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Ottawa could write epilogue on merger of publishing houses

Once again, the Harper government could find itself grappling with the question of foreign investments in the Canadian market. But this time the product isn't potash or oil: it's books.

Plans to merge publishers Random House, owned by German media giant Bertelsmann, and Penguin Books, owned by British-based Pearson, would transform the publishing market in Canada and in many other countries around the world, where both publishers now operate.

The merger raises some of the same questions as the proposed acquisition of the Canadian-owned petroleum company Nexen by the Chinese state-owned firm CNOOC, which the federal government is currently reviewing, or the attempted acquisition of Saskatchewan-based Potash Corp. by BHP Billiton, which the Conservatives blocked.

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This time, two large Canadian publishing houses, both subsidiaries of foreign-owned companies, would be merged into one company: Penguin Random House, which would become part of the world's largest publishing firm.

A government official who was only authorized to speak on background said that it was "quite possible" that the merger would qualify for review under the Investment Canada Act.

The official added that whether the review was triggered would depend on how the two companies were merged. It could be several months before the details of the proposed merger are revealed.

Because book publishing is a cultural industry, Heritage Minister James Moore would decide whether the merger of the two companies meets the "net benefit" bar that foreign acquisitions and mergers must clear under the act.

Many within the publishing industry would ask what benefit for Canada there would be. The mergers would lead to consolidated operations, probably resulting in layoffs.

Penguin Random House would become one of only two large, foreign-owned Canadian publishers, the other being HarperCollins.

Authors and their agents worry that having only two large players – there are no Canadian-owned publishers of comparable size – would lead to less competition to publish Canadian authors, and to lower advances for those authors.

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(Full disclosure: I've had several books published under imprints now owned by Random House, and am co-author of a book to be published next year by HarperCollins.)

But Mr. Moore may have little choice but to approve the merger, because the alternative could result in losses that would threaten both firms.

With readers rapidly transitioning to e-books and online purchases, companies such as Amazon and Google are able to exert enormous pressure on publishers to lower prices, resulting in smaller profits or larger losses.

Only last week, the Canadian publisher Douglas and McIntyre sought bankruptcy protection, a painful reminder of the fragility of the industry.

"It's not just the Canadian market, there's been a sea change worldwide," said Jacqueline Hushion, executive director of the Canadian Publishers' Council, which represents the industry. "They didn't make the decision because of what's happening here."

As well, blocking the merger would contribute to the Harper government's increasingly unhappy reputation for interfering in the foreign acquisition of Canadian firms.

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This latest result, then, is simply another aspect of rapid technological advance accompanied by uncertainty.

More and more, the Conservatives find themselves preoccupied with deciding who should own what in Canada, and what the government can or should do about it.

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About the Author
Writer-at-large

John Ibbitson started at The Globe in 1999 and has been Queen's Park columnist and Ottawa political affairs correspondent.Most recently, he was a correspondent and columnist in Washington, where he wrote Open and Shut: Why America has Barack Obama and Canada has Stephen Harper. He returned to Ottawa as bureau chief in 2009. More

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