Canadian Heritage Committee on May 31st, 2016

[The Vice-Chair, NDP, Pierre Nantel]

Good morning, everyone. I will preside over the meeting in the absence of the chair, Ms. Fry. She has not arrived yet, but she will probably be here any minute.

I want to thank the representatives of the Canadian Newspaper Association, Bob Cox and John Hinds, and those from the Canadian Wireless Telecommunications Association, Bernard Lord and the advisor accompanying him.

I want to remind the witnesses that this morning's study, to which we will dedicate at least 10 meetings, is about the way Canadians, especially those in local communities, are informed about local and regional events through the news, broadcasting services and digital and print media. The study is also about the unforeseen consequences of the news media concentration, as well as the erosion of local journalism and the impact of new media. The committee will make its recommendations to the government.

I wanted to remind you of the study's theme because it is broad and important. Everyone is passionate. All the members who are here to listen to you are truly interested in these issues. They are familiar with local issues and understand perfectly well that there is cause for concern.

Each of you will have 10 minutes to make your presentation. We will then move on to a question period, where each party will have seven minutes.

Mr. Cox, go ahead.

[Bob Cox, Chair, Canadian Newspaper Association]

Thank you for the opportunity to appear before you today.

I am Bob Cox, chairperson of the Canadian Newspaper Association. With me is John Hinds, executive director of the association. We are appearing on behalf of Newspapers Canada, which represents over 850 daily and community newspapers from coast to coast to coast.

You have heard a great deal about news providers in trouble amid the fallout from the digital revolution of the past two decades. I will not add anything to that today. You know how traditional media have been disrupted. You know about falling advertising revenues. You know the impact this is having on many companies and how it threatens some TV outlets, newspapers, and others. You know the stories of individual media companies that are in trouble.

What I ask you to do today is reflect on the fundamental cause behind this situation and what you, as legislators who shape public policy, can do to set the table for the future so that vibrant and healthy news media outlets can continue to serve communities across Canada.

First of all, I'd like to dispel some myths about newspapers, including some that are touted in headlines in our own newspapers.

For starters, readers are not abandoning newspapers. The comprehensive national survey of readership continuously carried out by Vividata shows that four out of five Canadians read a newspaper weekly. Facebook cannot claim the same. Newspapers have hung on to their audiences, continuing to serve them in print and growing rapidly on digital platforms. Many of us have audience in the digital spheres as large as or larger than the audience we have in print.

Second, most individual newspapers make money on an operational basis. They generate revenues greater than their expenses. Individual companies have troubles with debt or other issues, but most of their papers are viable business entities. We continue to be the largest news media organizations in our cities and towns, presenting the most comprehensive coverage of events and issues and providing essential information and support to build and maintain the communities we serve.

Nonetheless, we face uncertain futures. The reason is not simply the Internet. We are adapting to it, and it's causing us to find larger and more varied audiences than ever before. The reason for the uncertain future is that the media economy has changed, while the laws and public policy measures addressing the media economy have not. We have a set of rules for what media looked like in the 1980s, not in 2016.

Yet these changes have affected all news outlets and should be of concern to anyone who cares about the democratic and economic health of our communities. Advertising dollars spent by businesses, governments, and individuals locally, regionally, and nationally used to circulate within a relatively closed media economy, supporting good journalism and the communities where it was produced.

A local car dealer spent money with my company, the Winnipeg Free Press, to advertise and reach consumers. There was an immediate benefit to the car dealer, but there was also a secondary one. The Winnipeg Free Press employed people, reported news, and supported community organizations. That money went back into the Winnipeg economy to people who bought cars. The car dealer supported journalism in its desire to reach consumers; we supported vehicle purchases in our desire to serve readers.

This model is breaking down. As companies increasingly reach consumers by using foreign media, Facebook, Google, Twitter, and the like, advertising money is sent out of our communities and does not return. For the most part, these companies spend nothing to do journalism in our towns and cities or to provide support to community groups. They employ hardly anyone in our communities, and the money is not recirculated.

You'll notice that I did not use the term “digital”. The fact that these are digital companies is coincidental. In the past, Canada has reacted to such seepage of ad dollars to the U.S. by making it harder to have a U.S. TV station that showed only American programs but sold ads to Canadian merchants or to have a U.S. newsmagazine sell Canadian ads into an edition produced south of the border, but we have not become alarmed by this much larger outflow of cash through digital channels.

