September 4, 2009
One of the few financial bright spots for the newspaper industry this year has been the quick growth of online display advertising that is targeted to users based on what they read.
But just as the party is getting rolling, Congress and federal regulators, nudged by privacy advocates, are considering new rules that could stop the music for newspapers and their tech partners.
Lem Lloyd, who directs the Yahoo Newspaper Consortium, by far the biggest and most lucrative of these advertising efforts, told me in a phone interview that certain changes would be crippling, such as requiring users to opt-in for customized ads rather than having the right to opt out.
“What we are seeing is that about 80 percent or more [of sales with partnering newspapers] are turning out to be behaviorally targeted,” Lloyd said. Flip to an opt-in model, he continued, “and you would look at a lot of companies not getting their revenue.” That, in turn, would hasten a switch to paid content or reduce the amount of content on news sites.
The consortium does not release aggregate sales figures, but recent earnings reports for big public companies have noted big increases in revenue tied to behavioral ads. McClatchy reported that its online display revenues are up 50 percent so far this year and E.W. Scripps said its were up 19 percent year-to-year for the second quarter. Hearst, Cox and others are claiming strong results too. 
The consortium’s platform makes it easy to upload advertising, and the targeting supports higher rates. Some 60,000-circulation papers have taken advantage of theses features to sell $2 million of the consortium ads in two weeks, and some metros are getting a multimillion dollar boost, according to Lloyd.
Two House subcommittees held a joint hearing June 18 pitting privacy advocates against the big Web companies. Among the complex issues discussed there: whether self-regulation is adequate and whether consumers understand how information about their computer use is harvested and used for marketing messages. Privacy advocates are particularly concerned about financial and health information.
Anne Toth, Yahoo’s head of privacy for 11 years, testified that the company considers clarity about privacy part of good customer relations [PDF], and that the big companies compete by steadily improving their privacy practices. Toth told me in an interview that most users accept that advertising supports the free content they enjoy and that they prefer ads related to their interests rather than generic pitches.
Six weeks after the congressional hearing, David Vladeck, head of the Federal Trade Commission’s Bureau of Consumer Protection, signaled that he intends to be more proactive in overseeing online ads. He told The New York Times that self-regulation isn’t working and that some of the online tracking is “Orwellian.” He added that he doesn’t believe most consumers read privacy policies or understand them if they do.
My own quick check found that Yahoo’s privacy policy, if not prominent, is at least findable at the bottom of the page. (Toth said that placement is standard on most sites.) Once you are there, the terms are clearly stated and a large “opt-out” button jumps out from the center of the page.
But on two newspaper sites that I checked, finding a path to opt out was more of a “Where’s Waldo” exercise. My hometown (the site of the St. Petersburg Times, which Poynter owns) has a dense and lengthy policy statement and a link to a long list of vendors for which one can opt out of behavioral advertising. At the Atlanta Journal-Constitution‘s, which boasted in a June press release of being one of the top consortium performers, the opt-out discussion appeared to be about newsletters, with a link to Yahoo ads buried in fine print.
Lloyd and Toth confirmed that my impressions reflect the situation at most sites. Yahoo and several interactive advertising associations are scrambling to get their newspaper partners and other clients to adopt newly developed, model privacy disclosures. But that’s a work in progress.
Even vigorous privacy advocates say they are not out to sabotage Internet advertising. But Toth said that the bill being readied in the House seems likely to distinguish between third-party use (such as Yahoo placements on newspaper sites) and first-party disclosure (to visitors to Yahoo’s own pages). That distinction could be troublesome for the consortium and similar efforts such as Google’s contextual AdSense product.
Privacy issues resonate with voters. However, I suspect that Congress and regulators will not enact draconian restrictions of behavioral targeting — if only, as a BusinessWeek analysis pointed out,  the big Web companies have the clout to block highly restrictive rules.
I have also spoken twice to FTC staffers who are planning a series of workshops on the news media starting December 1 and 2. They, like a number of sympathetic members of Congress, are sensitive to the industry’s business crisis. Shutting off a revenue lifeline such as behavioral ads wouldn’t help at all.
Thanks to Jay Hamilton, a Duke University professor and author of “All the News That’s Fit to Sell,” for a tip on this issue.
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Rick Edmonds is media business analyst for the Poynter Institute where he has done research and writing for the last fifteen years. His commentary on…
Rick Edmonds

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