Last week, Canadian Heritage Minister Steven Guilbeault called into question his own government’s policies on supporting news media, suggesting that those programs should be replaced by copyright rules that would open the door to payments from internet companies such as Google and Facebook. Mr. Guilbeault indicated that a legislative package was being prepared for the fall that would include new powers for Canada’s communications regulator and what are commonly referred to as Netflix taxes and internet linking taxes.
My Globe and Mail op-ed notes the government’s support for new internet taxes should not come as a surprise. There were strong signals that the spring budget – postponed indefinitely due to the current public health crisis – was going to include expanding sales taxes to capture digital sales such as Netflix or Spotify subscriptions.
The arguments for establishing digital sales taxes are compelling given that such a move would level the playing field with Canadian-based subscription services. Foreign internet companies are generally not averse to the change given that they merely collect and remit the taxes with payments coming directly from Canadian consumers.
More problematic is the prospect of mandated payments from online streaming services to support Canadian film and television productions (often referred to as a Netflix tax), since industry data confirms that the Canadian film and television production sector has enjoyed record investment. Last year spending on Canadian content productions grew faster than for foreign-based productions filmed in Canada. With the entire sector hit hard by the COVID-19 pandemic, this may not be the time for measures that could result in less investment and employment.
It is Mr. Guilbeault’s plans for a link tax that should spark the most concern, however. The government has long promoted its policies designed to support the Canadian media sector, including direct funding for local journalism as well as labour and subscription tax credits. The taxpayer cost runs into the hundreds of millions of dollars, but is justified on the grounds that journalism is an essential service that requires public support.
Yet Mr. Guilbeault now says that government should not be funding media, characterizing the policies as short term measures aimed at mitigating a media emergency. Instead, Mr. Guilbeault supports a controversial copyright reform measure that would establish a news publisher’s right to demand payment for services that link to their content.
This payment – effectively a tax on linking – raises a host of concerns, not the least of which is that the proposal was not recommended by the government’s own copyright review last year. Copyright reform in Canada is always complicated, particularly given that responsibility for it is shared with Innovation, Science and Economic Development Minister Navdeep Bains, but delving into reforms that sparked protests in Europe could be politically risky for a minority government.
News organizations already benefit from large platforms linking to their content since the links generate visitors that increase advertising revenues and paying subscribers. Organizations that do not want the links can easily opt-out of appearing in services such as Google News or Facebook. In fact, after Google shut down its Google News service in Spain, studies found publisher website traffic dropped by 10 per cent.
More recently, after France established a new link tax for display of links and short summaries of news articles, Google said it would comply with the law by eliminating the summary and providing only a link. The French competition regulator responded by ordering Google to negotiate a linking licence.
The same issue is currently unfolding in Australia, where the government has used competition law to order the parties to negotiate an agreement. Facebook last week told the Australian regulator that removing Australian news content from its site would not materially affect its revenues, adding that it sent more than two billion clicks to Australian publishers in the first five months of 2020 worth hundreds of millions of dollars.
These incidents suggest that a Canadian link tax could lead to the removal of Canadian news from internet platforms, leading to less Canadian content and reduced traffic and revenues for Canadian news organizations
Moreover, given that the plan effectively targets U.S. companies, the link tax would also raise the prospect of retaliatory tariffs under the new Canada-U.S.-Mexico trade agreement. Those tariffs can be levied on any sector, enabling the U.S. to target sensitive industries such as dairy, lumber, or steel.
Mr. Guilbeault found himself backtracking earlier this year when he expressed support for regulating the content of online news services. But his shift away from his own government’s policies on news media support and his plan to tax links to news stories signals that the tax and regulate-first approach is still a big part of his plan.