Wednesday, September 8, 2021

Why should digital platforms be required to share their revenue with news media?

A submission to the Department of Canadian Heritage

by Marc Edge, Ph.D.

I have been researching the business side of Canadian news media for more than 20 years and written several books on the subject. I was a newspaper journalist before that for more than 20 years, during which I held senior positions as both a reporter and editor on major metropolitan dailies in Western Canada. For more on my background, please see the attached biography. I am currently writing a book on the 2019 news media bailout and the one now being sought for entertainment media. Tentatively titled The Great Canadian Media Swindle, it will be based on the attached article “Greatly Exaggerated in Canada,” which is forthcoming this month was just published in the Canadian Journal of Communication. I wish as a result to make the following submission.

1. I fear that the outcome of your deliberations has been predetermined by the title of your Call for Submissions on “fair revenue sharing between digital platforms and news media.” This presupposes that it would be fair to force digital platforms to share their revenue with Canadian news media. I submit that this would be not only unfair, but regressive and tantamount to forcing Ford and General Motors to share their revenues with farriers and buggy whip makers a century ago. Google and Facebook have simply built a better mousetrap for advertisers to reach potential customers, and as a result they are making billions of dollars. Most of that money used to go to Old Media, and they want it back. They are using their considerable power in a worldwide campaign to coerce governments to force digital platforms to share with them the fruits of their innovation. This is hardly fair. I believe there is a much more equitable solution to the problem of funding journalism in Canada. 

2. It is incorrect to suggest that Canadians lack access to news and information. We are instead awash in more information than ever thanks to the Internet. A good example of this has been the health information posted online during the pandemic. Canadians have been well-informed throughout the crisis. There are more sources of news now than ever thanks to the Internet. Canadians now need not simply accept the news as printed in a monopoly newspaper or broadcast on the nightly network news. There are many alternative sources of news available online, and more importantly a myriad of perspectives on the news and what it means. It is a matter of dispute whether there are now fewer journalists as a result of the Internet. According to a recent study, there are more journalists now “than at most points in the past 30 years.” 

3. Google and Facebook do not earn significant revenues from sharing links to news stories. They make most of their money from selling targeted advertising. In the case of Google, these ads run on many of the websites we view, ironically including those of many news media. Their sophisticated algorithms and massive investments in digital infrastructure have allowed Google and Facebook to compile enormous databases of information on their users and members. They literally know what we’re shopping for and what we’re interested in because they follow us around online. It sounds scary, but the analogue analogy I use is that of a mall employee who follows us around from store to store and then mails to our home address, perhaps obtained from a free offer or contest entry, a personalized flyer based on our shopping habits. Philadelphia department store owner Joseph Wannamaker once quipped: “Half the money I spend on advertising is wasted; the trouble is I don't know which half.” Target marketing began to solve that problem when broadcasters started selling ads based on the demographics of their audiences as determined by Nielsen. The digital platforms have perfected it by tailoring ads to our exact wants and interests. Newspapers once enjoyed a monopoly on advertising, and they charged handsomely for it. Now they complain that the digital platforms (each of which has competitors) are a monopoly because of their success and demand that they share their profits with them. This is utter hypocrisy.

4. When you conduct a search on Google, or even on Google News, you won’t find ads on the results page. Google is providing a free service to readers and publishers by pointing the former to articles posted online by the latter, who do so in the hope that people will read them and also notice their attendant ads. It is a classic symbiotic relationship from which both benefit. Why should one then be forced to compensate the other? The only way Google benefits is by learning more about our interests in order to better target its ads. Facebook allows its users to share with their friends links to freely available websites, including news stories. Google and Facebook would be well within their rights to discontinue these free services, as the former did in Spain and the latter did briefly in Australia, should the government force them to pay for providing them. We would all suffer should this happen.

5. The news ecosystem is evolving as a result of changes in technology. It has been doing so for a century now, ever since the advent of radio broadcasting. Newspapers, which previously enjoyed a monopoly on news provision and advertising, have increasingly had to share both with radio, TV, and now Internet media outlets. Their slice of the pie has shrunk each time, but they still make money because they are inherently profitable, as I documented in my 2014 book Greatly Exaggerated: The Myth of the Death of Newspapers. The problems for newspapers have largely been self-inflicted because they have always made the mistake of trying to compete with each new medium on its own terms. To compete with TV, for example, they increased their use of pictures and shortened the length of their stories in what was derided as “disco journalism.” To compete with the Internet, they posted their content online for readers to access for free. They are finally realizing that this is not a viable business model and are increasingly charging for online access, which has improved their financial performance greatly. Any government handouts or forced redistribution of profits from Google and Facebook would just be gravy.

6. Google and Facebook seem to realize the wisdom of the old saying that “with great power comes great responsibility.” They have thus been devoting a portion of their enormous earnings to licensing content from news media around the world. In May, Facebook agreed to license content from eight Canadian news outlets, but no newspapers were included. In June, Google agreed to license content from 14 Canadian news outlets. Several newspaper chains were included, but not the largest ones. This makes sense to me since the largest newspaper chains remain viable. Thanks to the news media bailout and CEWS, some have recorded their highest profits in years. It should also be remembered that the our largest chains are owned by private equity players. It is the smaller media outlets that need assistance most, especially fledgling digital news media, which have yet to develop a viable business model. 

7. While foreign digital giants such as Google and Facebook have made billions with their better advertising mousetrap, there are Canadian companies that make billions by providing us with access to the Internet at usurious rates thanks largely to federal regulatory largesse. We pay among the highest rates in the world as a result for telecommunications services such as cable TV, internet service provision (ISP), and cellular telephony. This has inflated the annual profits of Bell and Rogers to greater than the GDP of many countries. Bell makes about $10 billion a year in profit at margins of about 40 percent. Rogers makes about $6 billion a year at even greater margins. In exchange for their lucrative monopolies, the federal government at least requires them to contribute 5 percent of their cable and satellite TV revenues to creating Canadian content. Requiring them to do the same from their ISP revenues, which they have long resisted, would provide ample funding for Canadian online content, including journalism.

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