Proceedings of the Standing Senate Committee on
Transport and Communications
Issue No. 35 - Evidence - May 22, 2018
OTTAWA, Tuesday, May 22, 2018
The Standing Senate Committee on Transport and Communications met this day at 9:30 a.m. to study emerging issues related to its mandate and ministerial mandate letters.
Senator David Tkachuk (Chair) in the chair.
The Chair: Honourable senators, today we are meeting under our general order of reference to study the deductibility of foreign Internet advertising.
I would like to welcome, from the representatives of the Friends of Canadian Broadcasting: Daniel Bernhard, Executive Director and Spokesperson; Ian Morrison, Spokesperson; and Peter Miller, Consultant and author of the report, Close the Loophole! The Deductibility of Foreign Internet Advertising.
I invite you to make opening remarks and following those senators will have questions, I’m sure.
Daniel Bernhard, Executive Director and Spokesperson, Friends of Canadian Broadcasting: Honourable senators, thank you for inviting us to appear today. My name is Daniel Bernhard, and I am the Executive Director of Friends of Canadian Broadcasting, as Senator Tkachuk just mentioned. With me are Ian Morrison, the founder of our movement, and Peter Miller, co-author of the Close the Loophole! report, released on April 24. It should be available to you now.
Strong journalism secures our democracy and Canadian storytelling asserts our culture and independence. Both are in mortal danger as the advertising revenue which once sustained them is diverted to American tech monopolists with great help from Canadian tax policy.
Friends of Canadian Broadcasting is a watchdog group for Canadian content on air and online. We enjoy the support of 364,000 Canadians whose after-tax gifts finance our work. We are not affiliated with any broadcaster or political party.
[Translation]
Canadian media are in freefall. On May 8, La Presse announced it could not survive without subsidies and donations. La Presse is Quebec’s largest daily, serving an addressable market of nearly 7 million people. Its threatened demise after 134 years is the latest in a steady stream of media closures across Canada.
[English]
Close the Loophole! documents the scope of the Internet advertising crisis facing Canadian media.
In 2017, Canadian advertisers spent an estimated $6.2 billion on digital ads and eighty per cent of that — $5 billion — flows to foreign media companies, principally Google, its subsidiary YouTube, and Facebook. Google’s Canadian revenue now exceeds that of all Canadian over-the-air television stations combined. Meanwhile, Canadian newspapers, both in print and digital formats, have seen advertising revenues decline by more than 50 per cent since 2006. Our research projects that as many as 50 per cent of television stations in small and medium Canadian markets could also close by 2021.
News Media Canada estimates that Canada has lost 16,000 journalism jobs over the past decade. What many Canadians do not know is that our government contributes to this emergency by failing to apply long-standing tax law to ads placed with foreign Internet media companies, including Google and Facebook.
For five decades, ads placed with foreign media have not been tax deductible under the Income Tax Act. Section 19 provides a material incentive for advertisers to work with Canadian outlets whose journalism secures our democracy and whose storytelling nourishes our culture. Yet the Government of Canada does not apply these provisions to Internet-delivered media. A Canadian company advertising in the Canadian edition of theNew York Times cannot deduct the cost of that ad, but if the exact same ad is placed on nytimes.com, advertisers can claim the full deduction.
The net effect is to make advertising products sold by Google, Facebook and other foreign digital media companies 26 per cent cheaper. As a result, Canadian governments are foregoing $1.3 billion in tax revenue each year.
We have been working on this file for some 24 months and since then the principal beneficiaries of this subsidy have been in the news for their democracy-eroding consequences of their business model worldwide.
[Translation]
Exempting foreign technology companies from section 19 is crushing Canadian media. La Presse is the most recent example, but hundreds more papers and television stations are near or past the point of no return. These outlets once brought news and entertainment to communities such as Brandon, Kenora and Guelph, that now go without. Meanwhile, television stations are hanging on by their fingernails in places like Thunder Bay, Kamloops and Rivière-du-Loup.
[English]
Big tech’s conquest of Canadian media is not inevitable. The government can close the loophole that subsidizes our media’s main competition. The government should act now before even more Canadian journalism and storytelling fade to black. The $10 million annual community journalism fund proposed in the 2018 federal budget is merely a token gesture that addresses neither the symptoms nor the cause of this crisis facing our media.
Large outlets such as the Globe and Mail may survive in this new environment but their focus is not local. Who will cover city council deliberations, MP and MLA announcements, the courthouse or local events, sports and crime? Who will report on harassment scandals in Newfoundland or data breaches in Nova Scotia? Who will report on contentious electoral reforms on P.E.I. or keep citizens up to date with flooding in New Brunswick? Who will report on the state of mental health services in Manitoba? Who will establish a bureau in Regina or Lethbridge or Kelowna?
Google and Facebook most definitely won’t. They may be the main beneficiaries of this advertising shift but they don’t employ a single journalist in Canada. In fact, one of the main reasons Google and Facebook are so profitable is they don’t have to pay for the content they surround with ads. Much of that content comes from credible news organizations who pay journalists but are no longer able to benefit from the ad revenue that this journalism generates.
If we don’t act now there may be no one left to tell our stories and no one left to hold governments accountable or promote Canadian culture on-air or online. Even if the likes of Facebook and Google were saintly, the need for action would be no less pressing. Someone might view this crisis as the market rejecting an inferior product but readership and confidence remain strong. News Media Canada reports that 88 per cent of Canadian adults read the news in a given week in a variety of formats.
A 2017 Nanos Research poll we commissioned found that 84 per cent of Canadians trust Canadian radio news, 83 per cent trust newspapers and 80 per cent trust broadcast television. Only 17 per cent trust Facebook. Readership isn’t the problem. The digital shift hits home because it increases the likelihood that a gatekeeper like Facebook takes a lion’s share of the revenue while creating no content whatsoever.
Senators, our proposal is simple: apply section 19 of the Income Tax Act to Internet advertising. If Canadian businesses cannot deduct the cost of ads in the New York Times, why should nytimes.com be treated differently? We urge you to use your power of recommendation to call on the government to act. Our report projects, conservatively, that closing the Internet advertising loophole would repatriate up to $440 million of ad spending per year, while boosting federal and provincial revenues by $1.3 billion.
The report identifies three different ways to close this loophole: first, update the definition of broadcasting in the Income Tax Act to match that of the Broadcasting Act and CRTC’s pronouncements on Internet delivered broadcasting; amend the Interpretation Act to replace its obsolete definition of broadcasting with the Broadcasting Act’s technology-neutral definition so that a single definition applies cross the law; finally, revise the advertising tax deductibility provisions of the Income Tax Act to apply equally to all foreign media, including Internet-delivered media.
