Future of Media

Epic Fail: The Liberals’ Online News Act Faceplant

Clayton DeMaine
January 22, 2024
Yes, social media companies have succeeded in grabbing the vast bulk of advertising dollars that once supported Canada’s legacy news industry. But is offering a better product to eager consumers really “stealing”, as media companies and politicians now allege? And should new media titans Meta/Facebook and Google be forced to compensate their old-school competitors for failing to adapt to changing realities? In the first of three prize-winning entries from the 1st Annual Patricia Trottier and Gwyn Morgan Student Essay Contest to be published by C2C Journal, Clayton DeMaine examines the Justin Trudeau government’s much-fought-over Online News Act, its devastating impact on Canada’s news business and how the imbroglio is affecting his own dreams of becoming a journalist.
Future of Media

Epic Fail: The Liberals’ Online News Act Faceplant

Clayton DeMaine
January 22, 2024
Yes, social media companies have succeeded in grabbing the vast bulk of advertising dollars that once supported Canada’s legacy news industry. But is offering a better product to eager consumers really “stealing”, as media companies and politicians now allege? And should new media titans Meta/Facebook and Google be forced to compensate their old-school competitors for failing to adapt to changing realities? In the first of three prize-winning entries from the 1st Annual Patricia Trottier and Gwyn Morgan Student Essay Contest to be published by C2C Journal, Clayton DeMaine examines the Justin Trudeau government’s much-fought-over Online News Act, its devastating impact on Canada’s news business and how the imbroglio is affecting his own dreams of becoming a journalist.
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As if Canada’s legacy media outlets don’t have enough problems – sharply falling revenues, a loss of their users’ trust and a growing sense of irrelevancy, among many others – they must now contend with the fallout from the federal Liberals’ disastrous efforts to save them.

Last summer, Prime Minister Justin Trudeau’s government passed its contentious Online News Act, once known as Bill C-18. This legislation is intended to rescue Canada’s major news organizations by compelling social media companies to pay “their fair share” for linking to or summarizing news items. The stakes are high. In 2022 online advertising revenues in Canada were estimated at $14 billion, with 80 percent of that earned by Meta (the parent company of Facebook) and Google. The Liberals’ plan was to extract a chunk of this revenue – perhaps $230 million – from these two behemoths and hand it over to traditional or “legacy” media companies (that is, newspapers, radio and television stations).

With recent developments bringing the implementation of this policy into clearer focus, it is now obvious these efforts are accomplishing the opposite of what was originally intended. Rather than saving what used to be known as “the press”, the Online News Act is making it harder for news outlets to operate, harder for innovative competitors to enter the market and harder for Canadians to access reliable news sources. All this puts a free and vibrant news media in Canada at risk. Meanwhile, the Liberals’ claim that their rescue plan has delivered an extra $100 million annually to the industry has blown up in their face.

No News is Bad News

The immediate result of the Online News Act, which received Royal Assent in June 2023, was to dramatically reduce Canadians’ access to news sources of all kinds. That’s because in August, Meta announced that if Ottawa went ahead with demanding a “link tax”, it would simply prevent Facebook users from sharing Canadian news links. As the 20 million Canadians who regularly use Facebook now know, the company was good to its word. It is now impossible to post links for domestic news items from most outlets on the social media platform. Google initially said it would do the same thing once the law came into full effect six months after receiving Royal Assent.

Since the Online News Act came into effect in summer 2023, Canadians have been unable to access domestic news links on Facebook; notices such as the one depicted above pop up instead. (Source of top photo: Shutterstock)

The Online News Act is premised on the claim that tech companies are effectively stealing content from news outlets and using it without proper payment. Yet this argument fails to consider the give-and-take relationship between news organizations and social media platforms. In fact, news outlets actively encourage readers to share their stories on social media as a way of getting more eyes to their websites.

These links play a role similar to how newspapers once relied on loud-mouthed street-corner newsboys to cajole readers into buying a paper. If you want to attract new customers, you need to get their attention. Google’s role is somewhat different from Facebook’s in that it offers users short snippets of news stories in digest fashion in addition to links to the full item. But the ultimate result is the same – interested readers can head to the original site if they want more information.

Facebook and Google thus help to share news stories among Canadians. Rather than theft – as some Liberal MPs characterize it – it’s more like a partnership. But a partnership in which the benefits go mostly one way.

“Not only does [the Online News Act] hamper our ability to reach our audience, it harms the community we serve,” says Kate Stollar (left), news director of Durham Radio News. Stollar admits it is “difficult to grow…without the use of social media.” (Source of right photo: Pexels)

The shockwaves from Facebook’s news ban were immediate. Within the first month, for example, Paul MacNeill of Prince Edward Island’s Island Press and Jeff Elgie, CEO of Ontario’s Village Media, both complained to the CBC about the effects on their news sites. MacNeil explained that web traffic to his site was “down by around a quarter since the start of the Meta block.” Elgie said traffic to his site had declined by around 15 per cent. In Durham Region, east of Toronto, Kate Stollar, the news director of Durham Radio News, posted a rare editorial statement on her station’s website stating that “not only does this bill hamper our ability to reach our audience, it harms the community we serve.” Stollar said the Liberals’ plans to “help” the media industry will actually delay her company’s plans to expand its audience because it is “difficult to grow…without the use of social media.”

