Thank you, Mr. Chair and distinguished members. It's a pleasure to appear before you again.
I'm Matthew Holmes, president and chief executive officer of Magazines Canada, the national association representing the majority of Canadian-owned and Canadian-content consumer, cultural, and business magazines. French, English, indigenous, and ethnic member titles cover a wide range of interests, trades, and communities across the country.
Today I plan to tell you that Canada's approach to advertising has never had to question its own impact on the greater media ecosystem it relies upon. But that is changing. From the earliest days of the national railways, which became both the conduits for and the genesis of our national broadcaster, our ability to communicate with our fellow citizens has been established through supportive legislation that has never questioned the fact our media were already, by definition, domestic—covering Canada, empowering and employing citizens, creating tax base, etc.
The government has not had to make explicit that its advertising is a part of the media's business model. In fact, I have seen officials from Public Works and Government Services testify recently before committee that advertising is not meant to support the domestic industry, and in one sense they are correct. But this view also glosses over the very clear fact that it always did support it, until now. It is my opinion that this committee's work is significant, for the simple reason that the recommendations you make, or do not, will help decide whether that symbiotic relationship continues between government and Canadian-based, Canadian-content media.
Magazines are an essential part of Canadians' lives and an important economic sector that knits our communities together. We have nearly 2,700 business-to-business consumer and cultural magazine brands, employing roughly 15,000 Canadians, from digital video production to investigative journalism.
Canadian magazines are published in 34 different languages, from every single province and territory in the country. By editorial focus, consumer titles represent 51% of the total, followed by business and professional magazines, including farm titles at 39%. Ethnic and arts and cultural titles each represent 5% of the total.
Magazine brands reach over three-quarters of Canadians of all ages, across all platforms, but the latest Vividata research also shows that 93% of Canadians still read magazines in print only, or a mix of print and digital. Even though Canada is one of the world's heaviest users of the Internet, only 7% of Canadians read magazine content exclusively via digital channels, including social media, web, tablet editions, and so on.
While Canada's magazine sector recognizes print's legacy, we are also drivers of digital innovation. I'm not here to make this an argument about the legacy print media versus digital disruptors. In fact, magazine media reach Canadians across print, digital, social, email, video, webinars, live events, even virtual reality.
Unfortunately, over the past few years the underlying economics of consumer magazine publishing in Canada have collapsed. Canadian print advertising spending has migrated to digital platforms, and digital advertising has, in turn, migrated offshore, largely to U.S.-based digital content distributors. Advertising revenues have decreased by half since 2007, from $732 million to $390 million. This decline has accelerated in the last four years by one-third.
Shifting over to our business-to-business and farm media, they represent 95% of the decision-makers in small and medium businesses in Canada, and often can be sub-targeted by industry and geography. This is an important demographic affected by government policy and incentives, one that you may want to ensure receives clear messaging from government on topics as broad as changes to the tax code, or as specific as interim financial assistance for operators affected by the softwood lumber dispute with the U.S. Facebook here probably misses the mark.
I've provided you with a very quick introduction to the sector I represent. Now let me tell you how the government, historically, has supported it through policy and legislation.
Canada's direct support for the magazine sector is older than the country. It predates Confederation. The original postal subsidy was designed to ensure that Canadians across the country had equal access to the information and stories that tie us together. Unspoken is that much of this is directly underwritten by advertising and, historically, that did include government advertising as well.
The ongoing principal support for magazines, as well as for paid community newspapers, is the Canada periodical fund that Minister Joly last week reaffirmed as the primary vehicle for the government's support for these important sectors.
In 1999, at the end of the so-called “magazine wars” fought under NAFTA and via the WTO, our government established the Foreign Publishers Advertising Services Act. The act was established in response to a clear trend of U.S.-based media giants that were aggregating content, directing it at Canadian audiences, and then using that audience to sell ads to Canadian advertisers. Does this sound familiar? At the time, this was universally considered an end run on our domestic media, so the government of the day limited the amount of advertising space a foreign publisher could sell to a Canadian advertiser in a Canadian edition to a maximum of 18% of the total available advertising space.
In my opinion, this act was based on the principle that the government was not supportive of massive foreign media platforms that target and monetize Canadian audiences and that are unaccountable to our regulatory or civic fabric.
On top of this, in 2000 these policies were strengthened via sections 19 and 19.1 of the Income Tax Act, which allows Canadian advertisers to deduct advertising costs from their taxes when they advertise in Canadian-owned and Canadian-controlled magazines, newspapers, or via broadcast channels. However, this was never applied to digital properties, which was an oversight at the time, since these were generally non-existent.
This change to the tax code was a clear signal by the government of the day that it had an obligation to directly support and foster the domestic media ecosystem, which was achieved via a support framework for advertising, full stop.
The net effect of these integrated policies was immediate and profound and led to the relative stability of Canada's magazine industry for over 15 years, but they were put in place before the Internet and e-commerce were realities. Where the old Canada sought to minimize the damage to local business from foreign advertising platforms that target Canadians, we see the new government instead report growth in digital advertising, most of which is for foreign platforms, from 7% to 34% in a matter of years.
Where the old Canada sought to incentivize support for the domestic media ecosystem through the tax code, we see the government ignore a loophole that sees any online advertising anywhere qualify for the full tax deduction intended to incentivize support for Canadian-owned and Canadian-controlled print and broadcast media.
In both cases, the financial support is flowing to foreign bodies that employ few, if any, domiciled, tax-paying Canadians; that support few local businesses; that meet no Canadian content thresholds; and that, in fact, are not even obliged to pay GST on the goods and services they sell here.
Your peers on the Standing Committee on Canadian Heritage released a major report in the summer that called for the government to broaden section 19 of the tax act to include digital advertising; to subject foreign news aggregators and advertisers to the same taxes our domestic industry faces; and finally, to increase the dissemination of government information, particularly in official languages and ethnic communities that are served by our small media. I think this committee should echo these recommendations.
In closing, Mr. Chair, I would like to return to the topic I opened with: whether the government has an obligation to consider the bigger ecosystem impact its advertising expenditure has. I would argue that it does, just like it might consider the economic magnifier of investments in major manufacturing or infrastructure projects.