We are not asking government to tell business where to advertise. This proposal would simply level the playing field by applying existing law to the digital domain. This is a market-based approach that avoids the danger of direct government subsidy for journalism that could be abused to reward friendly coverage and penalize dissent.
Closing this loophole won’t end Google and Facebook’s dominance over public speech in Canada, at least not on it’s own, but it will support credible Canadian journalism, which is needed now more than ever. It will also ensure Canadians are no longer subsidizing Google, Facebook and their democracy-eroding business models with billions of dollars in tax money. Canada can’t survive without its own stories. Our democracy cannot survive without credible Canadian journalism.
Thanks again for inviting us to appear today, and we welcome your questions.
The Chair: I’ll start with a short question. Canadian businesses don’t advertise to get a tax deduction; they advertise to sell product. Why do you think they’re using Google rather than CFQC television in Saskatoon, for example? Both of them are geared to advertise to sell product. It seems businesspeople are making a choice to go somewhere else. It is a level playing field. They are both tax deductible.
Mr. Bernhard: Right. I think there are a couple of things. You’re correct that advertisers are looking for cost-effective reach, and the products that Google, Facebook and other American Internet companies are selling clearly do provide some value to advertisers. We are, in our report, projecting that closing this loophole will not end advertising with American Internet companies; we’re projecting that less than 10 per cent of that money would be repatriated. There is a broader public policy objective, which is that Canadian journalism and storytelling are absolutely fundamental to our democracy, in local news, for example. The decline of local news in many communities means journalists are simply taking the mayor’s press release and repeating it verbatim. They have no ability to have someone at city hall or at the courthouse. As we know, a government that operates under those conditions can get away with all sorts of malfeasance and chicanery that’s not welcome.
These provisions, which have been around for 50 years in Canadian law, which previously anticipated the full spectrum of available options in magazines, TV and radio, are simply not being applied to this new option added to the mix. The public policy objective of ensuring there is Canadian journalism and storytelling is, as a result, slipping through the cracks.
The Chair: I kind of agree with you. There should be a level playing field. I know you have a concern that government grants to the media would jeopardize their fair coverage of what’s happening in the country. Doesn’t that apply to the CBC as well? I mean, the CBC gets a huge ton of money — 1.4 or $1.5 billion — from the government, and CTV and Global get nothing. Doesn’t that same logic apply? Why aren’t you asking that we get rid of the CBC so we have a level playing field and no possibility there’d be political interference in news broadcasts in Canada?
Mr. Bernhard: I think the CBC funding is of a different nature. Ian may want to comment on this, but it is a consistent allocation that has been around for many, many years. As you know, with many non-profit organizations who apply for grants from government, but also from foundations, the funding cycle is typically much shorter, and there are no guarantees. It’s on again, off again. The capricious nature of that relationship leads people to pander to what they think their funders would like to see. On the CBC question, one of the reasons why the Friends of Canadian Broadcasting has long advocated for more independence for CBC governance is to reduce the probability of this type of pandering within public broadcasting. We believe that public broadcasting, however, because of its long tradition and idea this is an established institution that will continue to be funded and is independently governed becomes very different to companies seeking government handouts for how they report on the government. I think it’s a very different function.
Do you have anything to add on that?
Ian Morrison, Spokesperson, Friends of Canadian Broadcasting: Mr. Chair, half of Canada, and a part of Canada that you’re very sensitive to, is small- and medium-sized communities. The danger projected in the report you’re studying today is that, in those communities, it may end up, if the trend continues, that no journalism will be available other than the CBC. Even supporters of public broadcasting, the 85 per cent of Canadians who like it, don’t want it to have a monopoly on the news.
One of the things that would happen, were you to look favourably on the application of section 19 to foreign digital advertising, would be to defend the diversity of sources of journalism available to Canadians outside the big cities.
Senator Plett: The chair did ask one of the questions I was going to ask, but I will continue on that.
As you gentlemen all know, we did a fairly thorough study on the CBC a year or two ago. I was on the committee, as were Senator Dawson and Senator Mercer. I don’t know if others here were also on the committee. I was on that when we did a thorough study. You, of course, were witnesses at that time.
You say you want a more independent CBC. Well, a more independent CBC, as the chair says, would not be getting a subsidy. Then, they could be independent. I think that, as long as they’re getting $1.5 billion a year, they can’t really say, “We want independence, but we still want the money.” That’s a comment, not a question.
My question is — and I’m a lowly plumber from Manitoba, not a tax lawyer or tax accountant — on page 2 of your presentation, you talk about the disparity and being able to deduct the cost of advertising and getting a tax deduction, and this is costing the Canadian government $1.3 billion in tax revenue.
I want you to explain that to me. To me, you’re saying: If you advertise with the New York Times, you cannot deduct the cost of that ad. If you’re deducting the cost of that ad, is the government not losing tax revenue then?
Mr. Bernhard: If you deduct the cost of the ad, the government does lose tax revenue. That’s where the $1.3 billion is coming from. The existing provisions say that, if you advertise in a foreign newspaper, magazine, radio station, television station to try to reach a Canadian audience — I’m from Toronto; don’t hold it against me. The example that’s always used is businesses that would advertise with a television station in Buffalo, for example, that broadcasts back into Canada. They would do that because the television station in Buffalo has programming that’s financed for the U.S. market, which is ten times the size. They had Johnny Carson or “The Simpsons” or whatever American program was desirable. They would broadcast back in to Canada. It was relatively cheap for them to do that. As a result, Canadian broadcasters who were doing news and journalism and storytelling in Canada were in decline. That’s why these rules were brought in 50 years ago to say that the deductibility of those advertising expenses would be limited or removed entirely.
What’s happening with the Internet now is we have not applied that same principle. The principle that’s enshrined in the law now says if you advertise in the New York Times to come back into Canada, you can’t deduct it. You can do it, but there’s a bit of a speed bump there, which is meant to provide an incentive to Canadian media that levels the playing field a little bit, based on economies of scale. We’re just not applying that. We’re allowing these deductions that the spirit of our existing law says we shouldn’t allow. That’s where the $1.3 billion comes from. That’s how the government’s foregoing revenue. You’re exactly right in your analysis.
Senator Plett: Until yesterday, we could say that one of the biggest differences between Winnipeg and Toronto was that Winnipeg was still playing hockey. We can’t say that.
What are you advocating for, that we allow the Canadians who advertise in the New York Times to deduct or who advertise on nytimes.com not to deduct?
Mr. Bernhard: The latter.
Senator Plett: Would the former not do exactly the same thing? It would level the playing field either way.
Mr. Bernhard: That deduction in the New York Times is already prevented. We have in our existing law the idea that these deductions for foreign media are not beneficial to Canada’s public policy objectives. If the New York Times took all of the advertising, for example, that might suit a business that advertises in that publication but it doesn’t suit the citizens of Manitoba or anywhere else who are relying on a local newspaper to report on what’s happening at the legislature, for example. This public policy objective says we should provide some incentive to make it a little bit more affordable, relatively, to advertise in these publications.
