The Shift to Digital Advertising: Industry Trends and Policy Issues for Congress
Released: 2013-10-31T00:00:00

Summary:
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 113th, 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.

subsections: section_title: Introduction
paragraphs: Advertising has been—and continues to be—transformed as consumers spend more of their time using electronic devices, such as smartphones and tablet computers, to access digital content of many varieties. This shift has given rise to difficult and novel public policy issues. This report examines some of these issues in the context of the structural shifts that have reshaped the advertising industry over the past decade.
Thirty years ago, consumers viewed an average of 560 ads per day. As advertising has spread from newspapers and television shows to gasoline pumps, cell phones, and bus stops, the exposure to advertising is almost certainly higher today. By one count, the average American consumer may be exposed to 3,000 commercial messages every day.
Advertising pays for much of the content on traditional media and online platforms. It provides 84% of television networks' revenue, and until recently furnished 60%-80% of most daily newspapers' revenue. Advertising generates more than 80% of total revenue at Internet companies such as Google, Yahoo, and Facebook, and covers the cost of many of the free "apps" consumers download to increase the functionality of their smartphones and tablet computers.
Compared with traditional advertising, digital advertising seems to have some significant advantages for advertisers. For instance, small businesses can now reach millions of potential customers at low cost. Smartphones, tablets, and other mobile devices give advertisers greater access to more consumers for more hours of the day. Companies can now directly tout their products online and better tailor their ads to consumer behavior using the wealth of information consumers generate online. Nevertheless, digital advertising is causing industry-wide disruptions. The proliferation of ad-supported websites, online video, and blogs has pushed down advertising rates for both online and conventional media markets. Media traditionally dependent on advertising are being forced to find new business models as advertising revenue streams decline.
subsections: section_title: Industry Size and Concentration
paragraphs: SNL Kagan, an industry research firm, pegged total national and local ad revenues at $219 billion in 2012, down 9% from 2008 (see Table 1 ). The television industry continues to capture the largest share of these revenues, 35% in 2012, and, according to SNL Kagan, its total advertising receipts have been rising even as advertisers' spending on direct mail, newspapers, radio, and magazines has fallen. Digital advertising—revenue from Internet and mobile sources—represents a rising fraction of ad revenue, growing to 16% in 2012 from 10% in 2008. Using the SNL Kagan estimate, total advertising revenue came to 1.4% of GDP in 2012.
Most ad spending is undertaken directly by advertisers, but a significant portion passes through advertising agencies, which develop advertising campaigns and purchase display space or broadcast time. According to the U.S. Census Bureau, advertising and related services firms had revenue of $94.8 billion in 2012. This represents 44% of all ad spending, as measured by SNL Kagan. In 2008, by comparison, these firms' revenue of $89.2 billion came to 37% of total ad spending, as measured by SNL Kagan. The increasing role of ad agencies may reflect the fact that some types of advertising frequently placed directly by individuals or small firms, notably classified ads and real estate ads in newspapers, have migrated to online media, including websites such as Craigslist that may not charge for some ads.
Advertising agencies range from small operations heavily reliant on freelance talent to multinational, multi-agency conglomerates. According to the Bureau of Labor Statistics (BLS), an estimated 18,700 business establishments made up the U.S. advertising industry in 2012. However, the five largest global advertising holding companies reportedly accounted for 73% of global ad agency revenue and more than half of U.S. agency revenue in 2012.
Each of these large holding companies owns or controls a large number of separate agencies, which supply services from creative work and production to media planning, buying, and post-buy analysis (see Table 2 ). Omnicom and Publicis recently announced plans to merge in a deal that is still subject to approval by competition authorities, which are considering the extent to which the combined company would be able to exercise market power in the advertising market. A 2008 study found that the advertising and market services industry was not overly concentrated at the general level. However, market research firm IBIS World recently wrote, "Industry concentration has increased over time as more agencies merge, acquire, and operate on a global basis." Regulators will also need to take into account the increasing consolidation among sellers of advertising space and time, such as television stations and search engine owners, with which advertising agencies must bargain.
