THE STANDING SENATE COMMITTEE ON TRANSPORT AND COMMUNICATIONS
EVIDENCE
OTTAWA, Tuesday, June 5, 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; and, in camera, for the consideration of a draft agenda (future business).
Senator David Tkachuk (Chair) in the chair.
[English]
The Chair: Before I introduce the witnesses, please note that tomorrow evening’s meeting is being postponed until next Tuesday when we have asked other witnesses to appear. We won’t have an in camera today. We’ll do it next Tuesday, if we can. That will get us out of here a little earlier.
We have to extend our general order of reference on transport until probably December of this coming year. This is not the study, but the general order of reference for transport. I’ll get that done hopefully this week on Thursday or Friday. If not, it will be on Monday of next week.
I welcome our witnesses. We have John Hinds, President and Chief Executive Officer, News Media Canada; Carol Ann Pilon, Executive Director, Alliance des producteurs francophones du Canada; Barry Rooke, Executive Director, National Campus and Community Radio Association Inc.; and Matt Thompson, Director on the Board of Directors, and Peter Miller, Consultant, Canadian Association of Broadcasters.
Thank you for attending our meeting.
[Translation]
Carol Ann Pilon, Executive Director, Alliance des producteurs francophones du Canada: Good morning, honourable senators. I'd like to begin by thanking the members of the committee for the opportunity to speak with you today and contribute to your study on the tax deductibility of foreign Internet advertising.
My name is Carol Ann Pilon, and I am the executive director of the Alliance des producteurs francophones du Canada, or APFC for short. We represent independent francophone producers in official language minority communities. As the voice of Canada's French-language television, digital media, and film industry since 1999, the APFC brings together the vast majority of independent francophone production companies spanning the country from east to west.
The APFC regularly takes part in Government of Canada consultations, thus ensuring that the voices of independent francophone producers in the regions are heard so that Canadian cultural policy reflects the issues, rights and aspirations that matter to francophone minority communities.
The producers the APFC represents understand the issues facing francophone minority communities because they live them every single day and, as such, their first-hand accounts are as credible as any can be. Their stories are rich, captivating, and distinct from those of the majority because they are marked by the place where they live. Right across the country, our producers create content that no other Canadian producer can. Not only do they contribute to the diversity of Canadian content, but they also help to keep artists, creators, and craftspeople in their communities, even attracting talent from elsewhere. These producers give their communities a voice by holding up a mirror in which community members can see themselves in today's audiovisual landscape. Complex and oversaturated, that landscape is becoming increasingly cookie-cutter, ironically enough. Our producers provide a window into each of their communities to the benefit of fellow community members in other regions. They make an important contribution to the diversity of the content we see on our screens, helping to curb the assimilation of young francophones despite the dominating presence of anglophone culture in digital media.
In short, francophone producers who live in official language minority communities depict the reality of those communities and play a vital role in shaping our shared national identity.
The APFC's members understand the full extent of the challenges Canada's broadcasting system now faces with the advent of digital content. Exposed to more and more foreign content, official language minority communities are experiencing first-hand the pressures Canada's language and culture have come under. Our communities are minorities vis-à-vis, not just one, but two groups: the surrounding English-speaking majority and Quebec's francophone population, whose reality is entirely different.
The question that needs to be answered is not how do we adapt Canada's broadcasting and media industry to the new competitive environment brought on by foreign companies. Rather, it is how do we adapt Canadian public policy and legislation to ensure these new players contribute their fair share to the funding, production and distribution of national content.
That is why we endorse the recommendation put forward by the FRIENDS of Canadian Broadcasting calling for the review of the exemption available to foreign technology companies under section 19 of the Income Tax Act.
As the group indicates in its report entitled “Close the Loophole! The Deductibility of Foreign Internet Advertising”, the provisions on the deductibility of advertising expenses were created with a view to protecting and advancing Canada's economic, cultural, and democratic interests. That objective is now more important than ever.
The Canada Media Fund contributions of Canadian broadcasting distribution undertakings are declining in correlation with shrinking subscription bases. With advertisers flocking to the Internet, Canada's broadcasters have watched their profit margins stagnate or drop, like their advertising revenues. Google and Facebook have three quarters of Canada's online advertising market, according to the Interactive Advertising Bureau of Canada. This drop in ad revenue directly and negatively impacts investment in Canadian production, especially since the bulk of broadcasters are required, under their licences, to invest a certain portion of their revenues in Canadian programming.
Through tax policy, a government determines how to collect the revenues that will fund its expenditures. Those revenues can be redirected to certain segments of the population or types of organizations in order to offset or reduce inequalities inherent to the market economy.
What democratic governments aim for is effective and easy-to-administer tax policy that is also neutral and fair. Technological change and globalization have created an imbalance by making it much easier for those in the digital sector, in particular, to avoid paying taxes. As a result, tax policy becomes less neutral.
In its report on the future of programming distribution in Canada, which came out Thursday of last week, the CRTC recognizes the need for all industry players, including digital platforms, to contribute to the funding and promotion of Canadian content. According to the report, Canada's legislative and regulatory approach is out of step with technological and socio-cultural realities.
The APFC is of the view that the programming future of official language minority communities is directly dependent on modernized legislation and policies that ensure fair tax treatment for Canadian and foreign companies from the moment they begin doing business with Canadian consumers.
I would like to thank the committee for listening to what I have to say, and I would be happy to answer any questions you have.
[English]
John Hinds, President and Chief Executive Officer, News Media Canada: Thank you for holding these hearings today.
[Translation]
My name is John Hinds, and I am the President and CEO of News Media Canada.
[English]
We are the industry association of the newspaper and news media industry and represent over 700 daily, weekly and community newspapers from coast to coast to coast.
Our members publish in English and French. We have some members who now publish digitally only and others who have only print publications, but the majority are now providing information to readers on various platforms.
You will not be surprised to hear that the industry has been disrupted by the digital revolution and that we face a challenging future.
For decades, the business model of news was a fairly simple one, with print advertising, both local and national, paying for news creation. Many of the costs of the traditional newspaper were the printing and transporting of that physical newspaper to the reader.
Recently the model changed. Print advertising has moved online, with digital advertising now the largest advertising category in Canada. Most of those digital dollars have moved over from print products.