Senator Plett: What you’re saying is correct but I really believe that the networks are, in large part, their own worst enemy. I’m from southeastern Manitoba. We have a newspaper there called The Carillon, and now we have an organization called Steinbach Online which basically does what the Carillon does, except they do it online and I go and read it online.
That’s the Carillon’s biggest enemy. It’s not any tax deductions; it’s that and the fact that because everybody is doing everything online, it’s created a laziness in journalism. If you come to our gallery this afternoon, you won’t see any media across the way; they are sitting in their offices and listening to us and then they are reporting online. I read my news on National Newswatch; I don’t buy newspapers.
I don’t think by putting in more regulations we’re going to fix any of these problems. It’s the public who is accepting something and the government shouldn’t interfere. That really wasn’t a question but please give me your comments on it.
Mr. Bernhard: First, we’re not talking about additional regulation. We’re talking about applying existing regulation to all forms of media.
Second, I would point out that La Presse, in its recent last-ditch attempt to survive, was a world leader in having digital-only products. Readership has been at an all-time high across these publications, even in digital form. The issue is they can’t make the same money off the ads in digital form because there are gatekeepers and middlemen taking a huge part of the money. Respectfully, we’re talking about an equal playing field with existing regulation. The shift to digital is not the issue; it’s the shift of the advertising money we believe is the cause of this.
[Translation]
Senator Boisvenu: First, I have a comment to make. By taxing one thing and deciding not to tax Netflix, the government may be creating a contradiction here. I am from Quebec and I have followed the digital evolution of La Presse. On one hand, today, experts state that La Presse managed its digital shift poorly with La Presse+, amongst other things.
On the other hand, in Quebec, they believe that companies are greatly behind Americans when it comes to computerization and social media. We are still working based on the conventional model. Tell me if I’m correct or not, but what you are saying today is that there needs to be more taxing, when in fact the responsibilities lie on the shoulders of the companies that are responsible for the huge delay in computerization and in the modernization of their means of communication. Apparently in Quebec, it has only been a few years since 5 per cent or 10 per cent of companies began going online.
The idea of increasing taxes to solve problems for companies that didn’t manage things properly themselves concerns me a great deal. Your approach is worrisome. When you say that La Presse is asking for a subsidy, one must remember that this company belongs to the Power Corporation, which is huge, financially speaking. Why would the government support companies that are doing very well financially? I am trying to understand your company when it states that it is up to the government, once again, to deal with this when in fact the responsibility lies more on the shoulders of companies.
Mr. Bernhard: We agree with the idea that the government subsidizing journalism directly is not ideal. We are talking about a structural solution including not only traditional media but also new participants in the digital market, such as publications. As you say, direct subsidies are very dangerous.
The donation request from La Presse is also concerning to us.
Do you have anything to add about this point?
Mr. Morrison: If you look at the publication Close the Loophole!, on page 9, you will see what happened in the past 10 years when it comes to financial support for advertising in Canada. In other words, you will see that the number of ads in publications such as La Presse and The Globe and Mail have decreased by 50 per cent compared to the number that was available in 2006. You will see that there is a trend, and the same thing goes for television and radio. And yet, this major change regarding advertising quantity on the Internet was 1,000 per cent.
Senator Boisvenu: But if you tax Canadian companies that advertise on the Internet, while foreign companies are not —
Mr. Bernhard: No, this measure would only apply to advertising posted with the help of foreign Web companies.
Senator Boisvenu: For example, would you tax a Canadian company that advertises on an American website?
Mr. Bernhard: Yes, that’s correct. This targets Canadian businesses.
Senator Boisvenu: However, since the American business that advertises in its own country is not taxed, won’t you create an imbalance in terms of competitiveness?
Mr. Morrison: There is an imbalance. I will explain it in my first language.
[English]
There’s a lack of equilibrium.
[Translation]
And so, $6.2 billion are directed to the Internet, with $5 billion leaving Canada. That is $5 billion leaving Canada, which is one third of the total budget for advertising in Canada. What we are proposing today is to prevent the removal of $5 billion from the amount that these companies must pay.
Senator Boisvenu: And yet, how to establish a consistent policy if, on the one hand, you ask the government to tax advertising outside of the country, and on the other hand, the same government does not tax Netflix, which sells a product in Canada?
Mr. Bernhard: We are talking about the same principle. We have rules and a regulatory system. The government chose to exempt a few foreign companies from our regulation. We are talking about the equal application of legislation that exists already, and there are examples of other businesses which you mentioned, such as Netflix, that exist outside of the system, that could be incorporated and regulated like every other company.
Senator Boisvenu: Thank you.
[English]
Senator Mercer: Thank you, gentlemen, for being here. As I was reading your presentation, I got the notion Canadians would be shocked that government is passing up the opportunity to collect $1.3 billion in tax revenue every year. As they filed their income taxes, I’m sure they didn’t realize the government was missing out on this opportunity.
However, I think one of the problems here is we need to simplify the answer. We need to say what we have to do. Do we have to amend the legislation, or do we just have to enforce the legislation that is in place?
I see a letter in here written by the CRA denying — I’m a little shocked they have come up with this interpretation because, to me, if it’s advertised, it’s advertising, whether it is done digitally or the old-fashioned way.
I don’t want to complicate this, but is there a simple method for the government to change how tax deductions are allowed as the technology changes? What we are seeing today is not what we will see in five years. Everything is moving so fast. If we make a change to fix this today, we’ll be back here in five years if we don’t put in some method for the government with some oversight provided in some form to fix this. Is there a way for government to fix this and allow it to be fixed in the future as the technology and market changes?
Mr. Bernhard: I will ask my colleague Peter to comment on the specifics. In terms of your general proposition that a simple framing would be helpful, I will try and provide one. We are only asking for existing law to be applied to any and all advertising irrespective of the medium of delivery. It’s not just the Internet; it’s the principle that foreign advertising should be treated the same in our law no matter the method of delivery. Peter can speak to a couple of the specific actions to further this objective.
Peter Miller, Consultant and Author, Friends of Canadian Broadcasting: As Daniel said in his opening remarks, and as we lay out in the paper, there are three approaches for accomplishing this. The first two relate to the definition of broadcasting and using the technologically neutral approach that the Broadcasting Act of 1991 has and the way the CRTC interpreted it.
To your earlier point, as authors of the study, we were very surprised to learn that CRA was relying on a 1968 definition under the Interpretation Act rather than the up-to-date 1991 Broadcasting Act definition that nevertheless was technologically neutral and has stood the test of time.
