Canadian Heritage Committee on Feb. 14th, 2017

[Jason Kee]

Not necessarily. It depends a lot on the individual marketplaces. That's why it fluctuates, but there's still strong competition from Bing, from Yahoo, and from some other basic search engines, particularly in places in Asia, for example. It's a completely different marketplace environment.

Also, it depends a lot on the nature of the business. As Google, we're in a lot of different businesses. Google Search is one aspect of the business. The advertisements we've talked about are another aspect, where there are number of key players. Facebook is one, as are Twitter and AOL. Yahoo is also a significant player there. It depends a lot on the individual business line.

[Pierre Nantel, NDP, Longueuil—Saint-Hubert, QC]

To me, what clearly happens in our sphere....

How much time do have left, Madam Chair?

[The Chair, Liberal, Hedy Fry]

You have about two minutes and a bit.

[Pierre Nantel, NDP, Longueuil—Saint-Hubert, QC]

Thank you.

The main idea is that you've just come up with a miracle product and everybody is buying it. In Canada, if you're looking for clothespins, there's a 90% chance that you're going to go to Dollarama. You may sometimes buy them at Canadian Tire. You will go to such stores for such products. When people search for services such as advertising, for example.... Because we may talk about consumers, but what we're talking about here is advertisers. They buy advertising services, just like many of us do as MPs.

You are really into big business. I don't know how to evaluate the numbers for your business in Canada, but I tend to wonder how much of that company presence is here in Canada for such a big business. If Elon Musk sells Teslas in Canada, he will open a garage. I haven't verified this, but I guess there is a Tesla Canada branch, and they've sold, I don't know, 200 Teslas. They have such-and-such a profit and so many employees and stuff. What is your corporate presence and what are your job creation and returns for us here in Canada?

[Aaron Brindle]

Google Canada has just shy of a thousand employees across four offices in Montreal, Ottawa, Toronto, and Waterloo. In Waterloo, we have engineers working on products that touch billions of people around the world, from our ads to—

[Pierre Nantel, NDP, Longueuil—Saint-Hubert, QC]

Creating the software and...?

[Aaron Brindle]

Yes, that's correct.

We have some of the world's leading researchers and great minds on AI research, and that's happening out of Montreal and Toronto as well. We do have a sales presence in Toronto and Montreal, but we are an engineering company with many engineers based right here.

[Pierre Nantel, NDP, Longueuil—Saint-Hubert, QC]

Thank you.

For Facebook, Mr. Chan...?

[Kevin Chan]

We also have four offices across the country, including one in Montreal.

When we think about the economic impact of Facebook, we largely are thinking about how other companies, particularly small businesses, are leveraging the impact. We did a study about a year ago. Deloitte did an independent study, which found that the economic impact was in the tens of billions of dollars in Canada alone.

We're looking at connectivity impact. We're looking at marketing impact. When you think about platforms, I think that's probably the best way to look at it. How many people are actually building things on top of these platforms to grow their businesses and to grow the economy?

[Pierre Nantel, NDP, Longueuil—Saint-Hubert, QC]

I had the chance to visit Google's offices in Montreal. It is absolutely a super place to work. I can agree with that. I was working at Cirque du Soleil and I can tell you that there was a close competition in the quality of the work environment.

Is the volume of advertising sales all effected by Google Canada Incorporated or do the sales go direct to Mountain View?

[Jason Kee]

The sales are all done through Google Inc., which is actually through Mountain View, their American parent company.

You're right. The reason we have an employee base in Canada is largely driven by the fact that Canada has tremendous engineering talents. That's why we set up an office in Waterloo. There isn't necessarily a full connection between the level of advertising versus the level of employees, because they're very distinct in terms of the business side.

Also, as Kevin just mentioned, as platform companies, measuring our investments in a country by the number of direct employees isn't an accurate reflection of our value.

[Pierre Nantel, NDP, Longueuil—Saint-Hubert, QC]

I understand.

