Catching Up on MediaPolicy: Google millions, C11 hearings, closing the tax loophole, reimagining the CBC.

December 4, 2023

The week of November 26th was an “everything, everywhere, all at once” moment for Canadian media policy. There’s a lot to catch up on.

Google’s $100 Million 

Heritage Minister Pascale St.-Onge announced the federal government had reached a deal with Google to contribute $100 million cash annually to online news organizations under Bill C-18, the Online News Act. The deal ensures that Google does not follow through on its threat to block Canadians from accessing news through its Search Engine. 

Everyone’s attention was riveted on the bottom line dollar amount, to the exclusion of deeply principled objections to “link taxes,” which is not a thing anymore. It was always about price, as MediaPolicy suggested previously.

The $100 million is approximately 2.5% of Google’s Canadian revenue, short of the four per cent the government was initially looking for. The 4% target reflected what Google paid out in Australia in 2021. St.-Onge negotiated a “me-too” clause which allows the federal government to re-open Google’s cash contribution should it settle for a higher contribution elsewhere (for example, California, the United States federal jurisdiction, the United Kingdom, or in a renewed agreement in Australia). The 2.5% figure is closer to the deal Google made in France (in a legislative framework also proposed in Canada by a Conservative Senator).

Newsmedia Canada and the Canadian Association of Broadcasters warmly applauded the Google agreement. Torstar CEO Jordan Bitove was noticeable in his dissent.

What the Google deal means for pulling the news-throttling Meta back into news distribution and participation in C-18 is unknown. Although Meta’s re-calibrated contribution would now be closer to $50 million, its defiance of regulation has always been more truculent. While news reports suggested that the Minister was approaching Meta again, her recent description of Meta’s behaviour as “deplorable” does not betray optimism. Meta’s three-year agreements with Australian news outlets expire in early 2024.

There are still significant milestones to pass in implementing Bill C-18.

The final federal regulation will be issued in two weeks. Conservative MPs on the Heritage Committee quizzed St.-Onge on which eligible news organizations would participate in dividing up the $100 million Google cash and her reply appeared to be that all news outlets meeting the statutory criteria in section 11 of the Bill will share in the money (which means the CRTC may have a lot of work to do in vetting news outlets).

The follow up question from Conservatives was whether the CBC, employing about a third of Canadian journalists according to the Minister, will get a full pro rata share of the $100M. The Minister gamely stood up for CBC’s equal status as an eligible news organization but, after some gentle prodding from the Bloc’s Martin Champoux, softened her language to the point that we can speculate the CBC will emerge with a reduced or even token share of the money.

The compromise over the cash amount was a signal for the told-you-so critics of C-18 to crow. Many of those critics are opposed to C-18 in principle (for various reasons). Others, such as the Toronto Star’s Althea Raj, are annoyed by what she characterizes as poor execution by the federal government. Still others make the argument that federal intervention to save news journalism is fruitless in the long run, news journalism must respond to the changing media landscape by upping its game in editorial quality and professional standards.

One of the less fair criticisms of C-18 is the claim that if the government had ignored the Australian model (endorsed by the Conservatives in 2021, incidentally) and imposed instead a direct FaceGoogle corporate tax feeding into a single news fund, the government would have arrived exactly where they are today but without Meta having flown the coop.

While back in 2020 many recommended this one-tax-one-fund model, it also would have been opposed by Big Tech and the US government as a “news industry” iteration of Finance Minister Chrystia Freeland’s 3% Digital Services Tax. We were reminded of the US opposition to the Canadian DST —the Americans argue without particulars that it’s a trade violation— only last week when Freeland’s motion to implement the DST its scheduled January 1st deadline passed the House.

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Sorry Canada, no change. 

The CRTC will wind up hearings this week on its first step implementing the Online Streaming Act, Bill C-11.

The Commission has been entertaining industry pitches on its proposal to levy on foreign streamers a temporary cash contribution to Canadian media funds. That “initial basic contribution” will remain in place at least until such time that the Commission can figure out an appropriate streamer investment in their own Canadian programming. 

The proposals have ranged from the ridiculous (Bell and Corus demanding a 20%-of-Canadian-revenue cash contribution) to the very cheap (Rogers suggesting a 2% contribution for fear that it will be imposed on Canadian broadcasters later) to the Motion Picture Association’s defiant “zero.” Several Canadian advocacy groups and small broadcasters are proposing a more plausible figure of five per cent.

