Canadian Heritage Committee on Nov. 1st, 2022

[Lisa Hepfner, Liberal, Hamilton Mountain, ON]

Thank you, Chair.

Through you, I would like to direct my questions to Mr. Singer, who is an economist.

I'm hoping you can pick up our conversation. On Friday, we heard from Facebook that news actually doesn't add value to that platform, that the opposite is true, and that news publishers should be paying Facebook for the privilege of carrying their news.

I'm wondering what you think of this argument in your perspective as an economist.

[Dr. Hal Singer]

I don't give much thought to it. In fact, I've studied the issue through surveys as to how much value is being created by news publishers collectively to the individual platforms. The answer comes out to something in the billions of dollars, at least in the United States. It's probably similar in Canada as well.

There is some value returned in kind, but remember that's only when the user actually clicks on the links and follows back through. Even then, the news publisher is going to be subjected to some supercompetitive take rate or tax on those revenues.

The point is that when we get to an arbitration, the news publisher collective is going to be able to put forward a study, potentially surveys, that are going to show how much value is being appropriated by the platforms from the news publishers. Google and Facebook are going to get to hire their own economist and she or he is going to put forward a counter study. At that point, the arbitrator will have to decide whose estimate of the valuation being generated by the news publishers is fairest of them all. What's the fair market value that would emerge in a voluntary negotiation, absent the power imbalance, right? That's what we're trying to get at here. The market forces are giving a zero access fee. That's what the market has determined, and that's because Google and Facebook are just too big in this negotiation. The question is what would be the competitive rate for this access? You'll only find out through this arbitration process.

[Lisa Hepfner, Liberal, Hamilton Mountain, ON]

We've seen Facebook play with their news algorithms over the years. In 2020, during the U.S. presidential election, Facebook tweaked the algorithm to prioritize authoritative news over less credible news. A couple of years earlier, in 2018, the algorithm was tweaked the other way, to favour emotionally engaging content, inflammatory opinion and disinformation over straight-up news reporting.

What are your thoughts on this?

[Dr. Hal Singer]

I think this is a serious issue, but it might fall outside of the question we're talking about today, which is how do we come up with a structure in which we can solve a market failure and compensate news publishers for the value they're creating for the platforms. I do think the issue you raised is an important one, but I think it should be dealt with in a separate proceeding, respectfully, if that would be okay.

[Lisa Hepfner, Liberal, Hamilton Mountain, ON]

I think it's important because Facebook is deliberately changing the behaviour and consumption of its users.

I get that you're not comfortable answering that question, so I'll move on and go back to the value you attributed. You said in the billions. I think in the U.K. economists have also tallied up what they think news value is on these platforms, and it's $1.2 billion to $1.6 billion Canadian at Google and Facebook.

A high proportion of search activity on these platforms is for news. Can you comment on that?

[Dr. Hal Singer]

That's right, and that's exactly the question we're trying to get at in these valuation studies: What brought you there? What are you doing in the search? Is it news or something else?

We can perform surveys and we can use other tools to try to estimate, as best we can, the value contribution of the news publishers to the search engine or to a social media site. That's exactly what we're going to try to do at these proceedings. It's going to be incumbent on the expert for the news publishers to come up with the best estimate possible, but then Google and Facebook are going to have an opportunity as well. It's conceivable that at the baseball-style arbitration they would prevail, and the number that would come out of the outcome would be small.

No one should accept this as a guarantee that newspapers are going to win at the proceeding, but I do think that baseball-style arbitration will induce both parties to come up with the best estimate possible. After all, if you come up with an insane or very extreme valuation, if Google puts forward a valuation of zero for what newspapers are contributing to them, then the arbitrator would be inclined to go with whatever the news publishers have offered.

