Fighting Yesterday’s Battles over Who Should Pay for Tomorrow’s News

Canada understandably has a long history of regulating to protect its culture. Canada’s population is about one-tenth the size of its neighbor to the south, spread out over a slightly larger land area. The mismatch is not just in population size; America’s #1 export (depending on how you measure) is cultural products — music, movies, TV, publishing, games, and media — and given the common language and proximity, US culture swamps Canadian culture without even trying. Like the rest of the world, Canadians have an insatiable appetite for what Hollywood produces. Canadians may be proud of their home-made artists, but all things being equal, at the cash register they’ve shown they buy American.

Since the late 1960s, the government has required Canadian radio and TV stations to fill half their schedules with Canadian content. And Canadian artists are “encouraged” to perform Canadian if they want government support for their projects. Since Canada has a stronger ethos of government support for culture rather than corporate or individual support as it works in the US, government dominates arts funding, and the content incentives exert a powerful force.

So, when Netflix and other streamers entered Canada a few years ago, a debate erupted about what mandates for Canadian content ought to be imposed. And finally, after years of wrangling, the Canadian government passed the Online Streaming Act in April of this year. If implemented, the streamers will have to spend about $1 billion a year producing Canadian content if they want to do business there. It’s far from a done deal though. The United States will likely appeal under provisions of the USMCA trade deal signed under President Trump, claiming an unfair “tax” on an American company doing business in Canada.

All of which is to say that Canada is no stranger to using government to shape and regulate culture. Homegrown TV, radio, music, and publishing industries would not exist as they are without CanCon rules, and the country’s movie industry (British Columbia is known as Hollywood North) only exists because CanCon rules give significant tax breaks to American producers who agree to shoot in Canada and employ some Canadians. It’s why Vancouver makes so many appearances as stand-in for Seattle in the movies.

The Netflix deal taken care of, the latest battle over culture is with online platforms Google and Meta. Canada, like the US, has a journalism problem. Its news organizations are losing money and shutting down in droves, leaving communities without newsrooms. Canada clearly has a public interest in having a thriving news ecosystem, especially when US news is so readily accessible to fill the void, and so Justin Trudeau’s Liberal government has been looking for ways to help.

The solution is another new law— Bill C-18, the Online News Act — which passed earlier this summer and requires Google and Facebook to pay publishers for linking to their news stories. Commonly called a link tax, the law mandates that the online companies negotiate with news companies to pay them every time a search turns up a news story or an online user shares an article on social media. The link tax, regulators estimate, could bring in $329 million per year.

The reasoning is compelling, say lawmakers. News organizations have seen the floor fall out beneath their one-time lucrative advertising business. Ad sales at Canadian publications have plunged more than 70 percent, and, by government estimate, some 450 publications have folded in the past decade. The country’s two dominant news chains, Torstar and Postmedia, have struggled with massive losses and been sold off in what amounted to fire sales — Postmedia to New Jersey hedge fund Chatham Asset Management, and the previously publicly traded Torstar to Nordstar Capital.

Over the same period, ad spending in Canada has actually increased, and where it has gone is no surprise. Google and Meta now capture more than 70 percent of Canada’s $12 billion annual online ad spending. By contrast, the country’s entire newspaper industry sells less than $1 billion in advertising. Five years ago, Justin Trudeau’s Liberal government announced a $50 million fund to help prop up the news industry, but it was little more than a Band-Aid. Canadian news organizations have been lobbying for regulation to compel the online platforms to pay for using their content, as have news organizations in Australia, Europe, and the US.

As you might imagine, the tech giants have resisted calls to pay news organizations for listing stories. They color themselves as vital allies for publishers, connecting readers with their work for free. A service to the news industry rather than a consumer of it. Why should they pay?

Indeed, they say they won’t pay now that the law has passed. A few weeks ago, Meta began blocking Canada’s Facebook users from sharing links to stories from Canadian news organizations. The government called foul as historic wildfires raged across the north and news was blocked from users.