We should be concerned about it. We should not be concerned about the fate of any individual newspaper company or broadcast outlet or any other legacy medium, but we should be concerned about the environment the news media companies operate in so that we do not end up with media dominated by foreign companies with few Canadian operations. In such an environment, perhaps the only media able to do serious public interest journalism would be the publicly subsidized CBC.

The CBC provides a fantastic service to this country, but in many digital areas it is set up as a competitor in the provision of news and information, creating an environment in which it is much more difficult for private enterprise to develop new, sustainable methods of providing serious journalism. In Great Britain, the government has insisted that the BBC co-operate with, rather than compete with, local papers. No such policy discussion has taken place in Canada.

We have four areas that could be addressed to help ensure that there are multiple sources of local news in the future. Those sources could be old media that adapt and survive, or they could be new start-ups. The changes that I am talking about help everybody, not just newspapers.

First, the federal government could lead the way by having a strategy to spend ad dollars in Canadian media. A decade ago, the federal government spent $20 million in newspapers; in the 2014-15 fiscal year, the federal government spent $357,000 in daily newspapers. That is out of a budget of $68.7 million. The government spent $13.9 million on the Internet. Most of that money went to U.S. firms like Google. Why is the federal government spending millions of dollars in Silicon Valley instead of supporting Canadian media?

Second, the federal government could find ways of encouraging Canadian companies to spend their advertising dollars here. This could be in the form of tax credits or in the form of penalties for using foreign firms. Non-Canadian legacy media are limited by the Income Tax Act, but this has not been applied to digital enterprises.

Third, there could be further tax incentives to encourage investment in newspapers and other local media. This could take the form of tax credits for digital enterprises that provide public interest journalism or do digital development related to it. This could also take the form of tax relief to encourage reinvestment in newspapers. Right now at my company, for example, shareholders are not taking any profits so that we can pay down debt and reinvest in the business, but the federal and provincial governments are taking income taxes from any net profit we make. Why not suspend such taxes until money is paid out in profits to shareholders?

Fourth, we need updated copyright laws to protect original work. Papers invest heavily in original journalism, which is then shared, reused, and rewritten by others, often for commercial gain, because the two-decades-old fair dealing law does not take into account the ease of digital reproduction. If newspapers were compensated for their original content and the investment was protected for longer, it would be a significant boost to our revenues.

I would also urge you to examine the existing support for community newspapers currently provided by the Canada Periodical Fund. The rules need to be updated to encourage production of Canadian content, not just subsidize the distribution costs of paid-circulation newspapers. Many community newspapers are reaching broad audiences with free circulation, but they get no support from the fund.

That is it. I hope I have made it clear that newspapers are not asking for a public bailout. We are not. It is up to us to build successful new business models in the modern media world. What we need are the conditions that make success more likely. We are asking for a better environment that would help ensure that the vital role of newspapers, the role that they have played in this country for 230 years, is continued, regardless of what form they may take.

Thank you.

[The Chair, Liberal, Hedy Fry]

Thank you very much, Mr. Cox.

We now go to the Canadian Wireless Telecommunications Association, to Mr. Bernard Lord, president and chief executive officer.

Welcome, Mr. Lord.

[Bernard Lord, President and Chief Executive Officer, Canadian Wireless Telecommunications Association]

Thank you very much.

Thank you, Madam Chair.

It is a pleasure to be here this morning to take the opportunity to join the discussion on the Canadian media landscape. I'm joined this morning by Kurt Eby. Kurt is our director of regulatory affairs and government relations at the CWTA.

The Canadian Wireless Telecommunications Association represents wireless service providers across Canada as well as companies that develop and produce products and services for the industry, including handsets and equipment manufacturers, content and application creators, and business-to-business providers. Our goal at the CWTA is to enable more Canadians to use more wireless to do more, and that is happening.

Consumer preferences have created our mobile-first world, where smart phones and tablets are the preferred choice to communicate, navigate, inform and be informed, shop, bank, work, collaborate, entertain, and be entertained.

The wireless world is growing. Canadians are using wireless services more than ever.

