Seagram sale to Vivendi could ignite new battle over foreign film distribution

The US$30-billion takeover of Seagram Ltd by Vivendi SA and its subsidiary, the French pay TV network Canal Plus, is threatening to re-open the politically charged issue of allowing foreign film distributors into the Canadian market. The issue centres on PolyGram, which four years ago as a foreign-owned company, applied to Industry Canada for an exemption to Canada’s film distribution policy, in an attempt to set up distribution and production operations here. It was a contentious application that – to the relief of Industry minister John Manley and Heritage minister Sheila Copps – became a non-issue when Canadian-owned Seagram purchased PolyGram in late 1998. Foreign Investment GuidelinesUnder the Investment Canada Act 1985, any foreign investment in a cultural industry is reviewed. In 1988, the government developed foreign investment guidelines designed to generate funds for the Canadian film industry and to strengthen the Canadian film distribution sector. The guidelines prohibit foreign takeovers of Canadian-controlled distribution firms and allow foreign takeovers of foreign-owned firms only when investors agree to invest a portion of their Canadian earnings in developing Canadian culture. Under the guidelines, foreign investors who start new businesses are only allowed to distribute their "proprietary products" (i.e. films for which the distributor holds world rights or is a major investor). This restriction applies only to new businesses, established in Canada since the guidelines were introduced in 1988, not to distribution firms then operating in Canada. Source: Report of the Cultural Industries Sectoral Advisory Group on International Trade, Feb/99Seagram’s pending sale to Vivendi has senior bureaucrats and politicians worried that the film distributor will once again fall into foreign hands, which could ignite a trade dispute with France over PolyGram’s future operations in Canada. Ironically, France is Canada’s closest ally when it comes to the promotion and protection of cultural industries. Carleton University professor Keith Acheson, who co-authored a case study on PolyGram, says the government may have little choice but to re-open the PolyGram issue. In 1988, the federal government established a set of guidelines for film and video distribution which preclude foreign takeovers of Canadian-controlled film distribution businesses. PolyGram is now part of Universal Studios, which is wholly owned by Seagram, a Montreal-based company. "By my accounting – and this may not be the legal position –(PolyGram) is a Canadian-owned business," he told CCR. "I don’t think this would be interpreted to include all their distribution operations, but their distribution operations in Canada would seem to fall under this directive. If that’s the case, then it’s changed dramatically, because Vivendi isn’t taking over a grandfathered major (i.e. certain Hollywood studios), it’s taking over a Canadian company. In that case, there is going to be a lot of anxiety on Seagram’s part because Vivendi will be anxious." The guidelines, explained in a fact sheet from Investment Canada, outlines some exceptions to the rule, although they don’t apply to Canadian-owned companies. "Indirect and direct takeovers of foreign distribution businesses operating in Canada will be allowed only if the investor undertakes to invest a position, a portion of its Canadian earnings in accordance with national and cultural policies." Acheson says the government may attempt to get concessions from Vivendi to maintain its film distribution system in Canada, but even that compromise appears to violate the investment guidelines. "It’s not just the issue of PolyGram contributing to some kind of a fund," Acheson explains. "(The investment rules say) categorically that they will not be allowed to distribute films." A PolyGram executive said Tuesday that the company isn’t yet looking at the policy implications of the transfer of ownership. "They haven’t formally announced the deal, and it could be six months to a year before it closes. They haven’t sat down and worked out the nuts and bolts of it. They’ve been talking in generalities on a $30-billion deal. I think that it’s something that we will have to take a look at ourselves," he told CCR. Is Canada’s policy discriminatory? In 1996, just before the Seagram takeover, Amsterdam-based PolyGram asked Investment Canada if it could set up business in Canada to distribute films that don’t belong to PolyGram. After much debate within the federal cabinet and intense lobbying by PolyGram and European trade officials, federal government decided in the end to refuse PolyGram’s request. The European Commission then jumped into the dispute. It argued that Canada’s policy aimed at protecting Canadian film distribution is discriminatory against European companies, since Ottawa allows Hollywood majors to distribute U.S. films in Canada under a 12-year-old grand-fathering agreement. PolyGram and Industry Canada eventually worked out an agreement in early 1997 whereby the film distributor would make a $20-million investment in Canada over five years, but within existing cultural rules. In return, PolyGram was allowed to expand its distribution system in Canada. The approval required PolyGram to spend at least $20 million or 20 per cent of its Canadian revenues on film products on Canadian films, contributions to film festivals and distribution of Canadian films abroad. The issue became moot the next year when Seagram purchased Polygram, making it a wholly owned and controlled Canadian company.

Seagram sale to Vivendi could ignite new battle over foreign film distribution

News | 07/06/2000 4:00 am EDT

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