Strategies for Canadian Digital Content

Summary

Pelmorex Media Inc. is a Canadian company and through its media brands The Weather Network and MétéoMédia are very much reliant on the digital economy for the success of its products and services. In our comments we emphasize the following points:

• Government at all levels should follow the example of the Meteorological Service of Canada in making information freely available so as to support increased productivity and to encourage the development of new digital economy products and services.
• The Income Tax Act should be amended to ensure Canadian companies are not unduly disadvantaged by large foreign firms who provide digital content to the Canadian public while selling advertising space to Canadian advertisers without charging federal or provincial sales taxes on the advertising services they provide.
• R&D and other tax credits and incentives are important 'but emphasis must also be on mid sized firms which seek to excel in their respective business niches' and not be focused primarily on large domestic firms or start up enterprises.
• Unencumbered access to communication networks is a key element necessary to encourage the creation and use of digital content. Strong measures are needed to ensure there is no undue preference to distributor controlled digital content or that unaffiliated digital content is not unduly disadvantaged by communication networks.
• Increasing foreign ownership of communication networks in advance of the government's initiative to develop a Digital Economy Strategy is premature and may result in suboptimal solutions.

Submission

Introduction

Pelmorex Media Inc. ("Pelmorex") is pleased to have this opportunity to contribute to the Government of Canada's consultation towards developing a Digital Economy Strategy. Pelmorex is the parent company of The Weather Network and MétéoMédia which rank among the most popular media brands in Canada and are the undisputed leaders of weather information services in Canada across all platforms, including cable, satellite, internet, desktop, mobile, radio and print. Pelmorex maintains broadcast and operating facilities in Oakville ON and Montréal PQ as well as regional offices in Moncton NB and Vancouver BC. We are a proud Canadian company with over 397 employees. All our products and services are produced and supported in both official languages.

We have reviewed the consultation paper Improving Canada's Digital Advantage Strategies for Sustainable Prosperity and based on our experience and background have selected several of the issues raised in the paper on which to comment. These are set out below.

Innovation Using Digital Technologies

Government at all three levels must be innovators in the use of digital technologies!

The Government of Canada should continue and expand it practice of adopting digital technologies and making its own digital content freely available. An example of government's success in this area can be found within Environment Canada's Meteorological Service. Through ongoing consultation with the private sector, the Meteorological Service of Canada has made a broad array of weather information freely available, allowing private sector firms like Pelmorex to develop valued added products and services for Canadian businesses and consumers.

In Pelmorex's view government, including the provinces and territories must emphasize making information freely available so as to support increased private sector productivity and to encourage the development of new digital economy products and services.

Separately, Canada's Digital Economy Strategy must ensure Canadian firms are not disadvantaged in their home market! In order to properly monetize digital content, especially content intended for broad public consumption that relies on advertising, Pelmorex believes that changes must be made to Canada's income tax laws. Currently, many large foreign firms who provide digital content to the Canadian public sell advertising space to Canadian advertisers without charging federal or provincial sales taxes on the advertising services they provide. This provides foreign firms with an immediate marketplace advantage — often as great as 15% — and it provides Canadian advertisers with an added incentive to purchase advertising space on foreign–based websites that can be accessed in Canada.

Pelmorex believes that there may be steps that can be easily taken by Parliament that would enhance the business model for Canadian digital content. For example, if Parliament were to amend the Income Tax Act — as it did in 1977 with Bill C–58, which related to the non–deductibility for Canadian income tax purposes of advertising placed on non–Canadian broadcasting stations and magazines — the business model for Canadian owned and controlled digital content providers could be greatly strengthened.

The concept of this proposed amendment to the Income Tax Act would be squarely based on the precedent of Bill C–58, which has for the past three decades served well the interests of Canadian broadcasters and magazine publishers. It could be drafted in such a way to allow Canadian advertisers to deduct, for income tax purposes, only the cost incurred for advertising that is distributed or accessed over the Internet by a Canadian company that also charges, collects and remits federal and provincial sales taxes. This might allow for Canadian content to be more easily monetized over digital media and level the playing field for Canadian digital content producers in their own market.

Growing the ICT Industry

As a starting point, Pelmorex believes that while much emphasis is placed on small start up enterprises and large ICT companies, very often Canadian digital economy successes are in medium sized firms, who can excel nationally and/or internationally in their respective business niche. Very often focus and expertise, rather than size, are the ingredients to success. Pelmorex certainly strives to be such a firm.

With this in mind, Pelmorex is of the view that providing R&D incentives as part of the Digital Economy Strategy can most definitely be effective in the creation of new business, products and services but should not be limited in emphasis to small start up enterprises or large ICT firms.

With regard to specific R&D incentives, a number of approaches and measures are possible. One such incentive that is currently being used, but could be enhanced, is tax credits. We would note that in Canada, for companies that exceed certain taxable income and capital thresholds, the Scientific Research and Experimental Development tax credit drops to 20% of eligible expenditures. This compares to Australia, for example, where their R&D tax credit is 40% of eligible expenditures. Expanding the tax credit, with an emphasis on digital economy related expenditures would be welcomed. The Province of Ontario's "Ontario Interactive Digital Media Tax Credit" is another example of a measure that might be expanded in scope and implemented nationally. Earlier in our comments, we have already argued for amendments to the Income Tax Act with regard to the deductibility of advertising as an additional measure to encourage the development of new digital economy products and services.

Canada's Digital Content

As an information based company, Pelmorex is very much involved in the creation and distribution of "digital content" to the public at large, as well as to private sector and all three levels of government. We produce our own weather related content including weather forecasts, as well as road weather information for provincial, territorial and municipal governments, lightening monitoring services for both commercial and government clients among many other products and services. All of our "digital content" is produced and made available in both official languages.

All our content is in fact "digital content" — even our television programming is created and stored digitally. All content distributed to our commercial clients is in a digital format and is transported to them digitally — even the content we produce for the 93 daily and weekly newspapers we serve is created and distributed in digital form prior to printing.

Pelmorex considers access to its digital content as definitely contributing towards the Canadian economy. Weather related information is important to business, government and the public thereby allowing them to make informed decisions affecting their respective "productivity".

To that end, Pelmorex believes that free, unencumbered access to communications networks is a key element necessary to encourage the creation and use of digital content. This is especially true of digital content intended for the public at large. Even the hint of "gate keeping" of digital content by ISPs, wireless carriers or other communication networks, however subtle, casts a shadow of uncertainly over any digital content business plan. Pelmorex believes that government and regulators must ensure there is as much separation as possible between carriage and "digital content" to ensure there is no undue preference to distributor controlled digital content or that unaffiliated digital content is not unduly disadvantaged.

Related to the above, Pelmorex is also very concerned that the implementation of any proposals to relax the restrictions on foreign ownership of broadcast distribution undertakings and telecommunications carriers would be ill advised. There are a number of issues and opinions about how best to boost investment in the ICT sector while ensuring an ICT presence is maintained in Canada. Opening up these communication networks to increased foreign ownership in advance of the government's initiative to develop a Digital Economy Strategy may result in suboptimal solutions.

Closing

Pelmorex hopes the above comments are constructive and looks forward to reviewing the suggestions of others contributing to this consultative process. We would be pleased to participate in any further consultations initiated by the Government of Canada regarding Canada's Digital Economy Strategy.

Contact information

Paul Temple
Senior Vice President, Regulatory & Strategic Affairs
Pelmorex Media Inc.
Oakville, Ontario, L6H 7W1
Telephone: 905–829–1388 ext. 1271
Email: Paul Temple