Since 2008, newspaper advertising revenue has dropped from $3.9 billion to $2.1 billion. This is a 45 per cent decline. Advertising revenues for the Internet have gone from $1.6 billion to $5.5 billion over the same period. That is an increase of 241 per cent.
Newspapers have responded by also moving online, but as you likely know the big attraction of Internet advertising is that it’s cheap. As the saying goes, digital dollars are replaced with Internet cents.
One of the challenges of the industry is that newspapers have been forced to invest heavily in new digital businesses, at the same time as their core revenue source of print advertising is dropping dramatically. The one challenge newspapers in Canada do not have, however, is readers. In fact, readership has actually been growing, with 88 per cent of Canadians now reading newspapers weekly in some form. Almost six in ten are reading print and one in four Canadians are reading across three or more platforms.
Good journalism, however, isn’t cheap. Canada’s newspapers employ almost two-thirds of the working journalists in the country. I believe we can continue to produce the journalism that Canadians expect. The most important aspect is the investigative and public interest journalism that informs Canadians about their communities and holds government and public institutions accountable.
The actual annual cost of running a newsroom in a daily newspaper in a smaller Canadian city is about $1 million to $2.5 million; in larger centres, about $5 million to $7 million; and in Canada’s largest city, the cost can be $10 million to $35 million.
As you know, there have been some casualties in this transition. We’ve seen many newsrooms close or merge, and many newsrooms shrink. We estimate that over the past 10 years we’ve lost over 16,500 journalists. While there have been some high profile closures recently, such as Orillia, there have been many that have not made the headlines yet remain important to their communities.
For example, we have lost over 20 per cent of the newspapers in Saskatchewan over the past two years, which brings me to the issue of section 19. In the media world, section 19 was part of a regulatory framework that underpins strong local voices in Canadian communities. It was a recognition of the then marketplace, which was that local advertising created local content, the proverbial circular economy.
Local and national ad dollars were spent in local media, which allowed those media to invest in strong local content, which was consumed by the community. The government supported this by allowing local ad spending to be a deductible expense.
That cycle is now broken. There are now fewer and fewere local ad dollars spent locally to support local media, and in every community in Canada those ad dollars are being sent offshore. The result is a reduced capacity to make investment in local content, yet the current enforcement regime allows online advisers to deduct the expense as if they were supporting the creation of local content. That’s why we need the government to enforce section 19 in the digital world.
Unfortunately, enforcement of section 19 alone will not restore the health of local news in Canada. A lot more needs to do done on the policy front, and time really is of the essence.
We also need the government to move to right another tax issue that in effect rewards those who make no investment in Canadian content, and that is the application of sales and other taxes to digital providers.
There can be no public policy justification for a tax regime that penalizes purchasers for choosing a local product that invests in their communities and creates local Canadian content in favour of an international company with the only investment in the country, let alone in individual communities, being a national sales office. Again, it’s puzzling that a tax policy would support a foreign duopoly to the detriment of local Canadian companies.
Not only are these two offshore companies taking about 80 per cent of the digital ad market, but they also profiting from newspaper content. Today, newspaper content is being systematically scraped, copied and distributed by commercial organizations that then profit from displaying newspaper content without permission.
It’s clear that readers and advertisers value the editorial content from newspapers that appears on third party websites, platforms and search engines. This brings enormous value to these third parties but no revenue to the originating newspaper.
In addition, publishers are increasingly seeing that these third parties are becoming substitutes for the publication itself. We need a copyright regime that will allow creators to protect and manage the content they have paid to create.
As you are aware, jurisdictions like the U.K. and Australia have struck inquiries that are looking at the impact of these global companies on local markets and on consumers. We see the EU move to right to balance in the marketplace. I think that’s something that’s needed in this country.
In conclusion, we strongly support action on section 19 but this is only the first step. In order for Canadian communities to continue to be served with high quality local news, there are a number of public policy issues that need to be addressed, particularly those relating to the digital world.
Matt Thompson, Director on the Board of Directors, Canadian Association of Broadcasters: I am also Director of Legal Affairs at Corus Entertainment, which is one of Canada’s largest television and radio broadcasters. With me this morning is Peter Miller, the CAB’s policy adviser and former general counsel. You met him earlier in these proceedings. He’s a co-author of the Friends of Canadian Broadcasting report on advertising deductibility.
The CAB is proud to be the national voice of Canada’s private broadcasters. We represent the vast majority of private Canadian programming services, including radio and discretionary and local television stations across the country.
The CAB fully supports the proposal of the Friends of Canadian Broadcasting, or FCB, to either amend the advertising deductability rules in Income Tax Act or, similarly, to amend the Interpretation Act to apply a single modern definition of broadcasting across the Canadian legislative landscape.
We believe that either of FCB’s proposals would logically extend existing government policy and help level the playing field between Canadian media businesses and their massive foreign-based online competitors. We believe that in turn would provide a much-needed boost to all Canadian radio and television broadcasters, but especially conventional television providers that tell local stories from coast to coast to coast.
In these proceedings, you’ve already heard about the flight of advertising dollars to foreign-based online platforms in recent years. To put into context what this has meant for our industry, consider that conventional television broadcasters that carry local programming rely on advertising for over 90 per cent of their total revenue.
Local television providers have suffered greatly as a result. Since 2011, conventional television revenues have declined every year, from $2.14 billion in 2011 to $1.68 billion in 2016, or a 21.4 per cent decrease. These trends prompted the CRTC to conclude that conventional television is in a state of decline in a report released last Thursday.
In their appearance before you on May 29, officials from the Departments of Finance and Canadian Heritage questioned whether the FCB proposal would represent a complete solution to the problems facing Canadian media.
Let us be clear. We do not believe that eliminating tax deductions for foreign digital advertising would represent a complete solution to the challenges facing Canadian media, but it would most definitely help. In fact, the potential benefits are significant.
Taking the conservative FCB assumption that 10 per cent of foreign Internet expenditures would shift back to Canadian media, that could inject as much as $400 million in new revenue every year. This does not include the hundreds of millions of dollars that would flow back to government coffers, some of which could be directed toward local media if the government chose.
