Journalism Subsidies: A Case Study in Government Failure

Lydia Miljan
July 30, 2020
Judging by the sheer volume of information coming our way, the Canadian news media are the very picture of health. But quantity isn’t indicative of quality, and the age of clickbait could put the final nail in the coffin of the nation’s legacy media. So who cares? Well, as online upstarts fill only a tiny proportion of the resulting void, the size, influence and market share of the taxpayer-subsidized CBC continue to grow – and some want it to grow further still. Could that possibly be good for diversity of news and views? Lydia Miljan lays out what ails the Canadian media business model, charts the deterioration of journalistic quality, points to the bright spots and makes the case for two practical and achievable federal policies that could allow our media sector to save itself.

Journalism Subsidies: A Case Study in Government Failure

Lydia Miljan
July 30, 2020
Judging by the sheer volume of information coming our way, the Canadian news media are the very picture of health. But quantity isn’t indicative of quality, and the age of clickbait could put the final nail in the coffin of the nation’s legacy media. So who cares? Well, as online upstarts fill only a tiny proportion of the resulting void, the size, influence and market share of the taxpayer-subsidized CBC continue to grow – and some want it to grow further still. Could that possibly be good for diversity of news and views? Lydia Miljan lays out what ails the Canadian media business model, charts the deterioration of journalistic quality, points to the bright spots and makes the case for two practical and achievable federal policies that could allow our media sector to save itself.
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In early May my local newspaper, among 14 others, published its final edition. The weekly paper had been in operation for 144 years and offered local news and information for the roughly 20,000 residents of my small Ontario town. It covered municipal affairs, little league sports, and featured local news and entertainment. While I’m saddened to hear that local journalists have lost their jobs, I can’t say I’ll miss the paper itself as I don’t remember the last time I read it, and that’s from a news junkie.

It’s easy to blame the internet for the loss of these and many other journalist positions over the last two decades. Conventional wisdom is that the internet has destroyed the news industry by giving away the product and undercutting its historical business model. Yet the truth is that all this is happening in a time when more Canadians than ever are getting news from newspapers.

According to a Newspapers 24/7 Report, 88 percent of Canadians read a newspaper weekly. It’s not just Boomers. Millennials also read them in large proportions. The only difference is that Millennials happen to prefer reading on their handheld devices – tablets or smartphones – rather than in print. Anecdotally, I can report that some of them consider the printed product downright bizarre. Consequently, the online reach of Canadian newspapers is quite astounding, especially when compared to print circulation. For example, the Globe and Mail has a print readership of 336,487 but receives 13 times that in annual visits to its online platform, a total of 24,480,000. The same relationship is true for the Toronto Star and the National Post.

Journalism subsidies have acted as a bandaid for many newspapers struggling to adapt.
Despite more people consuming more information that ever before, journalism subsidies have not prevented the loss of journalists' opportunities.
Ever-more readership? While the printed product declines, Millennials and others read the same content voraciously on handheld devices.

How can it be that at once more people than ever are reading news and information, yet newspapers are under threat? This isn’t just because the Covid-19 pandemic shut down the economy. For local papers such as mine, one of the reasons for their failure was that they, or their corporate owners (Postmedia), did not innovate. They also neglected their core mandate to provide local news, what most readers were mainly interested in. When faced with declining revenue, most news organizations cut local coverage first and relied on chain-provided and national content to fill the ever-shrinking news hole. As the mayor of Winkler, Manitoba, whose own community paper was also closed in the announcement, said: “I heard a lot of complaints about how the paper itself just became an advertising carrier rather than [providing] content that was local.”

It’s not as if government hasn’t been concerned about this problem for some time. The closures happened after the federal government gave a hefty subsidy to support local Canadian journalism. In the 2019 federal budget, just prior to the general election, Finance Minister Bill Morneau announced a nearly $595-million injection into Canada’s newspaper and media industries. The money was provided in three parts: a labour tax credit; assigning charitable status to non-profit media organizations; and an additional 15 percent tax credit for new subscriptions.

