The crushing impact of social media freeloaders

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TheStar.com – Opinion/Columnists
April 14, 2019.   By

“Hitler would have loved social media”

So said Disney CEO, Bob Iger, last week, receiving an award from the Simon Weisenthal Center for his work against racism and anti-Semitism. He meant, of course, the ability to use these platforms for hateful propaganda. There are so many reasons to be enraged about the social media monopolists these days: terrorist incitement videos, enabling dictators to corrupt our elections, selling our private data without informed permission, and on and on. But there is another reason that should be higher in policy-makers thinking.

They don’t pay taxes.

For a century, Canadian governments have fought to provide support for an independent and sustainable Canadian media and culture sector. They created the CBC to fight the dominance of U.S. radio beaming into Canada. They funded arts and culture organizations and blocked tax writeoffs by Canadian corporations for advertising on U.S. TV and in magazines. They created several funds and organizations to help back Canadian film and television production. They insisted pop radio play Canadian artists and ensured Canadian cable, broadcasting, publishing and magazines were Canadian-owned.

Whether you are a Canadian cultural nationalist, whether you agree that the state should have intervened in this fashion so often or not, this is the system we have built over many decades. It is now the essential foundation to our culture industries sector.

Social media threaten to wreck it.

Few people know how astonishing are the profit margins and percentages of market domination that are held by the major platforms. Here are two breathtaking stats: 65 per cent share and 80 per cent margin. Those are market experts’ estimates of share of ad revenues and the profit margins of the social media duopoly in Canada. No other ad business in the world has that stranglehold, no other media business earns one quarter of those stratospheric profit margins.

Unlike them, their Canadian television, newspaper and magazine competitors pay taxes.

In an excellent new examination of the digital Trojan Horse that we have dragged into our democracy, The Tangled Garden, by lifelong Canadian cultural leader, Richard Stursberg, he estimates that if these monopolists were taxed and regulated at appropriate levels it would generate billions of dollars annually in tax payments and new Canadian film and digital production. Billions of dollars.

One small arithmetic example of what is wrong with our querulous politicians weak-kneed stance:

Netflix will have an estimated 8 million Canadian subscribers by next year. We each pay them between $120 and $170 per year, or well over one billion dollars. The incremental cost to Netflix in adding Canada to its U.S. business is trivial. Estimates of their profit margins in Canada range between 75 and 85 per cent per year. By avoiding paying corporate tax and not collecting HST they deprive Canadian taxpayers of an estimated $500 million a year.

No legislative change is required to fix this, Ottawa can simply declare them a broadcaster under existing law. Why are the Liberals so terrified of doing so? If they had acted when Minister Melanie Joly was frightened into silence at the beginning of their term, Canadian taxpayers and our cultural sector would be nearly $2 billion healthier.

The implications of their refusal are very real for Canadian employees and companies. How could Canadian newspapers, television program producers and networks ever compete with such a monopoly business model? Profit margins in single digits are rare in the entire industry today. And they pay taxes.

Hundreds of millions more is wasted in allowing tax writeoffs to Canadian advertisers on American platforms. Again, experts estimate that $500 million to a $1 billion in tax revenue is lost annually, because we fail to treat them as what they are: simply American-owned content distributors.

Beyond these astonishing sums of money leaching out of Canada, there is accelerating impairment of our domestic media culture as a result of this unfair playing field, tilted in favour of the giant social media monopolists.

Our television networks and print media have not been profitable in years. Our domestic digital media players get bought or crushed by the behemoths. Surely we should now demand better answers from our politicians, as an election is only a few months away.

Robin V. Sears is a principal at Earnscliffe Strategy Group and was an NDP strategist for 20 years. He is a freelance contributor for the Star.

https://www.thestar.com/opinion/star-columnists/2019/04/14/the-crushing-impact-of-social-media-freeloaders.html

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