Another Bill C-18 Nail To The Online News Coffin: 4% Tax On News Links

The Canadian government has unveiled the draft regulations for Bill C-18, raising the stakes for tech giants Alphabet (NASDAQ: GOOGL) and Meta Platforms (NASDAQ: META). The core of this regulatory framework is the establishment of a 4% revenue floor for linking to news content, a move that could have global implications, potentially costing Google billions of dollars.

“A contribution rate of 4% would yield compensation figures broadly consistent with the outcomes from the Australian Bargaining Code, which is the model for the Online News Act,” state the draft regulations.

“No country in the world has come close to setting this standard and the question the Internet companies will face is whether they are comfortable with the global liability that would see many other countries making similar demands,” Canada Research Chair Michael Geist wrote on his blog.

For Geist, the implications are crystal clear: it appears increasingly unlikely that Meta will restore news links in Canada, and Google may follow suit. These actions would come as the Canadian government imposes a 4% link tax through Bill C-18, on top of an existing 3% digital services tax and substantial Bill C-11 payments.

Estimating the revenue generated by Bill C-18, also known as the Online News Act, has been a subject of debate. The Parliamentary Budget Officer initially projected it to be $329 million, based on a metric equating to 30% of news costs for all Canadian news outlets, with the lion’s share going to broadcasters such as Bell, Rogers, and CBC.

In contrast, Canadian Heritage officials offered a considerably lower estimate of around $150 million:

“I won’t speak to the PBO report which is the source of the numbers that you cited. That was not a department-led initiative. The internal modelling that we did when we tabled the bill and mentioned in our technical briefings was more around $150 million impact,” one of the officials told a House of Commons committee last December.

As the bill made its way through the Senate several months later, the revenue estimate grew to $215 million.

Now, with the release of the draft regulations, the government has introduced a new formula for calculating revenue estimates. This approach seeks to provide some cost certainty for tech companies and represents a shift in the government’s stance, as it initially claimed it would not interfere with private sector negotiations. The government now establishes a minimum value for these agreements.

Officials have stated that they anticipate Google’s contribution to be $172 million and Meta’s to be $62 million, totaling $234 million. However, this figure may be conservative, as it focuses solely on search revenues. Based on total revenues with a 4% minimum floor, Google’s requirement could exceed C$300 million. Regardless, this number is more than 50% higher than the $150 million estimate provided to the Heritage committee just eight months earlier.

Furthermore, the draft regulations provide clarification on several aspects of the bill. The criteria for a digital news intermediary now includes $1 billion in global revenues and 20 million Canadian users, along with the requirement of being a search engine or in the social media market involving the distribution and access of online news content in Canada. To ensure fairness, companies subject to the regulations must engage in a 60-day open call for negotiations. The resulting agreements must stay within 20% of the average and cover a wide range of news outlets. While contributions may include non-monetary items, it is unlikely that the resulting deals would grant significant value to news links.

The Canadian Radio-television and Telecommunications Commission (CRTC) would assess these agreements and determine whether the companies are exempt from a final offer arbitration process. The timeline involves a 30-day consultation period on the regulations before finalization ahead of the December deadline. However, with the CRTC not yet establishing a bargaining framework before 2025, liability issues may arise long before any agreements 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,” Geist added.

Geist argues that this decision is not grounded in a clear correlation to news production expenses; rather, it signifies the government’s attempt to set a groundbreaking global precedent that could have far-reaching implications for the Internet within Canada and worldwide.

“f 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?” he pondered.

The inevitable loss of news links could have devastating consequences for media outlets and significantly impact Canadians’ ability to access and share information. The government had various options to support the media sector, but it has consistently opted for the riskiest approach at each turn. Today’s regulatory announcement may further exacerbate an already precarious situation, pushing companies closer to compliance with the Online News Act by potentially cutting off access to news in Canada.

Information for this briefing was found via the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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