the Lincoln Center, where he makes significant contributions. There's a stadium on Randall's Island that provides to the children in the city of New York a wonderful recreational facility. We run charter schools in New York that have been successful and gone into difficult neighbourhoods. So Mr. Icahn has invested in education as a charitable activity, very substantially. We've run a whole series of homeless shelters called Icahn House. We are not insensitive to these sorts of issues.
I'm trying to give you an answer with a little bit about the business side, but obviously people aren't single dimensional, and there are cultural interests and cultural concerns. As an institution, as an individual, and as a philanthropist, Mr. Icahn.... I think if you look into Mr. Icahn's record, you'll see a great deal of that sort of thing.
12:10 p.m.
Bloc
12:10 p.m.
Associate General Counsel, Icahn Associates Corp. and Affiliated Companies
No, I couldn't.
12:10 p.m.
Conservative
12:10 p.m.
NDP
Charlie Angus NDP Timmins—James Bay, ON
Thank you.
I don't want to get involved in discussions with the ministry, but when did they start? Have you had a number of meetings?
12:10 p.m.
Associate General Counsel, Icahn Associates Corp. and Affiliated Companies
Yes, we've had discussions over the last few months.
12:10 p.m.
NDP
Charlie Angus NDP Timmins—James Bay, ON
In the media you'd said in March--Mr. Icahn had said so. Did they begin in March?
12:10 p.m.
Associate General Counsel, Icahn Associates Corp. and Affiliated Companies
If that's what it said in the media.... I'd have to look back in my notes to really be sure, but it's been a few months, so here we are.
12:10 p.m.
NDP
Charlie Angus NDP Timmins—James Bay, ON
So you've gone through the plan, the business. I don't need the details, but you have been engaged with the officials and had ongoing talks?
12:10 p.m.
Associate General Counsel, Icahn Associates Corp. and Affiliated Companies
Yes, we have.
12:10 p.m.
Conservative
12:10 p.m.
Conservative
Rod Bruinooge Conservative Winnipeg South, MB
Thank you, Mr. Chair.
I really felt I had the need, as I think probably the only filmmaker here at this committee, to firstly state that many of the filmmakers in Canada appreciate investors. We actually like investment into film vehicles in Canada. So I just want to let you know that Canada is a welcoming country for investment, so investors shouldn't maybe look to the questions that you've received today as necessarily the example of the film industry in Canada. Dollars from abroad are very important to independent films and larger films being made in our country. I just wanted to put that on the record first.
Secondly, there's another thing I'd like to get you to explore a little more. It seems some of the elements of the concern that you had with the management team related primarily to their pursuing large inventories of content from somewhat antiquated firms, like MGM.... I wouldn't say that Miramax is antiquated. Nonetheless, we're talking about content that you feel, as an investor, you can't see long-term valuation on. Maybe you could explain that rationale a bit and then perhaps also highlight what I imagine your answer would be, that all the investments in Canada have generated good cash because we have a great film industry here that tends to operate more cheaply than some of the U.S. studios. I don't know if you could make the allusion between what you are concerned with and then some of the profit generation that is already occurring in Canada. I can't imagine you'd want to see that change.
12:15 p.m.
Associate General Counsel, Icahn Associates Corp. and Affiliated Companies
Let me try. As a lawyer, I'll be able to bring as much to bear to it as I can.
I think there is a concern in this. It's not just our concern; it's an industry-wide concern. It involves historic content. Obviously there's value to these libraries, and there may be people buying Blu-ray discs or downloading things. But just as other forms of content have seen their value decrease, the music industry has had problems from Internet sharing and the distribution changes.
So what is the value of film libraries? These people are selling their libraries. What will they be able to get for them, and what would it make sense for one to pay for them? That's a business decision that honestly is beyond what I really could evaluate. That's a financial decision.
We do think that continuing to make good, viable products will be a strong business. You can do it. You can make money, and obviously Canada has a very strong film sector, and it's had a great history of supporting film. There are a lot of films made here. I can't say to you that I know this film was made here or that film was made here. I could talk to you maybe about some films that were about Canada that I enjoyed, but I'm not a film business person.
I think our intention is to continue in the businesses that Lions Gate has been in historically, but to be concerned about acquisitions, be concerned about big-budget films, and be concerned about things that may be vehicles so that people have an opportunity to hang around in a kind of a chi-chi Hollywood environment, as opposed to making films that are viable, that make money, that are interesting, that people want to see, and that don't take big risk with capital.
