Canada's media industry needs a major shake-up to survive in the digital era, starting with the creation of a federally funded agency that would distribute up to $400-million a year to news organizations that can no longer afford to fulfill their civic duties, according to a new think-tank report.

The Public Policy Forum's report on the future of journalism and democracy was designed to convince the Liberal government to enact a number of changes to help Canada's media industry, including amending the Income Tax Act and the Copyright Act to provide new streams of revenue for the media.

The report also called for the CBC and The Canadian Press to provide additional local coverage and, in the case of the public broadcaster, to make it available for free to publishers across the country.

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The recommendation that would provide the biggest financial boost to journalism – but that is also proving to be the most contentious – involved removing tax deductions on foreign digital advertising and redirecting the financial benefits to the media.

According to PPF president Edward Greenspon, the move would free up $300-million to $400-million that could be "dedicated" to a new Journalism & Democracy Fund, which would be managed independently from the government. The fund would reinvest the money in "digital innovation" and seek to foster "civic-function journalism," especially local news, investigative journalism and indigenous news operations, the report said.

The move would tap into the ballooning amount of advertising money that is spent on foreign digital platforms, and compensate for the fact a large majority of Canadians don't want to pay for news.

With this recommendation, the Public Policy Forum deliberately refrained from supporting a new tax credit for the media industry, arguing the measure would hurt editorial independence and prove a hard sell with the public.

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The Canadian News Media Association quickly distanced itself from the report, stating the Public Policy Forum's recommendations "won't do much to help us build out sustainable new business models."

"What I don't see is the money going to news outlets that are currently covering their communities, building out digital platforms and adapting to the new business realities," said CNMA chair Bob Cox, who is also the publisher of the Winnipeg Free Press. "This is the bedrock of civic-function journalism in Canada and the best bet for ensuring its survival is to support it directly rather than pouring all resources into early-stage news operations and research on news and democracy."

On the other hand, The Globe and Mail's publisher, Phillip Crawley, said the report will fuel a debate on the best way to ensure the basic functions of journalism are performed across the country, such as covering local governments and courthouses.

"I think the creation of a fund, through applying a level playing field on taxation, will gather considerable support," he said in an interview. "How that fund is then used becomes the major item for discussion."

The federal government refused to state whether it endorses any measures in the report, while acknowledging the financial crunch facing the news industry. Two federal departments paid in large part for the PPF report.

"Our government understands the importance of a vibrant, local and reliable news-media ecosystem as it is a pillar of democracy," said Pierre-Olivier Herbert, a spokesman for Heritage Minister Mélanie Joly.

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Ottawa can be expected to face vocal opposition if it decides to prop up the media. A number of people inside and outside the industry openly wonder whether it is appropriate for the federal government to assist a sector that is supposed to keep governments in check.

Aaron Wudrick of the Canadian Taxpayers Federation said he disagrees with the creation of a new "slush fund," even though the fund would officially be free to make its decision in an independent fashion.

"It's better than a minister picking [the recipients of funding], but at the end of the day, the government is controlling the process," he said.

A central plank in the report deals with the Income Tax Act, which allows companies to deduct the cost of advertising on all Internet sites. Under the new proposal, only advertising on Canadian websites would be deductible, bringing digital advertising in line with newspaper and television advertising. With other tweaks to tax rules, the report said Canadian news organizations would be in a better position to compete with foreign rivals.

However, one of the biggest players in the international advertising business said the promised revenue could fail to materialize for Canadian media.

"It's important to underscore that such measures would be challenging to implement, reduce the competitiveness of Canadian business and may make it harder for smaller news publishers to thrive," said Aaron Brindle, a spokesman for Google Canada.

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Other recommendations in the Public Policy Forum report include:

Preventing the CBC from selling online advertising;

Changing the CBC’s news focus to the production of civic-function journalism, which would be available freely to other publishers;

Expanding the role of The Canadian Press with the creation of a new division focused on local and regional civic-function news;

Allowing non-profit organizations to qualify for charity status and to receive support from philanthropic foundations.

The PPF commissioned a poll by the Earnscliffe Strategy Group that found little interest in the media's problems.

"The notion the news is imperilled runs contrary to [the public's] experience – 93 per cent say they get more news today, quicker, in a more timely fashion, from more diverse sources, than they ever had in their life," pollster Allan Gregg said. "That said, they do recognize that news is foundational to democracy."