(Bloomberg) -- Canadian media companies are caught in the middle of a standoff between Silicon Valley and Prime Minister Justin Trudeau’s government, with their audiences unable to access news on some of the world’s most popular social media platforms.The government passed a law to try to force Meta Platforms Inc. and Alphabet Inc.’s Google to pay publishers in return for linking to news stories, an attempt to boost an industry that has suffered from massive losses of advertising revenue. The big technology firms are pushing back hard. Meta has blocked all links to news content in Canada on Facebook and Instagram to avoid making payments; Google has threatened to remove news from search results.

But the stalemate is battering entrepreneurial news outlets that relied on Facebook to reach their communities, including small organizations that are sometimes the only providers of local news in rural parts of Canada. It’s a warning of the possible consequences for other governments in the US, UK and elsewhere pursuing similar legislation to aid journalism.

A 100-mile stretch between the towns of Woodstock and Saint Andrews, in the eastern province of New Brunswick, is practically a news desert — an area ignored by national publications and underserved by regional newsrooms. So local journalists filled that gap by posting news and communicating with readers directly on Facebook. Since August, however, followers of the Facebook pages of the River Valley Sun newspaper and other publications have been greeted with messages telling them they can’t see the posts, because they’re in Canada.

For reporters at the River Valley Sun and nearby CHCO-TV, the dispute with Mark Zuckerberg’s Meta took away their main online distribution channel. Unlike larger news companies that used Facebook merely to direct traffic to their websites, the Sun didn’t have its own site before the news block. CHCO, a small independent television station, used the social platform far more heavily than its simple webpage.

“Facebook gave us something that was pretty amazing. It allowed us to be big-city media in a small town,” said Theresa Blackburn, publisher of the River Valley Sun in Woodstock, a town of about 5,500 people. “It allowed us to not have to worry about a website. It saved us huge money in those first days. It gave us an instant platform that we could easily network through. It helped us grow.”

For nearly two decades, Blackburn has watched the erosion of local newsrooms in New Brunswick — part of the decades-long global disruption of newspapers, television and radio as advertising moved to Google and social media. In Canada, 500 outlets have closed over the past 15 years, according to the government, providing the impetus for Trudeau’s Online News Act.

Trudeau based his law on Australia’s news media bargaining code, which required digital platforms to negotiate deals to pay outlets for news. Meta temporarily restricted users from seeing news in that country in 2021, but lifted the ban once amendments made the law less stringent. Both Meta and Google ultimately cut deals with multiple news companies, and the code has led to “massive changes” in the media industry, raising more than A$200 million ($133 million) annually, said Rod Sims, a professor at Australian National University.

But if Trudeau was betting on Meta and Google backing down, he may have miscalculated. Both companies warned from the outset that they would pull news from their platforms if Canada’s law passed. Meta followed through with its threat, while Google said it would do so when the law officially comes into effect — expected no later than Dec. 19 — unless the regulations are changed.

Removing news from the world’s most popular search engine would hurt media outlets even more than Meta’s move. Google is the biggest single driver of traffic for many publications. “If Google prevents people from searching for us, it’s going to be catastrophic,” said Blackburn.

To try to solve the impasse, Trudeau’s government proposed specific dollar contributions equal to at least 4% of their annual Canadian revenue — that’s an estimated C$172 million per year for Google and C$62 million for Facebook. Both companies stood firm, arguing they don’t see much financial benefit themselves from news — that they’re actually providing a service to media outlets, large and small, helping them reach readers, potential subscribers and advertisers.

Meta has said that posts with links to news articles make up less than 3% of what people see on their Facebook feeds. But for users like Amy Anderson, a reader of the River Valley Sun, news kept her on Facebook for longer. “Honestly I’m spending a lot less time on Facebook because I don’t see a lot of things there that are of value to me,” she said. “I like the friend and family updates, but after 10 minutes, I’m done. There’s really nothing to read.”

Facebook turned the Sun – a free monthly paper with a circulation of 6,000 – into a daily online news outlet. Its Facebook page attracted nearly 19,000 followers and monthly page views of up to 800,000, almost the equivalent of New Brunswick’s population. After Trudeau’s law passed, Blackburn shelled out thousands of dollars to create a website, money she could have spent on freelancers and coverage. The site received about 60,000 page views per month so far.

For CHCO, Facebook was a way to reach more residents outside of its base in Charlotte County, along the border with Maine. Social media brought more people to its weekly live bingo games, boosting sales of bingo card books that support its operations. Advertisers were able to see from the station’s 28,000 Facebook followers that it had a large, engaged audience, said broadcaster Vicki Hogarth, as smaller stations like hers don’t have those numbers at their fingertips. “But we won’t get any new advertisers, I would imagine, at this point in time.”

The revenue hit from Meta’s move is already significant for digital publications like Ontario-based Village Media Inc., which runs local news sites in smaller and mid-sized cities where newspapers have either closed down or suffered from a huge decline in quality. The company suspended all new hiring and community launches in anticipation of Facebook’s move, which later led to its traffic dropping 12% to 14%.

“The business of publishing in general is not a high-margin business. So when you start taking away 10% to 15% of your top line revenue, it’s a pretty significant impact on the business,” said Jeff Elgie, its chief executive officer. Reduced traffic and revenue mean Village Media will no longer reinvest its operating profit into launching new markets, Elgie said, and it runs the risk of multiple market closures. If Google also blocks news links from search results, or makes news harder to find, the revenue hit would be even larger, he warned in a memo to his staff earlier this year. 

Many journalists at smaller outlets see the legislation as a battle between two Goliaths: the major organizations that already dominate Canada’s media landscape, and the US tech giants. Some media companies are trying to change Canadians’ habits by publicly urging them to download their mobile apps to access news directly, rather than through social media. (That list includes Bell Media, which owns BNN Bloomberg Television and operates it in a partnership with Bloomberg News.) But many smaller or newer outlets don’t have that option.   

The government “threw a big punch,” said Patrick Watt, CHCO’s station manager. “So of course, Meta punches back. They did that without considering what was going to happen down here at this level.”

Heritage Minister Pascale St-Onge said her government is holding its ground because Canadians want Alphabet and Meta to pay their fair share to support journalism. “What we’re doing here is correcting a power imbalance between tech giants and our media sector,” she said. “I’m confident that it’s going to help not only our national news outlets, but also local and community news organizations.”

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