To put these figures in perspective, recall that Budget 2018 allocated $10 million per year for five years to support local journalism. While we applaud that measure, there is no denying that the FCB proposal would make a contribution to local media that is orders of magnitude greater, and it could not come a more crucial time.
It is worth keeping in mind how the broadcast advertising deductibility rules in Income Tax Act came into being in the first place. In the mid-1970s U.S. border television stations were diverting an estimated 10 per cent of Canadian TV advertising out of the Canadian market, in part because Canadian advertisers could deduct that spending.
In 1976, the government recognized that this was creating a competitive imbalance with Canadian broadcasters and undermining the production of local programming. It decided to act.
As we know, the threats to conventional broadcast advertising revenues have not diminished. In fact, with the emergence of foreign online giants that are eligible for tax deductions these threats have only increased over time. As you have already heard, local media in Canada, including local television, is under severe strain.
I alluded to conventional television revenue losses in recent years earlier in my remarks, which has already impacted local news coverage in some markets. Greater challenges lie ahead still.
For example, conventional broadcasters are required by the government to vacate the 600 megahertz band over the next few years to repatriate spectrum for wireless uses. Relocating TV transmitters could impose hundreds of millions of dollars in new transition costs.
Senators, you have already heard in these proceedings that communities across Canada uniquely benefit from local news. We cannot take that for granted and we cannot assume that it will be replaced. Just as it was in 1976, it is time for government to act.
Thank you for the opportunity to appear before you today and for your attention to this important issue for our industry and for communities across Canada. We would be more than happy to answer any questions you may have.
Barry Rooke, Executive Director, National Campus and Community Radio Association Inc.: The National Campus and Community Radio Association is a not-for-profit national association working to recognize, support and encourage volunteer-based, non-profit, public access campus and community-based broadcasters in Canada.
We provide advocacy and advice for individual campus and community radio stations and conduct lobbying and policy development initiatives with a view to advancing the role and increasing the effectiveness within our sector. We represent 110 member stations including the vast majority of English language campus and community radio stations in Canada.
Our members offer programming in 65 languages, including 13 Indigenous languages. A few are bilingually licensed or serve their communities primarily in French. We want to tell the committee a little about our sector and address the recommendations in the Close the Loophole! report today.
Campus community stations reflect the diversity of the communities they serve at all levels. They are locally operated, managed and controlled, and some or all of their programming is produced by local community volunteers. Some operate with budgets of less than $5,000, no staff and a few volunteers like CHBB-FM in Norris Point, Newfoundland. Some are medium size with a few staff and budgets in the range of $150,000 to $300,000 like CKDU-FM in Halifax, Nova Scotia. A few are in large urban areas with more staff, hundreds of volunteers, and annual budgets of close to a million dollars like CJSW-FM in Calgary, Alberta.
Currently most seek revenue in a piecemeal fashion through project grants, advertising and community fundraising. In Quebec, stations are eligible for some operational funding from the provincial government. As you are aware, the Standing Senate Committee on Official Languages is reviewing support programs for official language minority community media broadcasters. There is currently no stable operational funding for most campus and community broadcasters located outside Quebec or in the official language minority communities.
Over-the-air advertising is an important source of revenue for campus and community radio stations. According to the CRTC 2017 Communications Monitoring Report, 46 per cent of the annual revenues of community stations come from advertising, although this figure drops to 9 per cent for campus stations which tend to have funding from student fees.
While the report appears to show an increase in advertising dollars in the sector between 2012 and 2016, it does not take into account the increased number of stations reporting. When revenue is averaged, there is an effective decrease in advertising revenue of approximately $3,000 per year per station. An internal survey of our members echoes these figures. We believe this decrease is attributable in part to the proliferation of Internet advertising options and the federal government no longer purchasing regular advertising on community radio stations.
For some smaller stations, a drop like this can have a huge impact. At least six small Canadian communities have lost their local broadcaster in recent years due in part to financial hardship. Most recently, this past January, CICV, a small station in Lake Cowichan, B.C., closed their doors.
François Coté, Executive Director at l l'Alliance des radios communautaires du Canada, presented at this table a few days ago that he noted a significant drop in over-the-air advertising revenue in the French-language community radio sector.
Regarding the Close the Loophole! report, we believe that the proposed interpretation of section 19.1 in a way that would eliminate or limit the deductibility of advertising expenses on foreign Internet-driven media could provide Canadian businesses that want to reach local markets with an incentive to advertise on Canadian digital media, and this may offer opportunities in our sector.
Currently few campus and community radio stations in Canada offer online advertising at the moment, but we expect this may eventually develop for sophisticated digital services and monetize them to whatever degree they can.
The Close the Loophole! report also suggests that the proposed interpretation would boost federal and provincial revenues by $1.3 billion, which could be used to support Canadian media initiatives.
Given the precarious financial position of our sector and its important contribution to the diversity of voices in Canadian media, we would ask that some of these funds be directed to our sector. Thank you.
The Chair: I will start with a question I asked of the last panel. Advertisers and businesses are using the Internet, Google and Facebook in Canada because they see them as a less expensive way to get to the target market they’re trying to seek out.
When the Broadcasting Act was amended to disfranchise American TV stations from the tax law, they had options. They could go to Canadian television.
Where is the Canadian businessman to go if he can’t go to Google? Well, he can, but he won’t get a deduction, which seems unfair, and he can’t go to Facebook to advertise. Doesn’t that put him at a disadvantage to foreign companies like American companies that are marketing into the Canadian business market?
Mr. Hinds: Each and pretty well every one of our individual newspapers has an online digital sales force. You can buy ads on each and every website.
The price is competitive given that the marketplace is the marketplace. The problem with the price is that it’s actually too low to invest in content. There are options in every community in the country for a business person to take.
The Chair: Obviously, the business person has decided that the other option is a better option. That’s why he or she is going there. They have your option now, but they’re choosing the other one because they think it’s a better option.
Mr. Thompson: That is true to a certain extent. I take your point. I think that’s why the Friends of Canadian Broadcasting assumed a rather conservative number of broadcasters would return to Canadian media. Roughly nine out of 10 would stay with Facebook and Google because they selected those forums for the reasons that you said. They see better value.
We understand that. We’re not trying to turn back the clock, but we think there is a subset of advertisers that are making their decisions based on price, and the ability to deduct an expense on a digital platform is a factor in that decision.
