Business·Analysis

Who pays the price for the news media's essential political role?

The market model for Canadian media is failing. News is essential to our political system, but it's not cheap. Can markets be left to fix it, or should we follow the European method of regulating, taxing and spending on quality news?

Economics of good government must include news, but someone has to pay for it

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In a media industry run for profit, Don Pittis writes that the rules of economics tell us the unwavering duty of any private company, whether it be Google, Meta or Postmedia, is not to the public interest of providing Canadians with news, but to maximize the income of those who own it. (Justin Tang/The Canadian Press)

Asked why he robbed banks, William "Slick Willie" Sutton was reported to have answered: "Because that's where the money is."

Like so many apt quotes, it may be that the highly successful 1930s bank robber never actually said those words. But as the government of Canada uses the Online News Act, Bill C-18, to find someone to foot the bill for what political theory tells us is the essential role played by Canadian media in democracy, Sutton's reputed logic may apply.

Tech share prices dipped last autumn, but since then Google and Facebook are back in the money. They and their parent companies, Alphabet and Meta, have prospered by selling carefully targeted online ads to everyone with a computer or mobile phone, while Canadian news media companies are in a spiral of lost readers, advertisers and revenue.

  • This week on Cross Country Checkup, our Ask Me Anything focuses on Google and Meta's plan to eventually remove links to Canadian journalism in response to the federal government's Online News Act.  Fill out the details on this form to get your questions in early.

Going to war?

This week Ottawa upped the stakes, announcing it would cut its ad spending with Facebook and Instagram in retaliation for parent company Meta's decision to remove Canadian stories from its platforms. According to the BBC, Canada is "going to war" with the tech companies, and even those in the media industry warn they may not win.

On the face of it, the issue is money. In what has been seen in Canada as a profit-driven industry, the purpose of the act, in concept at least, is to somehow return ad revenue tech companies swiped from Canadian news businesses. But to many who study the purpose and function of news in Canada, that focus is too narrow.

Some say the role of media as a watchdog is so important that it's the responsibility of governments to find the money in taxes and then spend the resulting cash to boost the private sector media industry. 

Perhaps most galling for Canadian news outlets, journalists and politicians who make the laws, the algorithms serving up Canadian news to social media platforms have contributed to the big tech cash pile just as Canadian reporters face mass layoffs and journalism is undergoing a new financial crisis.

As long-time journalist Bill Doskoch said in a recent letter to the editor "the smartest thing platforms did, from a business perspective, was to spend nothing on journalistic content." 

Natasha Tusikov, who researches internet governance at Toronto's York University, is not surprised tech companies are reluctant to contribute.

"We've seen again and again examples, for a decade or longer, of how these companies do not have the public interest at heart," said Tusikov in a phone interview earlier this year.

WATCH | Explaining the battle over the Online News Act: 

Big Tech vs. Canadian news: the battle over C-18, explained | About That

8 months ago
Duration 10:43
The federal government has suspended all of its advertising on Facebook and Instagram as the clash with tech giants like Meta and Google over Bill C-18, the Online News Act, continues. Andrew Chang explores what the bill means for how you get your news online.

Profit motive vs. public welfare

The trouble is that in a media industry run for profit, the rules of economics tell us the unwavering duty of any private company, whether Google, Meta or Postmedia, is not to the public interest, but to maximize the income of those who own it. Acting for the public welfare only occurs if it adds value to that first responsibility. As Tusikov explained, too often the two are in conflict.

Postmedia is a case in point. The chain has gobbled up media titles across the country, using complex financing to extract the value of assets. But as it did so, it shrank the number of titles and the number of full time reporters.

Margo Goodhand, ousted as editor of the Edmonton Journal in 2016 during a previous Postmedia shakeup thought it was a move in the wrong direction then. 

"How bizarre to relive this scenario yet again," Goodhand said in an email last week, referring to the latest planned merger between the owner of the Toronto Star and Postmedia.

And just as in previous acquisitions the latest merger "may not fix the companies' financial issues," according to a report by the Globe and Mail's Andrew Willis and Joe Castaldo. But predictions of doom for Postmedia have been wrong in the past.

Postmedia boss Paul Godrey in 1998 when he was president of Sun Media with then Quebecor Inc. Vice-President Pierre Karl Peladeau (L) during one a series of mergers and takeovers that resulted in a consolidation in Canada`s newpaper sector.
Postmedia executive chair Paul Godrey, right, in 1998 when he was president of Sun Media and then Quebecor Inc. vice-president Pierre Karl Peladeau during one of a series of mergers and takeovers that resulted in a consolidation in Canada's newpaper sector. (Reuters)

The media's crucial role

While money may seem to be at the heart of the current news media storm, the real issue may be something else.

In an interview this week, former Calgary Herald publisher Peter Menzies, who also spent a decade on the Canadian Radio-television and Telecommunications Commission, said that in the chase for big tech cash, governments are failing to focus on that more important thing: The crucial political and economic role of providing Canadians with news.

While finding the money to pay for content is important, he said, something else must come first.

"You have to have a national news policy," Menzies said. "It should have been done ages ago."

And part of the policy must be the awareness that not all media organizations will survive.

Menzies has outlined his ideas in a detailed report written with a former head of the Competition Bureau, Konrad von Finckenstein, and published by the Macdonald-Laurier Institute.

While the report remains business focused, assuming privately owned companies continue at the heart of how Canadians get the information they need, Menzies has some radical ideas about how to pay for news.