12:15 p.m.
Conservative
The Chair Conservative Gary Schellenberger
Thank you very much for that. Thanks for your presentation and for answering the questions that were asked of you this morning.
We're going to take a recess for about five minutes so that we can change witnesses.
Thanks again for coming.
12:20 p.m.
Conservative
The Chair Conservative Gary Schellenberger
We're going to reconvene this meeting.
We welcome, for the second part of our meeting, from the Department of Canadian Heritage, Jean-Pierre Blais, assistant deputy minister, cultural affairs; and Missy Marston-Shmelzer, deputy director, investments.
What I'd like to just say before we have our presentation is that I'd just caution people to keep their questions general, because our witnesses cannot go into great detail and we will respect the ministry when it comes to that.
Go ahead, please, with the presentation.
June 1st, 2010 / 12:20 p.m.
Jean-Pierre Blais Assistant Deputy Minister, Cultural Affairs, Department of Canadian Heritage
Thank you very much, Mr. Chairman.
I believe you have a deck or a short presentation that was distributed. You should have it in front of you.
Apart from being assistant deputy minister of cultural affairs, I also wear a second hat as the director of investments under the Investment Canada Act. As you know, the act is administered by both the Department of Industry and ourselves, and there's a parallel structure. So I'm the director of investment pursuant to section 6 of the act, and Missy is my deputy director in that.
As you mentioned, Mr. Chairman, I'm not really here on Lions Gate. I'm here to provide you information of a general nature about the act. I'll try to be as helpful as I can without breaching the obligations I have as a public official, pursuant to the Investment Canada Act.
In providing the information about the act, I would start by reiterating the objective of the Investment Canada Act. There is a purpose clause in that legislation. It's not often that legislation has a purpose clause, but it occurs from time to time and is very helpful in administering the act. You'll see that the act exists to encourage investment, economic growth, and employment opportunities, and to provide for the review of investments in Canada by non-Canadians that could be injurious to national security.
As I mentioned earlier, the minister, Missy, and I are all responsible for what is called cultural business. That's a defined term in section 14.1 of the Investment Canada Act. It deals with the publication of books, magazines, other periodicals and newspapers, whether they're in print or machine-readable form, which is a term we inherited from the early 1980s to reflect digital technologies and computers; film and video production, distribution, sale, and exhibition; music and all its distribution, again in machine-readable form; and broadcasting to the general public, as defined in the Broadcasting Act.
On page four there are rules for when matters are under review and other matters are subject to notification. You'll recall that a couple of years back the government was asked, under the chairmanship of Red Wilson, to look at the Investment Canada Act and other economic issues. When the panel reported, it realized that the specificity of the cultural sector was such that you could have special rules. So there are special rules that apply to culture that aren't the general rules that are applied more broadly to other businesses, as administered by our colleagues over in Industry Canada.
There are two particular differences. Reviews occur at a lower financial threshold in the cultural business. So even at the level of $5 million of assets, we can review it. The thresholds are much higher on the Industry Canada side of things. We also review what are sometimes called greenfield or new investments, so it's not just a company that already exists, but if somebody wants to set up a company that has never operated in the country.
You'll see on page four that there are automatic reviews the moment you reach an asset, whether it's a direct or indirect investment. An indirect investment is just that there's a holding company when the structure is such that you aren't actually purchasing the operating company; you're purchasing something above in the corporate structure.
There are other things that are merely subject to notification. However, when we are notified of a proposed transaction or investment, it is open to the government through a Governor in Council directive, notwithstanding the fact that it's merely at notification, so we actually trigger a review in exceptional cases. You'll understand that sometimes even something that's less than $5 million can have significant impact in the ecosystem of the cultural sector. So we look at it.
The crux of the matter as to what is a net benefit is on page five. It's clearly defined in section 20 of the act, to the extent that it provides a very broad set of considerations. So it's not like one of these tests that it's two feet by four feet and you actually know that's the test. It's much more open-textured and discretionary.
One of the first factors we look at is economic activity. We look at employment. To what extent do components of the business create...? If you have a part system, I guess you can look at it in the cultural sector and to what extent we would employ other elements of the ecosystem for creative industries and the exports from Canada.