Consumers want wireless services to be even more accessible, convenient, and easy to use. They count on ubiquitous advanced network connectivity to help keep them safe and secure while they stay connected with family and friends and do more and more business. They need to trust that the personal and private information on their mobile devices is also safe and secure. They depend on the wireless industry to continue investing and innovating so they can maximize the value of their wireless experience.

One thing we know is that Canadians benefit from some of the best and fastest networks in the world.

A recent international study determined that, of all the networks around the world, Canadian networks are second in terms of speed. In addition, Canadians are heavy users.

Canadian consumers are among the heaviest users in the world. We currently rank fourth in terms of data consumption on wireless networks per user in the world. Indeed, Canadians' preference for wireless is clear. In only seven countries around the world does the average mobile connection use more than one gigabyte of data per month. Canada is one of those countries, and Canadians currently rank, as I mentioned, fourth highest as consumers of wireless data in the world, at more than one and a half gigabytes per month.

The cumulative effect of more Canadians using smart phones and connected devices to do more is massive growth in overall data usage. The latest projections indicate that Canadian mobile traffic in the next five years will grow by 600%, six times more in the next five years.

No other sector of the economy must consistently and constantly meet a level of demand growth similar to what is experienced in the wireless sector.

So we anticipate that the demand for wireless data in Canada will skyrocket.

This demand is driven by consumers, consumers who prefer to consume all forms of media, including entertainment and news content, any time and anywhere. Ubiquitous connectivity is changing the way Canadians are informed about what is going on in their country and what is going on around the world. Wireless service providers are facilitating this change, but they must also respond to the demand that it's putting on wireless infrastructure, because we cannot support all this without more investment.

That is why the Canadian wireless industry has invested more than $2.5 billion in capital expenditure each year since 2009. The doubling of total data usage every two years keeps the industry in a perpetual capital investment cycle. The industry has invested an additional $8 billion since 2014 to acquire the spectrum needed to expand and enhance wireless networks to meet current and projected traffic volumes.

I want to highlight this. This is $8 billion just to have access to the radio frequencies. This does not add one tower or one antenna site or connect one phone. That is just paying the government to have access to the radio frequencies. It is $8 billion since 2014.

These investments obviously create jobs directly related to network expansion and enhancement in the ongoing delivery of advanced wireless services from Canada's service providers. In 2014, Canada's wireless industry generated over 134,000 full-time-equivalent jobs and an overall economic benefit of $23.5 billion.

Canada's wireless service providers will continue to make record investments to meet the demand of exploding data usage and ensure consistent levels of services for all Canadians. Strategic government policies can facilitate additional investment in wireless network infrastructure and support innovation and economic development here at home.

Specifically, the CWTA has consistently identified four priorities necessary to ensure that the wireless industry can most effectively meet the demands of Canadians. Those four priorities are more spectrum, more towers and antenna sites, lower fees paid to government, and smart regulations.

I want to highlight what we mean by smart regulation. By smart regulation we mean that the federal government must maintain and defend its position as the sole regulator of telecommunications in Canada. Consumers, service providers, regulators, and elected officials are all better served by a proportionate and symmetrical set of federal regulations than by an asymmetrical and inefficient patchwork of different provincial frameworks.

Businesses are also better served when they compete on a level playing field rather than facing disadvantage due to regional regulation.

There is one existing fiscal policy—and this is the main reason we're here this morning—that provides foreign companies with an advantage of up to 15% over Canadian firms, and indeed creates a barrier to doing business in Canada.

There is a tax policy that provides foreign companies with an advantage of up to 15% over Canadian companies.

This policy creates a barrier to doing business in Canada. Currently foreign suppliers of digital products and services such as online news and entertainment services, music, movies, and software are not required to collect or remit HST and provincial sales tax as similar Canadian firms are obliged to do. The competitive advantage given to foreign suppliers by this policy undermines Canadian investment and innovation by encouraging Canadians to spend more money outside of the Canadian economy, to the detriment of Canadian suppliers and workers as well as content creators, programmers, publishers, actors, directors, musicians, and all others in the creative community who benefit from a strong Canadian digital economy.

Specific to this proceeding, this policy puts Canadian news and media outlets at a direct disadvantage relative to their foreign competitors. For instance, while a Canadian subscriber would pay HST on online subscriptions to The Globe and Mail, the Toronto Star, or the National Post, they would not pay the HST on subscriptions to some international press, such as The Wall Street Journal. The policy has been held over from when sales of such products and services were relatively minuscule and effective taxation was more trouble than it was worth. Those days are gone. Canadians' insatiable appetite for digital media, movies, TV shows, apps, books, magazines, video games, and software make closing this tax loophole more important than ever.