After a similar law passed in Australia last year. Meta blocked news-sharing there, but after the government watered down the regulations, Meta and Google agreed to negotiate and made deals with 34 news organizations, representing 61 percent of the market at about $128 million. So far there’s no sign of such a deal in the works for Canada. And this week, Meta announced it was discontinuing initiatives it had participated in in Europe to help fund journalism, telling the Financial Times that: “We have learned from the data that news and links to news content are not the reason the vast majority of people come to Facebook, and as a business we can’t over invest in areas that don’t align most with user preferences.”

The platforms contend that paying some users for links is antithetical to their business model. In the current model, websites compete for best placement in search results and social media feeds. This has spawned an entire industry promising to optimize content for the algorithms so it gets higher prominence. Appearing on the first page of search results is the difference between being seen (making money) and being invisible (going broke). Businesses of all sizes and all kinds jockey for best position.

And increasingly, businesses pay to place ads at the top of search results and in social media feeds. Paid ad placements atop organic search results on Google have proliferated in recent years, and for obvious reason — most users typing in a search, click on the results shown to them first, and if those are ads (which they almost always are now), Google makes money, a lot of it. Readers seem not to care whether the content they’ve been served is an ad or has been shown because it’s the best result.

Anyone hoping to spread the word on social media about their upcoming show, the horse stall mats they want to sell, or a news story they want readers for, buys “suggested for you” ad placement in social media feeds that targets whatever demographic the advertiser is looking to reach. It’s a hugely profitable business. In 2022 Google made $224 billion on online ads. The same year, Facebook made $114 billion in ads. Remove news stories by legitimate news organizations in search results or social media feeds, and the loss to platforms is minimal.

So how do the platforms grow their ad business? There has been a proliferation of junk news sites flooding the internet with stories meant to get you to click on them. The sites have names like CinemaBlend or Z-Live News or Collider or 24/7, and they serve a steady stream of headlines with compelling clickbait about every topic imaginable from the Ukraine war to bikini shots of famous stars.

Many readers still go directly to the websites of The New York Times or their local newspaper. But addicted to information as we have all become, most of us also let apps on our phones, or newsfeeds on our browser homepages or trending topics on our social media feed us our distractions. These stories, stumbled upon in the endless scroll, oddly gain weight because of their seemingly randomness. No one publication is “choosing” our news for us.

So more and more, we let algorithms choose our news for us, as we do for music on Spotify or videos on YouTube or Netflix. Stories are served, supposedly, based on stories you’ve previously read. So, if you’re following the Ukraine war, you get lots of stories about the war. If you click through to a conspiracy site, you’re going to get more conspiracies. An astonishing 70 percent of all the videos played on YouTube are algorithmically “recommended.” Algorithmic curation gives the illusion of discovery when in fact the algorithms narrow and winnow down your content diet to content that is familiar to you or that you agree with.

And whatever the topic, you’re more likely to get stories from junk ad sites than, say, the Wall Street Journal. The junk sites are made to look like real news sites, and often regurgitate information reported by legitimate news sources. But just as likely, the stories are based on unverified assertions or entirely partisan sources because they better excite the algorithms. Studies report, for example, that users are 18 percent more likely to click on a headline that makes them angry. So, there’s reward for serving incendiary content. And again, many (most?) readers seem not to even notice the name of the publication they’re clicked through to, or care.

More bad news? Artificial Intelligence has become very good at creating content perfectly tuned to the algorithms, but it doesn’t just crank out a few stories a day — it can flood the web with millions of them, each crammed with ads.

What the sites are most brilliant at is serving ads. Lots and lots of ads. The content is merely a hook. And the ad sites are also hugely profitable for the ad networks that serve those ads. Advertisers bid on how much they’re willing to pay to reach an audience, and an adtech platform like Google delivers the ads and keeps 49 percent of the revenue. So Google takes a cut everywhere — from the advertisers and from the publishers. It controls 80 percent market share of the sell-side ad inventory, 80 percent market share of the buy-side ad demand, and has a 50 percent share of the ad exchange market between buyer and seller.