Lack of Leverage

While Facebook’s news ban is clearly having a big impact on traditional media outlets’ web traffic, the same does not hold in reverse. The social media firm insists that news links account for an insignificant portion of its own business, amounting to less than 3 percent of the total content shared on its platform. And the loss of these links, it says, has an immaterial impact on its profitability. Independent data sources appear to back this up. Following the news block, analytics firm Similarweb reported very little change in traffic on Facebook. Data.ai also reported that its was “not showing any meaningful change to the usage of Meta in Canada.” News organizations may rely on Facebook to drive readers and viewers to their websites, but the relationship isn’t mutual.

In essence, the federal government tried to extort the two social media giants, but without having any meaningful leverage over them. Facebook does not need to share news to be successful. Despite the prime minister’s accusations that Meta and Google are “not paying their fair share”, these companies are under no obligation to play along with Canada’s extortive “link tax”.

Not paying their “fair share”: While the loss of Canadian news links has had an immaterial impact on Facebook’s usage and profitability, the meme that the tech giants’ free marketing of the legacy media’s output amounts to theft – as claimed by the Justin Trudeau government – simply won’t die out. (Source of top photo: The Canadian Press/Adrian Wyld)

It is, in fact, nonsensical to accuse an organization of stealing when it is providing a free service to firms that are eager to use an advanced technology that benefits their business. As Nick Clegg, President, Global Affairs at Meta, told a House of Commons committee last year, “It makes no more sense to claim social media companies are taking money from publishers than to say car companies stole from the horse and cart industry.”

According to Meta’s president of global affairs Nick Clegg, the Liberal government’s accusation that tech giants are exploiting Canadian news providers “makes no more sense…than to say car companies stole from the horse and cart industry.” (Source of photo: UK Government, licensed under CC-BY-2.0)

Proponents of the bill may argue the Online News Act gives legacy media a chance to level the playing field with newer web-based media that are nimbler and more niche-oriented. But using the state’s power to regulate an industry in favour of certain companies isn’t creating fairness; it is the opposite. And keep in mind that legacy media outlets in Canada already benefit from enormous government support programs, including wage subsidies and subscriber tax credits, to keep them afloat. Now we have additional legislation that seeks to hand over even more money to these struggling, if not failing, companies. Only this time the money is coming from other profitable firms rather than taxpayers.

Unintended Consequences – Like Fewer Journalists

The sheer volume of government involvement in the financial situation of legacy print and electronic media companies raises red flags about conflicts of interest. In a democracy, one of the news media’s primary jobs is to report on government actions objectively and to help hold it accountable to the public. Yet the financial incentives flowing from government call into question these outlets’ ability to remain independent. The CBC, for example, has an obvious conflict of interest when reporting on the federal government, since Ottawa provides the bulk of its funding. But what happens when the same applies to all media companies?

Consider the case of Postmedia, owner of numerous daily newspapers across the country, including the right-leaning National Post, a regular critic of the Trudeau government. In its most recent quarterly financial statement, however, Postmedia explicitly praises Ottawa for the Online News Act and various other government subsidy programs. “We welcome and thank the Canadian government for its revisions to the Journalism Tax Credit and…the Online News Act,” the release states. “Both represent material stabilizers to Canada’s domestic media industry.” With its survival now dependant on Liberal policy, how might the Post’s ongoing coverage of the federal government be affected? The legislation could have a chilling effect on many once-independent media outlets.

The Facebook news ban dramatically shrinks not only news outlets’ but individual journalists’ scope to promote their work, which in contrast to the newspaper era of old (top left), now depends heavily on leveraging social media. This is especially hard on newcomers attempting to make a name for themselves – including this essay’s author (top right). (Sources of photos: (top left) Library of Congress; (bottom) Shutterstock)

Another unintended effect arising from the Online News Act is that the Facebook ban it triggered is standing in the way of new journalists entering the business. This in turn is limiting the potential for fresh and creative approaches to covering the news. As a student journalist who is just entering the industry, my ability to leverage social media to promote my work is crucial to building a reputation for myself. The inability to share links on Facebook, which used to be the number-one social media site to access news online, is therefore very discouraging.

Beyond punishing independent journalists, Facebook’s news ban is also hurting start-ups that lack an established readership base they can use to promote themselves. If the ban becomes permanent, the status quo will continue to be favoured, exacerbating the existing media echo chamber. It also makes it harder for independent media organizations that refuse to take state handouts to distinguish themselves from the legacy crowd. All this is reducing the already low level of trust the public has in media organizations. And it props up out-of-touch news outlets that might otherwise fail. Rather than merit and innovation, access to government support is becoming the determining factor in the survival of news organizations.

