Canada's Prime Minister Justin Trudeau addresses a joint press conference, July 10, 2023. Image Credit: AFP

Toronto: When Google opened a new office in Kitchener, Ontario, in 2016, it welcomed a special guest.

Prime Minister Justin Trudeau, who months earlier swept to power in a campaign that leveraged digital tools, praised the tech giant for "always" working "very, very hard not just to be a good corporate citizen, but to be a strong and active player in Canada."

But now, Trudeau appears to have a dimmer view of the company. His government is in a high-stakes showdown with Google and Meta, accusing them of unfairly profiting at the expense of Canadian news outlets and of using "bullying tactics" to intimidate officials.

Canada's fight echoes frustrations in places around the world, from Indonesia to California, about power imbalances resulting from the tech giants' dominance. And so how the dispute plays out here - who, if anyone, blinks first - is being closely watched.

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At issue is Bill C-18, passed last month as Canada's Online News Act, which aims to shore up a struggling media industry by requiring tech firms to compensate domestic news publishers for the content shared on their platforms.

The tech companies have responded with threats and retaliatory moves. Meta reiterated a commitment to block news on Facebook and Instagram for users in Canada before the law goes into effect, and the company canceled a $4-million fellowship program for emerging journalists.

"The Online News Act is fundamentally flawed legislation that ignores the realities of how our platforms work, the preferences of the people who use them, and the value we provide news publishers," Meta said in a statement. "As the Minister of Canadian Heritage has said, how we choose to comply with the legislation is a business decision we must make, and we have made our choice."

Google, for its part, objected to the "unworkable" legislation that requires "two companies to pay for simply showing links to news, something that everyone else does for free." The company pledged to nix Canadian news articles from its search function.

Analysts suggested that the intended audience for the companies' statements goes well beyond Canada.

The companies' "scorched earth" approach is an effort "to communicate to the rest of world that 'if you touch this third rail - the formal institutionalized regulatory framework that covers our operations - this is what we're going to,'" said Dwayne Winseck, a professor at Carleton University's journalism and communications school in Ottawa. "This is a little warning shot."

Canadian officials insist that the legislation will go into effect before the end of the year - after they hash out the corresponding regulations.

In the meantime, the federal government has suspended advertising on Meta - it spent roughly $8 million in the 2021-2022 fiscal year. Several provinces and telecommunications companies have followed suit. The financial impact may not be noticeable for a company with annual profits in the tens of billions, but it is meant to send a message.

"Threats to pull news instead of complying with the laws in our country only highlight the power that platforms hold over news organizations, both big and small," Pablo Rodriguez, Canada's heritage minister, said in a statement to The Washington Post.

The tech companies contend that they drive valuable traffic to news websites and that being able to link freely to content is a key part of an open internet. And yet news publishers around the world have been laboring to offset lost advertising dollars - and blame the tech giants' dominance in the digital ad sector.

"There's global momentum for these laws," said Anya Schiffrin, director of the technology, media and communications specialization at Columbia University's school of international and public affairs. "I don't think they're going to save journalism permanently, but I think they're a long overdue attempt to get what is owed to these publishers."

Canadian officials have calculated that more than 450 news outlets have closed here since 2009 - though their figure does not account for new ones that have been created.

Canada modeled its law after an Australian one that passed in 2021. Facebook briefly blocked news there - the pages of Australian charities and health agencies were also swept up, adding to the backlash. Facebook later relented after the government tweaked the law.

Paul Deegan, chief executive of News Media Canada, a group that lobbied for Bill C-18, said a similar dtente is possible here, "if both companies want to approach this in good faith and in a spirit of goodwill."

For now, though, Canadian news outlets are sharing guides on how to find their journalism if it's blocked. And while many of the main news organizations back the law, some are lamenting that the government's effort to bolster their industry could end up doing the opposite.

Jeff Elgie, chief executive of Village Media, which operates several local news websites here, said in a note to staff that he shared on LinkedIn that this was a "bad bill from the start," a message that "fell on deaf ears" with the government.

If Google and Meta walked, he added, "there would be no industry left."

Rodriguez told reporters this month that Meta was "unreasonable," but he believed there was a way forward with Google, and he was confident the concerns of both companies could be addressed through the regulatory process.

A proposed set of regulations released this month included a "financial threshold" on payments under the law. Google had cited "uncapped financial liability" as one of its concerns. Critics suggested the government was caving on its legislation.

Google and Meta are less sanguine about the ability of regulations to resolve what they say are fundamental problems.

"Our discussions with the government are ongoing, but we continue to have significant concerns about structural issues with C-18 and we remain uncertain they can be sufficiently addressed through regulations," said Google spokeswoman Brianna Duff. "We hope that the government will be able to outline a viable path forward."

Meta called the legislation "flawed."

"Unfortunately, the regulatory process is not equipped to make changes to the fundamental features of the legislation that have always been problematic," said Meta spokeswoman Lisa Laventure, "and so we plan to comply by ending news availability in Canada in the coming weeks."

Under the new law, publishers and tech firms that fail to reach an agreement on compensation must enter binding arbitration. Google and Meta have previously struck deals with publishers here, but those deals are shrouded in secrecy - and the companies have suggested they will now tear them up.

In parliamentary hearings in Canada, analysts suggested alternative models for aiding the news industry, including collecting taxes on the ad sales of tech giants in Canada and funneling those dollars into a journalism fund that would be administered by an entity independent of government.

They also raised concerns that the law benefits large broadcasters at the expense of newspapers and online publications. In 2022, the parliamentary budget officer, an independent body that provides financial advice to Parliament, estimated the news industry could expect roughly $250 million a year from the digital platforms in compensation - with 75 percent going to broadcasters.

Peter Menzies, a former vice-chair of the Canadian Radio-television and Communications Commission, told lawmakers last year that the bill could do more to hasten the decline of the media industry than to save it by entrenching its "dependency not on the loyalty of citizens, readers and viewers, but upon the good graces of politicians and the ability of offshore, quasi-monopoly tech companies to remain profitable."

Winseck called the Canadian law "poorly crafted," but he said that "it's a really bad situation, where you have major corporations in a position where they just refuse to abide by legislation passed in a democratic society, no matter how bad that legislation may be."