Canadian Heritage Committee on Nov. 1st, 2022

[The Chair, Liberal, Hedy Fry]

I call this meeting to order.

Good morning, everyone. Welcome to meeting number 51 of the House of Commons Standing Committee on Canadian Heritage.

I would like to acknowledge that this meeting is taking place on the unceded traditional territory of the Algonquin Anishinabe people.

Pursuant to the order of reference adopted by the House on Tuesday, May 31, 2022, the committee is meeting on the study of Bill C-18, an act respecting online communications platforms that make news content available to persons in Canada.

Today’s meeting is taking place in a hybrid format pursuant to the House order of Thursday, June 23, 2022. Members are attending in person and remotely.

I want to make a few comments for the benefit of the witnesses and members. Please wait until I recognize you by name before speaking. For those on video conference, click on the microphone icon at the bottom of your screen. Then, you will be able to activate your mike.

To get interpretation, you will see a globe at the bottom of your screen. If you click on that, you can get get your interpretation in English or in French, as you desire. You have the choice at the bottom of your screen of floor, English or French. For those in the room, you can use the earpiece and the desired channel.

Remember that all comments should be made through the chair.

I have one comment to make. We have had a very tragic accident with an interpreter because the witnesses were not using the required mikes. I have been asked to ensure that everyone is using the headset that has been sent to them by the clerk. It is very important to remember that, because we don't want to harm people at the other end.

Having said that, I want the committee to know that all witnesses completed the required connection tests in advance of the meeting and are using the required headsets.

We will begin.

On Bill C-18, we have three witnesses today. We have Sue Gardner McConnell professor of practice, Max Bell school of public policy, McGill University, who is appearing as an individual. Appearing by video conference, we have Hal Singer, managing director of Econ One. We also have Philip Palmer, president of Internet Society, Canada chapter, by video conference.

Clerk, I don't see Mr. Palmer.

[The Clerk of the Committee, Ms. Aimée Belmore]

Dr. Fry, Mr. Palmer is in the room.

[The Chair, Liberal, Hedy Fry]

Is he in the room? I have him down as appearing by video conference. I'm sorry. Thank you very much.

Each of the three witnesses will have five minutes to present. I will yell at 30 seconds for you to know that you have to wind up. Then, there will be a question and answer period. We will get into that a little bit later.

I'm going to begin with Ms. Gardner.

Ms. Gardner, you have five minutes.

[Sue Gardner, McConnell Professor of Practice (2021-22), Max Bell School of Public Policy, McGill University, As an Individual]

Thank you so much for inviting me to speak today.

I was a journalist in Canada for 10 years, working in radio, television and online. I used to run cbc.ca. I used to run the Wikimedia Foundation, which is the non-profit that operates Wikipedia. That makes me the only Canadian to have run a global top 10 Internet property. Last year, I was the McConnell professor of practice at the Max Bell School of Public Policy at McGill University.

I am speaking here in a personal capacity, based on my own knowledge and my own experiences.

I think Bill C-18 is a very bad bill for three reasons that I'm going to unpack for you.

First, Bill C-18 misdiagnoses the nature of the problem. Bill C-18 characterizes as “unfairness” that Google and Facebook have such a large share of the digital ad market. That is a fundamental mischaracterization or misunderstanding.

Imagine it's the 1920s. I make buggy whips and you make cars. Bill C-18 is the government saying that you need to give me money forever because nobody is buying my buggy whips.

The journalism industry used to be profitable because buying ads in the news was the best way—or at least a very good way—to reach audiences. That's less true today. Google and Facebook have created advertising tools that are way more efficient and more effective than the old ones. That is why advertisers are using them. Google and Facebook out-innovated the business side of the news industry. That is not a fairness issue. It's not a moral issue. It doesn't make them villains.

Ben Scott told you that the government is, in effect, “refereeing a contest between big tech and big publishers”. He urged this committee to focus on the public interest instead. I want to say the same.

My second point is that Bill C-18 will not actually support quality journalism. As the former CRTC head, Konrad von Finckenstein, told you on Friday, “If you want to subsidize news publishers, you can do it a myriad of other ways”. He characterized this bill as “unnecessarily complicated”. I think he's right.

If the government's goal is to support quality journalism, the Public Policy Forum laid out a very good path for how to do that. In 2017, the PPF released “Shattered Mirror”, which was its report on the crisis in the news industry. It recommended that the government start collecting sales tax on foreign company ad sales in Canada and that this money be used to establish a journalism fund to be administered by a body independent of the government. That would support quality journalism.

Bill C-18 may attempt to achieve the same goal, but it does it by trying to awkwardly kind of force Google and Facebook into the role of directly funding journalism themselves and that is a really tough fit. Google and Facebook are private sector Silicon Valley megacorporations. Their job is to advance their own business interests. They don't have a mission to serve the people of Canada. We don't elect them and they are not accountable to us.

