Canadian Heritage Committee on Nov. 15th, 2016

[The Vice-Chair, NDP, Pierre Nantel]

Thank you, Mr. Kee.

We'll have to talk again to all these people who came complaining about this situation. It's also been said many times that no sales tax was applied on various transactions involving big players like you. Nobody is accusing anyone of not paying their taxes. It's just that we don't actually ask for them. So it remains a big topic that's going to be coming up in the next few weeks.

Unfortunately, my time is done, so now the time goes to Mr. Samson. He is going to talk about the French reality.

[Darrell Samson, Liberal, Sackville—Preston—Chezzetcook, NS]

Thank you for your presentation, Mr. Gingras.

Our committee here is really focused on three key issues. I would summarize it based on what we've been discussing for quite a long time now: the local news, the Canadian content, and minorities. That's a little bit of what Mr. Nantel was mentioning. I don't agree with Mr. Clement when he says that local news is blossoming in this new age. Absolutely not; that's not what we heard from witnesses throughout the last four to six months. I'm a little shell-shocked on that piece.

Since, Mr. Kee, you mentioned a little about money, let's talk about money. That's an issue that many witnesses have brought to the table. My colleague earlier asked Richard about Google paying out 1% for local news. I didn't hear an answer to that. Would you have an opinion on that?

[Jason Kee]

Our core view is that the way forward is more through innovation, technology, product developments, and developing new and innovative sustainable business models than cross-subsidization. There are a number of reasons for this, largely based on the fact that creating subsidies is not sustainable in the long run. It tends to build in a dependence upon the subsidy and doesn't necessarily spur the kind of innovation that you're looking for to actually have sustainable models.

The big challenge that everyone's facing right now is essentially the disruption. You had an entire industry built around certain preconditions—they were geographically limited, they essentially had control of production and distribution, and they were the ones who had control of the audience. The Internet changed that, by virtue of the fact that anyone can get information anywhere they want. A lot of the core-value propositions that newspapers used to offer, not just advertising but also classifieds, have been disrupted. Craigslist and Kijiji were great disrupters, and this all pulled that bundle of value apart. Now it is the newspapers that are trying to figure out how they can adapt to the age. At the same time, they are effectively encumbered by legacy costs driven by the print business.

Where you're seeing the real innovation is on the pure digital players, the guys who are emerging from local communities who aren't coming from that space. They are not encumbered by those costs, and they can actually leverage the digital tools. This means they can produce at very low cost, except for their time, sweat, and tears.

[Darrell Samson, Liberal, Sackville—Preston—Chezzetcook, NS]

Your answer is good, based on the business world, but based on what we're trying to achieve, which is Canadian content, I'm not sure your answer would help me very much.

The Government of Canada and many others that are investing in advertising are moving to digital, and that's your game right now. There's no question about it. The game can change, as was noted, but that's your game now. How much of the money that you're making through advertising is being reinvested for Canadian content? That would be a question.

[Jason Kee]

It depends on what your definition is. As Richard highlighted, and as do we, when it comes to display advertising, the majority of that, 70% of it, is going back to the content creators, the people who are actually creating the content on the websites that they're then putting the advertising against. That is basically funding the creation of that content, so that is used to create content.

YouTube works in a similar way. It's an advertising revenue-share model. The YouTube creator creates a video, puts it onto YouTube, and earns the majority of the revenue from advertising. That is used to create Canadian content.

It isn't the funded model in the way that you see through the regulated industries. It's more of a market-driven revenue-share approach.

[Darrell Samson, Liberal, Sackville—Preston—Chezzetcook, NS]

Let me ask a question specifically. Does Google pay federal taxes in Canada, and if so, what amount?

[Jason Kee]

Yes, we do pay federal taxes. We don't typically disclose sensitive financial information like that.

On the question of the GST, which Mr. Nantel flagged, I'll quickly explain that it's a function of the structure of the tax. GST, remember, is a tax on consumers. It's payable by consumers, not by Google, by a retailer, by whoever. CRA has rules. In the case where you're serving services from outside of the country, you're not required to register, collect, or remit GST. In that case, it belongs to the end consumer, who has the obligation to report it and then to remit. This is why we said that for some services, they will charge it, and for other services, they don't. It depends on the specific context.

If this is something that the committee is contemplating changing—this is not the first circumstance where I've heard this, and Netflix tends to come up frequently as well—the main thing you need to consider is what the implications are. It's one thing for Google, or Netflix, or whatever, but if you think about the challenge that you may be creating for every single small enterprise existing on the Internet that wants to serve the Canadian market being required to register for GST, collect GST, and remit GST, that's going to be a challenge for them, and it may result in smaller services not being being able to break into the market. It actually hurts them more than it hurts us.

[Darrell Samson, Liberal, Sackville—Preston—Chezzetcook, NS]

Does Google create original news content?

[Jason Kee]

Richard?

[Richard Gingras]

No. That's not the role we see ourselves in—past, present, and, frankly, future. As you know, our mission is to understand and organize the world's information to make it accessible. Our job is to do our best to connect the dots between a user's interest and the best-quality information out there. That's our role. It's not to create content.

I don't think anyone wants us to be creating content in the news space. We can be far more effective participants—we are far more effective participants—in the ecosystem by playing the role that we play in connecting users with quality information, creating platforms to help monetize and support that information, and providing tools and capabilities to drive further innovation. That's where we see our role, and that's what we're dedicated to continuing to do.

[Jason Kee]

I have a point of clarification for those who are not familiar with Google News. Google News is not monetized. There are no ads on Google News. It's basically a listing of headlines and then snippets of just a line or two describing what the article is. You click that, and then it drives you out. It's not a platform for content. It doesn't reproduce articles. It just does that, which is why it drives over 10 billion clicks a month to other sites. We're a platform for driving traffic elsewhere and for allowing those newspapers and news organizations to monetize that content.

