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FTC Issues Staff Report with Implications for Online Ads

January 2011

In December 2010, the Federal Trade Commission (FTC) issued a Preliminary Staff Report concerning potential changes to the agency's privacy framework.  Interested parties may file comments in response to the report until February 18, 2011.  Without changes, the FTC's proposals could reduce online advertising revenues while not significantly enhancing privacy. 

Media companies with websites, mobile applications or a social networking presence supported by advertising have a significant stake in this debate.  For example, the FTC's "Do Not Track" proposal (discussed in more detail below and in a companion article in this Mass Media Headlines) could erode the ad-based funding that allows broadcasters to provide free or affordable online services that consumers want.  Further, requiring third-party marketing networks to "enhance" privacy could block customized ads on media companies' sites that individuals find convenient, without materially improving on the notice and choice that such networks often already provide.

FTC actions like publishing the report have an outsized influence.  They frame the national debate about privacy and preview the agency's enforcement actions.  Such "soft legislating" has already spurred industry to provide consumers with more notice of online advertising and opportunities to opt out.  So, while further formalities seem unnecessary to protect privacy, strong voices from media companies and others are needed to demonstrate the benefits online advertising provides to consumers and industry alike. 

Behavioral Targeting

One of the main focuses of the report is behavioral targeting.  Online advertising networks that support many media companies' websites and mobile apps use tracking tools such as cookies, Flash cookies and clear GIFs to build startlingly accurate profiles of users' age, gender, income and interests.  Online ad networks use these user profiles as the basis for determining in real time which ads to display to particular consumers-a practice known as behavioral targeting.  Behaviorally targeted ads-because they are selected based on an individual user's profile-are more valuable for advertisers, allowing online publishers like media companies to charge a premium for that ad space.

Responding to concerns by some consumer advocates that tracking is "creepy" and offends personal privacy, the FTC report suggests "Do Not Track" mechanisms, such as a permanent browser setting that indicates to websites whether or not a user wishes to be tracked or to receive targeted advertisements.  Such a mechanism could pose a threat to the advertising stream that supports free Internet content.  Further, it is not clear that existing industry self-regulation does not already provide consumers an ability to substantially to avoid tracking. 

Implications for New Media

The FTC staff report also recommends significant changes to a number of common practices:

  • Mobile Platforms:   The FTC staff dislikes the use of standard privacy policies on mobile devices due to the size of the screens and favors more user-friendly privacy notices for mobile apps.  However, the report provides little guidance on what approach to mobile privacy policies would satisfy the agency. 
  • Privacy of Children and Teens:   The report asks whether the use of smart phones by teenagers warrants special protections, perhaps under regulations adopted under the Children's Online Privacy Protection Act (COPPA).  COPPA (discussed in more detail in a companion article in this Mass Media Headlines) currently applies to online collections of information from children under 13 years old.  The FTC asks whether COPPA protections should extend to 17-year-olds.  Because media companies know this market segment well, they are positioned to credibly comment on the costs and benefits of requiring some degree of parental consent before online actors interact with teenagers.
  • Location Data:   The report asks whether, due to the sensitivity of geolocation data, companies should be required to obtain express consent before such data is collected, used or shared. 
  • "Just-in-Time" Notice:   The report concludes that privacy policies today are legalistic and seldom read.  The FTC staff recommends a "just-in-time" notification and consent approach, whereby users would receive succinct privacy notices and be given choices at the moment that data is collected. 
  • Personally Identifiable vs. Non-Personally Identifiable Information:   Privacy regulation typically has drawn a distinction between personally identifiable information and non-personally identifiable information, with the former subject to significant protections and the latter largely unregulated.  The report states that, due to changes in technology and the ability to reidentify consumers from supposedly anonymous data, all personal information should be treated the same.  This represents a substantial increase in the scope of data thought to implicate privacy interests, and media companies should urge the FTC to consider carefully the implications.    

Please contact us if you would like to discuss the FTC's report and its impact on your business in more detail, or if you would like to file comments with the agency.