While that approach is superficially easy, it leaves vast swaths of interpretation. Is an ad on Google equivalent to broadcasting? In our paper we outline why we believe that could be deemed to be broadcasting, but that becomes a matter of interpretation.
We suggested the other approach would be to directly amend the Income Tax Act and make it clear that foreign Internet media no longer have the tax deduction.
We are not legislative drafters. We didn’t want to go further in putting those suggestions on the table. They are not difficult changes or massive rewrites to legislation. One is as simple as saying the definition of broadcasting in the Income Tax Act relates to the Broadcasting Act. The other would require changes to the Income Tax Act to define foreign media as no longer exempt from tax deduction.
Senator Mercer: The ultimate question for politicians is what it will cost the consumer, i.e. the voter. It would seem to me if there is going to be a cost to the consumer, if it will cost me more for my Netflix, will it cost me more for the Internet usage I have now? If it is, that’s a deterrent from a political point of view even if there is $1.3 billion in tax revenue to be gained. The political costs may be a little more.
Mr. Bernhard: If I could answer your question with a question. I would ask how much it costs the consumer and the taxpayer when the mayor in their town is able to spend money without scrutiny on all sorts of people and companies that are related to him or her.
The function of media, in many ways, is to keep consumer costs down by keeping government accountable for the way it spends money and makes decisions. The ability for the public purse to be exploited because of a lack of scrutiny is a much bigger expense to the consumer than the application of our rules for advertising.
Senator Mercer: I would agree with you. The costs of us not having an independent, aggressive news media is far greater than the political fallout in terms of tax increases. I’m a big supporter of this.
I’m also a victim of getting bad news reported in Atlantic Canada. Everything is centralized. As I tell people, with all due respect to my friends in New Brunswick, I don’t care about traffic problems in downtown Fredericton. Part of my television news is taken up by that because of the consolidation of the media. I hear that same complaint from people across the country. Local news that is not local is a frustration for the consumer.
Mr. Miller: Senator, your question is an important one. We are not talking about consumer taxes. The difference between this measure and the Netflix tax is there is nothing direct the consumer sees. That’s number one. Number two, if you understand media and advertisers, businesses devote a certain amount of money to advertising. They budget it; it goes to market and advertising. They are not going to increase their budgets; they will spend differently. Third, as we mention in the report, it’s quite possible, to some extent, the Googles and the Facebooks will price adjust. Their margins are immense. They have operating margins in Canada in the 60 per cent range. They could easily drop their rates if they felt that was the right competitive response. Fourth, there are many advertising choices. The Canadian advertising pie, if you add in billboards and various other things, the foreign component is about one third. In terms of the Canadian advertising pie, as big as the foreign component is, it’s still about a third of the whole pie. The market would adjust. What we as authors liked about this measure is that while you couldn’t fully predict what would happen, you knew that, on the one hand, we conservatively estimated about 10 per cent would shift to Canadian media, or it would go into government coffers. Either way it’s a win-win. I would submit, from a political point of view, it’s a far easier thing to do because there is not a direct consumer ramification.
Senator Mercer: You need to fashion those recommendations in a way that does not make politicians nervous and that it becomes understood this may not be a cost passed along to the consumer as I pay my Netflix bill that I don’t see it reflected in that because of the government picking up on that $1.3 billion dollars.
[Translation]
Senator Gagné: Welcome, and thank you for your presentation this morning.
I am a Franco-Manitoban and I made a career for myself in education and community development. It is clear that to ensure a community’s development, it must be able to read, to see and to hear itself.
Two days ago, the weekly La Liberté, in Manitoba, celebrated its one hundred and fifth anniversary. It publishes a print version, but it really struggled to make the shift to digital. I also wanted to mention that when it comes to communities outside of Quebec, it is evident that organizations such as Radio-Canada and local newspapers are extremely important to their development.
In your report, you say that for 2017, up to $5 billion of advertising expenditures would no longer be deductible. From the point of view of corporate income taxes, this represents a potential gain of $1.3 billion. Where does this $5 billion go? Does most of this money get shared between Facebook, YouTube and Google? Do small websites manage to benefit from this money? What does this mean exactly?
Mr. Bernhard: Google and YouTube, which are part of the same company, and Facebook, take the vast majority, which is two thirds. The other small sites each receive a little piece, a small percentage. The main beneficiaries of this subsidy are Google, Facebook and large American tech companies.
Senator Gagné: Okay.
I have a question that may not be related to the proposed legislative changes. What is the amount that the federal government is spending to buy online advertising and what percentage of these expenditures go to Google, Facebook and YouTube?
Mr. Bernhard: I am not aware of specific expenditures.
Mr. Morrison: We say that the federal government really likes to use large digital companies to broadcast its announcements.
Senator Gagné: We do not necessarily have statistics on this aspect. Should we also review the federal government’s practices when it comes to online advertising?
The federal government purchases many advertising spots and is one of the country’s largest broadcasters of announcements. It does not pay corporate tax, of course, but one thing that it can control is the destination of advertising. It has competing responsibilities in that it must support our media and journalism in Canada, and also communicate important messages to Canadians.
Mr. Bernhard: I wouldn’t dare to propose that the government change all the ads to choose Canadian broadcasters, but it is an element that it can change, for example, by increasing the portion directed toward Canadian journalism.
Senator Gagné: Thank you.
[English]
The Chair: Why don’t they do this now? They don’t pay tax.
Mr. Bernhard: It’s a good question. As I was saying, there is a competing responsibility, obviously, between the government’s desire to reach the public and to support Canadian media. We don’t believe the government should use its advertising budget as a method of subsidizing the industry. We recognize there are competing objectives.
Just as we said with corporations, we recognize the products sold by Google and Facebook, for example, do provide value to advertisers. That’s why we are not suggesting these products be banned, singled out, taxed punitively or anything of that nature. We also are not projecting that closing this loophole will end advertising with Google and Facebook. Quite the contrary. We are saying that less than 10 per cent of that money will be repatriated as a result of the speed bump; the rest will be used there.
We are not trying to question the efficacy of these products for businesses and advertisers, including the government. We are saying our law has long recognized a public policy objective in making sure there is scrutiny on government and there is Canadian storytelling that exists in small and medium markets. As we are seeing in La Presse, even in some larger markets, publications are struggling to survive.
It is about that counterbalancing objective. The economies of scale and the differences of economies of scale between Canadian and American media have existed for a long time. This isn’t a new issue. The only issue is we have failed to incorporate this new entry into the media market. The differential we’re talking about should not exist and part of the reason the conversation is difficult is because we are playing catch up with a regulation that was too precisely worded and not modified over many years.
Senator Bovey: Thank you very much for this. I appreciate where you’re coming from and the need of the work. I’m going to build on the conversation my colleague Senator Gagné started.
You mentioned in your words the unpredictability of funding for Canada’s not-for-profits. As one who spent her career in the arts I can tell you I lived that unpredictability for many decades.
