Canadian Heritage Committee on Dec. 6th, 2016

[The Chair, Liberal, Hedy Fry]

I think we have quorum, so we can begin.

As you know, we have a guest today. Linda Solomon Wood, from the Observer Media Group, is here to present to us. She will tell you about it, but I think hers is one of the groups trying a new way to get newspapers to function. I think it's all about community non-profit groups.

You're going to tell us about that, and we're really interested, because we've heard about different ways to fund newspapers. You have 10 minutes to present. After that we will have a round of questions, seven minutes each, for both questions and answers. I'll give you a two-minute heads-up before you get to your 10 minutes.

Please begin.

[Linda Solomon Wood, Chief Executive Officer, Observer Media Group]

Madam Chair, honourable members, thank you for inviting me to talk with you today.

By way of introduction, you may note from my accent that I was born in the United States. I immigrated to Canada in 2001, and became a Canadian citizen a few years later. You'll see from my submission that I'm CEO of Observer Media Group, but what you won't see is that I'm the mother of four wonderful children. I feel really fortunate to be able to watch them grow up and begin to establish their futures in Canada, where the days look so bright. Canada has given a lot to me, and it is very important to me every day to try to give something back to Canada. That's why I've devoted myself to building a company whose core mission is creating a positive future through influential journalism.

I had my first journalism job when I was 16 years old. Being a journalist is what I've done for much of my career. It's what I was trained for, it's what I love, and it's what I do best. But as you guys know all too well, the business model for journalism is in such distress that many of my colleagues have had no option but to leave the profession they love. Rather than do that, I started my own company.

Observer Media Group is a journalism organization producing two daily digital-native publications. That is to say, we're online only: National Observer and Vancouver Observer. Our submission to this committee outlines recommendations for the role that the federal government, with respect to journalism in Canada, can play.

I'll spare you further hand-wringing over the state of Canadian journalism and the state of journalism in the world and get straight to the point. We believe journalism needs to be addressed as a category of support distinct from discussions of Canadian content, culture, and entertainment. Good journalism is necessary for the democratic process to function well. It is a public good, in the sense of being foundational to effective politics, much like education. As such, the present crisis in Canadian journalism deserves to be addressed directly by policy-makers. We urge government not to conflate support for journalism with the needs of other sectors.

Here are some policies that we recommend be undertaken directly by the Government of Canada. First of all, we would love to see Canada create a hybrid tax and non-profit status for journalism organizations. We urge the government to establish a category for journalism organizations, similar to universities. Philanthropic foundations should be able to make grants to support newsgathering and investigative reporting organizations. Individual donors, philanthropists, and readers should be able to make tax-deductible donations as stand-alone contributions or through crowdfunded efforts. Note that new media organizations in Canada are broadly unwilling to establish innovative structures because of the risk of CRA interference with freedom of the press in anything other than a for-profit structure. Another idea is to create incentives for investors to support emerging, independent digital media journalism—incentives and grants for job creation in journalism, incentives for capital expenditures, including digital applications.

We also recommend that Canada follow the example of European jurisdictions in cracking down on Facebook and Google for tax avoidance. These companies are simultaneously vacuuming up advertising dollars, which previously have supported news organizations, while avoiding their fair economic share of contribution to Canadian society. In addition, these companies, which are among the top ten largest publicly traded in the world, receive federal and other government advertising contracts effectively subsidizing American tech giants at the expense of Canadian news organizations. Please note that academic studies find that a decrease in advertising revenue is demonstrably related to a reduced quality in journalism.

There is much more in our submission that I urge you to read. I am not going to read it all here, because I'd like us to have a chance to talk and for you to ask questions in a more informal way. However, I want to say that Observer Media Group's business model has been based, for ten years, on leaning in to the changes taking place in the industry today. We've grown through finding new ways to leverage opportunities in a turbulent environment. Building resources for reporting primarily through crowdfunding has taught me that our most important relationship is with our readers. I have learned that there are thousands of readers in Canada who value and will gladly pay for profound stories with universal meaning that document a changing world that they recognize, stories told with fairness and compassion.

We have found a small group of investors who support National Observer because they know how important critical reporting is in a healthy democracy. In launching a paywall last August, our readers affirmed this again, providing in our beta testing that in time we can grow and sustain National Observer's thoughtful, award-winning journalism, journalism that improves people's lives and supports the foundations of democracy on a daily basis, that at its best is a voice of the people. Our team of journalists is devoted to helping secure a future for strong, independent reporting in Canada. We just need a few more tools to help us along the way.

Thank you.

[The Chair, Liberal, Hedy Fry]

Thank you very much.

I want to congratulate you: you came in under seven minutes. This is fabulous.

We'll now go to the question and answer session. The rounds are seven minutes.

Ms. Dabrusin for the Liberals, you have seven minutes, please.

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

Thank you for that presentation. It's very interesting to start considering other models that might be available in other jurisdictions.

You mentioned that you're from the States, and that you have experience there as well. I'm wondering if perhaps you can flesh out a little more what you would like to see with regard to supporting the non-profit model or foundation model for journalism.

[Linda Solomon Wood]

When people contribute to the National Observer or to the Vancouver Observer, which they've been doing for years through crowdfunding, and sometimes just through the fundraising campaigns we run....

I never know whether to call it a donation or a gift, but it's really a gift, because they can't get any tax credit for it. They're just giving a gift.

