With the Canadian government releasing the draft regulations of the Online News Act, we decided to take a look inside and see what we find.
Recently, there was the release of the so-called “draft regulations” of the Online News Act. We got a few bits and pieces from others such as the government raising the cost of news links and the fact that the money, for the most part, was never actually going to go to news or news production in the first place.
I should point out that we are in a place in the lawmaking process that I have pretty much zero experience in. Most laws I have followed in years past never made it to Royal Assent. I don’t read or really follow the governments “Canada Gazette” publication process. In fact, it was only recently that the links on the front page of the website actually go to an index of the content in those editions. Yes, I don’t feel very intelligent only recently discovering this, but there are loads of things I’m learning these days about the Canadian lawmaking process including the existence of the Canada Gazette in the first place.
At any rate, the draft regulations were published here and, judging by the previous bits and pieces that came out of this that I’ve seen already, the draft regulations ended up being a hoot. I took a quick skim through some of it already before starting this article and what I saw really confirms what a train wreck this whole thing is in the first place. So, I wanted to actually go through this and offer my analysis of what I read.
Issues
The first section shows that these “draft” regulations are off to a bad start. It starts with this:
Digital platforms, such as search engines and social media networks, have emerged as common gateways Canadians use to access news content. At the same time, a small number of digital platforms have come to dominate the online advertising market. The Canadian news sector has been impacted by these developments, seeing a significant decline in advertising revenues and an increase in the closures of news businesses over the past decade. Canadian news businesses continue to produce content that attracts web traffic and adds value, while seeing their advertising revenues dwindle as a result of the market control exerted by large digital platforms.
I’ve beaten this to death over the years. If you’ve read previous articles of me talking about this, you can just know that this is a false premise from beginning to end. It’s a lie, move on to the next bit.
For those who want a more thorough explanation, essentially, this is built on the lie that the platforms are “stealing” whole articles from publishers, scraping them automatically and republishing them on their own platforms without permission, slapping their own ads on it and profiting off of it. It takes all of two seconds to debunk this, but this is generally the lie government is trying to push here.
If you want to be lazy and don’t want to access, say, Google News, then think about it this way: if the platforms are republishing whole articles and profiting off of it after, then Canada has laws that existed for decades that guards against that. The publishers can use the Copyright Act and file a class action lawsuit against the platforms and receive a massive financial windfall if they were actually telling the truth in all of this. The problem here is that the publishers know they are lying when they say this which is why they are inventing a whole new law and pretending that this is the only way to get platforms to “pay their fair share”. What’s more, they never put forth any evidence to conclude that this activity was happening in the first place. There’s many low effort ways to debunk these claims because they don’t hold up to a slight breeze of scrutiny, plain and simple.
They do try to muddy the waters by being more vague by saying that the platforms are just taking the advertising dollars from the advertising sector. This is generally a deflection to try and confuse things which is generally not that much better of a lie. One question that can immediately be brought up is “are the publishers entitled to a certain portion of the advertising revenue no matter what?” Generally speaking, the answer is “no”. So, if you are a company trying to sell, say, bars of soap, and you have advertising dollars, you can make a free choice of who to advertise with. It can be a newspaper, television station, road side signs, or the platforms.
So, that soap company chooses a couple of online platforms to sell their product. They did the calculations, researched, figured out audiences, and that’s what they went for exclusively. What we are ultimately talking about is the broadcasters and newspapers saying that, yes, they made that choice, but they feel entitled to some of that money too. The advertisers made their choice and the large media companies are trying to overrule that and say that they are entitled to that money anyway. There’s no argument for the media companies here. The company made their choice.
It doesn’t matter that the media companies feel that they have been around longer, have more credibility, are better for society, it’s just the free market in action. The media companies can innovate and make their product better to attract the advertiser in the future, but for now, it’s the free market making its decision, too bad for the publishers and media companies.
At any rate, this “draft regulations” has started off badly.
Another part of the draft is this:
The Act requires that digital platforms notify the CRTC when the Act applies to them. The proposed Regulations Respecting the Application of the Online News Act, the Duty to Notify and the Request for Exemptions (the proposed Regulations) would establish clear criteria so platforms can determine if the Act applies to them. The proposed Regulations would also specify the time frame by which the platforms must notify the CRTC that the Act applies to them.
This is where the legislation is different from the Australian model. A lot of lobbyists and supporters of the Online News Act keep saying that what’s going on in Canada is a mirror to what is going on in Australia, therefore, they platforms will give up their positions just like Australia. Yet, in Australia, the platforms can just swing some deals and it is up to a government official to determine if the platforms are still designated or not. Avoiding designation under a link tax regime is precisely the kind of thing that they want to avoid.