The government can try to give Google and Facebook very specific direction and stand over their shoulders and try to compel them to do what it wants, but that is not the simple way. The simple way is to take their money and make a fund.

My third point is that Bill C-18 will have significant negative unintended consequences. I'm going to speak here mainly about the Internet and Internet users.

Bill C-18 will encourage the creation of clickbait and nonsense.

Bill C-18 will create an incentive for Google and Facebook to back away from news.

Finally, Bill C-18 will enshrine in law the idea that ordinary Internet linking is “taking value”, and that puts us on a slippery slope. The Internet was designed to be open and to grow organically. The ability to link freely, and not just link but to share, to comment, to annotate and to build upon is at the heart of the Internet's openness. That is well understood.

With Bill C-18, the government introduces friction to linking. That brings us closer to an Internet that is fundamentally commercial, where what we see online is going to be determined by corporate deals. That kind of change happens extremely slowly. It's the accumulated effect of many decisions that, at the time, might not have seemed very consequential in that regard. It is one step on that bad road.

Thank you very much.

[The Chair, Liberal, Hedy Fry]

Thank you very much, Ms. Gardner.

Now we'll go to the next witness, Mr. Singer from Econ One.

You have five minutes.

[Dr. Hal Singer, Managing Director, Econ One]

Good morning, and thanks for having me.

It's a privilege to speak to a Canadian audience, and I wish I could testify in person.

On behalf of the News/Media Alliance, a collection of news publishers, I have worked extensively on companion legislation to Bill C-18 in the United States called the Journalism Competition and Preservation Act , or JCPA, and I will speak to those efforts. The economics are the same.

Among other protections for news publishers, the JCPA would grant an exemption to antitrust laws for news publishers so they can better coordinate their dealings with the tech giants.

Before going any further, I want to be clear. Antitrust exemptions are rare, and that's a good thing. Powerful entities should not be immunized from antitrust scrutiny. In some limited circumstances, however, coordination among small suppliers when dealing with a large buyer is necessary to overcome a power imbalance that causes input prices and employment to fall below competitive levels.

This market failure is the basis for the current exemptions for farm co-operatives in particular and labour in general from the U.S. antitrust laws. It is the same basis for extending a new exemption to newspapers in their dealings with dominant Internet platforms.

That the word “preservation” appears in the U.S. legislation is no accident. The news industry has incurred losses in advertising revenue every year since 2006, according to the Pew Research Center.

The effect of shrinking advertising revenues, in part caused by underpayment from dominant platforms, is less cash flow to support journalists and a clear employment effect flowing from the exercise of monopsony power by the dominant platforms. U.S. employment among newspaper employees fell from 71,000 in 2008 to 31,000 in 2020, according to Pew. As a result of the deteriorating news media landscape, hundreds of local newspapers have been acquired or have declared bankruptcy.

Google and Facebook reframe newspaper articles in rich previews containing headlines, summaries and photos. The platforms also curate newspaper content alongside advertisements. This reframing and curation decreases the likelihood of a user clicking on the article, thereby depriving news publishers of clicks while enriching the dominant tech platforms. This appropriation of newspaper content at zero access price also decreases newspaper subscriptions. When the clicks on newspaper content eventually come from the platforms' websites, the associated advertising revenues are taxed by the platforms at excessive take rates.

The best way to correct the exercise of monopsony power is for the government to permit the news publishers to coordinate their dealings with the digital platforms over payment terms and conditions. Given the massive power imbalance, collective bargaining by itself might not be sufficient to achieve competitive payments, in which case some structured bargaining among the parties, for example mandatory arbitration with an enforcement mechanism, is needed as a backstop.

Curiously, some traditional anti-monopoly groups have stated their resistance to granting countervailing bargaining power to newspapers in their dealings with dominant platforms. In a joint statement, the American Antitrust Institute, Public Knowledge, Consumer Reports and Consumer Federation of America argued that a new antitrust exemption “will only hurt consumers, citizens, and businesses that are not invited to the negotiations that this exemption is supposed to facilitate.” It bears noting that some of these groups depend on the dominant platforms for funding.

Instead of the JCPA, these same detractors have called for greater enforcement of antitrust laws against Google or Facebook, but the conduct that is being challenged here, the mere exercise of monopsony power to achieve a reduced rate for newspaper content, is not a cognizable vertical restraint under antitrust law. Scraping, reframing and curation, and appropriation of value do not amount to violations of section 2 of the U.S. Sherman act. Unlike Europe, the United States does not have an abuse of dominance standard.

