Taxing internet giants key to saving media industry - economist

The Government needs to find a way to tax Facebook and other internet companies more before their dominance of the advertising market kills off local media companies, a high-profile economist says.

State-owned broadcaster TVNZ has announced it won't be delivering dividends in the "foreseeable future". Broadcasting Minister Kris Faafoi says he's fine with that, effectively making TVNZ a non-profit whilst still running advertising.

But with the overall pool of money available for media companies in New Zealand shrinking thanks to internet giants like Facebook and Google, there are concerns TVNZ's dominance of the broadcast sector will become even stronger if it doesn't have to deliver a profit.

"The decline of traditional media has not been the decline of traditional media per se - it's the decline of revenue from traditional media," economist Shamubeel Eaqub told The AM Show on Thursday.

"What we've seen is the cannibalisation with the internet - the likes of Facebook and all those kinds of things - which has dragged away the revenue. But people still watch the stuff, and we still have a need for it in terms of local content."

The fear is without a commercial imperative, TVNZ will be able to easily outcompete Three, which like Newshub is owned by MediaWorks. CEO Michael Anderson - a veteran of the Australian media scene - told The Spinoff this week that TVNZ is "as aggressive as any competitor I've ever worked against".

"That goes from poaching your key talent, to outbidding you on content to doing whatever it takes to win.

"On one level, I can't disagree with that. Because that's their charter. Their charter is actually to make as much profit as possible. If that happens to be at the expense of the industry, then that's not really their concern."

TVNZ and Shamubeel Eaqub.
TVNZ and Shamubeel Eaqub. Photo credit: Getty/The AM Show

Eaqub says TVNZ's inability to make a profit comes from its investment in digital and "the money has to come from somewhere".

"I think the fundamental problem is the pool of money for broadcast media has been shrinking. Unless we do something that's radically different, it's going to be very difficult for the kind of competitive tension that we want so that the programming is good, the content is good, current affairs is good and news is always trying to break, right?"

He says while MediaWorks' TV assets have struggled financially in recent years, there's clearly a need for a competitor to TVNZ - and scraping back some of the money hoovered up by offshore internet giants will be key.

"I think the really big play is around how do we actually think about creating an independent media in New Zealand that thrives? And for that to happen really, what we need to think about is, how do we tax these other forms of media - where the money has gone - so we can fund this stuff? There is no other way of doing it."


But Eaqub doubts the present Government will be bold enough to do what's required.

"I have a lot of time for Faafoi - I think he actually gets this stuff. He's been one of the most successful, more effective ministers that we have. So I think there is a really good chance he's going to look at it closely, but I don't know if they have the tools because this Government is simply not willing to spend more money. 

"Ultimately if we want to fix the media, we have to create long-term sustainable funding that is not up at the whims of politics."

Michael Anderson.
Michael Anderson. Photo credit: MediaWorks

Google paid only $393,000 in tax in New Zealand in 2017, Stuff reported earlier this year, despite revenues in the hundreds of millions. Facebook paid only about $43,000, NZME reported

The Government is looking at a form of digital service tax (DST) which would target revenue, not profits, since profits for multinational internet companies are typically registered offshore in tax havens, not in the country they are generated. 

"A DST would be narrowly targeted at certain highly digitalised business models. It would not apply to sales of goods or services, but to digital platforms who depend on a base of users for income from advertising or data," Finance Minister Grant Robertson said in June.

"The value of cross-border digital services in New Zealand is estimated to be around $2.7 billion. The estimated revenue of a DST is between $30 million and $80 million, depending on the design."

Another option is to turn TVNZ 1 into a public service channel, funded by the taxpayer, so its market dominance doesn't deprive commercial operators of much-needed cash. Unsurprisingly, this option has Anderson's backing.

"It's one of the things that we raise and have talked about a lot," he told The Spinoff. "We believe that if you're really trying to protect that local voice and you’re leaving it only to commercial outcomes, then there should be a public service broadcaster here. You've got it in radio, you should have it in free-to-air broadcast as well. So we're a big supporter of that.

"That would still leave the Government with two strong commercial stations, TVNZ 2 and Duke. But we've always said that TVNZ 1 is a natural home for a public service broadcaster."