Media echo chamber: By making it harder for independent media to distinguish themselves from legacy organizations, the Facebook news ban is likely to further erode public trust in the media. (Source of graph: Digital News Report, by Centre d’études sur les medias, The Reuters Institute, University of Oxford, 2022)

Finally, casual news consumers who don’t actively seek out or subscribe to individual news sources but are happy to stumble upon news stories as they surf social media have also been left worse off by the disappearance of Facebook news links. Reducing the amount of news and information consumed in this way can’t be positive. The Online News Act is thus a barrier to a more knowledgeable public and a healthier democracy.

The Google Deal

In contrast with Facebook’s hardline approach, Google recently reached a deal with Ottawa in line with the Online News Act’s demands. In November, the search engine giant agreed to pay $100 million annually to Canadian news outlets as compensation for sharing short summaries of news stories with users.

At first blush, this appears to vindicate Ottawa’s strategy: one of the two large thieving social media platforms has agreed to cough up serious money to compensate traditional media organizations for sharing their product. Certainly, that’s how federal Heritage minister Pascale St-Onge sold it when the deal was announced. But according to Canada’s pre-eminent expert on the issue, such is not the case. The Google deal is as bad for the media industry as Facebook’s non-deal. And it’s further evidence of Ottawa’s weak hand on the entire media file.

Michael Geist is the Canada Research Chair in Internet and E-Commerce Law at the University of Ottawa and a widely-respected commentator on social media issues. In an interview, Geist argues that Google’s $100 million deal is much less impressive than it first seems. “The amount of new money that is available out of this system is far less than meets the eye,” he cautions.

“It’s not a success”: Michael Geist, Canada Research Chair in Internet and e-Commerce Law at the University of Ottawa, cautions that Google’s planned $100-million handover to news organizations – the Liberals’ proclaimed triumph – is “far less than meets the eye” and will not benefit the majority of news outlets. (Source of photo: uOttawa)

The Google deal – which necessitated major amendments to the Online News Act’s original regulations – states that a newly-formed collective of news organizations must negotiate with the firm to distribute the promised $100 million. For the privilege of representing the industry in this way, Geist says he expects the consortium will earn a 5 percent administration fee, or $5 million per year. This may prove to be the most lucrative part of the entire deal. Various industry groups, including the Canadian Association of Broadcasters and News Media Canada, are already lining up for a grab at this brass ring.

Once the administrative goodies are allocated, however, the amount of new money available for distribution to struggling media firms appears wholly underwhelming. Crucially, Google’s deal replaces a slate of earlier deals the company had already signed with various domestic news organizations. While these deals are not public, Geist figures they are in the range of $40 million to $50 million per year. Of the $100 million supposedly available to save the media industry, therefore, perhaps half or more of this sum merely replaces money that was already being paid out, or will be sucked up in administrative fees.

Geist admits the Google deal does put some additional funding on the table. But from this must also be subtracted future losses arising from Facebook’s ongoing news block. The question is whether the additional cash from Google outweighs the continuing loss of web traffic due to the news ban on Facebook. If you asked news outlets which they prefer, Geist suspects that “many of them would choose to not to have ventured into this legislation at all.” Adds Geist: “I don’t think that [the federal] approach was ultimately the right one. For many outlets, they will get less than they were getting before. Some will get nothing at all. It’s not a success.”

Assessing the Damage

The damage done by the Online News Act appears significant and far-reaching. As we have seen, the Facebook news ban is robbing the entire industry of a convenient way to reach new consumers. Of even greater concern, the ban is making it more difficult for new competitors and young journalists to succeed. Meanwhile, Ottawa is piling on the subsidies and other assistance for the benefit of legacy media outlets. These policies raise further troubling issues, including conflicts of interest and the erosion of objectivity. Even worse, as Geist points out, the Liberals’ alleged triumph of their $100 million deal with Google turns out to be worth only a fraction of its advertised amount.

Who benefits? Disadvantaged by Ottawa’s Facebook news ban, independent outlets find it harder to survive while the legacy media are sustained through government subsidies. Conflicts of interest and further loss of objectivity seem inevitable. (Source of photo: Kevin D Jeffrey/Shutterstock)

Rather than painting successful tech companies as villains or scapegoats, Ottawa should leave the industry alone to sort out its own problems. Media companies need to focus their efforts on regaining the Canadian public’s trust and addressing why so many news consumers are watching less and less of their content. Rather than protecting legacy outlets with subsidies, tax credits and compelled payments from successful competitors, it should be federal policy to encourage as much competition as possible. This is desirable because it encourages a diversity of viewpoints. At the same time competition facilitates the removal of old and failing models while improving the overall quality of those still left in the game. Government regulation and manipulation jeopardize the very nature of a free press.

Clayton DeMaine is a student journalist attending Durham College in Oshawa, Ontario. This story is an edited version of his submission to the 1st Annual Patricia Trottier and Gwyn Morgan Student Essay Contest sponsored by C2C Journal, the Institute for Liberal Studies, Generation Screwed and the Aristotle Foundation.

Source of main image: Shutterstock.

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