Postmedia lobbying on advertising tax rules, would consider sale, Godfrey says

Postmedia Network Canada Corp. would consider "all options," including selling to a foreign buyer, if the Conservative government agreed to level the playing field for Canada's tax rules on newspaper and website advertising, the company's chief executive, Paul Godfrey, said in an interview. 

Postmedia, which has Canada's largest circulation of paid English-language daily newspapers, is lobbying the government to amend Section 19.1 of the Income Tax Act, which currently provides a tax deduction for advertising spending with Canadian-owned broadcasters and newspapers.

The tax incentive prevents advertisers from deducting, as income tax expenses, advertising spending with foreign-owned broadcasters and newspapers operating in the Canadian market.

In an interview with The Lobby Monitor, Godfrey said he has made presentations to government officials asking them to remove the limitation on advertising with foreign-owned companies to encourage "people from Great Britain, Australia, to invest in Canadian newspapers," or to expand the advertising tax incentive to Canadian-owned companies operating in the digital world.

"I believe in less government regulation rather than more," he said. "If there are less rules, maybe Mr. Warren Buffett would come in and shore up newspapers."

In a follow-up email about the company's response if the government opened up the rules and Postmedia received an offer from a foreign buyer, he said "we would consider all options."

On behalf of Postmedia, Capital Hill Group consultant David Angus filed a lobbying registration last December, which said the company is lobbying the government to "allow foreign investment in Canadian newspapers," according to the registry. The registration remains active.

According to the registry, Angus communicated last December with Simon Kennedy, senior associate deputy minister of Industry Canada, on behalf of Postmedia.

In a speech to business leaders in Ottawa in May, Godfrey said he intended to discuss the issue with officials at the Heritage Department, Postmedia News reported May 24.

"We should either remove the foreign-ownership rules that protected us 60 plus years ago and are not needed today, or provide the same rules to Google, Facebook, the Huffington Post and others, [so] that if they're not controlled by Canadians, the advertising that goes on there should not allowed to be deducted as a legitimate business expense," Godfrey said in the speech. "I'm going to be speaking to the heritage ministry and posing that aspect to them—[to] provide a level playing field for everybody."

Godfrey told The Lobby Monitor that “there seems to be a level of interest” in his proposals within the government. "Any promises? No, but there has been an expression of interest,” he said.

He said Heritage Minister James Moore, Industry Minister Christian Paradis, Finance Minister Jim Flaherty and Prime Minister Stephen Harper are key to any final decision.

Expanding the tax deduction to the digital world would help Canadian-owned newspapers compete on more equal footing, Godfrey said.

Right now, Godfrey said, foreign websites can operate in Canada with no regulations. The websites "don’t add anything to journalism equality but take digital advertising away from Canadian newspapers," he said.

"You cannot regulate the Internet, but you can sure put rules into place that could prevent advertisers from deducting advertising as proper business expenses,” he said.

Applying the tax rule equally for Canadian and foreign-owned news sources would increase competition, which "makes better journalism and gives better rates for advertising and could prolong the life of newspapers,” Godfrey said. "I think everybody recognizes newspaper revenues in Canada are falling. You can see they are all making cuts significantly.”

Corus Entertainment Inc. has also called on the government to extend the tax deduction to Canadian-owned digital media properties, and made the recommendation to the House of Commons heritage committee in the fall of 2010.

Suanne Kelman, a professor at Ryerson University's school of journalism, said in a phone interview that it is a little too late for the government to impose new rules affecting taxes on digital advertising, but the Tory government could be willing to make changes to attract investment.

She said Canada has a competition problem due to media concentration and that foreign investment could generate more competition. "Today, I look around, and who else is going to buy? Newspapers need to survive," she said.

Postmedia's newspapers include the Vancouver Sun, the Calgary Herald, the Edmonton Journal, the National Post, the Montreal Gazette, and the Ottawa Citizen. Their websites will move to a paywalled, or "metered" system for premium and local content, the company said last year. 

In April, Postmedia posted a second-quarter loss of $11.1 million. Revenue declined due to lower print advertising revenues, primarily in national ads. The company is also trying to pay down about $515 million US in debt.

Postmedia said in May it was getting out of the newswire “commodity news” business and announced a new deal to distribute Canada Press (CP) content. The transition involved laying off staff in national newsroom desk positions.

The company said it will stop printing Sunday editions at the Ottawa Citizen, Calgary Herald, and Edmonton Journal. About 20 jobs are expected be cut or transferred from each newspaper as pagination and design jobs are consolidated at a new, non-unionized shop in Hamilton, Ont. 

The company said last October it had reached a deal to sell the Victoria Times Colonist to Vancouver company Glacier Media Inc. for $86.5 million.

Godfrey, former CEO of the Toronto Blue Jays, currently serves as chair of the Ontario Lottery and Gaming Corporation.

news@lobbymonitor.ca