[Lisa Hepfner, Liberal, Hamilton Mountain, ON]

Another thing we heard from Facebook on Friday was that they may just have to cut off access to news publishers in Canada. We saw the same strong-arm tactics in Australia when Australia moved forward with similar legislation. In fact, Facebook, according to whistle-blowers, deliberately cast the net wide so that they shut down not only Australian news providers but a whole swath of government and charity websites as well.

In the U.S., as you attack similar legislation, are you seeing similar tactics from the big tech giants?

[Dr. Hal Singer]

Oh, yes. Facebook has made similar threats to publishers here.

You know, what's ironic about this is that we're arguing that there's a power imbalance, that Facebook has monopsony power. When they behave this way with these bullying tactics, basically threatening to shut down the news, it evinces their power. Who could conceivably talk this way unless they had the power to make these threats? I feel like they're just digging themselves in a hole and highlighting the very reason we're here, which is the exercise of monopsony power that is depriving news publishers of any positive price of value that they're contributing to these dominant platforms.

[The Chair, Liberal, Hedy Fry]

Thank you, Dr. Singer.

Lisa, your time is up.

I will now go to the Bloc Québécois and Martin Champoux.

Martin, you have six minutes, please.

[Martin Champoux, Bloc, Drummond, QC]

Thank you, Madam Chair.

I'd like to thank the witnesses who are with us today.

Mr. Singer, you're all warmed up, so I'll keep going with you, if that's all right.

In your current study in the United States, do you consider quality of content a criterion for the eligibility of businesses? Are you studying that as well?

[Dr. Hal Singer]

I apologize. I didn't hit the interpretation button until the very end of that question, which I now see is aimed at me.

Is it possible that I could have that back?

[Martin Champoux, Bloc, Drummond, QC]

Certainly.

[The Chair, Liberal, Hedy Fry]

I will pause. I think we can allow Dr. Singer to get interpretation for the question.

Thank you.

[Martin Champoux, Bloc, Drummond, QC]

Madam Chair, I believe Mr. Singer wanted me to repeat the question, actually.

[The Chair, Liberal, Hedy Fry]

Yes. I've paused, Martin, so that you can do so.

[Martin Champoux, Bloc, Drummond, QC]

In your current study in the United States, do you consider quality of content to be a business eligibility criterion? Are you studying that as well?

[Dr. Hal Singer]

Well, in terms of quality, what we're trying to figure out in our studies is this. We ask people who are on the various platforms why they're there, what they are consuming and what brought them there in the first place. I think quality is going to be picked up in these two different measures when it comes to the allocation phase.

In the first phase, we're trying to figure out how much value is being generated by proxies, i.e., how much time is being spent consuming news and what brought them there. In the second phase, we're trying to allocate according to two measures. One, at least in the U.S., is the amount of traffic you generate, your pro rata share of traffic, which in part will be a measure of quality. Two, and most importantly, our Congress has set aside 65% of all the proceeds to be allocated in accordance with each news publisher's pro rata share of journalists under their employ. That is a direct measure of quality, right? The more journalists you have under your employ, the bigger the share or slice of the revenue pot you're going to receive.

I feel like that's a way to get at this quality issue: Make sure that the award is allocated in accordance with the number of journalists. After all, at the end of the day, what we're trying to do is breathe life back into journalism. The way we do that is by incentivizing the publishers to go back and hire journalists, just as they have in Australia and other places that have received this recent infusion of cash.

[Martin Champoux, Bloc, Drummond, QC]

I find your response quite interesting, because we're discussing the possibility of tightening the eligibility criteria a little to foster quality journalism.

Do you think it would be realistic to make digital businesses responsible for the quality of news content, or lack thereof, in some cases? I'm asking because we've heard some arguments that Bill C‑18 would encourage the spread of fake news, misinformation and all kinds of more or less credible content.

Is it realistic to think that online businesses could include a warning or grant certification to businesses with whom they are sharing content?

[Dr. Hal Singer]

I don't think there should be a certification that's created by the platforms. I think there should be criteria under which the bill rules out certain participants from enjoying the proceeds. That would be the first filter.