The explosive growth of digital advertising raises questions about the role of advertising agencies in the future. Online advertising, as compared to traditional ad campaigns, is more data-driven, based on information drawn from users' Internet activity about consumer preferences, website popularity, and clicks per ad. Sellers of digital ads increasingly use mathematical formulas (algorithms) to determine price and placement of ads. It is possible that digital-driven disintermediation may ultimately allow some advertisers to place their ads directly rather than engaging advertising agencies to handle this work, reducing the ad agencies' importance.
section_title: Industry Employment
paragraphs: Employment at advertising firms is one indicator of demand for advertising services. Given the importance of personnel in service-related businesses such as advertising, it is not surprising that an ad agency's largest cost is its personnel. At a typical agency, wages and salaries can account for 55%-60% of expenses.
At the end of 2012, the U.S. advertising industry employed 178,500 workers at an average annual pay of more than $90,000. Advertising employment peaked above 200,000 in 2000, but has fluctuated in a relatively narrow range over the past decade (see Figure 1 ). Approximately 37% of total advertising industry employment is in either New York or California, although every state has some employment directly related to advertising.
U.S. advertising agencies traditionally charged clients a 15% commission based on the cost of media placement. Such pricing continued to be the industry standard even after courts in the 1950s ruled in favor of magazine and newspaper publishers' claims that the commission system limited their ability to directly bargain with advertisers. Industry compensation has changed significantly in recent decades, with most large national advertisers paying fixed fees to their ad agencies rather than commissions.
In recent years, some advertising agencies have begun to focus on developing higher-growth non-advertising businesses, including market research, media planning, interactive media, and customer relationship management. They are also deriving a larger share of revenue from non-advertising sources such as special events promotion and public relations management. Revenue from these sources may be less cyclical than that from advertising.
section_title: Digital Advertising
paragraphs: The most recent structural changes affecting advertising began around 1995, as consumers started to migrate from traditional media sources to online platforms. Online and mobile activities have accounted for steadily growing shares of consumers' media use at the expense of all other types of media (see Appendix ), and advertisers have been forced to rethink their marketing efforts in recognition of that trend. 
In 2012, Internet advertising revenues in the United States totaled $37 billion, a rise of 500% from $6 billion 10 years earlier (see Figure 2 ), according to the Interactive Advertising Bureau (IAB). eMarketer, a market research firm, projects that online ad spending may total $61 billion by 2017.
Trillions of digital ads are served up annually. These ads are linked to many types of content and may be viewed on a wide variety of devices. According to Nielsen data, more than 209 million Americans were active online in January 2013. Facebook reported nearly 230 million daily desktop and mobile device views in the United States at the end of June 2013. 
Although television remains the dominant advertising choice, in 2011 spending on online advertising exceeded spending on print advertising for the first time. Due to the expanding online market, many print publications face increased financial stress. They have responded by attempting to increase their own online advertising revenues, although few print publications have managed to charge enough for online ads to make up for the loss of print revenue. In 2012, online ad revenue made up 15% of total newspaper advertising revenues, compared with 7% in 2007.
Although online and traditional advertising are similar in many ways, there are important differences. A print newspaper may be the dominant source of information in its local market and therefore be able to charge advertisers a premium price, but on the Internet that same newspaper competes against hundreds or thousands of websites, bloggers, and Twitter users, and has less pricing power. The supply of online advertising opportunities is almost unlimited, and very few of the estimated 670 million websites on the Internet are essential buys for advertisers. The abundance of ad inventory means that online advertising rates can be substantially lower than ad rates in other media. A 2011 Federal Communications Commission report found that in May 2010 a typical online ad cost about $2.52 per 1,000 viewers, whereas the average cost per thousand viewers on primetime broadcast television networks was $19.74. Digital advertising can also be sold in other ways, including cost-per-click or by keyword purchase.
Despite the multitude of websites and social media outlets, the online advertising market is a concentrated market. In 2012, the top 10 sellers of advertising space on websites accounted for more than 70% of online ad revenue, and the top 50 for nearly 90%, according to IAB. 
Real-time bidding systems (RTBs) like Google's DoubleClick or Facebook's Exchange let marketers buy and publishers sell advertising inventory through automated exchanges. RTBs account for a relatively small part of total online ad spending, at 13%, or $1.9 billion, in 2012, but market research firm IDC predicts that they may handle 27% of all U.S. online display advertising by 2016. Over time, automated ad exchanges may be used to sell other forms of advertising, such as digital radio and electronic screens on billboards and bus shelters. Some ad companies have started to build automated ad buying systems for television and radio.
