Regulatory Battle Rages Over Web Ads

At issue: embedded spots and their implications for user privacy
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Until recently, “network neutrality” held sway over industry and government officials as the Internet regulation issue du jour. But with a Congressional vote on the topic unlikely, a different squeaky wheel has made some regulatory noise: questions of embedded online advertising and its implications for user privacy.

The issue has become the target of a series of Hill hearings, terse letters from legislators and threats of legislation.

The neutrality debate first sprang up when the FCC ruled that Internet broadband was not a telecommunications service subject to mandatory access rules like those that apply to phone companies, leading to a growing tension between networks and content providers. Providers feared that companies such as Comcast or Time Warner would have both the incentive and ability to favor their own content over others, or screen out political speech they disagreed with.

For a couple of years, “network neutrality” was a powerful buzz phrase in Washington, before it morphed over the past year into “network management.” But there are few buzz kills quite as powerful as a legislative stall, and there's little chance of a network neutrality bill passing in this Congress. And with the FCC preparing to find Comcast in violation of its open access principles, there may be enough regulatory movement to keep the issue from boiling up.

This has led to the domination, over the past couple of months, of the related issue of online ad-tracking—specifically, the ability of networks and third parties to collect Web surfing data to help target their ads. Pressure from House Telecommunications and Internet Subcommittee Chairman Ed Markey (D-Mass.) helped stop a planned test by Charter Communications and ad-tracking software company NebuAd. Questions have been raised by Markey about another NebuAd test with phone company Embarq, and Markey's office tells B&C he plans to keep the pressure on.

While network neutrality fans have argued that they are looking to protect the next great idea from an Internet startup, NebuAd—a self-described Internet startup—has taken its lumps from the same groups for its attempts to launch an online ad-tracking system that cable and other networks can use to better target advertising. Jeff Chester, executive director of the Center for Digital Democracy (CDD), has been arguing that online advertising would become the next media concentration battleground, and he appears to have been right.

At a dinner meeting in June, Microsoft brought together a Washington A-list crowd of regulators, journalists and activists to talk about online advertising and the growing power of Google. Helping bring that issue to a head was the ad-sharing deal between Google and Yahoo that Microsoft sees as a threat to its efforts to grow its Internet search business.

While some may regard this as a Microsoft power play, the issue clearly has raised a flag with Markey as well. He has recently talked of proposing new legislation to protect online privacy, including giving Web surfers more control over how their information is collected and used.

CDD's Chester says network neutrality has become a two-front war, with the second being embedded advertising. “It's clear that policymakers aren't keeping up with what's going on,” he says. “The recent issues and battles with TV over product placement and stealth advertising, inappropriate advertising to kids and advertising control over content and public service programming issues are going to have a digital rerun over the next couple of years.”

Chester calls the cable industry's eagerness to experiment with ad tracking a strategic mistake that potentially opens the entire online ad industry to privacy regulation. “One [part] is getting the fingers off the flow of content,” he says. “The other is making sure that the network operator and major advertisers can't engage in this kind of commercial surveillance. But that is where the lines get fuzzy.”

Markey has already held one House hearing and wants another. Meanwhile, says his aide, “He is continuing to work with these companies to get answers about how they are using this technology and how customers have been alerted to it.”

And Markey will keep the pressure on. “The issue is going remain prominent no matter what,” the aide says, “in this session of Congress, and into the next.”

E-mail comments to jeggerton@reedbusiness.com

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