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A better bailout

Could a tax credit for advertising rescue the media industry?


 

A better bailoutOttawa is abuzz with speculation that the Conservative government may be preparing to selectively bail out Canada’s troubled private broadcasters. Tanking ad revenues—partly the result of the shakeout in the auto and financial sectors, two of the largest advertising categories—are threatening to sink parts of the industry. Rumours have swirled that a fund, said to be as large as $150 million, is being prepared to benefit CTV Globemedia and Canwest Global, the country’s two biggest private broadcast networks. For months, the broadcasters have complained to the CRTC that the industry’s revenue model is broken.

Last week, Canwest was granted yet another two-week extension from lenders, as it races to restructure its crushing debt. The Canwest-owned National Post had already announced that it would not print a Monday edition this summer in a bid to slash costs. The Canwest-owned Victoria Times Colonist will scrap its Monday edition altogether. CTV Globemedia, meanwhile, is not expected to renew the licences of several money-losing local stations due in August, and many believe this is just the start of a larger trend.

But financial troubles aren’t limited to the broadcasters. Newspapers, magazines and the CBC are also bleeding money, and critics have begun to question the fairness of a bailout targeted only at private broadcasters. “A direct and selective bailout for media companies is really not workable,” says Kin Lo of UBC’s Sauder School of Business. “Government will be seen to be buying favourable coverage—whether that is in fact the case or not,” compromising editorial independence. And a Canwest bailout would spark “enormous outcry,” given the government’s flat rejection of more support for the CBC in February, says Hugh Dow, chairman of Mediabrands Canada, a holding company for some of the country’s biggest media buyers.

Rather than an ad hoc media bailout, some experts are advocating tax breaks targeted at advertisers. Advocates say this would benefit all media, rather than just one or two private broadcasters, and would keep government away from the politically dicey business of picking winners. And, let’s face it, it’s the “losers” that government ends up picking—“the people who got into trouble in the first place,” says University of Calgary tax guru Jack Mintz. Canwest got into trouble because it took on too much debt, believing that consolidation of newspaper and TV assets would bring about efficiencies and profitability, says Lo. “It was a gamble, and they lost.”

With a tax credit, “only the best would survive in terms of where businesses choose to place their advertising dollars”—a “bottom-up approach, rather than a top-down approach,” says Jamie Golombek, managing director of tax for CIBC Private Wealth Management. And unlike a bailout, which simply helps troubled companies to cover costs, a tax credit would “create demand” for ad spending, says Tran Chung, of UBC’s Sauder School of Business, noting that many companies are currently sitting on the fence on advertising. Knowing that $100 in advertising will only cost them $50 or $60 after the tax credit would be enough to get many spending again, he says. “Business knows that advertising can protect current revenue and may increase future earnings.” Furthermore, ad spending forces retailers to hire people to create the ads, who, in turn, hire actors, producers and technicians to create the ads, who rent supplies, equipment, and so on, cycling money through the economy, Chung adds. Recently, the German government gave “a very large tax credit for people to turn in their old clunker cars,” and it had a “really big impact” on car buying, says Mintz. And early data on the government’s home renovation tax credit suggests that sector has seen an uptick in activity, Lo adds.

Not only does advertising prime the economy and encourage consumer spending—critical to bolstering spending broadly, and getting the economy rolling again—but companies that spend on advertising through the recession “emerge with a stronger brand presence and market share after,” says Sunni Boot, president and CEO of media agency ZenithOptimedia Canada. Indeed, recent studies have shown firms that kept ad spending stable or increased it during a recession fared better during the subsequent recovery than those that didn’t. “If you cut back advertising, people are less likely to recognize you, or understand your products,” says Dow.

To be sure, not everyone is in favour of an advertising tax break. With such “boutique tax credits,” government is still in a position of favouring some industries over others, says Kevin Gaudet, federal director of the Canadian Taxpayers Federation. “Profitable industries would then be paying high taxes in order to subsidize tax credits for less profitable industries.”

The question, Mintz says, is whether media need the assistance more than other industries, and indeed, whether Canada needs healthy and prosperous media.


 

A better bailout

  1. I always love how people come up with complicated solutions to really simple problems. The broadcasters are forced to compete with a variety of cable and specialty channels that don't have the same restrictions as they do. If you want to save the broadcasters, remove the restrictions. That means no more funding for Canadian produced content (that probably should be funded by the government and not private broadcasters), allow them to charge the cable companies for the right to use the services they provide (allowing cable companies to sell something you give them for free doesn't really make much business sense), and allow them to go for top ratings in prime time (where they actually make most of their advertising dollars) by removing (or heavily reducing) Canadian content requirement in those hours. Then, we wouldn't need a bailout.

  2. Why should these media companies get a bailout ? Fueled by excessive debt, they have expanded (Canwest) and overbid (CTV) and generally run their businesses poorly. Taxpayer subsidies for advertisements ?! Get a clue. These companies do not deserve one cent.

  3. A tax credit to encourage the pollution of the public mind with advertising. No thanks.

  4. I always love how people come up with complicated solutions to really simple problems. The broadcasters are forced to compete with a variety of cable and specialty channels that don’t have the same restrictions as they do. If you want to save the broadcasters, remove the restrictions. That means no more funding for Canadian produced content (that probably should be funded by the government and not private broadcasters), allow them to charge the cable companies for the right to use the services they provide (allowing cable companies to sell something you give them for free doesn’t really make much business sense), and allow them to go for top ratings in prime time (where they actually make most of their advertising dollars) by removing (or heavily reducing) Canadian content requirement in those hours. Then, we wouldn’t need a bailout.

