Canadian Government Raises the Cost of News Links for Platforms

The government released some draft regulations for the Online News Act. In it, they effectively raised the cost to host them.

Meta has already rolled out news links blocking on Facebook. In late June, Google announced that it, too, would block news links at some point. A major point of contention is how much it would cost to host news links. This with the worries of uncapped liabilities over content that makes up such a tiny sliver of content for the platforms.

There’s no question about this, the platforms are basically walking away in this debate, allowing the large media companies to shoot themselves in the foot in the end. As a result, you would think that the government would be working on a solution to bring the platforms back on board with this – especially given the potential steep losses the media faces as a result.

Well, apparently, driving the platforms out of the country even faster is an even higher priority for the government. The government released what it called ‘draft regulations’ on this legislation. It’s probably one of the worst possible decisions they could’ve possibly made.

Indeed, finding a cost for the link tax has been a contentious issue throughout the debates. Still, we did get some ideas on how much it would all cost. In November last year, the Parliamentary Budget Officer (PBO) estimated that the link tax would cost $329 million. Meanwhile, the Department of Canadian Heritage in December of last year released a more modest $150 million estimate. That’s a lot of money for content that means so little to the platforms. Even with these estimates, the platforms made it clear that they have no interest in paying out that kind of money for links that have such trivial value.

As it turns out, the government was under-estimating the costs earlier. Rather than the initial $150 million as envisioned by the Department of Canadian Heritage, the government has, instead, apparently opted to what amounts to a 4% tax on links, blowing the original $150 million estimate out of the water. From Michael Geist:

With the release of the draft regulations, the government has established a formula with an even bigger estimate. The creation of a formula is presumably designed to provide some cost certainty to the companies and represents a change in approach in Bill C-18, given that the government had previously said it would not get involved private sector deals but it is now setting a minimum value of the agreements. Officials told the media this morning that it believes Google’s contribution would be $172 million and Meta’s would be $62 million, for a total of $234 million. However, that may understate the revenues by focusing on search revenues alone. If based on total revenues, with a 4% minimum floor, the requirement would exceed C$300 million for Google. Either way, the number is more than 50% higher than the $150 million estimate the department gave the Heritage committee just eight months ago.

The draft regulations will also provide some additional clarity on several issues. The standard for a digital news intermediary has been fleshed out to include $1 billion in global revenues and 20 million Canadian users. As for the process, those companies subject to the rules are required to conduct a 60 day open call for negotiations. To meet a fairness standard, the resulting deals must be within 20% of the average and cover a wide range of news outlets. Contributions can include non-monetary items but it seems unlikely the resulting deals would grant links significant value. The CRTC would then pass judgment on the deals and determine whether the companies are exempt from a final offer arbitration process. The timing on this includes a 30 day consultation process on the regulations, before they are finalized prior to the December deadline. But with the CRTC not having established a bargaining framework before 2025, the liability issues start arising well before any deals are concluded or approved.

Where does that leave Canada, news and Bill C-18?

The decision to establish what amounts to a 4% link tax moves the law even further away from actual news expenditures and simply creates a significant cost for linking to news in Canada for two companies. There is no magic to the number or correlation to news production costs. Rather, the government is trying to set a new global precedent with enormous implications for the Internet in Canada and worldwide. If there is a 4% tax on news links, why not similar fees for links to health or education information? What are the risks of creating a global news sector dependent on regulated deals with two Internet companies? What response from companies now facing a 4% link tax, 3% digital services tax, and millions in Bill C-11 liability in Canada? What are the competition and access to information risks if Google and Meta will become news deserts in Canada?

It’s hard to really fathom what the government is even thinking with this. The only real certainty this provides is knowing that the platforms would never go along with this. Meta has already shown that they can live without news links. Recent data suggests that since dropping news links, traffic on that platform remains unchanged. The findings pretty much proved the earlier evidence as well as internal estimates that news links would not be missed on Meta’s platforms. It’s pretty much a proof of concept. Google may be a different business, being a search engine, but seeing Meta’s estimations come to fruition in such a spectacularly accurate manner might actually serve as encouragement for Google.

The only real question at this point is when Google is going to pull the trigger, joining Meta in just dropping news links altogether and not bothering with such a ridiculous idea of a link tax in the first place. We know that is going to happen between now and December 19th. The Canadian government could very easily bring the laws into force sooner then that which means that there is certainly motivation for Google to act sooner rather than later. Each day that goes by, there is the risk that the government could, out of the blue, announce that the laws have come into force, thus seeing Google miss their window to avoid all these unnecessary liabilities.

At any rate, there is just no logic or reason with the government on any of this. The government hasn’t been able to shame the platforms into going along with this. Lobbyists haven’t been able to boycott their way to success. What’s more, the government hasn’t been able to just force the platforms into paying the link tax ransom payments. With the government raising the rates on top of it all, sure it does increase certainty, but that certainty is that the platforms are just going to leave the Canadian news sector behind as the digital age moves forward.

Drew Wilson on Twitter: @icecube85 and Facebook.

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