In Canada, the designation is automatic. It is up to the two platforms to notify the CRTC that they are designated, but otherwise, the designation is automatic. Meta has already been blocking news links for the better part of a month now, so the whole argument of this only lasting a week is already dead. Still, the borderline automatic designation is a big reason why the platforms aren’t going along with this.
The draft regulations try to confuse matters by also saying this:
The Act provides that digital platforms may negotiate voluntary commercial agreements with news businesses to qualify for an exemption from the mandatory bargaining provisions of the Act. The exemption section is a key component of the Act as it provides digital platforms the opportunity to reach fair commercial agreements with a wide range of news businesses and contribute to the sustainability of the news marketplace.
This is such an Australian thing to read. Is it really “voluntary” if it’s ultimately mandatory in the end? This really is a repeat of a different debate in Australia when talking about the copyright three strikes law where the ISPs were under a “mandatory voluntary” requirement to participate in it. It’s the same ridiculous thing here. The platforms are basically under a mandatory voluntary obligation to make deals with the news publishers. The kicker here is that, yes, the platforms can make these deals ahead of time, but the whole concept of an “exemption” would only apply to that specific news organization, not for the whole sector. In Canada, there is no swinging a deal with a handful of news organizations and the platforms are exempt from the law. It just means that they won’t be fined in regard to links to the specific organization(s) that they made a deal with.
Ultimately, the government is trying to use confusing language here to make it sound like platform compliance is straight forward when, in fact, it is anything but.
Current state of the news sector
Skipping ahead a little bit, there is this blurb:
Many Canadians use digital platforms, like search engines and social media networks, as gateways to accessing news content. A small number of digital platforms have come to play an integral role in Canada’s news ecosystem. While the Canadian news sector has seen a significant decline in revenues and an increase in the closures of news businesses over the past decade, these digital platforms have seen their revenues increase significantly. In 2021, online advertising revenues in Canada reached $12.3 billion, with Google and Meta having a combined share of 79% of these revenues.
This section glosses over a lot of factors (and I do mean a LOT). For instance, the decline of revenues in newspapers were happening before platforms like Google and Facebook were massive companies. What’s more, there is little to no evidence that says that the platforms are the direct cause of the decline in revenue. Is the decline of revenue because of these specific platforms or did technology change in general and people use the internet more? This with the large players who happen to be the large players of today? The connection to the loss of revenue in the media sector and the growth of the platforms is, at best, tenuous and, more likely, non-existent.
Designing a legislative response
I won’t cover the same ground as above (as this section covers the same ground I mentioned above, but it did offer this little nugget:
The Act introduces a new legislative and regulatory framework that ensures fair revenue sharing between digital platforms and news businesses. The Act is expected to enhance fairness in the Canadian news ecosystem and contribute to its sustainability. The key objective of the Act is to encourage platforms and news businesses to reach voluntary commercial agreements. Failing that, it provides for a mandatory bargaining process, backstopped by final offer arbitration. Large platforms that have a significant bargaining power imbalance with news businesses are subject to this legislation. A platform is considered to have a significant bargaining power imbalance if it is large and occupies a prominent position in a Canadian market (e.g. social media and search) that gives them a strategic advantage over news businesses. The legislation facilitates fair commercial agreements between digital platforms and news outlets while maintaining press independence, with minimal government intervention.
There’s a couple of things happening with this. One aspect that I think needs to be covered here is who is designated. I’ve sat through senate hearings and researched this heavily, so the answer is very obvious to me. However, some people out there have been asking the question lately of whether Twitter is going to be swept up into these regulations. The simple answer to that is “no” because, according to the law and the government, there is only two companies platforms that are designated: Google and Meta. For the government, every other player is just too small to even consider this. Could they change that at a later time? Sure, but for now, things like Twitter and Mastodon and others are not affected by this law.
Another aspect here is the absurd concept of the “market imbalance”. I’ll say, straight up, that this is a complete and total myth. There’s no such thing. Simply put, the platforms do not produce local or national news. Conversely, the publishers and broadcasters are not social media companies or general search engines. The two are nowhere near each other when it comes to what industries they represent. Further, news links on these platforms make up such a tiny fraction of the overall business model that it’s almost non-existent for them. This applies to both Google and Meta platforms.
As a result, the government is trying to pretend that they are basically in the same industry and that the platforms are just taking over the industry (they are not). They then use this by trying to invent this “market imbalance” and justify that there is a need to make deals. At the end of the day, it’s the media companies that are benefiting from the news links, not necessarily the platforms. The large media companies and publishers are just demanding that they just shake down the profits of the large platforms. It’s precisely why I say that the media companies and publishers are trying to freeload off of the success of the platforms. They just want free money and not go through the work of actually earning it.