In my experience, it’s the local press, printed and otherwise, that have brought the work of our artists and our arts organizations to our local audiences to allow that engagement which is so critically important.
You also mentioned in the last decade we have lost 16,000 journalists. I don’t think I’m wrong, but correct me if I am, that many of our senior journalists in fact got their beginnings in local newspapers and local media. In my research I found that attendance in our journalism programs has gone down. I got back from the U.K. last night, and as I take a look at my concern of the quality of journalism, I have to tell you some of these arguments are there too, although the quality of journalism is certainly very high.
First, how can we be assured in closing this loophole that the monies will go to strengthening journalism and encouraging young journalists to enter the field and give them the opportunity for them to grow as our generation had?
Second, I really do appreciate that you are essentially seeking the update of the definition of broadcasting and I agree with that.
Are you sure in the definition you’re bringing forward that you’re taking into account the technological changes that will happen in the field in the coming decade so that it’s a forward-looking definition and not just saying, “Let’s keep what was in 1991 and not keep what was in 1968?”
I’m really concerned about going forward. I’m concerned about making sure our citizens get the news. Yes, we have our own stories and I agree credible journalism is critical for democracy.
Mr. Miller: We recognize there are many different interests to be balanced and so in the paper, just for instance, we referred to how, back in 1996, the government disallowed entertainment expenses as deductible and changed it to 50 per cent deductibility. To us, as authors, that was an interesting precedent of how government wanted to shift behaviour. It didn’t stop people from having entertainment expenses but it changed behaviour to some degree and brought money into the general tax base.
Updating the definition of broadcasting is admittedly the simplest thing, because it’s a one-word change. But it’s not necessarily ideal because, among other things, as we know, the Government of Canada has decided to review the Broadcasting Act and the Telecommunications Act and we don’t know where that will go.
That’s why we also put on the table the option in the Income Tax Act of explicitly denying tax deductibility for foreign Internet services. We didn’t draft the wording but didn’t see that as difficult to do. That would be quite technologically neutral because you are not defining what kind of service it is; you are saying if it is a foreign-based, foreign-owned Internet service, it no longer has the tax deductibility.
Mr. Bernhard: On the other question of how we can be assured that money would stay in Canada, I think the projection we are making here is fairly conservative. I would like to draw a comparison between the $400 to $450 million we are anticipating would stay in Canada and be repatriated. That’s less than 10 per cent of the total amount being spent on foreign digital advertising. It’s a very conservative estimation. Compare that to the $10 million a year the federal government is proposing in its community journalism fund.
Even if we are wrong by 50 per cent or 70 per cent and we are way off — and I don’t think we are — we would still be talking about much larger sums than the government is willing and able to put forward.
Also, we’re talking about doing this in a way where the businesses can decide if they want to pay the tax or not, and many would prefer to advertise in Canada. The ethical pitfalls of the government choosing where the subsidy goes, I think, are avoided.
We can’t be assured; we don’t know what the major American Internet advertising companies will do with pricing, for example, to try to respond to this. We can’t predict what the market will do. That’s why it’s a market-based response. It just establishes that the existing precedent can apply to all media and not just be exempt because you happen to watch your TV on YouTube instead of through your cable package. Why should these be treated any differently? It’s the same program you’re watching on the same device. We’re talking about parity across the law.
Mr. Morrison: I’d like to pick up on Senator Bovey’s question. I’m restating your question to see if I got it right. Suppose theToronto Star or La Liberté, any publication, happened to start getting more advertising revenue. Is there any assurance they would use it to hire young journalists? No, there isn’t, but we have to trust them a little bit. They’re starving. They’re laying people off. They’re doing things because they’re running out of money. If a certain amount of new money, in this case in the range of $400 million, were sprinkled through the entire advertising ecosystem of this country a couple of years from now because of an action of the government closing this loophole, a good share of it is going to be spent on expert, human journalistic labour. We’d be turning the tide.
Mr. Bernhard: That journalism is also one of their main money makers, these types of investigations, for example. As I said previously, readership is at an all-time high. They’re just not able to monetize that because, often, the advertising is siphoned off by middlemen. The desire of Canadian publications to invest in journalism is proven. There’s a track record, and it’s in their financial interest to do so. It’s about making sure they are able to do so by having this parity across the law.
Senator Bovey: My concern is what is not now being covered that used to be covered. Yes, the readership is up. I think the diversity of opinion and the diversity of subject matter covered is down. That’s what concerns me.
Mr. Bernhard: Yes.
The Chair: As a Conservative, I totally agree with you on that point.
Senator Galvez: Thank you very much. This is an important and interesting conversation. One of the sectors that has been disrupted massively by new media outlets is journalism and the written press. I agree with some of my colleagues: some of the fault is on the press side because good news is bad news. Scandals and paparazzi sells a lot, and there is a loss of reputation that comes from the newspapers themselves.
I think we are mixing things here. The reason is because — I hear people who are for and people who are against — we are putting in the same bag advertisement and content. Advertisements mean you want to sell things, products, services, whatever. You are putting content on the same level, which is the local content, the important content, asking accountability of the mayors and the politicians. We are putting these two things in the same balance, in the same scale, and I think we shouldn’t.
For me, it’s very clear. These three propositions are very simple, very straightforward and very direct. We should support them. I think we are not seeing how this is going to have the impact that we all want, which is to have this good content, local content, important content. This is one question.
My other questions is: Why can the people who are producing the content not be paid for the content? How does this content get sold through media without paying for the journalist who goes there and conducts the interview? Why is he not getting paid by that?
Mr. Bernhard: I think the idea the market is responding to content it doesn’t like is one we can kind of debate. Like I said, I think readership is very solid; News Media Canada’s evidence shows readership is very solid. On the other hand, part of what’s good about this solution is if Canadian businesses decided, as a result of this loophole being closed, they wanted to spend more of their advertising expenditures in Canada, there’d be no one telling them who to spend it on. We’re not saying, “You have to spend it on this newspaper or that newspaper or this website or that website or even one that exists now.” This could make room for new entrants. The money will flow. It could flow to new players. We would welcome that. We have no position on which publications it should support. That’s the first thing.
The second thing is: There is monetization of this ad money. Google and Facebook are ad companies. As the founder of Facebook, Mr. Zuckerberg, said, somewhat demeaningly, to the senators in the United States, “We sell ads.” That’s what they do. There are people who are making money off Internet ads surrounding this exact content. It just so happens the people who are making that money are not the people who produce the content. There’s a free-ride situation happening here we are allowing. It’s a dynamic of this business model, to some degree. It’s also a dynamic our Canadian tax policy is encouraging.