The second filter that I'm going to strongly suggest is that when we go to the allocation phase, don't make it's purely based on clicks. As you point out, if it were purely based on clicks, that would tend to feed those websites that don't employ journalists, but are very good at generating traffic.

You need to make sure that a big slug of the allocation gets awarded to real publishers that employ real journalists. You do that by looking at how much they're spending on journalists. That becomes the allocation criteria on the back end.

[Martin Champoux, Bloc, Drummond, QC]

I'd like to hear your opinion as an economist and antitrust expert.

In your view, does regulating industries in the same way as the news industry, whose activities inevitably end up online, violate the principle of a free and open Internet? If so, is it utopian to still believe in the concept that the Internet should not be regulated and be universally accessible? Do you feel it's realistic to believe that concept?

[Dr. Hal Singer]

This remedy would not affect the free Internet.

Here is why: Google is not going to suddenly start charging consumers for search because it now has to pay a lump sum transfer to newspapers once a year. That lump sum transfer is not going to enter their pricing calculus. It would completely destroy their business model if they said that, instead of making money off of advertising, which is the heart of their business and what they've been doing for a decade or more, they're going to start charging for search. They're not going to do that.

It's the same calculus for Facebook. If Facebook has to write a lump sum cheque once a year that doesn't vary with output and doesn't affect their marginal costs.... As a micro-economist, I can tell you that it's not going to change their pricing optimization and it's certainly not going to cause Facebook to deviate from its model of free social media in return for monetizing the eyeballs in advertising.

I hope this answers your question at a few different aspects. The part that is sticking with me is whether it is going to cause the Internet to somehow no longer be free. It is not going to affect the pricing decisions of the platforms at all.

Search will forever be free. Social media will forever be free and a lump sum transfer at the end of the year will not affect that.

[Martin Champoux, Bloc, Drummond, QC]

Thank you, Mr. Singer. That was a fascinating conversation.

I have no more questions to ask, Madam Chair.

[The Chair, Liberal, Hedy Fry]

Thank you very much, Mr. Champoux.

The next question will come from Peter Julian for the New Democratic Party.

Peter, you have six minutes, please.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Thank you very much, Madam Chair.

Thanks to our witnesses.

I'd like to go back to you, Mr. Singer.

We've had a variety of witnesses over the last few weeks. The vast majority are strongly in favour of Bill C-18, including—and I thought this was an interesting point and kind of a watershed moment—the community newspapers of Alberta and Saskatchewan. This is where half of our Conservative caucus is found. The community newspapers in those provinces are very strong advocates for Bill C-18, though they want to see improvements in the legislation.

Certainly in my community of New Westminster—Burnaby, we've seen a hemorrhaging of local news content as a result of what so many would say is unfair competition.

I am interested in coming back to the Journalism Competition and Preservation Act in the United States. I want you to tell us a bit about what would happen if this is not put into place.

The Australian model is something that a lot of other countries are looking at because their local community news has been decimated.

What would happen without the Journalism Competition and Preservation Act? How would you see journalism evolving in the United States?

[Dr. Hal Singer]

Yes, it's possible that the very largest publishers will be able to extract some payments unilaterally, but that's not what the bill is about. That's not what we're trying to do.

What we're trying to do is breathe life into journalism writ large, including these community newspapers that you mentioned. There's no way that in a bilateral negotiation between a community newspaper and Google or Facebook that the newspaper is going to be able to extract any payment. The payment for access for their content is always going to be zero.

You think about what the collective is going to create, what this union, if you will, is going to create of newspapers. It's going to lift up the smallest papers in the coalition by leveraging their power and allowing them to negotiate collectively as one unit against Google and Facebook. Those are the real beneficiaries.

My critique of what I've seen abroad is that while their heart was in the right place and it's a move in the right direction, the whole purpose is to lift up the smalls, and if you can't do that, it's not even worth doing, in my opinion.