Exemption of platforms from mandatory bargaining and final offer arbitration
The government then issued these statements:
In assessing whether a platform has met the criteria for an exemption order, the CRTC must consider
- whether agreements provide fair compensation;
This is a lesser debated aspect of the legislation, but a big reason why the platforms are dropping news links. Let’s say, in the extremely unlikely scenario that the platforms go along with this shakedown, that an agreement was created between the platform and a news organization. Both parties are happy, they think that the compensation is fair and all is good between the two. Does that mean that’s the end of the story (at least until the next round of negotiations happen)? The answer is a flat “no”.
You might recall in some other articles me mentioning this, but the CRTC can riffle through the agreement after and determine whether or not they like the agreement. If they don’t like the deal, they can tear that agreement up and tell the platforms to give the news organization a better deal anyway. There is zero certainty for the platforms in the so-called “deal making process” because there is no way of knowing if the negotiation process is ever over. Simply put, you can’t operate a business under those conditions.
If anyone out there was asking me for evidence that this is a thing in the Online News Act, well, there it is in black and white, straight from the Government of Canada itself.
The list then adds this:
- whether agreements sufficiently ensure that an appropriate portion of the compensation be used to support the production of local, regional, and national news content;
This plays into the earlier report I published about how the compensation from these agreements not necessarily going towards the production of news. If you want to cover that ground, you can check out that link as I’ve already covered this aspect. In short, the money is largely not destined to help news rooms, but rather, fill the pockets of CEO’s and hedge fund managers.
The rest of the list shows this:
- whether agreements sufficiently uphold the freedom of expression and journalistic independence enjoyed by news outlets;
- whether agreements sufficiently contribute to the sustainability of the Canadian news marketplace;
- whether agreements sufficiently ensure a significant portion of independent local news businesses operating news outlets in smaller size markets benefit from them;
- whether agreements sufficiently involve a range of news outlets in both the non-profit and for-profit sectors, and they were entered into with news businesses that reflect a diversity of business models that provide services to all markets and diverse populations, including local and regional markets in every province and territory, anglophone and francophone communities, and Black and other racialized communities;
- whether agreements sufficiently ensure a significant portion of Indigenous news businesses benefit from them;
- whether agreements sufficiently ensure a significant portion of OLMC news businesses benefit from them.
One of the arguments for the Online News Act is that it’s just two private parties negotiating agreements. Government involvement is non-existent and it’s all done at arms length. This section takes that argument and buries it 6 feet under. On what planet is this “arms length” or “no government involvement”? You want to know why the platforms are choosing to drop news links? That whole list alone is a pretty darn good reason why.
For those who think that the platforms can overcome those hurdles, well, this section pretty much puts another nail in that coffin:
Contribution to the sustainability of the Canadian news marketplace: As part of the CRTC’s exemption assessment, it would be sufficient that agreements, in total, provide compensation that exceeds the amount prescribed by the formula included in the proposed Regulations. The intention is to ensure a meaningful contribution to the sustainability of the Canadian news marketplace, while also providing platforms with sufficient a degree of business certainty.
(Intermediary global revenue) × (Canadian share of global GDP [≈2%]) × (Contribution rate [4%])
Proxy for “Canadian revenue”
The text isn’t the worlds greatest, so here’s a screenshot posted by Michael Geist better showing the formula in question:
I’ve had a few requests to confirm the minimum 4% of revenues figure. It can be found here in today’s presentation from department officials. Contribution rate of at least 4% of the Canadian share of global revenues for linking to news content.https://t.co/VPENUksRCD pic.twitter.com/JXBqKK7IUS
— Michael Geist (@mgeist) September 1, 2023
All this was already covered earlier, so you can read the full comments there. The short of it is that Canadian Heritage estimated that the total liabilities would be around $150 million for the platforms. This 4% tax would put liabilities at over $300 million, jacking up the rates by more than double previous estimates. Again, little wonder why the platforms are dropping news links.
Prepublication
Skipping ahead a bit, we see this:
The Act received royal assent on June 22 and will come into force on December 19, 2023. This aggressive implementation timeline requires Canadian Heritage to seek prepublication of the regulatory proposal as soon as possible in order for all parties to have the opportunity to review and comment on the proposed regulatory text. The regulatory proposal will be prepublished in the Canada Gazette, Part I, for a period of 30 days. During this period, interested parties will be able to provide comments about the regulatory proposal.
This accelerated timeline limited Canadian Heritage’s ability to consult during the development of the regulatory proposal. Canadian Heritage is committed to continuing to work with all interested parties throughout the prepublication period to further refine the regulatory text as needed. Stakeholders are encouraged to provide comments to assist with this process.
