More Bad News for Link Taxes, Eh?

Canada's link tax threatens catastrophe for local news outlets.

Canada’s link tax on online news goes into effect next month, but the preemptive embargo imposed by Google and Meta on news content is already having a significant, negative effect on smaller Canadian news outlets.

As Politico details, small news outlets are desperately begging Justin Trudeau’s administration for relief after a dramatic decline in online traffic:

“Between Google and Meta announcing their intention to exit news, we now expect a catastrophic 60 percent reduction in traffic,” ZoomerMedia’s chief operating officer Omri Tintpulver wrote to the prime minister’s office and heritage officials. “Jobs are going to be lost. Soon. Entire divisions may also be lost.”

This was an entirely predictable outcome. As I noted in my link tax analysis paper earlier this year, when Spain legislated a link tax variant — a “snippet tax” — in 2014, Google likewise pulled out and all 84 major Spanish newspapers endured a significant loss of traffic and revenue. Furthermore, the smaller the paper, the more severe were the effects.

The outcomes aren’t much better when the social media platforms opt to comply rather than embargo the news. When Australia passed a link tax in early 2021, Google and Meta eventually paid off the major media conglomerates. But small outlets weren’t able to shoulder in at the link tax trough, leading to hyper-consolidation of the Australian news industry as the Big Ink news conglomerates hired away journalists from small newspapers or simply acquired their competitors outright.

Two years later, the early data returns are coming from Down Under, and the Aussie link tax has been a bloodbath for small, local, and independent news outlets. Just look at all the red ink on this chart of Australian news outlet openings/closures!

As Politico’s reporting further noted, Canadian news publishers are worried the effects of the link tax embargo will be felt most severely by newspapers serving Indigenous communities. They are right to worry. While I’ve yet to see data from Australia that specifically looks at the effects of their link tax on news outlets in Aboriginal communities, there is reason to suspect that the size-favoring incentives baked into the link tax bargaining mechanism disproportionately hurts smaller outlets serving minority communities.

In a US context, a similar effect would hold for smaller, independent newspapers serving Black communities were a link tax like the Journalism Competition and Preservation Act (JCPA) passed. As I wrote in my analysis:

The National Newspaper Publishers Association, formed in Washington, DC, in 1940, serves more than 200 black‐​owned newspapers, many of which have existed since the era when white‐​owned newspapers explicitly excluded black journalists and were generally disinterested in reaching black audiences. … The NNPA’s CEO called the JCPA a “blank check for large corporate media” that “leaves small minority‐​owned news out in the cold.” It would be perversely ironic if the JCPA, while seeking to preserve the newspaper industry, instead ends up preserving—or even deepening—the de facto segregation of the industry.

The Minister of Canadian Heritage, Pascale St-Onge, is responsible for implementing their link tax. As a result, they might just end up overseeing a significant erasure of Australia’s distinctive regional and cultural heritages as news outlets serving those specific interests shut down.

Indeed, it’s possible that St-Onge could feel the effects in a very direct way; she represents a district in Quebec, Canada’s predominantly French-speaking province. (She only eked out a victory over the Bloc Québécois candidate in 2021.) Even if Google/Meta ended their news embargo, a link tax regime would tend to favor large, national, English-language news outlets at the expense of smaller, regional, French-language ones. I can’t imagine that losing local, French-language newspapers will warm the hearts of French-Canadians towards their representative in Ottawa.

American policymakers should pay attention. We now have clear indications from three different countries — Spain, Australia, and Canada — that link taxes are a failure on their own terms. They hurt rather than help local news outlets. They are simply a cross-subsidy from Big Tech to Big Ink. And ultimately that means fewer articles from fewer newspapers being read by fewer consumers.