Advertisers Gird for Gridlock

Lobbyists brace for battle over corporate taxes and privacy regulation

The advertising business has, for the past four years, managed to dodge a barrage of bullets in Washington. But it might not be so fortunate in the years to come. With the re-election of President Obama and a stronger Democratic majority in the Senate, industry lobbyists are gearing up for battle to protect advertising as a business expense and to ward off restrictive privacy legislation.

“It’s time to fasten our seat belts,” said Dick O’Brien, evp of government relations for the 4As. “What you will see is a White House that will continue its strain of activism but at full tilt. We’re gearing up for an active four years.”

The biggest nail-biter for advertisers is a lame duck Congress that could move to eliminate the corporate tax deduction on advertising as part of a budget package aimed at averting the so-called “fiscal cliff” of automatic tax hikes and deep spending cuts set for Jan. 1.

Advertisers have been down this road before, most recently fighting off a provision in Obamacare that would have eliminated advertising deductions for prescription ads to help offset costs of the health plan. But this time, the stakes are higher. If Congress doesn’t act, it could propel the nation into another recession, the Office of Management and Budget warned. “I can’t remember when there were so many things coming together at the same time,” said Dan Jaffe, evp of the Association of National Advertisers. “I am absolutely worried.”

O’Brien and Jaffe have spent the past year lobbying the Senate Finance Committee and educating other members of Congress, arguing that taking away the deduction would make it more expensive to advertise, leading to less advertising and fewer jobs.

In addition to the tax-deduction headache, advertisers may also face a perception problem. Even though hundreds of millions of dollars spent by PACs failed to be the decisive factor in swaying the electorate, it still defined the presidential and congressional races and colored consumers’ view of advertising. “It may have created an animus toward advertising that we’ll have to deal with,” Jaffe said.

Advertisers also have their eye on online and mobile privacy policy. There is unfinished business on a number of fronts in that regard, set into motion by the Obama administration. They include the continuation of multistakeholder meetings with the Commerce Department to craft a privacy code of conduct and stepped-up enforcement at the Federal Trade Commission, which has cracked down on companies such as Google and Facebook that fail to live up to their own privacy policies.

FTC chairman Jon Leibowitz, a strong advocate of Do Not Track measures, will soon step down. His likely replacement is one of two Democratic commissioners, Julie Brill and Edith Ramirez, both aggressive about and highly involved in privacy issues.

“We’ll see continued pressure on the industry to go further on self-regulation,” said Mike Zaneis, svp, general counsel for the Interactive Advertising Bureau.

Privacy legislation that could restrict targeted advertising could see some new life under the chairman of the Commerce Committee, Sen. John Rockefeller (D-W. Va.), who remains unconvinced the ad industry can regulate itself.

John Montgomery, chief operating officer of GroupM Interaction, said he was “concerned about the law of unintended consequences. By making privacy more regulated and restricting the ad business by not being able to collect harmless data, it’s going to injure the golden goose of the ad-tech business.”

Holding back advancing legislation is the GOP-controlled House and more sympathetic members of Congress who remember what happened when online piracy acts threatened to harm the online community. Leading privacy issues in the House has been Rep. Mary Bono Mack (R-Calif.), chairman of the Commerce subcommittee on Commerce, Manufacturing and Trade, who lost her re-election bid. A top contender for her spot is Rep. Marsha Blackburn (R-Tenn.), who is equally sympathetic to interactive advertising.

“[Legislation] is a steep hill to climb because Congress hasn’t fundamentally changed that much,” Zaneis said. “While there are more congressional members that understand our industry, there will be more pressure from the FTC.”