They are price sensitive enough, and we think we offer a competitive enough product on broadcasting platforms to lure them back. We are quite optimistic about the future of advertising on broadcast dollars.
The Chair: You can’t lure them without an even playing field. You need the competitive advantage of their not being able to deduct on Google and Facebook and being able to deduct on your radio station. Right now you have a level playing field. They are both deductible.
Peter Miller, Consultant, Canadian Association of Broadcasters: The words “level playing field” mean different things. You’re correct that we’re talking about the presence or absence of deductibility. We’re suggesting that advertising on foreign Internet media not be deductible.
We value the Canadian media. I think that is something we can all agree on, but they do not have a level playing field, as Mr. Hinds referred to in particular, with these other content providers. The Canadian media produce their own content. They employ journalists, Canadians across the country, to reflect our communities. These foreign media don’t.
First, we are suggesting the way to level the playing field is through a tax measure that we know was employed back in the 1960s and 1970s.
Second, it would be a competitively neutral measure. In other words, any business advertising to Canadians would have the choice of using Canadian media or foreign media, and they would all have the same rules. There would be no advantage or disadvantage to any one segment. It would be competitively neutral.
The Chair: Aren’t Google and Facebook simply direct markers? Are they no different than catalogues, direct mail, telemarketing or door-to-door sales?
Those are all competition to your industry that we have here in Canada. With the disruption of the marketplace with telephones and people not responding, that business has big trouble. They’re not here asking for a competitive advantage.
It is just another form of direct marketing, and you guys aren’t able to compete.
Mr. Miller: That is a very valid observation, but there are two distinctions one has to make. First of all, those direct marketers, be they billboards or flyers, have costs of production that Internet players don’t have. Internet players have free distribution.
First, they have platforms that are virtually free once they're set up. Second, and again it goes back to it, the difference comes down to the cost of content.
The media in Canada have content costs. Not only do these other providers not have content costs, but the valued journalistic content they have is often the content of Canadian media.
Senator Dawson: I would assume, since no one mentioned it in your group, that you were not consulted on what the minister will be announcing today. You have no idea what she will be announcing today, but you are players and wouldn’t it be an assumption that you should normally have been consulted?
I am asking the obvious, and it is a little embarrassing. We will have to wait for her announcement. She is coming to the Senate today, so we will have the opportunity to ask her directly in the Senate Question Period.
From what we hear, they are talking about an 18-month study. Ms. Pilon, you talked of l’urgence d’agir. Is 18 months a reasonable delay when we know that these people came on the market with leaps and bounds in a very few years? As they are now occupying a disproportionate amount of the market, should we be reacting in a much tighter framework?
[Translation]
Ms. Pilon: The government has to take bold, but smart, measures to address the serious challenges that exist. In its report, the CRTC recommends replacing prescriptive licensing for broadcasters with binding service agreements, which would apply to integrated service groups including Internet service providers and broadcast networks. Currently, Internet service providers are not required to contribute to Canadian content.
What would that look like? There would be no more licences, only individual agreements. It's important to keep in mind the economic impact of this change. Discussions are happening around the contribution percentage, based on the contributor, and it is almost as though a consolidation of the Broadcasting Act and the Telecommunications Act is being contemplated.
In the meantime, steps can be taken, to be sure. We are going to work with the government to make sure that, leading up to the comprehensive review, specific areas are targeted, such as the exemption for Internet service providers. That work can begin immediately.
I think it's possible to deal with parts of the review and modernization process one at a time, without necessarily waiting until the end of the 18 months. The minister's announcement today is highly anticipated. Some of the CRTC's report recommendations are very encouraging, recognizing the need for immediate action and the fact that the system is outdated. Certain elements of the system are still sound, however, and should be maintained. There is a desire to keep the regulations as they are and, in fact, apply them to those who profit from content distribution, so that's very good news.
[English]
Mr. Hinds: Eighteen months is a long time just for the study. Then, of course, when there is legislation, there are years after that.
We feel we have had a lot of studies. We have had the Standing Committee on Canadian Heritage report, which took 18 months. We have had Greenspon’s The Shattered Mirror report, which took another 18 months. There are a lot of studies out there. We are now in parliamentary hearings on copyright, and the copyright committee is telling us nothing will happen until 2021 or 2022.
Eighteen months is a long time. As I say, we have lost 20 per cent of our newspapers in Saskatchewan over the last two years. If that trend continues, you can see the reality.
Senator Dawson: If I were you, I would mention Saskatchewan often too.
That gives me the opportunity to say that I know we are not meeting tomorrow night and that we will have an in-camera meeting next week. This report cannot be delayed. Even though we may not hear from anymore witnesses, we have to be sure we start thinking of publishing a report. If we don’t publish in the next few weeks, it will be next October or November.
It is certainly something we should consider over the next few days and how we want to act on the loophole.
[Translation]
Senator Cormier: My question is for Ms. Pilon. You just talked about changing the business model and the issues around that. Tell us, if you would, about the platforms for distributing independently produced francophone content, and the issues specific to the francophone community or, rather, francophone producers when it comes to accessing digital platforms?
Ms. Pilon: There is no doubt that we have a lot of work to do in order to secure sufficient digital spaces for francophone content. We have the platforms Tou.tv and Illico, of course. More and more cable companies are making digital platforms available, but the French-language content is limited. We did get a piece of good news a few weeks ago: Tou.tv Extra has partnered with most of Canada's francophone broadcasters, public and private.
Our hope is that this will mean more content on our platforms. Studies show that, in Quebec, Netflix has a smaller share of the market than in the rest of Canada. However, francophones in minority communities are part of the rest of Canada. We don't have any data on that, so we don't know how many francophones outside Canada subscribe to Netflix. There is very little interest in the audience potential of our communities and very little research on the subject.
Right now, the APFC is conducting a joint study with Telefilm Canada, which examines the consumption habits of Canadians on a yearly basis. This year, there is a focus on both official language minority communities: francophones outside Quebec and anglophones in Quebec. That should give us a bit of information on their audience habits.
The APFC, along with its members, has joined forces with private broadcasters on a project to test content discoverability strategies in order to see how francophone and Acadian communities access and choose content.