One of these is a "Canadian Journalists Fund" that would subsidize reporter salaries for qualified publications large and small, "agnostic of content," based on a one per cent tax on online advertising revenue of many different kinds, not just Google and Meta. The report says that as a publicly funded broadcaster CBC should be excluded, and should also no longer sell ads.

LISTEN | Media professor Chris Waddell dissects a media crisis:
It's a Canadian media power play unlike any other: Alphabet and Meta are fighting back against the Canadian government's Bill C-18. And caught in the middle is the news media. The Online News Act – was supposed to make tech giants pay for posting news stories to their platforms. Now Google and Meta say they aren't going to pay. Instead — they'll remove Canadian news from their sites and apps. It's a move that will make it more difficult for Canadians to access news. And may very well plummet news companies further into the red. This all comes as news companies are cutting back, looking at mergers, trying to get out of obligations of providing local news to Canadians. Chris Waddell joins Tamara Khandaker to sort through this. He's a former professor at the School of Journalism and Communication at Carleton University. He's also the publisher at J-Source, a website dedicated to the Canadian media industry. For transcripts of this series, please visit: https://www.cbc.ca/radio/frontburner/transcripts

You've been disintermediated

Menzies is convinced that conventional newspapers are going the way of the dodo, and that all news media — from local radio stations, to the public broadcasters like the CBC, to magazines, to traditional mass market daily newspapers — are converging into a single online form. He thinks the media industry understands that better than the policy makers.

"People are still trying to save newspapers. Forget it," said the former newspaper editor, who notes it may be difficult to explain to his grandchildren what Grandpa once did for a living.

There is also a theory that traditional news is no longer necessary. Using Twitter or Meta's new competitor, Threads, launched this week, or many other online sources, people scrolling their phones will find the information they want and need.

"Economists have a word for this kind of change: disintermediation, the removal of intermediaries. Or of media," wrote Canadian journalist Paul Wells in a recent blog post.

But Menzies and many others insist that Canadian news at local, regional and national levels — and as defined by a national news policy suggested in his report with von Finckenstein — remains a crucial tool for telling Canadians about themselves and creating community.

"The traditional role has been ensuring that people have a reliable source of balanced information," he said.

He noted that while the media is often seen as a method of holding governments and robber barons to account, it's perhaps more important to Canada's economy as a reliable source for "a gazillion different things" from local road construction to investment advice.

WATCH | Google threatens to block all Canadian news over new law: 

Google to block all Canadian news over C-18 fight

8 months ago
Duration 2:35

While the Menzies-von Finckenstein report conceive of their tax as a direct transfer from online advertising to Canadian news media, it is really just a hypothecated tax, like the old idea that gasoline taxes went to road building. Only governments have the power to tax, and governments get to decide how the money is spent.

But according to former editor and publisher of the Winnipeg Free Press Bob Cox, who as chair of the Canadian Newspaper Association, worked to promote what eventually became the Online News Act, governments may be on the hook one way or another.

"Everybody's in a bit of a panic. They have so much stock in this legislation," Cox said in a phone conversation this week. "Now it seems to be backfiring."

He said not everyone realizes that Google and Facebook have already been paying "significant amounts of money" to Canadian news organizations via licensing deals and agreements, and notes that money could be lost in the current dispute over the new act that may not result in any new support for Canadian journalism.

Tax and spend on news?

"If you start to lose hundreds of thousands or millions of dollars from your newsroom budget, it makes an immediate impact," Cox said.

He agrees that after taking so much wealth out of news in local communities, Google and Meta should be giving back. But like Menzies, he believed governments should simply impose a digital tax and use that money to support journalism. Instead, perhaps to avoid the trigger word "tax," the government set up a system for tech companies to pay news companies directly.

Cox notes that Canadian taxpayers already support news media companies with the $500 per person subscription tax credit, where eligible news companies are determined by a Canada Revenue Agency panel. He points out that internationally, taxpayer support for news media is the rule rather than the exception.

WATCH | From the CBC archive, Star printers strike over use of computers: 

No end to strike in August

4 years ago
Duration 1:07
By August 1964, the labour dispute involving ITU printers had not been resolved.

In Sweden, Cox said, it was partly an attempt to make sure news organizations cover a variety of views, not just those supported by their business owners. The subsidies in Nordic countries began in 1971 and created a strong news industry that has contributed to widespread readership and high levels of press freedom.

"Paid as direct cash handouts or indirect reduced taxes and fees, they exist in some form in almost every country in the world," said one academic study of press subsidies.

No content, no readers

To Cox, who continued to make money and keep readers at the Winnipeg Free Press during almost 20 years of turmoil caused by the digital transition, the important thing was content.

"It's an obvious thing to say, but you can't get rid of your content and expect people to continue reading," he said.

Menzies says it's been sad to watch the consolidation of so many vibrant Canadian newspapers, including the one he used to publish, into a single struggling chain lacking local content.

"It has not been a good thing," he said.

Perhaps a Canadian news policy could have prevented that. We can't go back and do it differently now. 

Menzies said there are still strong and successful news media titles in Canada. Besides Winnipeg, he points to the Victoria Times Colonist and to Moose Jaw, Sask., which has four "decent" online news sites.

He says those examples speak to the complexity of the issue.

"It isn't just a simple factor of 'Web giants have money, we don't. Give us some of theirs.'"

ABOUT THE AUTHOR

Don Pittis

Business columnist

Based in Toronto, Don Pittis is a business columnist and senior producer for CBC News. Previously, he was a forest firefighter, and a ranger in Canada's High Arctic islands. After moving into journalism, he was principal business reporter for Radio Television Hong Kong before the handover to China. He has produced and reported for the CBC in Saskatchewan and Toronto and the BBC in London.

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