The regulatory and legal implications of RTBs are getting increased attention from lawmakers and regulators because these new systems raise issues about companies' data and consumer privacy disclosure practices in online and mobile environments. Concerns about anticompetitive business practices have also come into play, with attention to whether algorithms and restrictions on the use of certain data by advertisers could threaten competition and innovation.
subsections: section_title: Measurement Issues
paragraphs: Measuring the effectiveness of advertising has long been a challenge. Newspaper and magazine circulation figures are compiled by the Alliance for Audited Media (AAM), formerly the Audit Bureau of Circulations. Nielsen, using consumer panels and electronic devices, collects television viewership numbers. Arbitron, using its proprietary Personal People Meter (PPM) technology, produces audience data on radio shows and stations. Figures from these groups are used to determine the prices of ads on traditional media outlets. In addition, many outlets commission studies to obtain demographic information, such as the age distribution of a magazine's readers, that may be of interest to advertisers. 
Advertisers and others have long groused about audience measurement techniques, and they have become even more skeptical as consumers increasingly view media in digital formats. For example, digital editions of newspapers (e.g., tablet or smartphone apps, PDF replicas, or e-reader editions) made up 19.3% of U.S. daily newspapers' total average circulation in March 2013. In many cases, newspaper and magazine subscribers have access to both paper and electronic publications, and meaningful ratings measurement must track readership across various formats. No commercially available national syndicated cross-platform audience measurement service exists today. Moreover, technology increasingly allows consumers to view digital content while bypassing advertisements, so audience data may not accurately provide the information of greatest interest to advertisers. 
In the digital world, advertisers can count the number of people who click on an ad, forward an e-mail, or view a video on their personal computer or mobile device. They can easily track ad impressions, click-throughs, unique visits, and time spent on each page. Cable and satellite digital set-top boxes can track users and deliver different ads for different audiences. Cell phone companies are also able to follow customers on mobile phones, which provide a wealth of data for advertisers. Companies like Google have built their business models upon gathering as much information as possible about consumer interests and behavior. The ability to monitor consumer response in this granular way has large financial consequences for both advertisers and sellers of advertising. According to the IAB, 66% of online ads sold in 2012 were priced on a performance basis such as cost-per-click, meaning that if the advertisement was ineffective in attracting consumer interest, the advertiser paid little or nothing.
Questions about the accuracy of digital metrics abound. According to a 2009 study by comScore, only 16% of Internet users clicked on an ad and just 8% of Internet users accounted for 80% of all clicks; the company contends that ignoring Internet users who do not click on ads is unwise. Measurement of clicks can also be manipulated through click fraud, the practice of generating sham clicks to make ads look more popular and thereby increase website owners' revenues. One recent study reported that accidental or fraudulent clicks cost companies 40% of their mobile advertising budgets.
Ratings measurement firms are competing to develop more finely tuned cross-platform measurement tools. Arbitron, which traditionally gathers data on radio listening patterns, now includes high-definition and streaming listening in its national broadcast ratings and is planning a service that will measure audio as a single medium, regardless of whether it is distributed over the air or via digital streaming. Nielsen plans to introduce services to measure television shows by their level of social media chatter; to measure video viewing over streaming services such as Netflix and Amazon and on TV-enabled game systems such as X-Box and PlayStation alongside traditional audience measurement; and to measure video streaming from each television network's own website.
Last year, comScore, a competitor to Nielsen and Arbitron, introduced a service called vCE to track viewing on TV, web, and mobile platforms. Rentrak measures TV content viewing by audiences using scheduled interactive video-on-demand and digital video recorders. TRA, acquired by video recording company TiVo in 2012, attempts to correlate households' television TV viewing and purchasing habits. 
In September 2013, following a nine-month review process, the Federal Trade Commission (FTC) approved the acquisition of Arbitron, which holds about 90% of the market for radio audience measurement, by Nielsen, which has about 80% of the TV ratings industry market. The FTC's approval included one significant condition: it required Nielsen to make available for license certain Arbitron technology and related data to ensure continued competition in TV and radio audience measurement. 
section_title: Online Advertising Environment
paragraphs: The collection of large amounts of data for advertising purposes has proved controversial. Some Members of Congress and industry regulators have raised questions about what companies do with the data they collect, as consumers are often uninformed about how, where, and to what extent their information is used. They are also concerned about customer targeting and privacy safeguards attached to search and behavioral advertising and social media marketing. The Senate Commerce Committee and the FTC have both taken closer looks at industry practices. 
