Report tackles 'unsolved riddle' of how to fix ailing news industry

A report ordered by the Liberal government on how to fix Canada's ailing news industry calls for major tax changes, stripping digital ad revenue from the CBC and the creation of special government-supported funds to support newsgathering.

The 12 sweeping recommendations from the Public Policy Forum, a think-tank, follow months of consultations and research into the massive disruption of traditional business models in the news industry by digital upstarts.

The report warns that democracy is imperilled by the collapse and disappearance of traditional newspapers, as small digital suppliers of Canadian news struggle to fill the gap.

"Never have Canadians had access to more information," says the $270,000 report, financed largely by two federal departments.

• Read the full report (pdf)
• Internal document raises possibility of taxing digital services
• Squeeze cash from Facebook, Google, say news leaders

"But the capacity to produce original news, particularly of a civic nature, is severely constrained by the unsolved riddle of how to finance the cost of journalism in the digital age.

"While fake news takes just moments to make up, real news often requires days, weeks and even months of digging and verifying."

Among the recommendations is a significant change to the tax law that would require many advertisers to pay a 10 per cent levy to Ottawa if they place ads in non-Canadian digital services, such as Google and Facebook. That's expected to produce a federal revenue stream of up to $400 million annually.

The move is intended as a simple fix to an outdated tax law that denies tax breaks to Canadian advertisers if they place an ad in a foreign newspaper such as the New York Times, but gives them a full tax break for advertising on a foreign digital website such as nytimes.com.

The report also calls on Ottawa to enforce sales taxes on digital news and information suppliers who may be located outside Canada, but who sell subscriptions to Canadian customers.

Proposes changes to CBC, CP

CBC's mandate would be revamped to forbid the corporation, which runs Canada's biggest news website, from selling digital ads. That's in line with a recent pre-emptive proposal by CBC management to stop selling all advertising.

The corporation's news and information stories would also be considered public property, available for use by any news supplier, and the CBC's mandate would be rewritten to focus more on the job of informing Canadians.

To compensate for the loss of local reporters across the country as publications downsize, the Public Policy Forum says Canada's national wire service, The Canadian Press, should create a second tier of service costing as much as $10 million annually.

The supplementary service would put between 60 and 80 new CP reporters into city halls, legislatures and courts across the country, and their stories would be available for use without charge by any accredited news outlet.

The cost of this and other new entities being proposed would be covered by an arm's-length fund created by the federal government, with a startup taxpayer investment of $100 million — and funded in future years by tax revenues collected under the new advertising rules.

The fund would also pay up to 75 per cent of the cost of new digital projects, and help cover legal costs for smaller digital startups.

Another recommendation would tighten copyright rules to prevent original content produced by Canadian newsrooms from being used without permission by digital companies.

The report also calls on government to revise charity law to make it easier for non-profit and charitable foundations to support newsgathering, as they do in the United States. And a new Future of Journalism & Democracy Fund would finance the training and hiring of between 60 and 80 Indigenous journalists. 

Industry not impressed

The proposed changes come as a House of Commons committee also examines potential solutions to the digital disruption of the news business. A report expected this spring.

The findings also arrive the same week the Postmedia newspaper chain laid off reporters at three of its major newspapers.

A spokesman for Canadian Heritage Minister Mélanie Joly, who asked for the report, said the government is reviewing the proposals along with other consultations about Canadian content in a digital world.

"We anticipate if there were policy changes to be made following these consultations, it would be later this year," Pierre-Olivier Herbert said in an email.

The head of the Public Policy Forum, former journalist Ed Greenspon, called the proposed advertising tax changes the core of the report's recommendations — and it was that proposal that drew quick criticism from Google Canada, which would be significantly affected by the change.

"Such measures would be challenging to implement, reduce the competitiveness of Canadian business and may make it harder for smaller news publishers to thrive," Aaron Brundle, head of public affairs, said in an email accompanied by a flow chart about the impacts.

• Torstar banks on app as replacement for dwindling print circulation
• CBC president defends ad-free proposal, asks Ottawa for $400M to 'unshackle' broadcaster 
• Ad revenue outlook sees continued big gains for digital media in 2017 

Greenspon acknowledged that implementing any proposed tax change is fraught because of complex trade rules under NAFTA, now under scrutiny by U.S. President Donald Trump's administration, and under the World Trade Organization.

The recommendations also got a lukewarm reception from Bob Cox, publisher of the Winnipeg Free Press and spokesman for Newspapers Canada.

"Unfortunately, I don't see much in the report to support its stated goal of helping the news media with measures to strengthen economic sustainability," he said in an email.

"It certainly outlines the challenges facing traditional news media, particularly newspapers. But the recommendations won't do much to help us build out sustainable new business models."

Follow @DeanBeeby on Twitter