[The Chair, Liberal, Hedy Fry]

You have two minutes, Mr. Lord.

[Bernard Lord]

Thank you.

I can't imagine anyone openly promoting a sales tax advantage for American-made cars. Imagine if you could buy a Camry made in Ontario and a Camry made in Kentucky. They're identical cars. The only difference is that if you buy the one made in Kentucky, you don't pay sales tax, while if you buy the one made in Canada, you would pay a 15% sales tax. Which car do you think Canadians would buy? Obviously they'd buy the one made in Kentucky.

It's the exact same situation we have in the digital space. That's why we strongly believe the government should ensure taxation parity among all suppliers of digital goods in Canada by removing the competitive advantage currently enjoyed by foreign firms. This would bring Canada's regime in line with the EU, Norway, Japan, Korea, Australia, and New Zealand.

I know I'm running out of time, Madam Chair, so I will simply say that wireless services also connect all Canadians by allowing collective participation in society and contribute to our shared national identity. Let's make sure there is a fair and level playing field for Canadian providers of digital services in Canada.

Thank you. Merci.

[The Chair, Liberal, Hedy Fry]

Thank you, Mr. Lord.

We're now going to go the question-and-answer period. This is going to be a seven-minute round, which means the person asking the question and the people answering it are going to have only seven minutes, so I'm going to ask you to be concise.

As you well know, we want to see that all Canadians have local access to their news, we want to know what the impact of media consolidation has been on this and the effect it has had on Canadian content, and we want to know what the future will hold with regard to all platforms, including digital.

Thank you.

We will begin now with Mr. Vandal for the Liberals.

[Dan Vandal, Liberal, Saint Boniface—Saint Vital, MB]

Thank you, Madam Chair.

My first question is to Bob Cox.

Ever since I was a teenager, my day has begun with a coffee—or back then a juice—and the Free Press. Since I've been to Ottawa, it's the same routine, except I read the Free Press online. I'm wondering if you could tell me about your digital experience. I'll leave you some time to talk about the digital experience the Winnipeg Free Press is having.

[Bob Cox]

We have so many newspapers. We have a paid digital environment, so we ask people to subscribe to our digital service, or we do something that most newspapers don't do: we actually sell articles by the article. We have what we call a micropayment system. If you wanted to read just one article on the Winnipeg Free Press website, you'd pay 27¢, and it's a bargain, by the way, at 27¢.

We've had a fair amount of success. We sell literally thousands of articles a week on a per-article basis. A lot of people thought this wouldn't work, but we've set up a payment system that makes it work. We have a little under 5,000 people now who buy on a per-article basis. We also have about the same number of people who actually have full-access subscriptions, so there are also paying subscribers.

We set this up somewhat reluctantly. I was always an advocate of having a wide-open digital service that was free for everyone to use, but we found that we couldn't attract enough advertising to support it. Our audiences really aren't big enough. No newspaper's audience is really big enough, not in the Canadian environment. Services such as Google and Facebook make money by repeating advertising hundreds of millions of times. Online advertising rates have gone down a great deal in recent years—in recent months, even—so we can't do it. We reluctantly went to a paid digital environment, and we've had a lot of success with it because there is demand for local content. People do want to know about their local communities.

Everyone has great taste like you, Mr. Vandal, and reads the Winnipeg Free Press. There is a demand, and they are willing to pay for it.

[Dan Vandal, Liberal, Saint Boniface—Saint Vital, MB]

Unfortunately, not it's everybody.

I'm struck by your comments early on that the readers are not abandoning your newspapers and that most individual newspapers make money, yet you've suggested that government should be spending more money in newspapers. Is the situation just that you don't make the amount of money that you used to make and you'd like to bring it back to the old days?

[Bob Cox]

I can certainly tell you we don't make the money we used to make. However, I think it's a question of where the line is going. If the line is steady and you can get a steady state in a sustainable environment, that's great. Unfortunately we've seen ads going like this, falling off very quickly. Last year our advertising revenues fell by about 10%. That continuing loss of advertising is unsustainable, and part of that loss has been in government advertising.

