Canadian Heritage Minister Pablo Rodriguez is expected to introduce the Online News Act (technically An Act respecting online communications platforms that make news content available to persons in Canada), his response to a massive lobbying campaign from Canadian media organizations today. Bill C-18 will hand new power to the CRTC to oversee what are effectively mandatory payments by Internet platforms such as Google and Facebook for the mere appearance of news on their platforms. This represents nothing less than a government-backed shakedown that runs the risk of undermining press independence, increasing reliance on big tech, and hurting competition and investment in Canadian media. I will have several posts in the coming days including an analysis of the bill once it drops and a review of the lobbying campaign for the bill, which included over 100 registered lobbyist meetings by News Media Canada over the past three years and skewed coverage of the issue in which the overwhelming majority of news stories backed government intervention.

This posts provides a higher level assessment of why this bill is terrible policy. I start with two caveats. First, companies such as Facebook deserve much of the criticism that has come their way and there is a desperate need for stronger regulatory measures, most notably involving privacy, competition, taxation, and appropriate accountability for foreseeable harms that arise from the platforms. The dominance of Google and Facebook in the digital ad market raises particular concerns, but that is a competition issue, not a news one and requiring the companies to pay for news based primarily on having developed a more successful digital advertising platform is not a supportable policy.

Second, despite the serious transparency concerns identified this week by Canadaland, I am supportive of government support for the sector, which has undergone dramatic change affecting many journalists and the sources of news coverage available to Canadians. Several years ago, the sector lobbied heavily for government support and got it, with hundreds of millions in tax dollars poured into programs and tax breaks. The programs that have been introduced – the Local Journalism Initiative, the Journalism Labour Tax Credit, and the Digital News Subscription Tax Credit – offer some hope, provided they maintain a neutral, transparent implementation that does not favour legacy companies over new, innovative services. The transparency has thus far been a failure requiring immediate action. But it is still relatively early in the process and the government should have been content to allow those programs to play out and judge the need for further measures afterward.

By creating the shakedown subsidy model, the government runs the risk of significant harms. What are some of those harms? This post discusses five: independence of the press, competition and innovation, compensation without value, reliance on big tech, and administrative and governance risks.

Independence of the Press

Minister Rodriguez will insist that the government is committed to a free and independent press, likely citing the bill as a mechanism to enhance that independence by providing better financial support. Yet the reality is that the bill and the lobbying behind it has already undermined press independence. For example, I know of cases where opinion pieces have been spiked by mainstream media outlets because they criticized the previous Heritage Minister at a time when he was being actively lobbied on a potential media bill. Those decisions come on top of blank front pages and advertorials designed to curry support for the measures. The blurring of editorial and financial may be a fact of life, but it ultimately diminishes the credibility of the media.

The coverage and lobbying for this bill builds on the problems with the previous measures designed to support the sector. The Canadaland coverage demonstrates how promised transparency never materialized and previous coverage expressed concern about the independence of the decision making process itself, which appeared to favour large incumbents over new, innovative start-up news organizations. Simply put, programs and policies that make Canadian media organizations more reliant on government intervention has had a demonstrable impact on independence of the press.

Competition and Innovation

The policy undermines competition at a time when there is more investment in media ventures than ever before as investors put billions into the sector worldwide. From a Canadian perspective, some of Canada’s largest and most powerful media organizations, including the Globe and Mail, Toronto Star, Le Devoir, and the Winnipeg Free Press have struck licensing deals with the Internet platforms. Further, many smaller or independent organizations have also reached agreement with Internet platforms. This points to the reality that there is the ability to negotiate mutually beneficial agreements without the need for government intervention or mandates.

In fact, the list of digital-first independent media organizations continues to grow with many now supporting serious newsrooms backed by thousands of subscribers or robust advertising. A sampling would include:

• AllNovaScotia
• The Breach
• Canadaland
• The Coast
• La Converse
• Daily Hive
• The Discourse
• The Halifax Examiner
• IndigiNews
• The Logic
• The Narwhal
• National Observer
• Oakville News
• Overstory Media Group (including Capital Daily, Fraser Valley Current, Burnaby Beacon, Calgary Citizen)
• Peterborough Currents
• The Pointer
• The Post Millennial
• The Public Record
• Rabble.ca
• RdNewsNow
• Rebel News
• The Sprawl
• Sun Peaks Independent News
• Taproot Edmonton
• The Tyee
• Village Media (dozens of local Ontario news sites)
• The Walrus
• West End Phoenix
• Western Standard

This list represents hundreds of Canadian communities and a wide range of political perspectives. The publications might not be owned by Postmedia or Torstar, but they offer much of the coverage that Minister Rodriguez fears is being lost. Indeed, as Emma Gilchrist noted last year:

Many new and innovative business models are succeeding. Village Media, a company based out of Sault Ste. Marie, Ont., was started by digital natives in 2013 and now employs 105 full-time staff. The Sprawl, in Calgary, is primarily funded by its readers and doubled its paying monthly members in 2020. The Vancouver-based Tyee has been a pioneer in the digital media sector since 2003 and increased reader revenue by 58 per cent last year. IndigiNews, launched in 2020 by The Discourse and APTN, has grown to a team of eight – doubling the number of Indigenous journalists reporting in B.C. in a single year. Canada’s National Observer and The Narwhal have amassed a tidy pile of awards reporting on climate change and the environment. Toronto’s West End Phoenix, Halifax’s The Coast, Quebec’s La Converse – the list of independent successes, most owned or led by journalists, is so long that Maclean’s recognized “independent media” on its 2021 edition of its “Power List.”

