The Tangled Garden: A Canadian Cultural Manifesto for the
Digital Age
Richard Stursberg (with Stephen Armstrong)
James Lorimer & Co., April 2019, $24.95.
Richard Stursberg (with Stephen Armstrong)
James Lorimer & Co., April 2019, $24.95.
When U.S. television stations set up transmitters just
across the border in the 1970s to beam their signals into Canadian homes, and then
began selling ads here, it started a trade war that lasted a dozen years. To
keep the ad dollars at home, Ottawa passed a law that disallowed as an income
tax deduction the expense of advertising on a foreign station. The U.S. retaliated
by declaring non-deductible the expense of attending conventions in Canada, which
put a serious crimp in our hospitality industry. The dispute was only settled
with the 1988 Canada–U.S. Free Trade Agreement.
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| Plus they stole my cover design! |
History is now repeating itself, as many in Canada want to extend
our treatment of broadcast advertising to digital media, to stem the flow of ad
dollars to foreign giants like Google and Facebook (the FAANGs), which have
been siphoning off revenue from newspapers and television networks worldwide.
These same voices also advocate taxing foreign streaming services like Netflix,
Apple and Amazon, and forcing them to both transmit and fund Canadian content. The
billions of dollars available to be clawed back from the foreign digital giants,
they argue, would help finance government subsidies to Canadian media, such as
the $595 million promised in the 2019 budget to boost journalism.
Richard Stursberg is one of those voices, and he sets out
this argument simply enough for the average Canadian to understand in his new
book, The Tangled Garden. In doing so, however, he plays fast and loose with
the facts and inflates the threat to Canadian media of the foreign digital
giants. Stursberg notes that these U.S. companies have so far avoided paying
tax in Canada on their services to Canadians due to Ottawa’s reluctance to
regulate the internet as it has broadcasting. (The FAANGs presumably pay income
tax in their own countries, however, which in the case of Facebook is very low
in Ireland.) That will soon change if Stursberg has anything to say about it.
As a consultant, Stursberg seems to specialize in coming up
with ways for Big Media in Canada to wheedle money out of Ottawa. For this he
was no doubt prepared by his 25 years in Canadian broadcasting, including six years
as head of the CBC’s English services. His book tells how he was hired by
Rogers, our second-largest media company after Bell, to write a “paper” a few
years ago that floated the idea of using tax credits to aid our country’s
supposedly ailing media companies—a direct subsidy without the need for any
application process. “If the costs qualified,” notes Stursberg, “the payment
was automatic.”
That got the attention of Paul Godfrey, at the time CEO of
Postmedia Network, Canada’s largest newspaper chain. (Postmedia publishes 15 of
our 22 largest dailies but is somehow 92% owned by U.S. hedge funds.) Godfrey
liked Stursberg’s idea about tax credits so much that he invited him to dinner
with Postmedia’s board. Together with the likes of David Pecker, then publisher
of the National Enquirer, who represented the American vulture capitalists,
they decided to pitch the idea to other newspaper publishers and “finance a
study on how tax credits might work for them.” In this effort Stursberg enlisted
the aid of “media economics expert” Stephen Armstrong, a long-time Ontario
civil servant who is also now a consultant.
Stursberg tells a fascinating tale about how our news media ended
up with the $595 million they are currently deciding how to divvy up. At the
height of their disagreement over how the money should be paid out, he recalls
that one publisher told him: “At the end of the day, if the money has to be
delivered in a brown paper bag late on Sunday nights in the alley, we’ll take
it.” But a few hundred million is chump change in Canada’s cultural economy,
which Stursberg estimates is worth $54 billion and employs 650,000. The big bailout
bucks will of course go to television because it’s the backbone of Canadian culture.
The Tangled Garden is an unabashed exhortation for the
“sleepy” Liberal government (a word Stursberg actually uses in a chapter title)
to fire up the tax collection machine to pump more money into Cancon. He counts
up all the dollars that would flow back to Ottawa and Canadian media companies
by taxing the FAANGs, and it comes to billions annually. Making them pay (and
charge) HST on their sales to Canadians would bring in $100 million a year just
for starters.