subsections: section_title: Search Advertising
paragraphs: A difficult challenge for advertisers is how to find potential customers in the large, but scattered, digital world. Search advertising, in which ads are linked to particular search terms and are featured near the "natural" or "organic" search results on the search results page, barely existed a decade ago, but has emerged as one answer. In 2012, search ad revenue stood at around $17 billion, accounting for about 6% of the overall ad market and nearly half of the digital ad market (see Table 3 ). The search model, which includes contextual and behavioral targeting, is viewed as an effective means of matching relevant information with user interests, helping advertisers reach potential customers at the moment they might be considering the purchase of an automobile or a vacation trip. Advertisers generally pay only if a consumer clicks on an ad. 
An online advertiser can easily track users who navigate to its website when they search for certain products or services. Once the user has clicked on an ad associated with a particular search term, the advertiser can use its internal server logs to trace how the individual behaves.
The importance of search as an advertising medium has generated antitrust concerns. In some European countries, Google has a market share of more than 90% of all Internet searches. In November 2010, the European Commission began an investigation of whether Google "has abused a dominant position in online search, in violation of European Union rules (Article 102 TFEU)." The investigation responded to complaints by publishers and competitors, such as online map companies, about unfavorable treatment of their services in Google's unpaid and sponsored search results, as well as alleged preferential treatment of Google's own services. The European Commission's investigation may well raise new issues, such as whether a search provider's secret algorithms can be anticompetitive when used for certain purposes. Although Google's ad practices have angered privacy advocates and attracted the attention of antitrust regulators in the United States as well, the FTC closed an investigation into Google's business practices after finding that it had not manipulated search results.
section_title: Ad Networks and Ad Exchanges
paragraphs: Ad networks, or ad brokers—reportedly numbering more than 300 companies—pool hundreds or even thousands of web pages together to facilitate advertising across the web and many other digital platforms (e.g., RSS feeds, blogs, and e-mails). Such networks deliver ads from central computer servers that can engage in targeting, tracking, and reporting of impressions. 
Online publishers rely on ad networks such as Google Ad Network, Casale Media Network, ValueClick Networks, and Yahoo!SearchMarketing to sell inventory that they have not succeeded in selling directly. In some cases, website owners use networks as a substitute for direct selling. Ad networks are also an important sales tool for small web ventures that have limited resources to do their own marketing. More recently, the hundreds of ad networks have given rise to a new kind of ad inventory consolidator, the ad exchange, which matches ad buyers with ad sellers hoping to fill excess inventory.
Some established companies say online advertising networks and exchanges affect prices for all ad-dependent companies because they can buy up blocks of residual or less attractive ads and release them on the market at fire-sale prices, in some cases for as little as 5%-10% of what the publisher might charge for the exact same ad space on a direct buy from an ad agency. The Online Publishers Association, a coalition of media and entertainment companies with a digital presence such as the Wall Street Journal , New York Times , and ESPN.com , released a study in August 2009 arguing that ads sold via brokers were less effective than ads sold directly on their websites—for which they can charge higher prices. But many prominent media companies use ad networks to sell at least part of their own inventory that they cannot sell directly. 
As ad networks and ad exchanges proliferate, lawmakers have started to focus on how they use data targeting and how they track behavioral activity. The White House, IAB, and leading ad networks, including Google, Yahoo, and Microsoft, recently agreed to self-regulatory guidelines and best practices whereby they agree to prohibit websites that engage in copyright piracy or the sale of counterfeit goods from participating in an ad network's advertising program.