We believe that a lot of the reporting that we do, and that other media does as well, really is a public good. It's a public service. It's essential to the healthy functioning of a democracy. We believe that it would be great if the government could make it possible, without having to navigate really difficult laws that put you in a grey zone, to create a category for journalism that would allow foundations, for instance, to grant journalism companies, to work with journalism companies, to provide funding for, let's say, coverage of public health, coverage of life-and-death issues that they really are concerned about—charities that are in line with their mission. Right now they can't really do it because they don't know how to do it. There is no charitable structure for them to donate into.

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

I understand there are some notable international examples. I believe The Guardian in the U.K. is a foundation model. There are U.S. models as well. We have some. The Tyee spoke to us about their model a bit earlier, and I think The Walrus magazine is also supported by a foundation. There are some examples out there.

We can make some broad recommendations about it, but do you have any warnings or parameters that you would want us to consider when we make those suggestions?

[Linda Solomon Wood]

Yes. I say this with a tremendous amount of respect for The Tyee and for The Walrus and for everyone trying to create a charitable structure that works for them, but I think right now those structures limit the kind of journalism they can do. In my opinion, they change the quality of it. They weaken it, because they have to be so careful to stay within a structure that complies with the current language around political activity.

Additionally, because the environment in Canada has been such over the last five years, with attacks on environmental groups through the CRA, I think it has put a freeze on really free expression in journalism through those structures. That's why we've maintained a for-profit structure, so that we would not be subject to the kind of self-censoring that has to happen in those structures.

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

All right. That's actually a helpful point for us in terms of trying to consider our parameters.

I think now you've answered my next question, which was going to be about the CRA problems. You had flagged that there were CRA problems. Are there others that we should be watching for when we're looking at new media formats?

[Linda Solomon Wood]

If I may, I wanted to add that in the U.S., their structures are different. There is less of a demand on journalism companies and projects in the U.S. that do go with a non-profit structure or a charitable structure. They can get tax deductions for contributions without such narrow confines to the work they do. I just wanted to put that on the record.

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

Why are there less narrow confines?

[Linda Solomon Wood]

I think I would have to get back to you. I'd be happy to follow up in a written statement on that. From what I know, it's just to do with the tax law. We just have different [Technical difficulty--Editor] charitable.

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

If you have something else that you'd like to add, that would be great. You can submit that in writing.

[The Chair, Liberal, Hedy Fry]

You have one minute.

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

Okay.

One thing we've been hearing a little bit about, sort of on the edges, is with regard to creating echo chambers, too, in different types of new media now. People are focused, and not necessarily getting a broad-based perspective on their news.

As we look at new formulations and new models, do you have anything you can tell us about the development of echo chambers?

[Linda Solomon Wood]

I think that problem has escalated dramatically over the last year in the U.S. It was probably going on longer than we really knew it was going on. We didn't really understand the ramifications completely, until now.

I think part of the problem is that when you have a small company like ours, for instance, that has limited resources, we don't have the ability to advertise. Even though our articles would be of interest to people way beyond whatever narrow niche people are thinking of us in, it's very hard for us to reach those audiences. I would say part of that gets back to the advertising dollars going into Facebook and Google.

As a solution to that, thinking into the future, one of the most wonderful things I can imagine as a media company owner is that the government would devote part of the government's budget to advertising with Canadian media outlets and pull it out of Facebook and Google. It's just really a matter of resources. Companies need to be able to advertise in order to get to more readers.

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

All right.

Thank you very much.

[The Chair, Liberal, Hedy Fry]

Thank you.

I'll now go to Mr. Maguire for the Conservatives.

[Larry Maguire, Conservative, Brandon—Souris, MB]

Thank you, Madam Chair.

Thank you for your presentation this morning, Ms. Wood.

You just formed your company a year ago?

[Linda Solomon Wood]

No, I formed my company in 2011, with the Vancouver Observer. The Observer Media Group has been around since then. At that time I was managing the Vancouver Observer, which is a local publication. In April of 2015 I founded the National Observer as a national publication.

[Larry Maguire, Conservative, Brandon—Souris, MB]

Yes, as an online news site.

[Linda Solomon Wood]

Yes.

[Larry Maguire, Conservative, Brandon—Souris, MB]

What has been your experience, or how have you been able to generate revenue, then, in your online environment?

[Linda Solomon Wood]

Initially, when I first started, I really believed that the ad dollars were going to migrate from print to digital. I bootstrapped the publication in the early days, thinking that day would come, but that day never came. At that point I was faced with the fact that we were winning awards, doing excellent journalism, being recognized by our peers, and we literally had no money in the bank. I realized that if I wanted to continue, I was going to have to go out and raise money. I did that through crowdfunding.

First I tried a small Indiegogo campaign. It was modestly successful. The next year I tried a Kickstarter campaign. At that time it was very successful for us. I started to realize at that point that cultivating a relationship with the readers and the community that valued that reporting was the only way, as a small media company owner, that I could go forward. That was the beginning. Then when I launched the National Observer, I was able to bring in investment money as well. But that's different from revenue, of course. For revenue, we do sell advertising; we have reader donations; and now we're really having success with our paywall, our subscription model. We just started that at the end of May. We had a technology system that didn't work very well, so we didn't get very far at first. We relaunched it on new technology starting in September, and our first three months have been, I think, very successful—enough to show that this can work for us.

But it's going to take time. Our goal is 10,000 subscribers. If we have 10,000 subscribers, we'll be fully self-sustaining. All of my effort to bring in investment money now, or fundraising—everything—is around the idea of our needing enough of a runway to get there, to 10,000. We will live or die on the quality of our reporting. If it's no good, nobody's going to subscribe.

[Larry Maguire, Conservative, Brandon—Souris, MB]

How much is your subscription?

[Linda Solomon Wood]

Our subscriptions are $12.99 a month, and there's a reduced yearly rate, 20% off.