We are putting things in place. Without Canadian and francophone content requirements for foreign platforms, we are seeing a migration. Strategies have to be considered so that audiences are able to discover this content. That means not just funding and producing content, but also giving it a prominent place.
Senator Cormier: Is the review of the Broadcasting Act and the Telecommunications Act useful to you?
Ms. Pilon: Yes, we will be active on that front to make sure the review takes into account all of Canada's laws, regulations, and cultural policies. It's a good thing that the current exemption is being reviewed. If that weren't the case and if, for instance, the Excise Act were not considered, it would be possible to use one law against another in order to challenge measures being put in place. Without a coordinated review of all of those components, we are shooting ourselves in the foot. It's a good thing that the Broadcasting Act, the Telecommunications Act, and the Official Languages Act are being reviewed, not to mention the fact that new legislation for indigenous peoples is forthcoming. If all of those statutes are to have the desired impact, ensuring coordination with other statutes is paramount.
Senator Cormier: Thank you.
Senator Gagné: When the Association de la presse francophone was here last week, its representatives suggested that the federal government scale back its use of Internet advertising in favour of print, community radio and other media ads in order to reach small communities and ensure their development and vitality.
We also heard from Canadian Heritage officials last week, and they said that the government took out ads on websites such as Facebook because it wanted a good return on its ad spending. Is the government getting its money's worth? I'd like to hear your thoughts on that.
[English]
Mr. Hinds: That is an interesting discussion. We have always asked government officials what they know that companies like General Motors and Chrysler don’t know. What has happened is that the decline in federal government advertising is exponential. There is none, essentially, in newspapers now. Yet we remain the second or third largest advertising vehicle for private industry. There is something in there they appear to know that we don’t.
One thing we have talked a lot about on this is that I don’t think we are interested in the bailout per se in terms of putting advertising in place for advertising. It is really about targeting and about doing the right thing in advertising.
What has happened in the federal is that there is no policy to ask, if an ad is targeted at seniors, whether you are using the appropriate vehicle. If your ad is targeted at one-third of those in rural western and remote Canada who don’t have access to the Internet, why are you advertising to them on Facebook? Why are you advertising to seniors on Facebook?
It is really about smart advertising and ensuring that you are targeting your ads to the people who need it. In many cases, the programs and services being targeted are to groups that are probably not as Internet savvy as the rest of the general population.
Another thing is what you are targeting. Part of the issue is services. You are not doing brand advertising as a lot of people are doing to try to promote their brands. If you are looking at programs and services, that is something you want in a newspaper. That is something you want to clip out and want to have. Certainly that is what private industry has done, whereas government hasn’t done that. There has been this rush to save money, essentially, and there is no effectiveness.
As well, private industry has a return on investment component. They put an ad in the paper or on a news site and they can see how it works and where it works, whereas there isn’t that in terms of federal government advertising.
Our view would be that we just want smart advertising with carefully thought-out objectives for government advertising. We believe, if that is done, there will be a return to advertising in newspapers and on newspaper sites.
Mr. Rooke: For us, our communities are often only serviced by our members. We are the only media organization beyond pamphlets or monthly mailouts and so on. We represent and support communities that don’t have any source of other information in that sense or are part of a community, especially in the multicultural programming, that is the hub of that community.
It offers a space on the platform of the three pillars of broadcasting for people to be reached, whereas many of our listeners are people who are involved within the communities themselves and are not able to or do not use other forms of media to get information, entertainment or community development themselves.
There is an interesting perspective that there are lots of different sources of people that can be reached. By only using a single targeted area, you are missing out on a lot of different Canadians from all over the country.
The Chair: Whose fault is all that? Is that your fault because you are not promoting the product you have, or is the government just sort of brain dead or something?
Mr. Hinds: We certainly promote. We have had ongoing discussions with Public Works and with the government. I think there was a view. The last government said clearly it was digital first. They adopted a digital first policy and that was it.
We have also done studies with the government where people want to look for advertising. One of the interesting things is that Canadians want advertising and want to see government advertising in their local community papers and on their community websites. We have actually shared that with the officials at PCO and with Public Works.
Mr. Rooke: I think a lot of the challenge that comes into place is that for our members the funding sources of that advertising would also go toward developing the community stations themselves.
There is a disconnect. If individuals or the government isn’t purchasing advertising through our systems, then the major source or a large portion of funding that isn’t available through other forums gets to the station.
There is a private partnership through the Canadian content development the CRTC set up with our partners in broadcasting. However, beyond that there are no other sources of support. The reduction of the advertising that happened a couple of years ago through the platforms essentially cripples the radio stations from going and puts them into a continuous state of just trying to stay afloat as opposed to further expanding into the communities they are working in.
We work in different areas. We are a leader in various podcasting methods, live remotes and broadcasts in those portions, but it still requires the base funding with which the stations are struggling to keep the doors open.
Senator Galvez: The more I hear witnesses during this study, the more I realize that the situation is very complex. It needs creative solutions that come from different perspectives.
We agree with you, but in agreeing with you we have concerns about the tiny solutions for revising the deductibility rules and defining the broadcasting concept. We need to see it more globally.
We have the content, the container and a diffusing mechanism. At each of these levels, we have to apply or propose solutions. Can you help me to come up with creative solutions at these different levels?
Mr. Thompson: Part of the appeal of the Friends of Canadian Broadcasting proposal is that it actually is simple. These rules already exist in the Income Tax Act. What it would amount to is an extension of an existing policy.
You are absolutely right, Senator Galvez, to diagnose this as a complex challenge. A lot of the issues, if I were to guess are on your mind, are some of the same ones they have been considering in the broadcast policy reviews in which we have been actively participating over the last few years and indeed will participate in over the next year.
These parts are definitely connected, but solving one problem, even a small one, could certainly impact on the whole.
Mr. Hinds: This is one part of the problem. From the broader perspective, there has been some good, credible studies.
I would refer to the Standing Committee on Canadian Heritage which gave a well-rounded report. At the end of the day, it called for direct funding on the content side. The other study was The Shattered Mirror of the Public Policy Forum. It is interesting that both those reports came to almost identical conclusions about the solutions and were comprehensive in the sense that they dealt with the content side as well as the distribution side.
