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Wednesday, November 13, 2013

The Shift to Digital Advertising: Industry Trends and Policy Issues for Congress

Michaela D. Platzer
Specialist in Industrial Organization and Business

The United States is the world’s largest advertising market. According to one estimate, domestic advertising revenue totaled $219 billion in 2012, accounting for about 1% of U.S. gross domestic product (GDP). Almost every major medium of information, including the press, entertainment, and online services, depends on advertising revenue. Advertising accounts for 60%-80% of total revenue at many newspapers and magazines and for most revenue at search engines and social networking sites.

Television still remains the main choice for advertisers, with ad revenue at almost $76 billion in 2012. However, spurred by the growth of paid search, online video, social networks, and mobile devices, advertising is moving to online platforms. Digital advertising revenue is estimated to have reached $36 billion, or 16% of total ad revenue, in 2012.

Companies can more easily track and measure consumer behavior online, which allows them to develop detailed profiles of their customers. Some Members of Congress have raised concerns about the business practices of online advertisers, particularly since their activities are largely unregulated in the United States. Digital publishers favor targeted consumer tracking because it allows them to provide free or low-cost ad-supported content. Without it, they argue, their ad supported businesses could be harmed or possibly destroyed. Yet more than two-thirds of Americans do not like having their online behavior tracked and analyzed, according to a recent Pew Research Survey. Privacy and consumer advocates argue for more expansive federal regulations to protect consumers’ online privacy.

Because of these concerns, recent Congresses, including the 113
th, have focused on issues relating to digital advertising. They have held hearings on data privacy and proposed legislation including “Do Not Track” to give consumers the online equivalent of a “Do Not Call” option. In addition, lawmakers have proposed legislation to protect consumers from unlawful geolocation tracking of mobile devices. Congress is also looking at search advertising (where companies sell ads around consumer-initiated search results on web browsers) and fraudulent marketing over social networks.

The growing use of online and mobile tracking has raised regulatory concerns. The Federal Trade Commission (FTC) has published updated “Dot Com” disclosures for online ads; recommended a voluntary Do Not Track (DNT) function; and released new guidance on mobile advertising. The Food and Drug Administration (FDA) is studying pharmaceutical marketing in social media, with guidance required by June 2014. Since 2012, the Obama Administration and the FTC have introduced new privacy frameworks.

Other countries are debating, and some already have and others might adopt, new privacy laws. In particular, digital advertising in the European market is becoming more challenging as European lawmakers consider much stricter DNT rules, raising ever greater compliance hurdles for U.S. businesses. A patchwork of state regulations, including California’s eraser law, also affects online advertising.

Date of Report: October 31, 2013
Number of Pages: 26
Order Number: R43288
Price: $29.95

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