[Jason Kee]

Our value is about how we provide value to other Canadian businesses, to the hundreds of thousands of Canadian businesses—if not millions—that use our advertising service to reach new markets and generate revenue that way.

[The Chair, Liberal, Hedy Fry]

Thank you.

We've gone well over time on that one, but I thought the answers were of interest to the committee.

Now we're going to go to Mr. Breton, for the Liberals.

[Pierre Breton, Liberal, Shefford, QC]

Thank you, Madam Chair.

Gentlemen, thank you for being here today for a second time.

I would also like to talk about the issues surrounding advertising that my colleague Mr. Nantel raised.

You know of course that our current study pertains to the media and local communities. I heard my colleague say that advertising revenues had skyrocketed. Congratulations, that is great news for you. Moreover, we also learned this past year that, in most communities, local media have seen a 50% drop in their advertising revenues, which is what yours have risen by. Advertising is the main revenue source for them as well, and they are now in a very precarious position.

You surely know as well that this generates a lot of jobs right across Canada. I don't have the figures, I don't know how many jobs exactly, but you mentioned 1,000 people at Google. We have not necessarily heard about the number of employees at Facebook, but I would guess there are easily tens of thousands in Canada in various local communities. Several witnesses over the past year have suggested that the Income Tax Act should be amended to favour the local media since these advertising revenues are going to American companies.

I would like to hear from each of you about these various suggestions that have been made to us by the majority of representatives from the media, unions, business and organizations that have appeared before us over the past year.

[Jason Kee]

It depends a lot on the individual proposal. As you know, there have been quite a number of them.

With respect to the issue around the tax treatment of advertising expenses, which is probably one of the more prominent ones that have been raised, we have concerns about it just because of the way it would be implemented.

To make a long story short, it's effectively a tax on Canadian advertisers. It assumes that there's a direct relationship between the advertiser and the publisher, the buyer and the seller—which doesn't actually exist in a lot of digital advertising anymore—mostly because it was the policy of the day in the 1960s. It also assumes that there's a direct substitution between the ability to find something on an online service, like a Google, a Facebook, or a Twitter, and a Canadian equivalent that you could actually invest in alternatively, which actually isn't the case.

When the policy was developed in the 1960s, there was clearly a similarity between foreign broadcasters and Canadian broadcasters, and between foreign newspapers and Canadian newspapers. That doesn't exist online. If you want to advertise a beauty product to a certain audience in mobile apps, there may not be a Canadian equivalent to approach. As a result, changing tax treatment could actually be punitive. There just may not be an alternative.

Again, I think there are some significant challenges with that approach.

[Kevin Chan]

I won't get into too specific a comment other than to say that I think the question—and I think Mr. Nantel may have asked me that in November—is probably best posed to Canadian advertisers. I'm not the technical tax expert, but ultimately—if I understand correctly some of the proposals that have been floated—the mechanism through which I wish this largely would happen is some kind of levy on Canadian advertisers.

The parliamentary committee can recommend, obviously, whatever it chooses, in its wisdom, to be appropriate, but I think the question, perhaps, may be important for Canadian advertisers and marketers to answer.

[Pierre Breton, Liberal, Shefford, QC]

I would like to know how it works when your company publishes news online. We know there is a lot of junk and a number of news creators. Can you explain how it works? Do you have agreements with those news creators? On your sites in Quebec, for example, you publish news from La Presse, the Journal de Montréal, and the Devoir. Do you have specific agreements to do that? Do you rely on regulations or a specific act to collect all this news and put it on your sites? How does it work?

[Kevin Chan]

I can start, and maybe my colleague Marc can fill in some of the details.

In general, as I indicated back in November, the principle it operates on is that people and organizations are able to publish what they wish on the platform. I would say that the vast majority of this content is what people, organizations, newspapers, other local news outlets, and broadcasters themselves publish directly onto the platform. We do not have, in any way, a relationship in that regard.

