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Why competition law has failed Canadian media

Our competition authorities have focused too narrowly on economic factors, neglecting the importance of editorial diversity.

Competition in the digital media world

The Canadian media space has a competition problem, as two significant developments have demonstrated over the past few weeks. The first involved the aborted talks between Postmedia and Nordstar Capital LP, owners of the Toronto Star, to merge and create a new entity with reduced debt levels. Meanwhile, the federal government's Bill C-18, also known as the Online News Act, received royal assent. That prompted web giants Google and Meta, who largely control the online ad market, to announce they would block Canadian news from their platforms rather than comply with the Act's conditions.

While the Postmedia/Nordstar talks fell apart within days, critics expressed concerns that competition authorities, which typically focus solely on economic factors in such transactions, would unlikely have blocked the deal

Keldon Bester, a former special advisor to the Competition Bureau and co-founder of the Canadian Anti-Monopoly Project, says the continuous effort to consolidate these markets over the last three decades predates the current advertising landscape.

Before the internet, Canada had a history of mishandling competition in journalism. "That crashed headlong into the explosion of supply print display advertising space with the arrival of the internet," says Bester. "That explosion of ad supply has been marked by the monopolization by two companies."

He says Canada didn't adequately prioritize competition and the marketplace of ideas. Now, like Australia and California, Canada is trying to legislate compensation through Bill C-18.

He notes that competition authorities attempted to intervene in the news space in the seventies and nineties. But their focus was mainly on commercial aspects, neglecting to consider the significance of editorial diversity and independence.

He cites the 1976 ruling by the Supreme Court of Canada in  K.C. Irving, in which the top court allowed for the ownership of all English-language newspapers by a single man in New Brunswick. And in its 1997 ruling in  Canada v. Southam, the Supreme Court allowed a narrow remedy on this proposed merger. "Again, the concept of editorial diversity is totally absent," Bester says. "We're at a point where we're a couple of decades too late to taking that seriously, and as a result, if we want to put a stop to that [merger] process, we're going to have to look to other areas of the government than the Competition Bureau."

Bester says that while it's an uphill battle, Competition Commissioner Matthew Boswell should still attempt to block any proposed merger. But because he has few tools at his disposal, it would be up to the Competition Tribunal to react to arguments based on editorial diversity and independence.

"It's a political question, but this is one of our few remaining national media chains," Bester says. "This is a time for the government to actually step in because the way our laws are set up, it's highly unlikely they will give us what they want."

Bester recalls Postmedia and Torstar's 2017 swap of local news outlets and the rapid shuttering of those titles. The Bureau couldn't do anything about it.

It would be challenging now for the Bureau to argue that a merger between the two would have a significant impact, as the territories have already effectively been divided between them outside of major metropolitan areas, says Bester.

"In the U.S., their Supreme Court recognized explicitly this value of, beyond the market for advertising, journalism as a service that needs to be protected and be diverse. In Canada, we've ignored that and tried to treat newspapers more strictly like a business."

Jennifer Quaid, a law professor from the University of Ottawa, says that because the Bureau primarily concentrates on economic factors, the expectation has been that the CRTC would oversee the democratic angle following a merger.

Supriya Dwivedi, the director of policy and engagement at the Centre for Media, Technology and Democracy at McGill University, says that the gutting of newsrooms is connected to the state of our democratic health.

"When you don't have a reliable information eco-system where people can access factual, good reporting in a regular, consistent manner, you start to see society and our democratic values break down, and that's what you see happen not only in Canada but around the world," Dwivedi says.

Dwivedi suggests that competition law should be reformed not only to address the journalism industry's bottom-line concerns but also to address a broader range of issues.

"We're okay with being ruled by three corporations in a trench coat," Dwivedi remarks.

As for the Online News Act, the underlying purpose of the legislation has been to try and re-balance the negotiating power in a marketplace where Google and Meta have dominated the entire ad tech market.

Dwivedi says the way the debate around C-18 has been framed — bad for journalism and critical of the government exerting more control over the internet — overlooks the reality that Google and Meta's overwhelming dominance in the ad space is primarily a result of their anti-competitive practices.

In 2007, Google, the dominant search engine, acquired DoubleClick, which had a 60% market share in ad server software for publishers. The U.S. Federal Trade Commission approved the merger, which tipped the scales to tuning Google into a near-monopoly over both the sell-side and buy-side of the ad market.