Senator Galvez: Senator Boisvenu commented about the lag there seems to be in the speed at which our journals and newspapers are progressing. We are lagging behind. I wonder why you go to China, and they don’t have Facebook. They have their own thing. They don’t have Amazon. They have their own thing. Why don’t we have our own thing?
Mr. Morrison: The executive director looked at me. I assume that means he wanted me to say something, and I will. China is the exception, not Canada. China is a totalitarian state that very much controls media. It has no public broadcaster. It has only state broadcasters right across the board. But, as you will see from the coverage of the misdeeds of Facebook that have been much in the news in the last few months, it’s coming up on every continent on the planet. It’s an international thing. China and a few other totalitarian entities — North Korea, I’m sure — do not permit these foreign entities. We have been, for a long time, a very open country concerning the arrival of foreign media. The statistics published in this book show that advertising is the biggest financing mechanism for media. We have gone from something like 5 per cent for leakage of our advertising outside the country to 35 per cent in just 12 years. That’s the essence of problem.
Senator Galvez: I understand. I used China because I wanted to show that we are here, and they are there. You go to Europe, and they are here.
Mr. Morrison: The Europeans are very — Daniel, tell your anecdote. You were there.
Mr. Bernhard: I was. The Europeans are definitely ahead of us in dealing with issues of data protection, but also ensuring local content is available on video streaming services, like Netflix, for example, that would approximate our existing Canadian content regulations. They’re definitely ahead of us. I think the principle you’re trying to point out is: Why are we so concerned about protecting the revenues of these companies, as opposed to trying to stand up for a Canadian alternative? This law, section 19, has always existed to try to create a material incentive for Canadian alternatives to proliferate and exist. For 50 years, it was quite successful in the realm of Canadian media.
In general, this also goes to the point of how we are looking at our tech sector. Are we just trying to invite foreign multinationals to set up campuses here? Would we want our own tech sector that could benefit from this revenue. Right now we are providing $1.3 billion in tax subsidies to Google and Facebook, our tech sector’s biggest competitors because we refuse to classify their ads as ads under our law. In its spirit, your question is a very valid one. I thank you for putting it to us.
Senator Dawson: I have no problem with helping you close the loophole, but the big picture is more global in the sense that there are other issues. I hope we are going to be studying, later on in the year, the bigger picture, but perhaps there is a way we can help you. There are distinctions we have to make between rural Canada and urban Canada. Montreal, Toronto and Vancouver have a lot of competition in the news media and if you’re a mayor in those cities, they’re watching you.
Looking at it globally, there’s one big distinction between urban and rural. Then there is Quebec. We produce 80 per cent of what we consume in television. The 30 top shows in Quebec are all Quebec shows. There might be an exception. In English Canada, except for “Big Brother Canada,” which is a pale copy of “Big Brother” in the U.S., and “CTV News” and “Hockey Night in Canada,” which used to be on the top and now it’s nearly on the bottom. It is a different world. I didn’t find anything in the report that addresses that distinction. Yes, it’s an artificial protection because of language, but it’s there. We are consuming our products because our products look like us.
[Translation]
We do not consume Canadian and Québécois products simply because we are unable to speak English. The television series “Le temps d’une paix” is a show in which people recognize themselves. If we look at the overall situation, by addressing the loopholes, we will improve our image.
[English]
I don’t want to be left behind because we’re not the biggest threat. We have a bigger problem withLa Presse becoming a charity case. I think they’re declaring themselves non-profit and I probably believe they haven’t been making profit for many years. They don’t have to declare themselves non-profit, they were obviously being subsidized by the Desmarais family. I don’t want to turn around and think the government is subsidizing them unless there’s a big arm’s length distance. We have it with the small newspapers in Sherbrooke and Quebec City and Lac-Saint-Jean. The Desmarais family stopped funding those newspapers and they’re now eligible for subsidies from the Quebec government.
There’s a distinction there I don’t see in the proposal. Don’t get me wrong, it’s not because I don’t agree with your Close the Loophole! report. The big picture deserves to be addressed on the issue. Everything else will come later. However, I would like you to comment on the distinction with Quebec.
Mr. Miller: As you know, consumption of American media in Quebec is much lower than in the rest of Canada. However, while we didn’t look at it specifically, our understanding is Facebook and Google advertising is still a fairly significant share of the Quebec advertising marketplace but not as high as in English Canada. It would be a benefit to French-language media.
You raise a valid point. Are there other things that need to be looked at? Absolutely. We’re not suggesting, as authors, this is the only possible solution. We happen to think it was the one that hasn’t been paid attention to and we wanted to shine a light on it because we think in a way it’s low-hanging fruit.
With regard to the distinctions you speak of, the good news, as you know, in some respects broadcasting in Quebec has not been as affected by the Internet as much as it has in English Canada. That’s now changing. There is RNC media and various smaller players in the Quebec marketplace that are looking at the viability of their stations. It’s a broader problem. I acknowledge that.
Mr. Bernhard: At our report release on April 24, Colette Brin came in and spoke to the situation in Quebec. She was saying more than 70 media outlets in Quebec have closed their doors in recent years and that’s continuing. I should say it’s not just English and French. I was meeting recently with a group of Pakistani Urdu language media professionals in the Toronto area. They were saying that Canadian banks, for example, are advertising through Google to reach Urdu speakers and those ads end up on websites from Pakistan that some people are reading when they want news from home. There is a thriving local media sector in Urdu but also in English about Pakistani issues; for example, 1 in 4 people in the greater Toronto area is South Asian. It crosses the language divide and stifles the development of new entrants into the Canadian market.
Senator Dawson: I’m certainly for a Netflix tax, but only as long as the money collected is sent to Canadian productions to encourage Canadian producers. People will be paying the tax, not Netflix. I want that money to be used to help support production.
Mr. Bernhard: To be clear, this is a related issue to the Netflix question in principle but it’s not the same. Closing this loophole would not affect Netflix at all. It would affect Google, Facebook and the ad placements. The principle of making sure our existing rules, for example, rules that apply to broadcasters, also apply to Internet broadcasters like Netflix, is the same principle of equal application. What we’re specifically talking about here would have no bearing on taxes paid by consumers of Netflix or Netflix itself.
Mr. Morrison: One difference we track between the French-language and English-language media in this country or, effectively Quebec media, is the huge concentration of ownership on the audiovisual side and it does affect a lot of things. There aren’t that many places where you can place advertising. If CBC, for example, were to withdraw from advertising it would create a virtual monopoly.
My second comment is in relation to a senior person in Mr. Morneau’s office, and I won’t name him. I was chatting with him a few months ago. He said presumably, if we got this $700 million, $800 million more revenue, the other 40 per cent would be spread amongst the provinces, of course. Presumably we would want to keep this money to be spent for cultural reinforcement. I’m not naming him because I think that’s not the general line out of the Department of Finance. If that were to happen, if there was a fund in the Canadian government that drew from this new found revenue to reinforce what you’re talking about, that would be good public policy.