Senator Galvez: We have heard from other witnesses, and I asked them about how we were doing when we compared ourselves with legislation in other parts of the world. For example, in Europe there have been important changes.
Can we inspire ourselves with those changes in Europe and propose things as complementary or integrative solutions to our problem?
Mr. Hinds: The EU has been very active on this file. Vis-à-vis the digital duopoly, we have particularly seen the use of copyright. In Germany and Spain domestic measures were taken to stop the stealing of content. The European Union is now looking at a publisher’s right in terms of copyright.
It is interesting that once those domestic legislatures or the European Union started to write the balance, if you want, it brings people to the table. Part of dealing with any of these large multinationals is an ability to have a fair negotiation. In Europe we have seen fairer negotiation between publishers and the digital duopoly. A lot of stuff has been done.
The U.K. has done remarkably good work through the BBC review. They now have a program where the BBC employs 120 community journalists across the country whose content is made open and available to community papers. It is actually open-source content.
On the newspaper side, they have a blue-ribbon panel that will be looking at newspapers as well as the impact of digital players on the newspaper industry. There is a lot that can be learned from the U.K. and the EU.
Senator Bovey: I will pick up on points my colleague, Senator Galvez, has raised.
The story we have heard has been consistent: the importance of local media in the national media sector, the drop in advertising revenues, the loss of jobs, and the closing of a number of smaller newspapers and stations.
With that, obviously, has come a huge drop in the number of jobs, and by extension a drop in training and career opportunities for journalists. That is one aspect I would like us to talk about.
This tax issue regarding advertising on international social media is only one solution, as everyone is saying, despite the conservative revenue estimates. You’ve talked about the content digital platforms are taking from our journalists.
Mr. Hinds, you drew our attention to copyright and addressed it a bit. You said in your presentation:
We need a copyright regime that will allow creators to protect and manage the content they have paid to create.
Could you expand on that, please, because I think that is important. Are those concerns currently being addressed by the present review of the Copyright Act?
Mr. Hinds: You will notice in a lot of social media or on a lot of digital platforms there is a lot of newspaper content.
Senator Bovey: Absolutely.
Mr. Hinds: Much of that newspaper content has not been put there voluntarily. We operate in a world with a fair dealing regime as it exists. If a newspaper puts up a paywall, you can go behind the paywall, you can grab the content, you can repurpose it and you can sell it.
We are all familiar with small and large, foreign and domestic aggregators. This is not just an issue for Google News. They sell a lot ads around that. I would venture to say that each and every one of you in your legislative office probably has an aggregator feed that is not paying licence fees.
We really need to be compensated and control the content we have, because that is really all that we have as a business. There needs to be a tightening up of fair dealing.
We have looked at the issues around the publisher’s right as they are examining it in the EU. We have also looked at a hot news exemption. This is a judicial concept that comes from the U.S., whereby for the first 24 to 48 hours fair dealing is suspended and the owner of the copyright has full control of it. Journalism costs money, and you need to get a return on your investment, particularly for investigative reporting.
The current copyright review is discussing it. I appeared before them the last week. It was quite a fair hearing. Our concern there is that we are looking at a report in 2021. We are looking at legislation. The trouble with it is that, as I think we all know from the last go around of copyright, it took 10 years, and I don’t think we have 10 years.
Senator Bovey: Are you tying this copyright issue with the digital advertising issue?
Mr. Hinds: I think we would be, yes. They all fit in. A number of us have talked here about the complexity. Ms. Pilon talked about how you can’t just do one bit, because all of these fit into a framework. That is really where we are looking.
Senator Bovey: I don’t know if anyone else wants to add anything.
Mr. Miller: I am not sure, Mr. Hinds, what you meant. I don’t think you mean tying it and one can’t move forward without the other.
Mr. Hinds: No.
Mr. Miller: They are part of the solution. The advantage, and the reason I think we are all at the table here, is that we believe this is something you can act on and act on now.
Senator Bovey: Okay, thank you.
[Translation]
Senator Boisvenu: I'd like to welcome the witnesses. I agree with Senator Galvez. In fact, the feeling I get is that all the focus is still on fixing rather than reinventing.
I have a lot of friends in the business community. Like me, they think the Internet has revolutionized how all companies do business. Nowadays, I learn a lot more about something on the Internet than I did by going through a pile of papers. I don't think future generations are going to care about print publications or ads.
A businessman I'm friends with used to spend thousands of dollars on advertising. Now, he has his own Facebook page for free and can communicate with his customers directly. He can adjust his production on a dime, something he can't do with advertising. The industry seems to be underestimating the full impact of this revolution, still calling on governments to address needs that no longer exist. The industry seems to be clinging to a paradigm that has shifted completely, one that will never stop evolving.
It worries me when I hear people say that we need to revisit taxation and support programs. To my mind, Canadians and the private sector have an altogether different mindset. We need to come up with new policies, based not on what is happening today, but on what will be happening in five or 10 years. Take self-driving vehicles, for example. We can't view self-driving vehicles in today's context. We need to consider what the context will be five, 10 and 30 years from now. Otherwise, our businesses will become obsolete, only to be left in the dust by the competition.
Perhaps my perception is off, but it seems as though the industry only wants to fix the current situation, without regard for the future.
[English]
The Chair: Get on to the question, Senator Boisvenu.
[Translation]
Senator Boisvenu: That is my question.
[English]
Mr. Miller: Senator, let me put it this way. We have had a century-long experiment in supporting Canadian content in all its forms. There has been a fundamental change in the last decade. Journalism, which is news, is something that has always been able to support itself through advertising, and it can hardly do so anymore.
As a country, as a democracy, we basically have to decide if care about that. Do we care about local news? Do we care about the people covering our communities? It really comes down to that.
We are not suggesting we turn back the clock and that everyone goes back to watching linear television, reading paper newspapers or listening to community radio. We are suggesting that the content they produce, which is already multiplatform for most of us, has an opportunity to compete in the marketplace and has an opportunity to survive.
If we look at it that way, we might feel a bit more comfortable about the issue.
Mr. Hinds: In terms of the business model, if you look at the tradition of news in this country, whether it is magazines, the public broadcaster or TV, there has always been a substantial level of public support for it. I don’t think this is a new concept. It’s modernizing the concept to meet the market reality.