Tax credits won’t save you: Postmedia still had to close many of its local papers.

When the Liberal government first floated the idea in its Fall 2018 Economic Statement, it justified the proposal by stating, “Concerns have been expressed that, without government intervention, there may be a decline in the quantity and quality of journalism available to Canadians, including a significant loss of local news coverage.” To ensure, it was hoped, the viability of local news, Postmedia received $10.7 million in journalism tax credits. Even with this support, the company found that its underperforming community weeklies were no longer viable. I remain skeptical regarding the timing of Postmedia’s announcement and its statement attributing the loss of advertising revenue to the pandemic.

While it is easy to maintain that this is all the fault of the internet and, by extension, a market failure, I argue instead that this is an example of government failure. First, because as we have seen, subsidies don’t work. Second, we have a massive continuing program that undercuts virtually all Canadian journalism provided by the private sector: the CBC’s more than $1 billion annual subsidy, including a new category aimed at helping “Mothercorp” compete directly with the private sector. Finally, the Canadian government has failed to protect intellectual property rights. I’ll begin with the property rights issue.

The Online Environment’s Challenge to Old Media

Survival of the fittest: New news media and delivery channels have hastened the decline of legacy organizations.

To what extent does government subsidy stifle innovation? We often lament all the jobs and publications that have been lost since the advent of the internet. Newspapers have closed, newspaper chains have been diminished, and advertising revenue is down for newspapers as well as television. At the same time, new media organizations have developed exclusively online. Some of those helped to hasten the demise of the traditional press, but that’s because they are more efficient. Should we as consumers care whether we are receiving our news from legacy media or from new ventures (assuming no changes to quality or reliability)?

Meanwhile, online classified ads replaced the financial foundation of newspaper chains. Likewise, we have seen the rise of completely new media oligopolies such as Google, Facebook and Twitter. Mind you, Google is an aggregator while Facebook and Twitter are social media sites. None creates more than a tiny fraction of original content. They either rely on users to do it for them or they repackage what others have created and resell it, making their money from the advertising they put on their pages and from selling market intelligence they gain by tracking and gathering data about their users. The practice of reusing content created by other parties (such as newspapers) without compensation amounts to intellectual property theft, and it is being done on a monumental scale. 

Canadian Copyright Laws don’t Protect Intellectual Property

The Canadian government has aided and abetted this intellectual property theft by abjuring stricter enforcement of copyright. As John Boynton, CEO of Torstar, argues, “We just need a way that we can work with the government to not get any more handouts but to literally level the playing field, and treat Canadian owned-and-run-businesses the exact same way you would treat—and I can’t even believe I’m saying this—treat Canadian business with the same fairness as an international monopoly.” By which he clearly meant the U.S.-based online giants.

This should not be considered a hard ask. For example, in 2019 the European Union created a new directive on copyright that enshrined a “publisher’s right”. This means that the publisher has the right to control the content that they produce. France also requires Google to negotiate with publishers to reprint material. Similarly, Australia has followed Spain’s lead to force digital platforms to pay for media content that turns up in feeds and search results. In the case of Spain, however, Google shut down its news service in that country rather than pay up. It is still unknown whether Australia will be more successful.

As opposed to journalism subsidies, John Bolton of the Toronto Star argues there is an opportunity to help organization's by strengthening intellectual property laws.
This poster campaign in Ottawa is taking issue with the effects of intellectual property theft. The group believes in this issue as the solution for news organization's, not journalism subsidies.

Canada instead chose the easier, lazier, more politically palatable path of subsidy. A stopgap at best, it only briefly delayed the inevitable demise of the local papers. And it was based on misplaced thinking. As was acknowledged in a recent review of Canadian journalism by the Public Policy Forum, “Public policy should hold no interest in who produces this news – whether a mighty television network, a newspaper born in the 19th-century, an independent journalist or a digital start-up – only that it exists.” Refreshingly, after careful study, the organization also concluded that government subsidies would not work to save Canadian journalism.