It’s hilarious seeing the government arguing that they have been open and transparent and allowing all stakeholders to have their say in this, yet, they are openly admitting to fast tracking the process anyway.
A major problem throughout the process is the fact that the government has been flatly ignoring feedback, instead, opting to choose to listen to a handful of well connected lobbyists and accuse everyone else of pushing “misinformation” or acting as “shills” for the platforms. The Canadian government was warned that the platforms would drop news links. That advice was ignored. The government was asked to allow news publications to opt out of this system. Those calls were ignored. The government was told to narrow the class of eligible news organizations. The government not only ignored that, but also greatly increased the class throughout the legislative process, making the bill worse. The government was asked to create a fund model instead. That got flatly ignored.
The governments default position on this whole process was to ignore all criticisms of the legislation. With the exception of scoping in anything considered Indigenous news (which is now backfiring spectacularly for those outlets), there’s very few instances where government was listening to the critics valid criticisms. Now, the consequences they have long warned about are happening.
Yet, the government is now publishing this, saying that they listened to everyone. I guarantee you that they never have and never will listen to the critics when they present valid criticism and suggestions of improving this dumpster fire of a law.
Linkages to international agreements
There is a mention of international trade obligations with the following:
At this time, it is expected that the proposed Regulations would only apply to major U.S. search engines and social media platforms offering their services in Canada that meet the thresholds set out in the application section. It is expected that some stakeholders may believe that the regulatory framework engages Canada’s commitments under CUSMA. The Government has considered its commitments and developed the proposal in a way consistent with them.
This is, simply put, a pants on fire level lie. There has been a full legal analysis on the implications of the Online News Act as well as other related laws. The overwhelming conclusion of that analysis is that the Online News Act (among others) does, in fact, violate CUSMA. What’s more, this violates the Berne Convention which contains a provision saying that referencing material must be free (which is exactly what linking does).
For some, there is a big difference between whether something violates an international trade obligation and whether another country would retaliate. The US has repeatedly warned that they will challenge this and other laws and, if necessary, slap trade tariffs on Canada as well. In response, people who defend the legislation had no response to this.
This is just another example of the Canadian government trying to ignore a very real threat and hope it all goes away on its own. To a degree, there’s a chance that this threat won’t come to fruition of Google also follows suit and blocks news links in Canada.
Alignment with other jurisdictions
In this section, there is this little snippet worth discussing:
In December 2022, New Zealand announced intentions to introduce a bargaining code which, similar to the Online News Act, would incentivize voluntary agreements between digital platforms and local news outlets. In the United States, California recently introduced the California Journalism Competition and Preservation Act, which, if approved, would direct large digital companies to pay news outlets a “journalism usage fee” when they sell advertising alongside news content.
What this doesn’t say is how the CJPA has been delayed until next year and is widely considered unconstitutional due, in part, to issues surrounding compelled speech. What’s more, the international reaction to the Canadian Online News Act has become a question of how to avoid being the next Canada. This is in recognition to how bad the Canadian model truly is.
What’s more, the government also said this:
The policy approach taken by Canada is modelled most closely on the Australian approach, which, thus far, has resulted in deals that represent a meaningful amount of editorial expenses.
The evidence to this, however, shows the exact opposite to this assertion. For instance, in response to the Australian Bargaining Code funnelling money to news publishers, News Corp Australia laid off 1,250 journalists which amounts to 1 in 20 staff. Further evidence shows that the Code did very little to actually “save” journalism. This thanks to many news outlets getting hung up in regulatory limbo as well as little evidence that the money actually flowed into news rooms in the first place (this thanks, in part, to a lack of accountability and transparency).
Talk about the Australian model being a roaring success almost exclusively comes from anecdotal evidence of parties who are trying to sell this legislation.
Conclusions
Generally speaking, I expected a train wreck. The document ultimately fulfilled that expectation. There’s nothing really surprising here. It’s largely ground I already covered previously. It may offer some clarity for those who haven’t been following these debates as closely as me, but that’s about it. The Online News Act was built on lies and misleading information. It will only go down in one of two ways: the government rescinds the law or the platforms somehow do something totally crazy and just give up on their positions.
In the mean time, news links are as good as blocked. It already happened on Facebook (with no negative implications for the platform) and Google is likely to follow. The media companies are completely out of options at this stage and will be in for a very rough period financially in the weeks, months, and even years ahead. For the largest media players, though, it’s hard to feel sorry for them. After all, this is the very situation they lobbied so hard for. They only have themselves to blame for this.
Drew Wilson on Twitter: @icecube85 and Facebook.