I don’t think anyone would say that the public broadcaster is no longer relevant. It has always been there. Again, we’re asking for something new. We are just asking for it to be modernized to reflect the reality of the marketplace.
At the end of the day, do we want Canadians in communities across the country to be able to see themselves, conduct their affairs, know about their communities and hold governments to account?
One of the real challenges is there is no shortage of cat videos in the new world, but if you want investigative journalism and if you want civic journalism that will tell people about their courthouses, school boards and hospitals, that costs money and has to be invested in. If you don’t want that, there is a market out there.
[Translation]
Senator Boisvenu: Isn't community media facing the same challenges local shopkeepers did 20 or 25 years ago? They had to deal with giants like IGA, Metro and Provigo coming on the scene and giving them a run for their money.
This is not the same type of challenge, but how can small local media compete with international media giants? I think the little guys need to take advantage of digital platforms instead of treating them like the enemy. Would you agree?
[English]
Mr. Hinds: One of the great challenges for small businesses and communities is if you lose a newspaper or that newspaper site, you have nowhere to advertise. You actually lose the trading area of the community because then you can go to big box and your marketplace expands.
[Translation]
Senator Boisvenu: My example still holds true. I know a slew of small business owners who have stopped advertising in community newspapers, often because of the cost. The small regional media organizations I know of in Quebec used to survive on the sale of ad space. It was a major source of revenue that kept them going. With the drop in ad revenue, their survival is in jeopardy. The Internet and Facebook have allowed businesses to take control of their own advertising, creating their own Facebook pages and designing their ads in-house. They no longer need a middleman to help them reach their customers. That is today's reality.
[English]
Mr. Thompson: I think it’s certainly true that the facebooks and googles of the world have changed the game entirely. There is no going back to the way advertising used to be sold. We are absolutely not trying to turn back the clock. It has forced us as an industry to up our game, to be smarter about the types of information we share with clients, and to help clients target their demographics more intelligently. We’re making the investments we need to help build that functionality into our products.
What you say, senator, is absolutely true. There is a certain segment of the population and a certain segment of consumers who will find it more economical to go with the big platforms. They aren’t coming back. We recognize that, but we still think there is a large enough segment of potential advertisers in Canada to continue to support the content we put on air.
I would add one plug for traditional media. It certainly is the case that viewership is declining, but we still reach 87 per cent of Canadians on a national basis. There is still value in the access that we have to Canadians, and we do see advertising in our long-term future.
The Chair: Who are you including in that? Is that television and radio, or is that just radio, or is that television and newspapers?
Mr. Thompson: That was just television. We understand that Canadians, on average, listen to roughly 14 hours of radio per week in addition to that.
Senator Mercer: I guess I am part of the problem as I hold my iPad front of me and read my news on National Newswatch or I go over to Bourque Newswatch to read it.
I still subscribe to my daily newspaper at home. I walk to the end of the driveway every morning and pick it up, but it’s the reading of the newspaper that I do differently. Prior to my going out in the cold to pick up the newspaper, I probably read some of it online because I get the whole newspaper online.
Something that intrigued me was that you talked about the publisher’s right in the EU. What would that look like if we were to do that in Canada?
Mr. Hinds: It would give publishers the right to control their content.
Senator Mercer: Tell me how that happens.
Mr. Hinds: Basically, if you want to use the headline or the content from that, the fair dealing exemption would no longer apply and you would have to seek a licence from the publisher.
I am talking about commercial use. We’re not talking about personal sharing. This is for any commercial use. If you were monetizing that content in any way, you would need to have a negotiated agreement with the owner of the content to do it.
Senator Mercer: I have National Newswatch open here, and the first story comes from Mainstreet Research, another is from the National Post and another one from iPolitics. Everyone would need to have a licence.
Mr. Hinds: There are licensing arrangements available and they’re quite easy.
Senator Mercer: The example you used for the EU, how big an imprint is it on the market there, and is it working?
Mr. Hinds: The publisher’s right is part of the new EI copyright directive, so they’re working it through. I am not an expert on the complexities of the EU, but it is being discussed.
The German and Spanish governments have amended their copyrights to essentially move the marker so that there is far less ability of commercial users to do that without licensing. It also allows public enforcement because part of the challenge in the current regime is that in fair dealing you can go to court and you can do it, but it’s really hard to do if you have millions of abuses.
Senator Mercer: How does that work in protecting other creative parts of news, even in the entertainment section? I buy my novels on Amazon Kindle.
Mr. Hinds: What you’re asking for is what you have with music, software and film now. SOCAN would be on top of you if you used anything from a song. Yet, when it comes to a journalist’s content, fair dealing allows it to be shared equally.
For software it is the same. You can’t use those things without a licence, yet somehow journalists’ content is considered public domain.
Senator Mercer: My final comment is that I would maintain that good investigative journalism trumps everything else. I really think that’s where media has missed the boat. I get mad about that.
I don’t care about the traffic in downtown Fredericton; I live in Halifax, but I do care about things that good investigative journalists find. We don’t celebrate them enough. We allow some people to call any news they don’t like fake news. We have bought into it and the media has bought into it. They keep talking about fake news, but fake news is just news you have written that the guy reading it doesn’t like.
I am sorry, because that’s the way the world works.
Senator Galvez: I was reading today in the news that the CEO of Apple is saying that in the next version of its operating system it will control what Facebook can and cannot do.
We have the hardware. We have the operating system. We have the application, which in this case is Google or Facebook.
The CEO is saying that in his next version he wants to give users the capacity to decide what they want to receive, whether they want their positions to be tracked or whether they want to receive a lot of advertisements on Facebook.
Is this a good idea?
Mr. Rooke: We’ve already seen organizations like Apple do that when it comes to radio. They blocked the FM radio chip in their Apple iPhones, in that sense. It’s an attempt from an organization to be able to control what information comes through as an availability.
This is sort of taking it to another step that you’re seeing an ability to restrict. The fundamental question comes back to: Do we want an international organization to be able to restrict content flowing to local individuals, depending on what is the source of media they’re trying to get that information from and if it’s even available any more?
Senator Galvez: In your case, will it be a positive thing or will it be a negative thing?