section_title: Ad Platforms
paragraphs: Advertisers have had to change their strategies quickly as digital consumers have changed the way they spend their time. The digital marketplace includes a variety of platforms:
Mobile . More than 9 in 10 U.S. adults now own a mobile phone. As ownership of smartphones has increased, advertising on mobile phones has grown at a torrid pace, with revenues rising from $251 million in 2007 to $4.75 billion in 2012. By 2017, revenues could reach $27 billion, according to eMarketer. One challenge is that advertisers reportedly pay less for these ads than other online ads because consumers are less likely to make a purchase on their phones, perhaps due to the smaller screen size of mobile devices. Social networks . Two-thirds of online adults in the United States use social networking sites, including networking tools such as Facebook and Twitter; social sites such as Reddit, Digg, and propeller; photo and video sharing sites such as Flickr and You Tube; and social bookmarking sites such as Delicious. This segment accounts for nearly 20% of total time that U.S. adults spend on personal computers and 30% of total time online via mobile devices. Social networking sites typically garner most of their revenues through sale of advertising space. An advantage of social media advertising is that it allows advertisers to target users' demographic information. Advertisers, however, must be aware that social network members may be less inclined to accept advertising based on their personal data than visitors to other types of websites. According to Nielsen's 2012 Social Media Report, a third of users are annoyed by ads on social networks. Gaming . More than half of U.S. households own a dedicated game console, according to the Entertainment Software Association (ESA). The industry trade group says that casual, social games are the most frequently played online games, followed by action, sports, strategy, and role-playing games. Advertisers are trying to reach these consumers by running ads before digital games on online sites or embedding their ads into the games. Ad revenues from mobile gaming were reportedly around $200 million in 2012. Digital Video . Six out of seven U.S. consumers reported watching video content over the Internet in 2012, according to a 2013 survey by Accenture. After initially struggling to figure out how to sell ads against consumer-generated content, advertisers have become comfortable with the medium. Another advertising strategy associated with video is viral ads—videos and other promotions that gain an audience through online word of mouth. eMarketer recently projected U.S. spending on digital video ads to be $4 billion in 2013, doubling to $8 billion by 2016. Video ads generally sell for higher rates than banner ads.
section_title: Online Privacy
paragraphs: By browsing the web, blogging, joining social networks, and playing online games, consumers produce a large quantity of personal data. One way in which advertisers and marketing firms may use this information is to deliver higher-value ads targeted at consumers with identifiable interests. The ever-growing trails of personal data being collected by commercial enterprises have raised concern among privacy advocates, who have urged legislation to give consumers greater control over what information websites collect and how that information is used. Website owners and the advertising industry, on the other hand, worry that tougher privacy standards could make it more difficult to serve up targeted ads, harming one of the more lucrative aspects of online advertising.
subsections: section_title: Behavioral Targeting
paragraphs: Contextual and behavioral advertising are two ways to place relevant information in front of a potential customer. The general idea behind contextual advertising is to generate ads expected to be of interest to an Internet user due to that user's recent online activity. Because contextual advertising involves little or no data storage beyond the current online session, it raises few privacy concerns. Behavioral ads, in contrast, use past browsing behavior to target ads. A company collects information about websites and specific pages a consumer visits and uses that viewing history to make guesses on the consumer's interests; a consumer with a history of visiting cat forums, for example, might be likely to see ads for kitty litter. Such ads can command prices more than twice those of other forms of online advertising. 
The main mechanism for following consumers' online activity is tracking cookies, small text files that can store data. By design, cookies are largely invisible to consumers and are encrypted to be unintelligible to any user wanting to know what information they contain. Behavioral tracking and targeting can create highly detailed user profiles by combining a user's history of online activity with data derived offline. Companies that collect and sell data gathered by cookies claim the data do not identify users by name, and that their activity is adequately disclosed in privacy policies.
Separately, mobile devices use location-based services to track consumers' whereabouts. This allows advertisers to serve ads related to the user's current location. Device users may be able to turn off locational tracking, although this may reduce the functionality of their devices.
A 2012 survey by the Pew Research Center found that 68% of Americans did not like having their online behavior tracked and analyzed. Among the concerns are that tracking can be used to take advantage of vulnerable consumers, particularly children, and that the information collected may be used inappropriately or might reveal the identity of a person. A coalition of consumer groups has called for mandatory constraints on behavioral advertising.
Behavioral tracking remains largely unregulated in the United States, although some researchers point to a strong domestic regime of corporate "privacy on the ground." U.S. courts have ruled it is legal to deploy "first-party" cookies, or information collected by a company or an online publisher for its own use. In contrast, more complex "third party" advertising cookies, placed by a party other than the site the user is currently visiting, raise questions about intrusive monitoring. According to an analysis by Keynote Systems, which describes itself as an Internet and mobile cloud testing and monitoring company, 86% of 269 top websites across four industries placed one or more third-party tracking cookies on their visitors. Common third-party advertising trackers include Google Adsense, DoubleClick, Quantcast, OpenX, Google AdWords Conversion, and Amazon Associates.