When the federal government developed its aid package to journalism, it wasn’t saving journalism, it was attempting to forestall the demise of the journalism industry of the 19th century. While part of the package was aimed toward journalists in the form of a labour tax credit, it nonetheless required a panel of news agencies and union leaders to decide which companies qualified. As we have seen with the closure of the 15 local weeklies, this has not done much to save journalism. If the federal Liberals – or a successor government – are sincere in their stated intention to save Canadian journalism, they should focus on enforcing intellectual property rights and maintaining the conditions for competitive market to operate.

The CBC’s Privileged Position

Because Canadian governments, especially the current one, have shown a myopic focus on subsidies, they have facilitated the decline in private-sector journalism by providing a further advantage to CBC.

As it stands, the CBC only exists thanks to massive government funding, totalling over $1.2 billion in 2018-2019. Some years ago, the “national broadcaster” branched out and began running written versions of many of its stories, as well as creating original written content. Now, the government has propped up CBC’s digital presence to make it a direct competitor with the national and local newspapers. What irks most private news agencies is that the CBC was able to do this with a $150-million boost from the federal government above its regular public funding.

The prospect of journalism subsidies ending is unlikely in a country where private entities are forced to compete with a government-subsidized competitor giving away the same product for free.
The CBC’s massive public funding has enabled it to create a digital presence that is slowly strangling the legacy private-sector news media.

Today, CBC News online is the most accessed online news source in Canada, followed closely by CTV News and CNN. Legacy newspapers are far behind, with the top such outlet, the Globe and Mail, ranking 8th. All of these companies stand or fall based on the revenue they can generate on their own merits. Some of this comes from selling subscriptions which, in turn, requires restricting access to content using a “paywall”. The CBC is under no such constraint. As the Globe’s publisher, Phillip Crawley, told a House of Commons Heritage Committee, “It’s not level if taxpayer dollars directed to the public broadcaster make the competition for digital ad dollars more difficult.”

While traditional newspapers are moving towards digital subscriptions, those efforts are being undercut by the CBC’s digital presence, which does not have a paywall but still competes for advertising. The CBC’s commitment to the digital space has been impressive. As the organization boasts: “There are now more than 20 million Canadians who reach us on our digital platforms each month.” The Crown corporation’s Strategy 2020 aimed to transform the public broadcaster into a “digital media company.” It is working, for 84 percent of Canadian use at least one CBC/Radio-Canada service in a given month.

CBC supporters would have you believe that the only way to ensure the viability of Canadian journalism is not merely to maintain CBC funding but to increase it. In an editorial published in the Toronto Star, Daniel Bernhard, Executive Director of FRIENDS of Canadian Broadcasting, writes: “Nobody wants journalists to become dependent on the government they’re meant to scrutinize. But the federal government can help by properly funding the CBC. And the CBC can help by collaborating with private outlets rather than competing with them.” What he means by “collaboration” is for the CBC to provide content for the private outlets – meaning that the government-funded broadcaster would gain editorial control over an even greater proportion of Canada’s news content.

Bernhard added that the CBC’s budget needs to be doubled “with a mandate to freely share its news content with any media outlet that wants to use it.” This statement lays bare the real issue. It’s not about saving Canadian journalism, or journalists, for that matter. What CBC supporters want is a specific type of journalist to be protected. The plea for more CBC funding is not in furtherance of a diversity of opinions and perspectives, but instead for a homogenization of content across platforms.

Still more taxpayer funding to the Mothercorp? FRIENDS of Canadian Broadcasting’s Bernhard argues that even $1.4 billion per year isn’t enough.