Mr. Rooke: In our case, it pulls people away from the local connection opportunity to gather information and to hear the stories from their communities because they’re being restricted.
I would say no, it would not be a good thing on the local, small or rural not-for-profit perspective at least.
Mr. Hinds: One of our larger members was monitoring their online readership, and all of a sudden they would have huge spikes on a story. It turned out the spikes are from Apple. When their story was one of the four you have on your iPhone, the readership would spike. You are giving a lot of control to a third party.
Again, it speaks to the whole issue of the challenge of the digital world with the control being given to a third party over which you have absolutely no control. Whether it’s governmental control or even reader control, it’s the tremendous economic power of those online providers. That’s part of the theme going through this discussion.
Senator Gagné: It’s interesting to build on what we’re discussing. I think it was in April that Procter & Gamble cut about 20 per cent of its digital ads in the last year to reinvest in areas with media reach including TV, audio and e-commerce.
The reason was that mass marketing is ineffective. It was not reaching their market. They wanted to take back the control. Obviously, because by not controlling the media supply chain, if I can say that, they were worried about transparency, fraud and everything else.
We can see there is a readjustment of the market. It could be interesting to see how that will affect Canada.
Mr. Hinds: I think you’re absolutely right. We found quite amusing that when Facebook got into trouble, it didn’t use its own medium to give out the message. It took out full-page ads in international newspapers because it was about credibility, authority and everything.
There is a marketplace out there that is changing. You always read that advertisers are banning Facebook and it’s changing. At the end of the day, they’re still the big player. It’s still incumbent upon governments to start grappling with that. Also at the end of the day, they’re the only people who can make any difference. I don’t think that collectively we will be able to stand up to them.
Mr. Miller: It goes back to the chair’s first question on how the market would adjust to this kind of development. I wanted to comment on an observation made by the Finance officials when they appeared before you. They suggested this would increase the tax burden on businesses by a billion dollars.
I respect that’s their view, but I don’t think that’s the way advertising works. When advertisers set a budget, they set it for their year. If there are changes in the marketplace, they readjust.
What would happen if this measure were implemented is that advertisers would readjust their spend. They would spend more on traditional media, and we estimated it at roughly 10 per cent. That was a very conservative estimate. They would perhaps spend less on foreign Internet services. Moreover, those foreign Internet services would potentially adjust their prices. There are at least three things that could happen.
It is also important to recognize how big the advertising market for Internet-based platforms grows. The growth from 2016 to 2017 is estimated at $800 million. In other words, from $4.6 billion to $6.2 billion. You can expect at least that same increase, all things being equal, from 2017 to 2018 and the same from 2018 to 2019.
The most likely effect, frankly, of introducing this measure is that you would slow down the growth of Internet advertising. You would not be putting an excessive burden on Canadian businesses because the market would adjust itself. That’s something I wanted to get on the record.
The Chair: If I go to the website of 650 radio in Saskatoon, which is talk radio, I get a newspaper. They’re in competition with the StarPhoenix. They don’t have that many journalists. They have a few, but they are not filling that up.
I am totally on your side. I am a big fan of having tough, tough protection for intellectual property. That’s something that a country’s culture is built around. If we don’t protect it, then someone else will take it from us.
I remember when Patrick Watson advocated the CBC having its own newspaper. It caused a controversy and everyone pooh-poohed the idea, but guess what? If you go CBC today, they have a newspaper and they’re subsidized. The government is pouring hundreds of millions of dollars into CBC. They have a newspaper that competes with the newspaper industry. They have a television that competes with Global and CTV.
I don’t know what you guys think about it, but I don’t think we need CBC to protect our cultural life. I think we need a diversity of opinion to protect our cultural life, something that I don’t think we get at CBC.
That’s my own little point of view here. I’d like to hear your comments on it since a lot of money is being thrown at the CBC organization that is not accessible to all the other people in the industry. I don’t know how you guys handle that. I’d certainly be upset. I got your attention, Carol.
[Translation]
Ms. Pilon: In our communities, Radio-Canada is sometimes the only place where people can turn for local news, assuming that reporters are present in those communities.
As far as TV content goes, in 2013, we saw the emergence of a new player that gave us access to francophone content made by and for official language minority communities, Unis TV. Of course, it doesn't have the same mandate as Radio-Canada, which has a regional mandate that no other broadcaster in Canada comes close to. If you take that mandate away, not only are you cutting off access to local and journalistic content, but you are also cutting off access to entertainment and public affairs. Denying the vital service that Radio-Canada delivers to our communities would be catastrophic.
In some regions, like out west, Radio-Canada has just a single reporter covering two territories and British Columbia. I will say, though, that, because of the recent reinvestment, we are witnessing a real change in the public broadcaster's media coverage and the journalists delivering the news on the national network. The voices of our communities are being heard more than ever before. In terms of independent production, this year alone, four drama series were produced in our communities. That's unprecedented. Two of the series are funded by Radio-Canada. I don't think we should underestimate the role Radio-Canada plays in official language minority communities. It's important to be very careful when minimizing the public broadcaster's impact on our communities. In some cases, especially where community radio stations and newspapers have closed, Radio-Canada is the only medium delivering local news. The committee heard as much from the Association de la presse francophone and the Alliance des radios communautaires du Canada when they were here last week.
[English]
The Chair: Does anyone else want to comment?
Mr. Hinds: On the CBC issue, the idea that CBC/Radio-Canada is actually covering local news is not there in reality. If you look at the province of New Brunswick,The Brunswick News has 120 journalists on the ground and CBC has six to eight. That’s the reality of news in the regions of the country.
You’re right on the other issue that CBC has gone into a competitive marketplace. We had an incident two years in Hamilton, which is probably the most overserviced media market in Canada, where CBC went in with an online portal. They sold ads on it. They had five people, three of whom were selling ads against the local private competitor.
Interestingly enough, a private online portal had gone bankrupt the year before because they couldn’t make it work in the overserviced market. CBC came in, took ads out of The Hamilton Spectator and other local community papers there. Then they decided they couldn’t sell the ads so they gave them away for free for a couple of months.
There are competitive issues there and they really need to be dealt with.
The Chair: They do. If no one else wants to jump into that pond, I thank the witnesses. This was a great panel.
(The committee adjourned.)