The growing use and power of tracking technology have raised regulatory concerns. The FTC has already taken enforcement actions related to third-party web tracking against several companies, including Facebook and Google. In March 2012, the FTC released a report recommending a "Do-Not-Track" registry to allow consumers to opt out of online tracking. It noted that while many companies treat consumer information carefully, "some appear to treat it in an irresponsible or even reckless manner."
Several web browsers have adopted "do not track" features, but some privacy experts question their effectiveness. When the feature is on—some browsers require the user to turn it on rather than making it the default setting—the browser sends a signal to websites that a user does not want to be tracked, so that any cookies placed by a website should collect only the bare minimum amount of information required to provide service. As of April 2013, Google reported that approximately 17% of its U.S. viewers using the Firefox browser had turned the "do not track" setting on.
In the United States, a consortium of ad trade groups created the Digital Advertising Alliance's (DAA's) turquoise Advertising Option Icon in response to pressure from the FTC. Depicted in the adjacent box, the DAA icon may show up in or near online ads or on web pages where data are collected and used for behavioral advertising. After clicking on the icon, users find a disclosure statement on data collection, use practices associated with the ad, and a voluntary opt-out mechanism. Proponents view the DAA Icon as a means of assisting consumers with managing their online tracking profiles, although skeptics maintain Ad Choice does not go far enough to inform people about what data are being collected from them and how they are being used.
An international body, the World Wide Web Consortium (W3C), is attempting to come up with tracking standards that might apply worldwide. W3C is made up of computer scientists, consumer advocates, and dozens of companies like Microsoft and Google. The group has not yet reached consensus on the technology or policy components related to consumer web tracking.
section_title: Policy Issues Affecting Digital Advertising
paragraphs: Congress has been involved in regulating advertising since at least 1914, when the Federal Trade Commission Act made unlawful "the dissemination or the causing to be disseminated of any false advertisement" that might affect commerce." Among the motivations for federal legislation regarding advertising over the years have been ensuring fair competition; shielding consumers from unfair or misleading messages; limiting exposure of children to certain types of advertisements; and restricting promotion of products deemed morally or physically harmful. 
More recently, Congress, regulators, and the courts have turned their attention to digital advertising. Several federal agencies are involved:
The FTC, the principal federal agency responsible for regulating public advertisements in all media, is charged with protecting consumers from claims that are false, deceptive, or unfair. Its authority covers both online and traditional advertising. The FTC Bureau of Consumer Protection enforces rules regarding online consumer privacy. In recent years, the FTC has investigated several companies, including Sears, Myspace, and Google, for their online behavioral advertising practices. The Food and Drug Administration (FDA) enforces the Federal Food Drug and Cosmetic Act (P.L. 75-717), which regulates food package labeling and health claims and consumer prescription drug advertising. Its recent efforts include formulating policy on the marketing of prescription drugs and restricted medical devices through social media tools. The Federal Communications Commission (FCC) regulates various issues affecting advertising on radio, television, telephone, satellite and cable television, and the Internet. The FCC is taking a fresh look at children and digital media. The FCC also adopted a rule in 2012 that for the first time requires affiliates of the four major networks in the top 50 TV markets to post political ad buying information online. All other stations will have to comply by July 1, 2014. The Consumer Financial Protection Bureau (CFPB), an independent agency created in 2011, oversees advertising of financial products to consumers. Its Mortgage Acts and Practices Advertising rule, which took effect in August 2011, prohibits mortgage lenders and brokers from making misleading claims about mortgage products. The CFPB has launched formal investigations into six companies that it believes have violated the MAP Rule. The Federal Election Commission (FEC) oversees political ads.
A patchwork of state regulations also affects online advertising. Every state has consumer protection laws applying to ads running in that state, most often governed through state regulatory authorities and overseen by the state attorney general. An increasing number of states have passed laws affecting digital advertising. At least nine states, including California, Maryland, and New York, have introduced legislation on consumer or child online privacy. For instance, California requires commercial websites to post a privacy policy to any website accessible by California residents. California also enacted the so-called "eraser law" that, beginning on January 1, 2015, allows minors to remove publicly posted content on social media sites such as Facebook and Twitter and prohibits online advertising of harmful products directed at minors, including the sale of firearms, alcohol, and tobacco. 
subsections: section_title: Industry Self-Regulation
paragraphs: The advertising industry has its own self-regulatory system organized through the Advertising Self-Regulatory Council (ASRC), formerly the National Advertising Review Council. The ASRC aims to develop standards of "truth and accuracy" for national advertisers through a compliance system that includes recommendations for corrective actions and an internal appeals process.