The Chair: Why would that be good public policy? Now we’re talking about having the deduction money that would be raised going to a fund that the government would distribute? To whom?
Mr. Bernhard: I think what Ian is referring to is the availability of this money can allow the government to pursue any number of related objectives, not to put into a fund as a pot to be distributed around, but could do things like help with broadband access in small, rural communities to help people consume the media, or supports for people who are studying journalism.
The Chair: Or reduce the deficit.
Mr. Bernhard: Or reduce the deficit.
The Chair: That would be a good start.
Mr. Bernhard: There are a number of different options.
Senator Manning: Welcome to our guests. This is an interesting discussion, for sure. I have watched over the last decade a somewhat disturbing change in media outlets across the country, especially in my home province of Newfoundland and Labrador. Just as a note, when I was growing up we only had one channel, and that was CBC in a small, rural community and in many ways it was our window to the world. Some of my colleagues may not agree with me on that.
SaltWire Network is involved in a project in Newfoundland and Labrador now and, from what I understand, across Atlantic Canada. For those who may not know, SaltWire Network owns 27 Atlantic Canadian news brands, including those in Newfoundland and Labrador. They are the largest independently owned media company in the country.
The CEO, Mark Lever, said it’s time to reconnect with the communities they’re in. I’m hoping their Open Up project, which is basically going out talking to people. They had a meeting last week where 100 people just showed up to talk about different ways of delivering media. The local content is the big concern. We’re losing more and more local content. We’re learning a lot about other places and not ourselves.
My question has to do with the fact that — I don’t understand, maybe someone is clear — the potential tax gain of $1.3 billion, why wouldn’t we want to do that and who or where are the obstacles to making that happen?
Mr. Bernhard: That’s a good question. I think there are a lot of people who politically, as was mentioned earlier, might be concerned about something that looks like an increase in taxes.
I know the current government has had some challenges in its early tenure around proposals to amend the way small businesses are treated for tax purposes. I think that’s one concern.
The other, I think, is 40 per cent of that money would flow to the provinces. We’ve sent letters to the premiers to this effect. Those voices are not necessarily being heard in the federal discussion and that makes a large proportion of the available revenue.
It’s a difficult issue. We’ve often, for our entire history, recognized for Canada to be a distinct country we can’t just be entirely open to everything that comes from the United States. They’re just so much bigger.
We’ve had regulations like section 19 that have worked and established the balance and businesses have succeeded under these rules for many, many years.
Because we have fallen behind, we now have this price differential and we’re talking about reducing it. That, I think, makes the politics more difficult but it doesn’t mean that we should just let this disparity persist.
I’m not sure if that speaks directly to your question. I can’t get inside the mind of the Minister of Finance, as much as I would love to be able get in there and whisper these recommendations. I think some of those things are potential barriers to adoption.
Mr. Morrison: Senator, it could be a role for this committee to elicit from appropriate spokespeople for departments of the federal government the rationale for doing nothing, because it has not been articulated to us in any satisfactory manner.
The Chair: You should talk to Mr. Morrison, because it seems he has a pipeline right to a senior person in Morneau’s office.
Mr. Bernhard: I talk to him several times a day.
The Chair: He hasn’t told you about that until today.
Go ahead, Senator Manning. Sorry.
Senator Manning: Sixty per cent of $1.3 billion is still an incredible amount of money.
Mr. Bernhard: For the federal government.
Senator Manning: In your discussions, is there opposition? Who do you hear opposition from? You’re here making the case for this to happen. Is there somebody else making the case to government for it not to happen? That’s what I’m trying to determine.
You usually have two sides to every story. In this case we might have 10. I’m just trying to find out where is the opposition coming from or is it just the fact that people see it as a new tax? Or is there someone making the case for it not to happen that you’re aware of?
Mr. Miller: Senator, I can make two observations.
While this is tax policy, it’s viewed through the prism of cultural policy. It’s one of those files that doesn’t have, in a sense, a single home. While Finance and the CRA are responsible for the administration, typically it would be Canadian Heritage that might have carriage of the file because it’s cultural policy.
We happen to think from a policy development point of view, it simply fell through the cracks. For whatever reason, we are aware of no examination of this issue from the federal government.
In terms of opposition, the opposition first and foremost will come from the Googles and the Facebooks. Absolutely. They will oppose. I’m sure they have already.
Secondly, it would be advertisers either through business groups, like the Business Council of Canada, or advertiser groups will oppose because they see it as a loss of deduction for advertisers.
Mr. Bernhard: I would also note that that opposition has political implications. The house ethics committee recently was trying to interrogate relationships, for example, between Google, Facebook and the government and whether or not regulation is impeded as a result of expediency of personal relationships.
Google was the number one lobbyist in the United States last year, more than the pharmaceutical companies, the defence companies, the large agribusiness companies. By dollar amount, the number one lobbyist. There are a lot of politics involved. I don’t think that should be forgotten in this discussion.
Senator Manning: Thank you.
Senator MacDonald: The growth of digital advertising over the past 25 years has not been confined only to Canada. This is a universal phenomenon.
I’m just curious. I’m trying to keep an open mind on this. I would assume other countries are facing the same set of circumstances.
Have other countries — if there are other countries, I would like you to name them, show me who they are, explain it to us — taken measures to reduce the percentage of Internet advertising being eligible for tax deductions and what was the result?
Mr. Miller: I’m not aware of any other countries that have done this. Canada, as you know, was always quite unique in being proactive in terms of shoring up and supporting domestic content and the media industry.
The reason, again, we were attracted to this is not the international precedent but the Canadian precedent. It’s a logical extension of what we did in the 1950s and 1960s.
Mr. Bernhard: To reinforce Peter’s point, we’re not talking about a new provision; we’re talking about applying a provision that’s been on the books for years and years and just treating it equally. That’s the first thing.
There are other countries taking measures to get rid of the sort of free ridership to allow some of these media companies to boost their profits.
Germany, for example, is holding Facebook responsible — actually, all social media networks with more than 2 million users in the country — for obvious hate speech, for example, published on their platform and not allowing them to say, “We had nothing to do with that, that wasn’t our choice.”
There are other regulations in data protection, for example, now requiring these companies to tell you why they showed you these things. Basically to explain their roles as editor and curator so they can be held responsible for some of those decisions.
There are other ways in which our peers in the developed world are recognizing these companies are not as different as they might claim to be. They act as publishers in the same way other publishers have acted and they are bringing them into the regulatory system.
In that sense, Canada is actually quite behind the curve. Australia, New Zealand, all of these countries are trying to create some parity between these different forms of media. In that sense we would be no different.