And if that wasn’t bad enough, the ad-driven web already has created so many places to put ads, all optimized to target their intended audiences, that the price per ad impression keeps falling. So, even if the Seattle Times can serve the same number of ads as before, the rates keep falling. That will get exponentially worse with the AI content tsunamis to come, hammering rates down even more.

In such an environment, it’s easy to see why publishers want a link tax. The ad model, a version of which has fueled their businesses for more than century, is in terminal decline in the Wild West Attention Economy.

Alas, news publishers have a weak case. The platforms are private companies. They aren’t obliged to carry any content they don’t want. And news content makes up a tiny sliver of their search results and social media posts. Second, there isn’t a publisher out there who doesn’t want to be featured in favorable positions on the platforms. Publishers employ a small army of specialists whose job is to get that better placement. Many even pay the platforms to promote their content. How weird is it that publishers are clamoring to get good placement on the platforms and spending money to do so even as they’re screaming that their content is being stolen from them and demanding the platforms pay them for being featured on their sites?

Nor do the publishers have much of a case under copyright law. Publishers’ content lives on their own sites. A link or a headline isn’t “stealing” content. For many, the search engines and social media sites are their biggest source of reader traffic. If it goes away, business collapses.

From a public policy perspective, the case is also ambiguous. Yes, a link tax would bring needed revenue to news sites, propping some of them up, but which? Certainly not all publishers. The Vancouver Sun? Toronto Star? Probably. The New York Times? Seattle Times? Sure. But the Vashon Beachcomber or The Tyee? Perhaps. Post Alley? The Seattle Bike Blog? Likely not. How are the winners decided? And by whom? By click count? A link tax might grant a temporary reprieve in the form of new revenue for some publications, but the devaluation of ad prices as the ad supply increases exponentially mean the publishers’ share would inevitably shrink anyway.

In Australia, a year after the link tax went into effect, the platforms had made deals with major publishers, but publications without clout were left out. In effect, the Australian government ceded the choice of which publications would win and which would not to the platforms rather than the market. It propped up legacy media while passing by small upstarts.

So, what’s the solution? The obvious one is to break up Google and Facebook ad monopolies. No company should own all sides of a market. The platforms didn’t innovate their way into such commanding positions; they made obscene amounts of money quickly, then bought companies that developed innovative technology. Google ads, for example, is powered by DoubleClick, which Google bought in 2008 for $3.1 billion, giving the search giant a stranglehold on adtech.

But breaking up tech giants is a long, arduous, and extremely expensive and complicated process that would take years. Meaningful legislative fixes are also unlikely, given the poor leadership on the issue. The alternatives are daunting but not impossible. More sophisticated subscription tech, porous smart paywalls, individuated and personalized news, access to data services and live content, all powered by AI offer significant possibilities. But while many American businesses and investors are jumping into AI to remake their businesses, there are few outward signs that American newsrooms are doing the same. They missed innovating on the internet while tech destroyed their business models and set the new ground rules without them. They seem exquisitely poised to do the same with the AI revolution.

AI tech already offers the ability to streamline publishing, personalize news, and help solve user problems and answer questions. AI is critically dependent on data, and news organizations have both the content archives and the unique reporting expertise to refresh databases with current news that matters. But making such transitions takes investment, and publishers have been unable to attract Silicon Valley investors who could finance it. And time may be running out. Guaranteed there’s a young Craig Newmark (founder of Craigslist, which stole newspapers’ most valuable advertising — the classifieds) working away out there right now on an AI-powered news service that will disrupt and out-compete the news gatherers of today.

But you still want to argue over link taxes? Enjoy yesterday’s battle. In the meantime, Canadians can see and share online news stories from the US but are blocked from seeing Canadian stories, the exact opposite of what CanCon rules were meant to accomplish.