Moreover, even if one could style something else the platforms are doing as a cognizable restraint, a successful antitrust lawsuit against, let's say, Google, would provide zero relief for publishers in their dealings with Facebook. A successful antitrust lawsuit against Google or Facebook would require several years to adjudicate, and the appeals might not be resolved for nearly a decade. In the interim, newspapers would be left twisting in the wind. Given the newspapers' precarious financial state, it is not clear how long many newspapers could survive without an intervention today.

The JCPA has undergone significant amendments.

[The Chair, Liberal, Hedy Fry]

You have 30 seconds.

[Dr. Hal Singer]

The current version wisely introduces baseball-style arbitration, guarantees that publishers of all viewpoints are eligible to participate in negotiations and imposes a size limit—incorrectly, in my view—to focus support on small and local outlets.

My last point is that a more recent amendment ensures that a significant share of the funds—65%—collected, pursuant to the JCPA, would be allocated to news publishers based on their pro rata share of a newspaper's spending on journalists. In other words, newspapers that shed journalists would be punished under the allocation mechanism as their pro rata share of the global award would be reduced.

Thank you for your time, and I'm happy to answer any questions.

[The Chair, Liberal, Hedy Fry]

Thank you very much, Mr. Singer.

Now I'll go to the third witness. He is with the Internet Society Canada Chapter.

Mr. Palmer, please, you have five minutes.

[Philip Palmer, President, Internet Society Canada Chapter]

Thank you, Madam Chair.

On behalf of the Internet Society Canada Chapter, I would like to thank this committee for the opportunity to address this important subject.

As a preliminary observation, the Internet Society supports initiatives to financially bolster news organizations as they transition to the Internet era. We believe that a broader levy applied to all social media platforms and search engines, coupled with a truly independent body to apportion funding, would have been fairer and a more reliable source of funding than the illusory bargaining scheme that is at the heart of Bill C-18.

Neither Bill C-18 nor the Australian legislation on which it's based represents bargaining based on the value of news content to news intermediaries. The bargaining process is contrived, apparent rather than real. Having stripped news intermediaries of legal protections, it is designed, under threat of excessive monetary penalties, to coerce intermediaries to agree to compensate news businesses. It withdraws the exceptions and limitations of copyright law from digital news intermediaries, while leaving those same rights in place for their competitors and for the news organizations themselves.

The government is using its legislative power to force a handful of businesses that have successful advertising-based business models to compensate an industry whose advertising-based business models are failing.

I would like to quickly make a few specific points.

First, Bill C-18 imposes significant costs on making news content through hyperlinks available to the public. Hyperlinks are the quintessential means by which individuals and businesses seek and find news content and all other information online. By imposing a cost on news intermediaries for links to news content, Bill C-18 threatens the efficiency of news retrieval on the Internet and the ability of Canadians to access news content. Bill C-18 will raise the cost, directly or indirectly, of accessing news content in Canada.

Second, the definition of “digital news intermediary” in subclause 2(1) raises complex questions of constitutional facts and law. Facebook and Google, for instance, are likely not subject to federal regulatory authority.

Third, the criteria in clause 6 by which a digital news intermediary must self-identify are vague and inappropriate. They are borrowed from concepts as different from each other as competition law and labour law. The legislation neither defines the relevant markets nor sets forth to what the imbalance of bargaining power relates.

We would urge the government to consider following the Australian model in this regard, in which the minister designates the intermediary according to clearer—not perfect—criteria set out in section 52E of the Australian act.

Fourth, clause 27 has a bifurcated definition of “eligible news business”. Paragraph 27(1)(a) refers to “a qualified Canadian journalism organization”, a definition for the purposes of the Income Tax Act, which requires that an organization qualify by meeting demanding criteria. As numerous intervenors have pointed out, paragraph 27(1)(b) qualifies organizations with no observable journalistic standards. Click farms and foreign agents should not be eligible news organizations. We note section 52P of the Australian legislation as a better model in this regard.

Fifth, clause 24 denies to news intermediaries any reliance on copyright exceptions and limitations. It should be deleted. It nullifies any market-based approach to the determination of the value of news content to digital news intermediaries.

[The Chair, Liberal, Hedy Fry]

You have 30 seconds.

[Phillip Palmer]

Lastly, clause 51 incorporates from telecommunications law the concept of unjust discrimination and undue preference. It has no relevance to the functions of news intermediaries. This provision should be deleted. Section 52D of the Australian act seems to address these issues with far greater clarity.

Thank you very much, and I welcome your questions.

[The Chair, Liberal, Hedy Fry]

Thank you very much, Mr. Palmer.

Now we will go to the questions.

The first rounds of questions are for six minutes. I would like to point out that this includes the answer. Please try to get in as many questions and answers as you can. Let's try to be as clear and quick as we can.

The first person in the round of questioning would be for the Conservative Party, Mrs. Rachael Thomas.