We also look at the amount of Canadian participation. You can imagine where a foreign national wants to purchase 60% of the company while 40% is still Canadian. So we'll also look at those ventures.
At the top of page six, we look at productivity and innovation. Certainly, as you know, productivity is important for the economic health of Canada, so industrial efficiencies, technological developments, etc, are also factors that weigh in the balance.
Competition is also provided for in section 20 of the act, because we want to promote healthy competition in the Canadian economy.
The next factor is probably of more interest, and there are, on occasion, national policies that provide that as a starting point one would be concerned with investment in a particular area. In the area of culture, there are such policies, particularly in the area of film distribution, but not in the film production sector. In fact we have tax credits that welcome foreigners to come and produce in Canada, so the policy is quite welcoming of foreigners who want to produce films in Canada. There are no specific policies in music, but there are in other areas, such as book publishing. And of course, as you well know, the Broadcasting Act provides that licensees of the broadcasting system must be Canadian-owned and -controlled.
The fact that there would be a policy in place is a factor; it doesn't trump all the others. We have to be concerned about that, because ministers have to exercise their discretion appropriately and cannot fetter themselves with a policy. This is the way I usually explain it, however: if there is a policy in place, there's a slight incline in the hill in the case somebody has to make, and the steepness of the incline depends on the circumstances. The fact that there's a policy in place is not a prohibition. In the recent case of Amazon, notwithstanding the prohibition, the government nevertheless approved the transaction because of all the circumstances. They are not a veto, these policies; they are just one factor—an important factor, but merely one factor.
The last criterion for net benefit is global competitiveness.
On page seven we talk a little bit more about timelines, and I understand you were asking some questions earlier. If it's notification, what happens is that somebody who is required to send notification must send it, obviously, and once it's complete, the government has 21 days to turn around, if it does want to do a review, even though it's below the threshold levels. If it's either one that started off as notification and got converted into a review or one that starts as a review, we then have 45 days to look at it, although the minister can extend that period by 30 days, unilaterally. Beyond that, because sometimes it gets complicated—and these transactions, as you can imagine, are of considerable complexity and there are back-and-forth negotiations—there could be further extensions, but by mutual consent of the investor and the minister, and we negotiate that. We usually can come to terms with that.
Once we're in an approval scenario, there are undertakings in the process that are negotiated. These are firm commitments by the investor that, because they're on the table and because they're firm, help balance and prove that the proposed transaction is of a net benefit to Canada. Those generally, but not necessarily, last for five years. Some of them have been in perpetuity—because someone was wanting to invest in a very, very niche field, they've made undertakings in perpetuity not to grow their business beyond that niche field. And of course Missy and her team do ongoing monitoring; we get annual reports and follow-ups on that as we go forward.
Page nine is interesting. It's there, and I won't spend much time on it; it's about enforcement. We rarely get into enforcement situations merely because the business community generally respects both the notification and the approval process and it's rare that we get that.
Page ten hearkens back to what I was saying at the very beginning in terms of confidentiality. Section 36 is quite strict as to the fact that I, as a public official, can't share any of the information that I or Missy or anyone gathers, and it becomes an offence to do so under section 42. Now it is open to the investors, if they so wish, I guess, to make information public, and sometimes they are even required to—you can imagine a pubicly traded company sometimes must make full disclosure because of securities legislation. That may occur, but we and other officials cannot provide information.
I can tell you that even though in my work on Investment Canada I have a direct link to the minister, my deputy is not always aware of the details of the information, and neither are my colleagues at PCO or in other departments. So we protect that. I think the logic behind that is that sometimes an investor will want to have that dialogue with the government, and if it's not of net benefit, or for other reasons, they don't necessarily want it to be in the public domain. In the act, Parliament has chosen to do it this way.
When a decision is made, of course we post it on our website so people know about it. The recent amendment to the act has changed what we put in terms of reasons for it. You'll see that, based on the Red Wilson recommendations, a little bit more information is provided to the public as to the reason an application, for instance, has not been approved, going forward. And sometimes we negotiate with the investor what we could put in a joint press release so that people know what's going on.
Mr. Chairman, that's the presentation. We are both more than willing to answer questions from your colleagues.
12:35 p.m.
Conservative
The Chair Conservative Gary Schellenberger
Thank you very much.
The first questioner is Mr. Rodriguez.