[Darrell Samson, Liberal, Sackville—Preston—Chezzetcook, NS]

I'll let my colleague ask a question.

[The Vice-Chair, NDP, Pierre Nantel]

With one minute there and then five for you, let's make it six for you, okay?

[Julie Dabrusin, Liberal, Toronto—Danforth, ON]

We're adding up time.

You were talking about the revenue share a bit. I was wondering if we could explore that a bit more, because that isn't something we have been hearing about a lot at our hearing. If you're looking at Canadian media sites, do you have a sense of how much money is going back through Google to Canadian media companies from this revenue sharing that you were talking about?

[Jason Kee]

Specifically, no. The global average is around 70%. The details depend a lot on the specific arrangements. We have specific arrangements with particular publishers, and other ones with others, which is why it's hard to put a dollar figure. We also don't break out our financials on a country-by-country basis, so I couldn't break that out. I do know it's fairly considerable. It also depends on how the individual publisher, news or otherwise, wants to structure their business.

The other thing, which I don't necessarily think has been conveyed to you during the course of these proceedings, is that the digital ad ecosystem is extremely complex. It isn't just a world of a buyer and a seller, or an advertiser and a publisher. There is an array of entities that exist in between those two in terms of a digital ad ecosystem. That includes the ad networks, which essentially aggregate and sell the advertising throughout an entire network of publishers, instead of to a single one. It includes ad exchanges, where there is actually real-time bidding on ad impressions, so it's extremely efficient. There are also demand-side and supply-side platforms that help manage this, just amongst a few. I remember one advertising executive say that when you're making an ad buy, you are not just buying the media; you are buying data. You are actually buying 3,800 companies that are providing a variety of value-added services in the ecosystem, which is what makes this very complex.

Each individual publisher will manage their own ads in different kinds of ways. In some cases they'll utilize our services; in some cases they'll go it alone. It depends on whether they have a sales team or not.

[The Vice-Chair, NDP, Pierre Nantel]

Mr. Kee, the translators are asking you to be a little less passionate and slow down.

[Jason Kee]

My apologies.

That's why it's very complex, and it depends on the specific structures and the way they've actually structured their businesses.

[Julie Dabrusin, Liberal, Toronto—Danforth, ON]

That's still a little vague. I'm trying to get a sense of.... If we are looking at a major national paper in Canada, what would the structure look like? The National Post and The Globe and Mail are two of the major ones that we've had come forward. I am not asking for a specific business here, but if you are looking at one of our major papers, say the Toronto Star, what structure would result in revenue sharing with Google?

[Jason Kee]

Again, I'm speculating, but if I were setting up a large site, and I was a premium brand, what I would probably do is this. Number one, some of my advertising would be direct sales. I have a sales team. I can actually go out to advertisers directly. I can acquire that. Because it's premium, that means I'm getting a better return on that, because it's premium space—the home page of the National Post, for example. However, the National Post online publication is a large one, so they are not necessarily going to be able to sell all that space. What you might also do is supplement the inventory that you are not able to sell directly by linking in through Google, or anybody else—again, there are a number of other networks that exist—to essentially fill in the unsold inventory through open markets, through the opening auction system, through the networks. What happens is that the premium advertising that you control is your direct sales, and then there is a backfill that's happening with the automated things.

There are also emerging forms of automating the entire process—again, doing it either entirely by open auction platform, or also through narrow one-on-one transactions.

[Julie Dabrusin, Liberal, Toronto—Danforth, ON]

I would guess that if you are a global business, you must be keeping some stats about your Canadian market and how you are flowing money there. I mean, you would be looking at different countries. When you look at the world, are you breaking this down country by country?

[Jason Kee]

Overall, the business certainly looks at things on a market-by-market basis, but as a matter of our public disclosures, we don't break out information on a country-by-country basis.

[Julie Dabrusin, Liberal, Toronto—Danforth, ON]

All right.

I'm actually going to switch to something about gender. As I mentioned earlier, I'm reading this book by John Stackhouse, who talks about the readership of The Globe and Mail. It was largely male. Then, as traffic started flowing through Facebook and Google, it was actually getting to a more female market. I don't know if you have any stats about that. Do you keep any stats on gender at all, diversity...?

I am seeing a lot of heads shaking, saying “no”, but I always like to try to find out if people are actually tracking a gender-based analysis of what their impact is in markets. Have you done anything like that?

[Aaron Brindle]

I'll let Richard respond here.

[Richard Gingras]

I do not have statistics in terms of consumption by gender, but as I mentioned earlier, I think it's very important for those working in the media space, in the news space, to understand their audiences. One effort that we instigated, along with a university in the United States, is something called the Trust Project. It's a global effort. It's not a Google project. It was to start a conversation in the industry about how one rethinks the journalistic model to build trust and credibility.

From research we've seen there, one thing that's clear is that to attain a sense of trust and credibility, audiences are looking for some affinity with the news organization as well. So as you might expect, women are more comfortable when they see a news organization that's, say, not all men, and you might find the reverse as well. I think these are important dynamics as we work these things out going forward.

As I said, how do we, and how do news publishers, get a better understanding of the audiences, get a better understanding of how to connect with those audiences, to make journalism as effective as it can be to allow quality journalistic content to get the credibility it deserves?

[The Vice-Chair, NDP, Pierre Nantel]

Merci, Monsieur Gingras.

As a tradition of the president's choice—here in Canada we have a brand called President's Choice, Mr. Gingras—I have a few questions for you. First, is it correct to say that unsold advertising spots are sent to some sort of auction-type buyout and finally sold to the client at the best price possible?