The “Netflix Tax” and other brilliant cableco propaganda

The following was published in the September/October issue of the Canadian Centre for Policy Alternatives magazine The Monitor and reprinted in The Tyee.

No sooner had Liberal MP Hedy Fry’s parliamentary heritage committee handed down its report on Canada’s news media crisis in June (after 16 months of hearings in Ottawa) than the newspaper industry bellied up to the trough and put in for a bailout worth $275 million a year. The timing was poor, as it appeared the other shoe had dropped a bit too quickly.

When it comes to money grabs, however, the press proved bumbling amateurs compared with Canada’s electronic media.

Titled Disruption: Change and Churning in Canada’s Media Landscape, the Fry report made many sensible recommendations. Some are long overdue, like changes to our charitable giving laws that would allow tax-deductible donations to fund journalism, as they can in the U.S. and elsewhere. Other recommendations repeat pleas made by previous inquiries, such as for a diversity test to prevent market dominance by any media owner, and changes to the Competition Act that would treat news media takeovers differently than those in other industries. The same measures were suggested in 2006 by a Senate committee on news media, but they were ignored by a newly installed Harper government that looked the other way for a decade as the country’s media instead consolidated into unprecedented power centres.

Internet Service Provision (ISP) profit margins, 2012-15

Our largest newspaper chain (Postmedia) was taken over on Harper’s watch by U.S. hedge funds, which now own 98% of the company—despite a supposed 25% limit on foreign ownership in this culturally sensitive industry. Postmedia in turn took over Sun Media, our second-largest newspaper chain, giving it 15 of the country’s 21 largest dailies, including eight of the nine largest in Western Canada.

CEO Paul Godfrey promised to preserve competition in cities where Postmedia thus owned both dailies and the Competition Bureau signed off on the deal in 2015. The double-cross came last year, when Postmedia merged the newsrooms of its duplicate dailies in Vancouver, Edmonton, Calgary and Ottawa, prompting Fry’s inquiry. (See “Can Canada’s Media Be Fixed?” in the July-August 2016 Monitor.)

The Fry report left vague any process for subsidizing news media in its first of 20 recommendations, urging only that the heritage minister “explore the existing structures to create a new funding model that is platform agnostic and would support Canadian journalistic content.” Within hours, however, the newspaper industry weighed in with a detailed—and self-serving—proposal that was hardly agnostic with respect to platforms.

The industry suggested the Canadian Periodical Fund, which currently subsidizes magazines and non-daily newspapers to the tune of $75 million a year, offered a suitable model. News Media Canada, an industry group created by a recent merger between Newspapers Canada and the Canadian Community Newspaper Association, proposed extending the CPF to daily newspapers. It asked the government to simply underwrite 35% of their editorial expenses, but to not give such assistance to regulated broadcasters, who already benefit from the CRTC’s largesse, or to digital media like upstart blogs.

“No one wants to fund personal rants or political agendas,” argued Bob Cox, publisher of the independent Winnipeg Free Press, who heads News Media Canada (despite Postmedia’s dominance of the industry). Connecting the dots in all of this, we find some unsettling connections.

A draft of News Media Canada’s proposal that was circulated to groups for endorsement came on letterhead of the Public Policy Forum, but the final version made no mention of involvement by the think-tank. Headed by former Globe and Mail editor Edward Greenspon, the PPF was paid $200,000 by the Heritage ministry in 2016 to research Canada’s media malaise.

Greenspon’s report The Shattered Mirror, handed down early this year, took up with vigour the newspaper industry’s escalating beef against Facebook and Google, which circulate news online and dominate the digital ad market. But it so exaggerated the plight of newspapers and the threat of the foreign internet giants that Carleton University media economist Dwayne Winseck accused Greenspon and his scholarly research team of “goosing the numbers” to make their overstated case. The PPF’s media projects may have been separate and unconnected, but the optics are nonetheless poor.

The Harper decade also saw the consolidation of even more worrying power centres in Canada’s electronic media. The Fry report’s most contentious suggestion was for where the money to fund flagging Canadian journalism should come from, and the country’s media seemingly circled the wagons on this one.

The report proposed a levy on internet service providers (ISPs), which was immediately framed as a “Netflix tax” by some journalists. Reporters who had received leaked copies of the Fry report grilled Prime Minister Justin Trudeau on the proposal almost before the ink was dry. He disowned any such idea, saying “we’re not raising taxes on the middle class.”

What the report really suggested, however, was extending to internet service provision the 5% levy that cablecos already pay on their television revenues to fund Canadian broadcast content. It makes sense, after all, that those who are cashing in fastest on the digital revolution should help fix the mess the internet has made of media.

The CRTC’s latest Communications Monitoring Report shows the cabelcos make profit margins on their unregulated ISP rates in the range of 45%. So rich have they grown, first through lucrative cable TV monopolies, then with broadband internet access, that they have all bought TV networks. (CTV is owned by Bell, Global by Shaw, and CITY by Rogers.) That gives the vertically integrated content/carrier TV giants tremendous power over national perceptions.

If they say Fry is angling for a new tax on Netflix-watching Canadians, who will believe her report in fact urged a levy to claw back excess profits from the corpulent cabelcos?

Marc Edge teaches media and communication at University Canada West and the University of Malta. His latest book is The News We Deserve: The Transformation of Canada’s Media. (Vancouver: New Star Books, 2016).