Ms. Thomas, you have six minutes, please.

[Rachael Thomas, Conservative, Lethbridge, AB]

Thank you.

Ms. Gardner, thank you for your opening remarks and for taking the time to be with us today.

My first question is just to set the record. I'm curious as to whether or not you have received any sort of sponsorship or monetary contribution from any of the platforms.

[Sue Gardner]

No, I have not. I'm a completely independent voice. I used to be on the CBC payroll, until 2007, but since 2007, I have taken no money from anybody tangentially, potentially, definitely or at all involved in Bill C-18.

[Rachael Thomas, Conservative, Lethbridge, AB]

Thank you.

In your opening remarks, you referred to Bill C-18 creating what you termed a “link tax”. You talked about how assigning value to certain links over others potentially changes the entirety of the Internet in the way that it functions.

You said that it lends to the potential commercialization of the Internet. You said that this would be a gradual change, but make no mistake, it would in fact occur.

Would you care to expand on that a bit?

[Sue Gardner]

Yes, I can.

In my opinion, the debates about whether Bill C-18 literally constitutes a link tax are hairsplitting. They are a bit beside the point.

The whole basis of the legislation is the notion that making available material or facilitating access to it is taking value from the party that made the thing, and that notion flies in the face of the entire Internet, because the entire Internet is built on the concept of linking, sharing, annotating, commenting and building on the work of others. That is what makes the Internet fantastic. There are limits to that. We do have copyright law, but there is no need and it is not beneficial to take the position that linking or making available is taking value, because it's not.

I know that people tend to dislike the phrase “breaks the Internet”. I dislike it, too, because it always sounds like hyperbole, and I am not trying to say that if this bill becomes law, the Internet is immediately different or immediately broken, but it is consistent with breaking the Internet, and it is a step on the road to breaking the Internet.

I would like to urge the committee to take a long view on this. The Internet is still quite young. It's going to be with us for a long time. I think the actions we take today that may seem small and of little consequence will shape it and will shape how it develops in ways that I think we could come to regret, and this is one of those ways.

[Rachael Thomas, Conservative, Lethbridge, AB]

Are you able to break that down a bit more? If a value is ascribed to links—news links, in this case—it opens the door for value to then be ascribed to other links, which, then, yes, could lead to the commercialization of the Internet.

Right now, within television, we have cable packages, which of course people are moving away from because they're wanting more choice, They are going towards other options. If the Internet goes down this path where you're ascribing value to certain links, could it eventually go down a slippery slope of landing us in a place where essentially you are having to pay for a package of certain links that you have access to but maybe you won't have access to other links?

I guess I'm trying to wrap my head around where this does eventually take us in terms of commercialization of the Internet and giving monetary value to links.

[Sue Gardner]

Right, and I think what it does is that it creates the conditions in which it could be, as you say, applied to other forms of information, other forms of knowledge. I don't know that it would go down a cable television kind of road where consumers would be buying packages. When I think about the commercialization, what I think about more is the idea that the Internet—what is shown to you, what is given to you—is fuelled by commercial deals and money changing hands in backroom corporate decision-making that you don't know about, right?

What you would be seeing would be commercially motivated—it might be for good; it might be not for good—and you wouldn't have any control over it. Certainly in the origins of the Internet things were not commercially motivated at all in the beginning, whereas today we are on a road where potentially that changes, and I do think that breaks a lot of what is special about the Internet.

[Rachael Thomas, Conservative, Lethbridge, AB]

One of the things the minister has claimed with this legislation is it's based on market-based solutions. However, the bill would actually ensure the CRTC or the government intervenes significantly within the sphere of news and the bargaining process that would take place between intermediaries.

I'm wondering if you can comment on the consequences of this being the case.

[Sue Gardner]

I feel like in some ways this bill is the worst of both worlds. I think the minister has said he doesn't want to be in the middle between the news organizations and the platforms, but I think the truth is, if the government has policy objectives, it is in the middle. You can't escape being in the middle. This is trying to do it, like I said, in a way that is trying to force the platforms to pay a funder role and give them criteria and things they need to ensure happen. But that's not the correct role for a private sector entity. If you're trying to make policy, if you're trying to make quality—

[The Chair, Liberal, Hedy Fry]

You have 31 seconds.

[Sue Gardner]

—journalism available to Canadians, there are more straightforward ways to do that than trying to do it in this way, where you're intervening in the market, but from a sideways perspective.

I'm not sure that was very articulate. I hope it helps.

[Rachael Thomas, Conservative, Lethbridge, AB]

Thank you so much.

[The Chair, Liberal, Hedy Fry]

Thank you, Ms. Thomas. Your time has ended.

I'm going to move now to the Liberals, to Lisa Hepfner.

Lisa, you have six minutes, please.