As I also indicated—and maybe here I'll turn to my colleague Marc—where there are specific products that they wish to publish their content through, such as Instant Articles, which loads faster, as you'll recall, sir, and where they reap the majority of the revenue from these products, then I believe that we do and we will work with them in partnership.

I'll turn to Marc.

[Marc Dinsdale, Head, Media Partnerships, Facebook Canada, Facebook Inc.]

Thank you, Mr. Chan.

As my colleague just said, any amount of content can be published on Facebook. People and companies can publish as much or as little strategic content as they wish. Most of the time, they want to increase their audience and their distribution.

In the case of La Presse+, the promotion strategy was to present it as a new service. I worked with them to formulate recommendations to better direct the public to La Presse+ in order to boost revenues in its environment.

There are programs that are starting in beta format, in a limited way. The Instant Articles program started with two or three partners. The partners in this program can put their own ads in their content in the Facebook environment and retain 100% of the revenues. If they do not have direct advertising of that kind, they can use our Audience Network program, which offers shared revenues.

For the most part, the service we offer our partners in Canada is content distribution; they can then direct users to their own platform and thereby increase their distribution and subscription numbers. We can also offer them a Facebook environment where they can collect their advertising profits directly.

[Pierre Breton, Liberal, Shefford, QC]

Thank you.

Do you have anything to add, Mr. Kee?

[Jason Kee]

This is one of those instances where our services are very different in kind. Google News and Google Search drive traffic to news websites. We don't publish content. We don't replicate it. The only things we'll reproduce are headlines and snippets, which are basically a sentence or two describing what an article is, mostly so a user would know what they're clicking on when they're being driven to the site. We drive that traffic to the original site.

Google News is not monetized, which means that we don't run ads on it. We don't earn any revenue from it. Google Search rarely monetizes through search enquiries that are related to news. Essentially, this is a service that we provide for free to provide an audience for our news publisher partners, for them to basically monetize and capitalize on. As a consequence, we don't engage in a licensing activity with them because we don't produce anything that would need to be licensed.

[Pierre Breton, Liberal, Shefford, QC]

Thank you.

[The Chair, Liberal, Hedy Fry]

Thank you very much.

We may not be able to do a second round because the votes moved us forward. We have about three-quarters of an hour to deal with our second hour. I thought we would end this round.

Mr. Van Loan, stop looking so disappointed. We will have to end this hour.

I want to thank Google and Facebook for being here.

There is one thing I wanted to ask you, which is something that has always interested me. As you well know, for any other platform for communications, whether it's telephone, telecommunications, TV broadcasts, radio, or print news, including letters to the editor, etc., if these spread false messages, or if libel is spread by any of these platforms, they're liable under the Criminal Code. This is why you'll have editors at newspapers tell you that they need to check what is put into a letter before they put it in: because they're responsible.

The only platform that has not been deemed to be responsible in a real way for both of those things—false messages and libel—is the digital media. Your platform has not been moved into that. Is this something that you feel would help you ensure that the kind of “news aggregations” you're putting forward are subject to the same rigour that other platforms are subject to? Do you have a comment on any of that?

[Jason Kee]

I have a few things. First, I'm not certain I would agree with your characterization that, for example, telephone companies are liable for the content that travels through telephone lines. A core principle of carriage is that a provider of a service is not liable for the content provided through the service, much like Canada Post is not liable for carrying a letter that contains libellous or otherwise problematic content.

This is a principle that developed and informed what we call the “safe harbours”, particularly in the United States, with respect to online platforms, the concern being that if online platforms are liable for the content of their users, they will not actually be able to function. We deal with such a volume of content. Google indexes trillions of websites every single year. Then there's the sheer volume of content that Facebook deals with. We would not possibly be able to manage that. If we were liable for that content, we wouldn't be able to function.

I take your point in terms of Mr. Greenspon pointing out that he'd be liable for a letter to the editor, but he as editor-in-chief chooses to put that letter up. If we have to pre-approve content online, that means the Internet basically comes to a screeching halt, because you just can't deal with the sheer volume of it.