I don't think anybody is going into the newspaper business anymore to get rich. There are a lot of owners in the newspaper business, such as the owners of the Winnipeg Free Press, who really see it as a business first, yes, but also as a public service, and they firmly believe in that. What they would like to be able to do is find a long-term sustainable model that is a successful business but doesn't make a huge profit.

[Dan Vandal, Liberal, Saint Boniface—Saint Vital, MB]

Thank you.

I have only seven minutes, so I want to get in a few more questions. Is media concentration an issue we should be worried about in Canada?

[Bob Cox]

No, I think the days of the big bad ugly newspaper company monopolizing media are long gone. I don't know why we would worry about tiny little newspaper companies, because they are tiny compared with big digital media companies.

Just to give you an example, Postmedia is now valued at $10 million. That's the stock market value of Postmedia. The Toronto Star is about $150 million. By comparison, BuzzFeed is worth more than a billion dollars. Vice Media has a valuation of $4.5 billion. These are the monsters out there. These are the huge companies, the conglomerates, that are actually a real concern. Newspaper companies are mostly just struggling to survive.

[Dan Vandal, Liberal, Saint Boniface—Saint Vital, MB]

We've heard several witnesses talk about how newspapers are the main source of credible information. They found the quality of journalism on online news sites to be questionable. Do you have a comment on that?

[Bob Cox]

Well, I think there are some very good online news sites that have grown up as new models. I'll point to one that I'm sure you've heard of, which is allNovaScotia.com in Halifax. It is a paid subscription service that provides local news. They don't give anything away. You pay on a monthly basis to get a very good news report every day. They have several thousand subscribers paying for this, and it's a successful small-business model that resembles a lot of community newspapers of the past. Those kinds of models can grow up if the environment provides for it. If the environment makes it easier for that to happen, lots of those models can grow up.

So you can have lots of credible online news sources. There's a lot of stuff out there that isn't credible, and newspapers remain a reliable and trusted brand.

[Dan Vandal, Liberal, Saint Boniface—Saint Vital, MB]

You mentioned that—

[The Chair, Liberal, Hedy Fry]

You have one and a half minutes.

[Dan Vandal, Liberal, Saint Boniface—Saint Vital, MB]

—the rules we have were set for the 1980s and not for today. Can you say more on that?

[Bob Cox]

I think the biggest question is taxation, which we both seem to be talking about today. The Income Tax Act was put together for a world of TV, radio, and newspapers, not for an era in which we have digital media.

There are a number of areas. Mr. Lord mentioned one. I mentioned the others involving advertising. We were all worried about Time magazine coming to Canada and taking advertising dollars away, yet we're not concerned about Google doing the same.

[Dan Vandal, Liberal, Saint Boniface—Saint Vital, MB]

Okay.

What about copyright laws?

[Bob Cox]

Yes, that's a complicated area, I realize. The biggest problem we have is the fair dealing provisions, which essentially mean that once we put it out there, we've lost control of it and we don't get anything back for it. If people were reusing our material for commercial gain in an identifiable way—and obviously, it has to be an identifiable way—then we could go after them, but we really can't. Once a newspaper puts something out there, it's out there, and you don't get anything in return.

[The Chair, Liberal, Hedy Fry]

Thank you, Mr. Cox, and thank you, Mr. Vandal.

Now I go to Mr. Waugh for the Conservatives.

[Kevin Waugh, Conservative, Saskatoon—Grasswood, SK]

Thank you, Madam Chair.

I'm going to pick up on the copyright laws, because newspapers have no trouble having their journalists on TV and radio. They write the story, send it out, and then sometimes they're on before it even gets published.

It can't be both ways here. You're employing newspaper reporters, and then they turn around and spill the beans before your newspaper does. They'll do it on TV and radio, as I said. You've allowed both. I look it at here, and you've allowed your own people to freelance.

[Bob Cox]

In some cases they're freelancing and in some cases they work for the publication, but in all cases they are the creators of the content. Singers can go on the radio or TV and sing and do anything they want with the content they have created. Newspaper journalists are in a similar position. A lot of journalists may be working independently.

We're really looking for control over content by the creators.

[Kevin Waugh, Conservative, Saskatoon—Grasswood, SK]

I think you've lost control, though. In the newspaper industry, your reporters have turned into digital people and have turned into radio and TV hosts.