Such a policy would make no sense from a business perspective, either. This was pointed out by former Globe and Mail parliamentary bureau chief Shawn McCarthy. “How do you persuade people to buy expensive subscriptions to the Toronto Star or the Globe and Mail when they can go and get the content for free on CBC?” he wondered. “[It’s] a huge challenge for the papers.”

While the CBC is outperforming newspapers for online news, this is thanks to the subsidy. When measured on a level playing field, Mothercorp tends to be a laggard – ironically, in its core area of broadcasting over the air. On both the national and local level, CBC news programs fail even to rank on the top-30 English-language shows. In contrast, CTV National News is ranked fourth and Global National is ranked 16th. The same holds for local news. In every single market across the country where there is a private broadcaster, CBC doesn’t come close to it.

Where CBC has made inroads is on the internet. CBC’s flagship program, The National, averages 7.7 million viewers per month whereas its digital space gets 17.4 million unique visitors each month. As a taxpayer, I applaud the CBC for attracting new audiences and giving me value for money. As a consumer, however, I worry that this foray into the digital space will leave less room for new voices and perspectives. The original impetus for the CBC was to ensure that Canadian voices weren’t silenced by Americans. It was never to crowd out other Canadian journalists — though it has done so throughout its storied history. Additional CBC subsidies will make it much more difficult for existing competitors to survive and for start-ups to emerge and innovate.

Journalism subsidies are helping private entities remain somewhat strong when it comes to on air, but CBC dominates online.
The CBC has an inherent advantage over private entities who are becoming more reliant on journalism subsidies.
On-air vs. online: CBC dominates in the second category but frequently gets creamed by its private-sector competitors in the first.

My previous research into how media report the news has shown that traditional news organizations tend to be very similar to each other. There might be a few outliers that skew a little to the right but, for the most part, Canadian media are editorially centre or slightly left-of-centre in their analysis and choice of coverage. The CBC is an outlier among large media as it is farther to the left than most private-sector outlets. Nonetheless, the dominant editorial focus of mainstream media has created space for new entrants on both the left and right.

Beyond the new media giants like Google and Facebook, other content providers have proliferated, particularly those with points of view normally muted or absent in in the mainstream media. Upstarts such as the Epoch Times, Quillette, Rebel Media, as well as established niche publications like C2C Journal have filled in points of view that the mainstream media have neglected. These organizations present the news or evaluate issues from the right-of-centre. On the left, there are the Tyee and rabble.ca. The niche outlets lack the preferential treatment afforded the CBC and, to a far lesser extent, other legacy media. Consequently, their markets remain small and their influence limited.

Upstarts filling the news gap.

What the internet affords challengers is much lower start-up costs, smaller payrolls and the freedom to experiment with different financial structures. As the donation page on C2C says, “Fake news is free. Real, reliable, fair journalism costs money.” Government subsidy of the legacy press and CBC, however, discourages this kind of creative destruction. It provides little incentive to innovate either in the type of news an organization covers or the way in which news is reported and analyzed.

Solutions

Just as the pandemic has put increasing pressures on the news industry, it has also changed our perception of government. The left is downright giddy about what it apprehends as a new consensus for an even larger role for the state. For believers in limited government and a market-based economy, it’s more important than ever to be vigilant against statists. But what should be the state’s role regarding journalism? In my view, the first priority should be to end subsidies to all media organizations and thereby enable a level competitive field governed by consumer choice and price signals to stimulate innovation. The second is inseparable from the first, and that is to enforce intellectual property rights so that content is no longer lifted from the producer and monetized.

Historically, each technological innovation has driven down the price of news and information for the consumer. Newspapers have been under threat since the advent of radio 100 years ago. In radio’s early days, newspaper publishers were threatened by the “free” information broadcast in the air. While listeners did not have to purchase the content directly, they paid indirectly by being subjected to advertisements which funded the content. The audience thereby became the commodity sold to advertisers. That model was later adopted for television and lasted for decades.

nnovation disrupts: The advent of “free” radio (and later TV) threatened newspapers, which were forced to adapt.

