Article 19 of the Income Tax Act stipulates that when a Canadian advertiser uses foreign-owned media such as newspapers, television and radio, the expenditure is not deductible for tax purposes. Its applicability has not been extended to foreign-owned digital media such as Facebook and Google.KENZO TRIBOUILLARD/Getty Images
Louis Audet is the chairman of Cogeco Inc.
Five years after Friends of Canadian Broadcasting called for action to save local media, the federal government has yet to move on the measure that would have the greatest impact: extending the applicability of Article 19 of the Income Tax Act to foreign-owned web platforms.
This inaction has fuelled the growing dominance of foreign digital media and the disappearance of many local media. We should ask ourselves why.
Article 19 stipulates that when a Canadian advertiser uses foreign-owned media such as newspapers, television and radio, the expenditure is not deductible for tax purposes. Its applicability has not been extended to foreign-owned digital media such as Facebook META-Q and Google GOOGL-Q.
There rightfully should be an incentive for advertisers to choose local over foreign outlets. The lack of such an incentive when it comes to foreign-owned web giants is partly what is causing local media to survive on only 30 per cent of total Canadian advertising expenditures, hence their disappearance in numbers.
Why has there been no movement on this file, causing local media to be deprived of Canadian advertising dollars? Let us review a number of typical objections to applying Article 19 to foreign-owned digital media.
Why should we care? Isn’t competition a good thing? The reason we should care is because this is not simply a matter of free-market dynamics. Local media are essential contributors to the cultural and economic livelihoods of the communities they serve. They also fulfill the essential mission of defining and conveying our identity, culture and values.
Some question why Canadian buyers of advertising, mostly businesses, have a role to play here. Again, the answer is that this is not simply a business matter. In free countries, advertiser funding of media is an essential mechanism, along with subscription fees, ensuring the independence of media, guardians of our democracy.
The alternative is worrying. Dependence on government funding, although necessary in special circumstances, has curtailed freedom of expression in other countries, particularly in illiberal societies such as Russia and Hungary.
Yet economic orthodoxy would teach us that if Canadian media are losing advertising market share, then we should let them wither away and be replaced by … what exactly? And this is the central question. The void left behind is dangerous. While economic orthodoxy may apply to the manufacturing and distribution of consumer goods, leaving Canada with weakened or dying local media is not an acceptable outcome for our cultural and social identity, not to mention our sovereignty.
The displacement of local media is visible elsewhere in the world, including the United States, and for a long time now governments and the public have not been worried. So why should we care as Canadians when the problem occurs here?
The reason is simple. The United States may not care that much because those foreign-owned digital media we’ve been talking about are American creatures! In any event, the U.S. has started to worry. The dominance of these platforms is now being examined by the Federal Trade Commission, the Department of Justice and House and Senate judiciary committees. The European Commission is also particularly active in this regard.
The reach and effectiveness of local media in Canada have been demonstrated to far exceed the 30-per-cent share of advertising dollars that accrue to them. This is due partly to the unique character of the digital age. While audience measurements for traditional media are widely shared, by market and by medium, comparable data for foreign digital media is not readily available. The invisible reach of these large digital companies and the opaqueness of their workings are at the root of the advertising market imbalance.
This brings us to the ultimate argument, perhaps the one that is most likely behind Ottawa’s inaction on this file: Our American neighbors would really not like this, and our business and political relations would deteriorate; our relationship with our most important ally and export market could be negatively affected.
This is a genuine risk and should be recognized as such. This is where dialogue is of utmost importance. We should be able to explain to our American friends that, while they might not be overly concerned about the dominance of U.S. digital media on U.S. territory, the disappearance of Canadian media on Canadian territory ultimately leads to the suffocation of our national identity and sovereignty.
The introduction of Article 19 for radio, television, magazine and newspaper advertisements in the 1960s was likely received with the same objections we hear today. Yet it has allowed Canadian culture and values to flourish up to this point in history. The time has come to apply Article 19 to foreign-owned digital media.
At this late stage, adding tax incentives to encourage the use of Canadian local media is also in order. Piecemeal side agreements and giveaways such as the Online News Act simply do not cut it. Let us not wait until local media have been decimated.
Now, as in the ‘60s, what is required is political courage.