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Louis Audet is the chairman of Cogeco Inc.
Local media are essential contributors to the cultural and economic livelihood of the communities they serve. They also fulfill an essential mission in defining the specificity of Canadian culture and ultimately fostering Canadian unity.
But over the course of the past 20 years, a number of Canadian media outlets have had to close as their advertising revenue base dried up. These include numerous daily and weekly newspapers, radio stations and cable television channels. Major television networks have had to reduce their staff counts considerably.
Some have hypothesized that local media are no longer relevant to their markets. Yet a recent analysis confirmed that their reach remains very powerful. Print alone, for example, still reaches nearly 50 per cent of Canadians aged 18 to 34. So Canadians consume local media far more than the advertising-dollar distribution would suggest.
Canadian advertising expenditures have shifted away from Canadian media in the past two decades, to the point where today only 30 per cent of advertising expenditures accrue to local media. No wonder they are closing en masse! The other 70 per cent of the total Canadian ad spend, some $10-billion, accrues overwhelmingly to foreign-owned digital media.
This debacle is essentially the result of the “winner takes all” dynamic characteristic of the digital age, not because local media are any less relevant. So, contrary to popular belief, this is not inevitable. Concrete measures can and must be taken right away to reverse this worrisome trend and strengthen the link that unifies our country.
The solution lies in Canada’s tax laws. In the early 1960s, Parliament added Article 19 to the Income Tax Act. It stipulates that when a Canadian advertiser uses foreign-owned media, the expenditure is not deductible for tax purposes. This has kept the magazine, television and radio industries healthy for many years and is still in effect. But its applicability has not been extended to include foreign-owned digital media.
In March, 2018, Friends of Canadian Broadcasting issued a paper recommending that the applicability of Article 19 be extended to foreign-owned digital media (Close the loophole: The deductibility of foreign internet advertising). That August, a report of the standing committee on transport and communications (The Tax Deductibility of Foreign Internet Advertising in Canada) rejected the idea, stating it would impose an undue tax burden on Canadian businesses. This conclusion is obviously based on the assumption that the incentive would not produce the desired result of bringing the advertising spend back to Canada – a somewhat dismissive conclusion.
To date, the Canadian strategy has centred on creating funds to support journalism and independent production and attempting to force, through Bill 18, foreign-owned digital media to negotiate royalties with Canadian media for the use of their content. In reality, these initiatives are only marginally useful and do not compare in size with the advertising revenues lost, which, if repatriated, would bring Canadian media back to life. For perspective, the $100-million deal with Google represents just 1 per cent of the $10-billion Canadian advertising spend lost to foreign-owned digital media. Furthermore, Bill 18 is not within the control of the government, as it requires foreign-owned digital media to comply and is at the root of the current blackmail campaign by some media companies, further accelerating the demise of Canadian media.
Extending the applicability of Article 19 to foreign-owned digital media should have been done 20 years ago. The implementation of this measure is totally under the control of the federal government, does not require the consent of media companies and is easy to do.
This tool could be used in a variety of ways. To begin with, tax deductibility for the purchase of advertising by Canadian entities on foreign-owned digital media can be denied. Given the disproportionate amount of advertising on such media, it may be necessary to offer tax credits for the use of Canadian media.
Canadian media do not need nor want giveaways from the government. But if we can get the advertising dollars back to Canada, we have a fighting chance to prosper. Why does this matter? Because if we maintain the current course, artists and journalists will receive meagre compensations, but their employers will disappear.