Newspapers adapted to competition from television and radio by consolidating holdings, making the news more homogenized, and leveraging supply by reusing content across a corporate chain or syndicating it for resale. At mid-century most cities had several newspapers and the public regularly consumed a morning and an afternoon paper. But, whenever a market signals that people aren’t buying a product anymore, then the provider must decide how to deal with the challenge. In the end, newspaper publishers economized where they could. Part of that was reducing the number of newspapers in each market.

Today, while more newspapers are sold online than in print and more Canadians have access to a much wider assortment of newspapers, it is estimated that only 9 percent of Canadians even pay for their news content. It is not surprising, then, that legacy newspapers are unable to keep their organizations sustainable. Not all new media organizations will be successful, either, but that’s a feature rather than a bug in a marketplace allowing for human ingenuity to solve problems and create new opportunities.

For the past 20 years, newsrooms have been hollowed out as the owners have repeatedly cut staff in the hope of saving their organizations. Although this has temporarily slowed the demise by reducing costs, it is unsustainable. What consumers want is more and better content. But so far, we haven’t been willing to pay for it. Our sense of entitlement to “free” content has resulted in a degradation of quality and an increase in the proportion of clickbait, infotainment and vapid celebrity “news”.

Think twice: Just because it’s free, does it mean that the quality is there?

The same model has held for television, although it was later in coming. Commercial entertainment on television was dictated to us by what programmers and advertisers thought we wanted to see. The advent of pay and speciality TV illustrated that when consumers are required to pay directly for our entertainment, we demand better content. As such, we have higher-quality entertainment programming today with speciality television, as well as online streaming services, than we had when we relied on advertisers to make our choices for us.

As journalism sorts itself out, I forecast that Canadians will start to demand better of journalism as well. That demand will be determined not by following clickbait but by paying for high-quality content. Whether the dominant relationship between consumer and provider will be through purchases of individual subscriptions or widespread use of aggregators remains to be seen.

Paying for entertainment means also getting high-quality content. Is this the direction that journalism will go?

As for my local paper, within one month of its departure a new online news organization launched on Facebook and the web. Freed of the print model’s constraints and using content from a mix of previous journalists and new ones, it is already proving more timely and relevant. It offers what anyone seeks from a paper: news, announcements, local events, obituaries and even advertising. I find myself much more likely to read and engage with this new venture. While the online paper is unlikely to make anyone rich, it demonstrates that local news can be acquired without government intervention. It also drives home that while creative destruction is painful in the short-term, it does lead to new opportunities and innovation. Had the government not subsidized the newspaper industry, my local paper might well have folded sooner – opening the way to its prompt replacement.

In my view, the only shot for Canadian news organizations at long-term financial sustainability is by securing formal legal protection of their intellectual property rights. This is the sole practical way to ensure that they will have the opportunity to safeguard and monetize the content that they produce, directly through subscription sales and licensing to resellers, and indirectly through sales of advertising space that has become attractive once more. Rather than throw money at the problem, the federal government needs to end the free rider of the global infotech oligopolies. While this may seem like a Herculean task, other countries have already done it.

Mothercorp should be weaned off its government subsidies at last.

Canada’s federal government also needs to wean the CBC off government assistance and make it a subscriber-driven new organization. Forcing the CBC to compete on an even playing field would create an environment conducive to true innovation and diversity of opinions in our news and information. As the Conservative Party’s draft resolution on the Canadian broadcasting system proposes, content ownership laws need to be strengthened to “ensure resellers pay Canadian producers for their original content.” Unless content producers are compensated for their time and labour, the decades-long slide in content quality will continue along with ever-less diversity in points of view.

Lydia Miljan is an Associate Professor of Political Science at the University of Windsor and a Senior Research Fellow of the Fraser Institute.

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