  5. Why should these media companies get a bailout ? Fueled by excessive debt, they have expanded (Canwest) and overbid (CTV) and generally run their businesses poorly. Taxpayer subsidies for advertisements ?! Get a clue. These companies do not deserve one cent.

  6. A tax credit to encourage the pollution of the public mind with advertising. No thanks.

    • Jack, the merits or not of an advertising tax credit are debatable (I’d say hey, give it shot and see how it works), but I’m surprised to see you so readily dismiss all advertising as “pollution” point blank. We live in an advertising-saturated society, so much so that it’s quite easy to tune it out. It’s the talking wallpaper of our culture. You can literally shut it off in the case of TV. And remember, without advertising we woudn’t have the luxury of reading and commenting here at Macleans. Just sayin’ .

      • Quite true, Derek, but it doesn’t make advertising less noxious. Ads sell stuff, and there’s nothing wrong with selling stuff; but they do it by lying and/or filling our minds with empty imagery. Look no farther cause of the nihilism that pervades our society. Words and ideas are devalued. I don’t think it’s easy to tune out at all, it requires a constant effort of which not many people are capable, and no one succeeds completely. Frankly I think it would be quite fine if all media in this country went out of business, wouldn’t hurt us one jot.

        • That last sentence of mine was rather too sour. I just mean a world / economy in which commerce did not depend on the pollution of our minds with lies would be far preferable. But you dance with the world / economy what brung ya, and advertising is a necessary evil; we need the media to help us make the best of a bad deal. But if we could discover some spiritually satisfying alternative to consumerism then losing the media would not be too high a price to pay for escaping from the nightmare of nihilism.

          • I agree that too much of our culture is caught up in consumerism and that said consumerism is a poor substitute for spiritual satisfaction. And yes, advertising is a huge part of this consumerist culture. However, losing the media would be a huge blow to society– perhaps there might some day be a way to have mass communication paid for without advertising– but a healthy democratic society needs mass communication. Even if all media were paid for with only subscriptions or through private foundations (or by government), it would still be “the media.” Also, I guess this is a personal thing– advertising seems to annoy/offend you more than it does me. ANY advertising in any form that I come across, I instantly view with skepticism and assume that at best you only get a partial truth from it.

          • I do agree with you, and you put it very well; I was just being bilious, I guess. I’m skeptical about advertising too, but I wish more people were; sometimes I feel like I’m walking around in “They Live.”

            Perhaps subscription is the way to go? They say that, in the era of free content, people will never pay for it; but surely some people will pay, if the alternatives are too debased. Are newspapers / media going the way of the ballet?

          • Did you read Rebel Sell, Jack?

  7. Jack, the merits or not of an advertising tax credit are debatable (I'd say hey, give it shot and see how it works), but I'm surprised to see you so readily dismiss all advertising as "pollution" point blank. We live in an advertising-saturated society, so much so that it's quite easy to tune it out. It's the talking wallpaper of our culture. You can literally shut it off in the case of TV. And remember, without advertising we woudn't have the luxury of reading and commenting here at Macleans. Just sayin' .

  8. Quite true, Derek, but it doesn't make advertising less noxious. Ads sell stuff, and there's nothing wrong with selling stuff; but they do it by lying and/or filling our minds with empty imagery. Look no farther cause of the nihilism that pervades our society. Words and ideas are devalued. I don't think it's easy to tune out at all, it requires a constant effort of which not many people are capable, and no one succeeds completely. Frankly I think it would be quite fine if all media in this country went out of business, wouldn't hurt us one jot.

  9. The absolute last thing the government should be doing is encouraging more advertising. The next last thing it should be doing is bailing out failing media companies that got in trouble by overspending and piling up debt.

    I'm sick of my tax dollars going to corporate welfare.

  10. That last sentence of mine was rather too sour. I just mean a world / economy in which commerce did not depend on the pollution of our minds with lies would be far preferable. But you dance with the world / economy what brung ya, and advertising is a necessary evil; we need the media to help us make the best of a bad deal. But if we could discover some spiritually satisfying alternative to consumerism then losing the media would not be too high a price to pay for escaping from the nightmare of nihilism.

  11. The absolute last thing the government should be doing is encouraging more advertising. The next last thing it should be doing is bailing out failing media companies that got in trouble by overspending and piling up debt.

    I’m sick of my tax dollars going to corporate welfare.

  12. I agree that too much of our culture is caught up in consumerism and that said consumerism is a poor substitute for spiritual satisfaction. And yes, advertising is a huge part of this consumerist culture. However, losing the media would be a huge blow to society– perhaps there might some day be a way to have mass communication paid for without advertising– but a healthy democratic society needs mass communication. Even if all media were paid for with only subscriptions or through private foundations (or by government), it would still be "the media." Also, I guess this is a personal thing– advertising seems to annoy/offend you more than it does me. ANY advertising in any form that I come across, I instantly view with skepticism and assume that at best you only get a partial truth from it.

  13. I do agree with you, and you put it very well; I was just being bilious, I guess. I'm skeptical about advertising too, but I wish more people were; sometimes I feel like I'm walking around in "They Live."

    Perhaps subscription is the way to go? They say that, in the era of free content, people will never pay for it; but surely some people will pay, if the alternatives are too debased. Are newspapers / media going the way of the ballet?

  14. Did you read Rebel Sell, Jack?

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