"Because DoubleClick had its own large volume of data, which Google then absorbed, it gave Google sightline into what every advertiser, user and publishing company did," Dwivedi notes.

"From a Canadian perspective, we obviously can't do much about a decision that was made at the FTC, but we very much can empower not only the Competition Commissioner but also the Privacy Commissioner to really look at how some of these companies use and track our data to get a better sense of what our ad tech market really looks like."

All of this matters because of how dependent journalism has traditionally been on advertising dollars.

"If Google and Meta are the dominant players in that, and they've achieved that dominant status not through innovation but arguably through anti-competitive practices, then this isn't a question of them just being outsmarted," Dwivedi says. "It's that the system is rigged against journalism outlets," Dwivedi says. "I'm not excusing our corporate media in this country, because they generally don't operate very well, and have a tendency to pay their executives handsome bonuses while gutting newsrooms, but this ad revenue plummeting certainly hasn't helped."

Compounding the problem is that once dominant market power is achieved, the existence of that dominance is no longer an issue under competition law, says Bester.

"Through a variety of decisions, many of which Canada was not involved in, these firms' march to dominance clearly had some questionable elements," Bester says. "Google was allowed to buy DoubleClick; Facebook was allowed to buy Instagram, and so on. Our law really doesn't do a good job of handling just the raw exertion of power."

Bester says he empathizes with the idea around C-18 and similar legislation. "We can't count on our competition law here in its current form to re-draw that balance outside of the confines of exclusionary, predatory or disciplinary conduct."

Michael Geist, the Canada Research Chair in Internet and e-Commerce Law at the University of Ottawa, points out that one of the issues with C-18 is that the government initially proposed competition as a factor for the bill, but quickly abandoned it as a justification.

Geist says that the Heritage Minister, Pablo Rodriguez, has consistently emphasized the value of links and the need for payment. However, Geist suggests that the minister could have framed new legislation as a response to competition concerns. Most of the government's justifications for the legislation have revolved around content valuation, with competition playing a minor role. 

"My view is that the Canadian government has gone about it all wrong, and that the far better approach would have been to focus on two issues—one being data governance and privacy-related issues, and the other being competition issues," Geist says. "Frankly, had they dealt with the concerns around anti-competitive conduct and how they use people's data, that would have done far more to address concerns about potential abuse of the market instead of using these companies as a policy ATM, where rather than trying to stop the behaviour that is problematic, they seek to profit off them by funding film and television production, or seeking to fund the new sector."

To that end, Quaid points to the recent Canadian Digital Regulators Forum agreement between the Privacy Commissioner, the CRTC and the Competition Bureau. The three agencies say they will exchange best practices, conduct research, and collaborate on matters of common interest, such as artificial intelligence and data portability.

"Is that going to go somewhere?" Quaid wonders. "Maybe. We'll see."

If anything, Bester considers C-18 to be a clunky albeit revealing solution. The response from Google and Meta has been an expression of their market power.

He worries about Canada's ability to assert its own sovereignty, citing Amazon's threat to policymakers that it will shut down its Marketplace offering in te face of a review by the Competition Bureau. Says Bester: "We are in a moment where these firms are testing the limits of our sovereignty, and it necessitates some form of global cooperation, either loosely in the form of following one another's lead, or perhaps something more deliberate, because these middle democracies like Canada, Australia and even the U.K. are striking out and attempting to rein in these platforms in big and small ways, and going it alone is unlikely to be successful. We have to wake up to that reality."

Some argue that Google and Meta joining forces to try and align the retaliation and force the government to back down on Bill C-18 could be construed as a cartel under competition law since they are attempting to exploit their economic influence to coerce the government.

"You could call that an abuse of dominance, and I understand why people want to use that term, but in Canada under our current provisions, I'm not sure it's that easy," Quaid says. "Even if that's how we think about things intuitively, I'm not sure it's the best legal strategy. This could be an intentional conspiracy, and if not a Section 45 conspiracy, then a Section 90.1 conspiracy."

"In some ways, you could say that ganging up to align economic retaliation against the democratic will of a country is pretty nasty," Quaid adds.

Bester says that backing off of C-18 because of these threats sets us up for a future where we will have similar experiences from web giants when introducing privacy, AI, or competition legislation. "This won't be the last time."