Policing the Online Ad Market

The government may soon wield a great deal more power over the online advertising business, and that’s quickly spreading fear across the entire ecosystem, including publishers, ad networks, agencies and even their clients.

Rep. Rick Boucher (D-Va.) is set to introduce a consumer privacy bill over the next few weeks that will likely impact the entire $25 billion online ad market, according to sources.

And while that has many worried, a seemingly unrelated piece of legislation — the proposed financial reform bill aimed at cleaning up Wall Street — has industry insiders sweating. Baked into that bill is language that would grant expanded powers to the Federal Trade Commission, which could theoretically go after shady advertisers or data abusers faster, hit them harder, and punish any other companies that enabled their illegitimate activities.

For their part, the feds believe some of the paranoia is misplaced. In fact, while many have feared that privacy legislation would require consumers to actively opt in to receive targeted ads, Boucher told AdweekMedia his bill would be less onerous.

“Where I want to go with this is generally opt out,” Boucher said, meaning Web users would be able to opt out of receiving targeted ads. That’s easier for publishers and advertisers to stomach, though Boucher’s bill will likely require them to be far more upfront in how they use consumer data, which he sees as a positive.

“If I were [a publisher or advertiser],” he said, “I would want Internet users to have a sense that their experience is more secure, that they know what information is collected about them, and they be given much more control. They will be more trusting of electronic commerce. … It’s good for business.”

Meanwhile, the FTC says it’s only out to get the real bad guys.

“We think the industry needs to do a better job of ensuring that consumers know what they are agreeing to with online advertising,” said FTC chairman Jon Leibowitz. “But the new rule-making authority is really about hard-core fraud. It doesn’t make sense to initiate rule making where business practices and consumer attitudes are still evolving like behavioral targeting. … We prefer self-regulation. We would not be looking at rule making [in this area].”

The rule-making power Leibowitz is referring to is known as the Administrative Procedure Act, rule-making clout the agency had briefly in the 1970s until it was stripped away. More recently, the FTC has been faced with slow, byzantine procedures when it wants to establish new enforcement rules, which Leibowitz said hinders its efforts, especially in the fast-moving tech space.

Such unregulated power is what’s worrying many ad executives. Even more fearsome is the idea that, under its new authority, the FTC would be able to impose financial penalties on violators running into the millions. Those penalties could apply to companies seen as aiding and abetting the guilty party. In theory, an ad network that does something wrong could implicate its site partner, as well as agency and advertiser.

“That really scares you,” said Mike Zaneis, the Interactive Advertising Bureau’s vp, public policy. “That would definitely create a chilling effect throughout the industry.”

Dan Jaffe, evp of the Association of National Advertisers, spoke out last week against what he sees as an FTC power grab, arguing the agency’s primary reason for being — nailing “unfair” or “deceptive” commercial practices — is far too broad: “It is very possible that an honest advertiser trying to do its best is found to be doing something deceptive or unfair.”

Leibowitz countered that the aiding and abetting aspect of the law is geared more for companies that are willing to facilitate crime, not unknowing publishers. Still, if the FTC gets the new power, and is as aggressive as some are expecting, it could create a climate in which many traditional brands become ultra-cautious.

“Clients are extremely sensitive about this,” said Grace Liau, vp, group director, Digitas. “I think it would slow business, period.”