The ASRC also sets policies for the National Advertising Division of the Council of Better Business Bureaus and the Children's Advertising Review Union. These self-regulatory bodies look into specific complaints regarding possibly inaccurate product claims and more general questions about whether certain advertising is appropriate, particularly for children. Other initiatives promote healthier food and beverage choices in advertising targeted at children; aim to improve consumer confidence in electronic advertising; establish principles for online behavioral advertising; and provide guidance for the mobile environment. The IAB, founded in 1996, develops voluntary standards for online businesses and advertisers. The IAB is a coalition of more than 500 media and technology companies that sell nearly 90% of all U.S. online advertising.
One of the IAB's self-described goals is to fend off intrusive legislation. In that vein, it worked with other advertising organizations to craft voluntary guidelines for behavioral advertising, which were released in 2009. The IAB also has set guidelines for advertising in social media and on mobile platforms. It has tried to standardize online advertising, issuing definitions for terms like "click" and "impression" as well as ad sizes and use of techniques such as pop-up ads.
section_title: Concerns About Online Privacy
paragraphs: Even though many U.S. consumers are concerned about online privacy and many actively avoid companies they do not trust, only 38% of consumers claim to know how to limit information collected on them by a website, according to Pew Research. Increasingly, regulators in the United States and Europe are scrutinizing the use and power of tracking technology. The European Union's approach to protecting privacy includes comprehensive national laws, prohibitions against collection of data without a consumer's consent (the Cookie Directive), and requirements that companies that process data register the activities with government authorities. So far, the U.S. approach has been more ad hoc and industry-based. These differences may raise significant compliance challenges for U.S. companies doing business in Europe—including those transacting with European nationals solely through the Internet without a physical presence in Europe.
The FTC recommended a Do Not Track framework in 2012 and provided recommendations on privacy protections for mobile services in 2013. To keep up with changing technology, the FTC amended its Children's Online Privacy Protection (COPPA) Rule in 2012, strengthening its privacy protections to give greater control to parents over what information is collected online from children under 13. Among the more significant changes, which took effect on July 1, 2013, the revised COPPA rule expanded the definition of the term "personal information" that operators of commercial websites and online services, including mobile apps, can collect from children and revised how companies obtain parental consent. A 2012 FTC report discussed how mobile apps affect the privacy of children, which some observers believe could be a prelude to proposed regulation. Besides privacy, the FTC updated its Dot.com disclosures for online advertising to give businesses examples and direction on how to avoid unfair or deceptive business practices in their online ads.
In December 2010, the Department of Commerce Internet Policy Task Force released a green paper on commercial data privacy issues that recommended, for instance, the establishment of a Privacy Policy Office and a commercial data privacy framework for businesses. That report did not endorse any privacy initiatives. Building on the Department of Commerce's work, the White House released its consumer data privacy framework in 2012, which also considers the issue of third-party personal data collection and how companies deliver targeted ads to consumers.
section_title: Pending Legislation
paragraphs: In the 113 th Congress, Do Not Track legislation was reintroduced by Senators Jay Rockefeller and Richard Blumenthal. The Do-Not-Track Online Act of 2013 ( S. 418 ) was first introduced in 2011. If the bill is passed in its present form, companies would be required to honor user requests not to have online activities tracked, much the same as provided by the original 2011 bill. In April 2013, the Senate Commerce Committee held a hearing on the progress of industry self-regulation of online behavioral advertising.
Senators Ron Wyden and Mark Kirk reintroduced geolocation privacy legislation ( S. 639 ). That measure would prohibit the interception, disclosure, and use of geolocation information (information concerning the location of a wireless device) pertaining to another person. In the House of Representatives, the Online Communications and Geolocation Protection Act ( H.R. 983 ), reintroduced by Representatives Zoe Lofgren, Ted Poe, and Suzan DelBene, contains many of the same provisions. Representative Joe Barton, who sponsored the Do Not Track Kids Act of 2011 ( H.R. 1895 ) in the 112 th Congress with then Representative Edward Markey, has said he plans to reintroduce the bill in the 113 th Congress. That act would prohibit the collection and use of minors' information for targeted marketing and strengthen privacy protection for children through, for instance, creating an eraser button for parents to delete information that companies gather about their children.
subsections: section_title: Appendix. Average Time Spent with Major Media