The streamers are all saying they can’t afford any cash contribution to a media fund that doesn’t recycle “their” money as a subsidy back into their own programming, streamer by streamer. Currently the existing scheme of media funds (like the Canada Media Fund) recycles dollars back to contributors, but it’s a general fund supporting priority Programs of National Interest (TV drama series, documentaries) and local TV news. The funds are drawn upon by those broadcasters producing that unprofitable programming. As it stands, few Canadian contributors to these media funds reclaim “their” subsidies on a dollar-to-dollar basis and many are ineligible to draw upon them at all.

Spotify had the daring-do to tell the CRTC that it was running a music business on negative margin, contrary to its latest quarterly report. Amazon said the same thing about its music business and then, when pressed by the Commission for a general description of its profit and loss margin on Prime Video, committed to providing confidential revenue numbers (but not profit and loss) to the CRTC.

But the hell-no-we-won’t-pay common front of streamers standing with the Motion Picture Association appears to be cracking. During its presentation the Disney representative on the MPA panel inadvertently undermined the common front for “zero” contributions by citing comparable media fund contributions in the European Union. He described a range of contributions beginning with Portugal at the low end at one per cent, France as an “outlier” at 5.15%, and a mean average among EU nations of 2.7% (in fact Portugal is not that low and Denmark is the high point at six per cent).

Last week Netflix must have read the room and reluctantly proposed a two per cent contribution.

During this final week of presentations, the Commission will hear from Apple, ACTRA, Unifor, Friends of Canadian Broadcasting, the Independent Broadcast Group, the Writers’ Guild, and Channel Zero, the owner of Hamilton’s innovative local broadcaster CHCH-TV.

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‘Close the Loophole‘

During Heritage Committee hearings last week, NDP MP Peter Julian revived the long dormant policy idea of extending the Income Tax rules on deducting expenditures made on advertising buys on television and print to buys made on online platforms.

The long standing incentive in section 19.1 of the Income Tax Act allows Canadian businesses to deduct their advertising expenditures in Canadian media, but not American media. The ‘loophole’ is that these rules were never extended to Internet advertising, now 60% of the Canadian advertising market and dominated by Google and Meta. The policy concern is that Google and Meta have a far greater share of the Canadian advertising market than they would if they were regulated like a television or print medium. And for the government, that’s a lot of foregone tax revenue (estimates are all over the place, in the hundreds of millions that could be spent by the government on Canadian media if it chose).

Julian’s debating point was how could Google be allowed to escape with contributing $100M for news when it was the windfall beneficiary of a nearly billion-dollar tax loophole. When he asked Minister St.-Onge about reviving the idea of closing the tax loophole, she surprised many by acknowledging that her staff were now studying it. 

As a dose of reality however: a Heritage staff study of a policy idea is a long way from it being proposed and, based on past experience, still a challenge to squeeze through the Ministry of Finance’s hobbit-sized door.

Another tidbit emerging from the Minister’s Committee appearance: she said Heritage was also considering extending the federal “QCJO” journalist subsidies for online text journalism to news websites operated by television companies (currently excluded from the program). She also observed that the CRTC was studying the possibility of a local news fund for broadcasters.

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The CBC

Another nugget panned out of the Minister’s appearance at the Heritage Committee concerns the CBC.

Thanks to the Conservatives pounding away on the CBC potentially claiming a third of Google’s $100M, the Minister said in both English and French that a deep policy review of the CBC was in her mandate letter. In fact, it has been in every Heritage Minister’s mandate letter since 2019. More importantly, she said she wanted to act upon it soon, which is a very different thing from what the previous Minister Pablo Rodriguez told the Committee in June. 

Parsing the Minister’s statement optimistically, it may be that the Liberals have finally realized that it cannot cede the field to the Conservatives’ relentless “defund the CBC” campaign and that the fate of the public broadcaster is in fact a two-sided wedge with its own popular support.

It’s a file to watch in the coming months.

Update: Following publication of this post, CBC announced it was laying 600 journalists and other staff in response to “rising production costs, declining television advertising revenue and fierce competition from the digital giants.” As well, the CBC cited upcoming federal spending restraints that will affect the public broadcaster’s annual $1.3 billion Parliamentary grant.

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