Mr. Morrison: Senator, just to go back to your root question, we are aware of no other countries that have an equivalent to section 19 in their form of what we call the Income Tax Act.
In other words, it was developed out of unique Canadian proximity to the American market and the dumping of journalistic content into the Canadian market five or six decades ago.
That might be something through your connection with the Library of Parliament you could investigate, the multicountry approach to this issue.
Senator MacDonald: One more question?
The Chair: Yes.
Senator Manning: I believe the reason advertising is down in Canadian publications and up online is because people who want to market their products choose to do it digitally because they’re trying to increase their market share.
If we would take away their tax deduction, their tax avoidance, wouldn’t it just make it more expensive for Canadians to advertise and for Canadian companies to compete?
Mr. Bernhard: It’s a very good question.
The answer, I think, is difficult to predict.
Like I said earlier, it’s impossible to know whether Google, Facebook and some of these other large, foreign advertising companies would reduce prices, for example, to adjust for this. As Peter said, their margins in Canada are north of 60 per cent. There’s room to do that. The businesses would continue to advertise and they could continue to advertise digitally, as well, but with Canadian publications if they would like to take advantage of the full deduction.
I’m sure all of you read newspapers from your home cities, provinces and regions. You were here this morning so you probably didn’t get it delivered in hard copy. You read it digitally and that would be great. Advertisements placed with those publications in a digital form would continue to be deductible and would therefore be more beneficial, relatively speaking, for Canadian businesses to pursue.
There’s this artificial price differential created by the failure to apply the existing law to this technology. We’re talking about eliminating that differential by catching up and making digital advertising with Canadian publications more advantageous and beneficial for reaching the Canadian public who, like you and me, are already reading it in a digital format. It’s just they’re not able to get paid for it because of the way the middleman is treated.
The Chair: If you could maybe enlighten me a little, Google is a search engine and so obviously people use it to access NBC, CBS, Fox, the New York Times and the National Post. Where does Google get its news? Does it not get it from other news media organizations?
Mr. Bernhard: Do you mean where it gets the content that it —
The Chair: Where does it get its own content, which they call Google news?
Mr. Bernhard: The Google news feed, for example? It’s from the journalistic organizations like the Globe and Mail.
The Chair: Don’t they have to pay for it?
Mr. Bernhard: No.
The Chair: Does the Globe and Mail let them take their copyrighted material, broadcast and charge advertising for it?
Mr. Bernhard: There’s free content available all over the Internet and newspapers, historically, were basically free. What you used to pay in subscription or for a single issue barely covered the cost of distribution. The advertising revenue was by far the largest share. A free content model supported by advertising has existed for a long, long time.
As you said, there are now key gatekeepers or intermediaries who are facilitating access to this content and they are now able to take the lion’s share of the advertising revenue because they are the focal or the entry point without providing any of the public value of creating content on its own.
Previously, when you picked up the Toronto Star or La Presse or whatever newspaper you were reading, you wouldn’t really be paying for it. The revenue for the publisher wouldn’t really come from what you paid, it was because you were viewing. Facebook and Google work the same way except those publishers actually paid for journalism you were reading and the money went back to them directly.
Now there’s this middle man who doesn’t have to pay for anything but gets all the benefit because they happen to be the aggregator. If you’re interested in a company that provides the value in the marketplace being compensated for the value, which is typically how the principle of supply and demand works, we should be alarmed by the fact there’s a free rider tier who does provide some value and should be compensated for it, but is likely getting a much, much larger slice of the pie on the back of work that other people have produced. That’s what we’re talking about.
The Chair: Facebook is the same, right?
Mr. Bernhard: Yes.
The Chair: They get free content and then sell advertising for that free content. That seems almost illegal. Shouldn’t the publications be taking legal action to protect their content?
Mr. Bernhard: Peter may have something to add.
The Chair: If I’m Rex Murphy, I’m writing a column and Facebook is selling that column to get advertising, isn’t that an infringement of copyright? Isn’t that a civil problem of some kind? I’m trying to understand this.
Mr. Miller: It’s a very good question. Copyright is a creature of statute. The way we structured copyright law, for example, if you put a song out there and someone plays or reproduces it, there’s a copyright royalty that goes back to the record label and the artist, but we haven’t done that in print. It’s the way we’ve designed it.
You have a right to a pay wall and if you put a pay wall around it, you can prevent someone from accessing it. As you know, in theGlobe and Mail, some stories are now free online but for some you have to be a subscriber. You can do that. Once you’ve set it free you have no further ability to get compensation and technically that’s because the search engine ads are not in the content. They’re allowing people to get to it.
The Chair: It’s like a radio station. They play music and the artists and record companies say, “You have to pay us or you can’t play that music.”
Mr. Bernhard: The power relationship between The Tragically Hip or Arcade Fire and one community radio station is more balanced than the relationship between Le Devoir or a paper from Lloydminster and Facebook.
The local radio station can’t survive without the number one hits of the day because that’s their audience. Facebook would probably be fine without a local newspaper, like the StarPhoenix, for example, from Saskatoon. The power differential is huge. These guys are effectively a monopoly, which is different than the dynamic of companies interacting with a commercial radio station, to use your example.
Our policy is encouraging that monopoly to proliferate because we have these existing rules meant to try and compensate for these differences of economies of scale that are not being applied in this circumstance where the difference of the economy of scale is way bigger.
I think your point is exactly the point. It’s that the companies themselves are not in a position to be able to stand up and make claims. The market on its own is so unbalanced in favour of one or two basically monopoly players that individual content providers, especially small content providers like the Star Phoenix, are not able to do it.
That’s why we’re talking about a structural solution that doesn’t say, “Stop advertising on Facebook.” It just says, “Let those ads be treated like all other ads because we’ve recognized that advances public policy objectives,” such as having the StarPhoenix being around. It changes the dynamic so that an advertiser in Saskatoon can say, “If I want to reach my audience, maybe I should put it in the StarPhoenix instead of in a Google ad which will appear who knows where because the price is now actually a lot closer and I can have the same effect.” What we’re talking about is levelling the playing field because right now the bargaining power just doesn’t exist.
The Chair: I would like to explore that.
Mr. Morrison: You used the criminal metaphor just a while ago. Another metaphor might be the biological metaphor of the parasite. That’s what it is.
The Chair: That’s what it is, I think. Here you have these writers who are creating news and publishing it in newspapers where they get their salaries from, and other people are taking that news and obviously using it as an incentive for people to use Facebook so they can sell ads. I think it’s a terrible policy. Maybe we can explore that a little further.
Thank you very much, senators. This has been a good meeting. We’re going to follow up tomorrow to finalize our future witnesses on this matter. It won’t be a long meeting. I’m sure you’re all happy about that. This has been a very interesting discussion. I’m going to look forward to where it’s going to end up.
(The committee adjourned.)