A policy that favours the legacy companies that have struggled to adapt to the online environment is an approach that will harm competition and make the transition to digital, independent media even more difficult.

Compensation Without Value

The government’s plans effectively require compensation without something deserving of compensation. That is best described as a shakedown. The availability of news on Internet platforms is largely limited to links to news articles that refer users back to the original source (full length articles are licensed). There is no copyright violation for linking to content, the posts come from users or the media companies themselves, and there is value to the publishers in the form of the referrals to the full content.

For example, when links to news articles are posted to Facebook – most commonly by the news organizations themselves – those news articles do not appear in full. Rather, they are merely links that feature a headline, photo, and brief description that then send users to the original news site for more. From Facebook’s perspective, there is enormous value in referring users to media sites, who benefit from advertising revenue from the visits. Indeed, Facebook estimates the value at hundreds of millions of dollars. While it does licence some news content, the overall value of news articles to the site and its users is limited.

In fact, the value derived from posting of links to news organizations accrues to publishers from free referrals to their content. Not only do media organizations benefit from the free referrals, but they also actively encourage their users to post links, including widgets to do so at the bottom of every article. The reason is obvious: it increases traffic to their site and thereby generates ad revenue. Facebook does not charge a referral fee, a posting fee or any other fee in connection with the display of links to the newspaper article.

This is not to suggest that the news has no value. Obviously it does. However, the news has limited value to the Internet platforms, which represents a tiny fraction of overall traffic. In considering how platforms have responded to similar measures in the past, previous attempts to mandate licensing of news articles in Spain and Germany led Google to remove the content from its news service. As a result of the Google news shut down in Spain, studies found publisher website traffic dropped by 10 per cent, demonstrating the value that free referral links provide to news publishers.

If the forthcoming bill is not about compensating for links, what is being compensated? It appears that the answer is simply that the Internet companies have developed better digital ad models than the legacy publishers. In fact, the same politicians that now seek to regulate payments are themselves active advertisers on Internet platforms. Last week, Conservative MP John Nater engaged in the following exchange with Liberal MP Francesco Sorbara in the House of Commons:

Nater: Madam Speaker, the member opposite talked a lot about the foreign streamers and the web giants. I am just curious to know how he feels about the fact that he has spent $19,000-plus on Facebook advertising, rather than focusing on the important local broadcasting or local newspapers in his own riding. Why does he feel the need to spend his money on the foreign web giants rather than investing in Canadian broadcasting and print journalism?

Sorbara: For the hon. member, I am sure that if we look at all parliamentarians and the advertising they do, because many of our residents are on Facebook and other platforms, I am sure that we would see that all parliamentarians advertise to reach their residents through the platforms they are using to receive their information as well.

Sorbara is right. MPs, much like many businesses, advertise on digital platforms because the ads are effective, not because there are links to news content on the same platform.

Reliance on Big Tech

The power of large Internet platforms clearly present policy challenges and broader societal concerns. As noted earlier, there is a need for regulation on a wide range of issues. But establishing a cross-industry subsidy model premised on little more than one sector being more profitable than the other further embeds the reliance on big tech. Indeed, rather than creating alternatives to big tech, it renders the Internet companies even more powerful. The cycle of seeking ever more subsidies – first from Canadian taxpayers and now from Internet companies – encourages more lobbying, not more innovation. As the legacy companies become increasingly reliant on these subsidies, they become less competitive, less innovative, and inextricably linked to big tech handouts.

Further, the prospect that the bill will extend beyond newspaper companies to include broadcasters such as the CBC and Bell’s stable of radio stations moves it from bad policy to absolute farce. For the public broadcaster or Canada’s largest media company to line up to demand payments shows the tenuous connection between payments and any plausible claim to compensation.

Administrative and Governance Risks

The government’s plan also raises several notable administrative and governance risks. At the very top is the reliance on the Qualified Canadian Journalism Organization (QCJO) designation. The recent Canadaland episode highlights not only how entities engaged in hate or misleading content may still be recipients of government support, but how the government’s commitment to full transparency in the process has failed to materialize. Relying on the same system creates extraordinary risks that may undermine public confidence in the entire plan.

The use of the CRTC is also a significant risk, particularly given that the Commission currently has a chair facing charges of bias who recently gave a talk that appears to pre-judge the implementation of legislation that has not received royal assent. With a chair willing to parrot government talking points, the independence of the CRTC is in question and when applied to its role in the media bill, raises questions about whether it can truly provide a neutral arbitration over licensing.

Finally, the policy raises potential trade risks under the USMCA, since the obvious targets of the legislation are U.S. companies and the sole beneficiaries are Canadian ones. If U.S. media outlets such as CNN or the NY Times are excluded from the plan – they certainly won’t qualify as QCJO’s – the possibility of a trade battle and potential retaliation becomes a real possibility.