But making digital ads on foreign digital media not
tax-deductible should repatriate about $1.3 billion inads sales to domestic
media annually. Taxes on ads that don’t migrate back north (to Canadian firms) would
run an estimated $590 million a year. Making Netflix and other foreign
streaming services contribute 30% of their Canadian revenues to fund Cancon, as
the national networks are required to do, would bring in an estimated $438 million
next year alone. Stursberg does a very good job of shaking money from trees. No
wonder Godfrey likes him.
Aside from the wisdom of trying to repatriate tax and ad revenues
from the U.S., with a trade hawk like Donald Trump in the White House, the only
problem with Stursberg’s argument is its premise. “If the federal government
does not wake from its torpor, the major Canadian media companies are likely to
collapse,” he warns. “If this happens, English Canada will be effectively
annexed by the United States.”
Stursberg claims that big media companies in Canada have suffered
“losses as far as the eye can see” due to declining ad sales. Their financial failure
would bring about “the utter collapse of Canadian culture,” he colourfully
predicts, leaving us with the “arid and lifeless landscape of an abandoned
culture.” The closure of Postmedia, which he claims has lost money every year since
2011, “would mean that there would no longer be any local papers in many of
Canada’s largest cities.” It and Torstar, Canada’s second-largest newspaper
chain, are losing at least $35 million a year, he claims.
This is so much nonsense, to use a polite word. It is the
Big Lie of Canadian media.
The big media companies in Canada are corpulent cash cows that
grow fatter by the year, as a glance at the financial statements posted by law
on their websites will confirm. Bell made $9.5 billion in profit last year (earnings
before interest, taxes, depreciation and amortization) on revenues of $23.5
billion, for a profit margin of 40%. Its media division, which includes the CTV
network, made $693 million on revenues of $2.68 billion, which were up slightly
from 2017. That’s a profit margin of 26%. (Bell made 42.5% profit margin on its
$12.4 billion in landline revenues last year and 42.6% on its $8.4 billion in
cell phone revenues.)
Rogers made $6 billion in profit last year, up 9% from 2017,
on revenues of $15.1 billion, for a profit margin of almost 40%. Its media
division, which includes the Citytv network, made a profit of $196 million last
year, up by more than half from 2017, on revenues of $2.2 billion, for a profit
margin of 9%. (Rogers made almost 48% on its $3.9 billion in cable revenues
last year and almost 45% on its $7.1 billion in cell phone revenues.) Making
money at that rate, Rogers can afford to hire a lot more media consultants like
Stursberg to sing the blues for them. Come to think of it, a small share of its
lush cable revenues, which come largely from monopoly internet service
provision, would go a long way toward funding Cancon, but that’s the last thing
Rogers wants to hear.
Even the newspaper companies are hardly losing money, as my
research has shown. While their revenues have gone down precipitously in recent
years, they have been able to keep their heads well above water through painful
cost cutting, which is admittedly not good for Canadian journalism. Postmedia
made $65.4 million in profit last year, up 18% from 2017, on revenues of $676
million, for a profit margin of 9.7%. Of that amount, however, more than $25
million went to paying down its massive debt, which is held mostly by its hedge
fund owners. They kept it on the company’s books strategically as an income
source after acquiring the former Southam newspaper chain for pennies on the
dollar out of the 2010 bankruptcy of Canwest Global Communications.
Even if Postmedia went bankrupt due to debt, however, its
profitable dailies would continue to publish under new ownership. You don’t
just close down a business that makes $65 million a year. Torstar made $60.7 million
in profit last year on revenues of $615 million, for a profit margin of 9.8%. Its
profits went down $13.5 million from 2017, however, perhaps due to the
estimated $20 million Torstar spent in developing its failed tablet app.
The chains regularly report enormous net losses, but these
are only achieved after deducting huge “paper” losses that estimate the reduced
value of their businesses. Postmedia is often cited as losing $352 million in
its 2015-16 fiscal year, but that was only after deducting $367 million in
asset impairment and the extraordinary $42 million expense of severing staff.
On an operating basis, it actually earned $82 million that year, of which $72
million went to paying down its debt.
One thing you won’t find referenced in The Tangled Garden is
critical research done by real media economists, such as Dwayne Winseck of
Carleton University, whose Canadian Media Concentration Research Project tracks
the ever-increasing consolidation of our media and the enormous profits they
make. When you examine the facts and ignore the corporate propaganda, Stursberg’s
garden turns out to be not just tangled, but overgrown with weeds.
