It will cost ad networks, payment processors, hosting services, search engines and others in the online advertising supply chain estimated billions to monitor content and links embedded on Web pages to comply with proposed Stop Online Piracy Act (SOPA) and Protect IP Act (PIPA) U.S. legislation, claim industry executives.
The opposition says the proposed legislation will force venture capitalists to pull investments earmarked for online companies, suppress social media advertising and reverse growth for online ads. eMarketer estimates U.S. ad sales grew 23% to $32 billion in 2011, and should reach $39.5 billion this year, outpacing spending on print newspapers and magazines.
Ad executives said it will become "incredibly costly" to monitor every piece of content contributed to a Web site. Kara Nortman, SVP of publishing at CityGrid, which supports Citysearch and Urbanspoon, likens SOPA to The Sarbanes-Oxley (SOX) Act of 2002, which set a new reporting standard for all U.S. boards, management and public accounting firms in the wake of the Enron, Tyco and WorldCom scandals.
The SOX stipulations cost companies millions in compliance; industry insiders believe SOPA could do something similar.
The CPA Journal reported the results of a 2004 survey revealing the total costs of first-year SOX compliance with section 404 could exceed $4.6 million for each of the largest U.S. companies, with more than $5 billion in annual revenue.
On Sunday, Martin Lafferty, CEO of Distributed Computing Industry Association, who calls SOPA "SOX on steroids," plans to chronicle events on his company's Web site that led to the proposed SOPA/PIPA legislation. "If the combined bills would have passed years ago, YouTube, Facebook and Twitter would have been shut down before the companies made it to their first week of operations," he said. "Part of these bills would destroy the Internet by attacking the domain name system, which is fundamental protocol to how it works."
If Amazon refuses to shut down a Web site hosted through its cloud services after a client is accused of copyright infringement that business unit could be in jeopardy of being sued or shut down too. Amazon becomes liable for damages through the legal court process if they choose not to take down the site.
"The burden of proof showing they did not infringe copyrights goes to the defendant," said Eric Orme, CTO of Remark Media, a global digital media company focused on developing social media businesses. He explains any company accused of aiding in copyright infringement runs the risk of being served under the same court order.
For a social network like Facebook with more than 600 million users, Orme estimates the price tag at millions to create services that moderate user comment, photos and videos. "I don't think you can stop piracy by suing the platform somehow associated to it."
The Motion Picture Association of America, which has been striving to stop digital piracy of movies for nearly a decade, said in a blog post that Web sites taking action on Wednesday rest on the false premise that legislation would target them. Paul Hortenstine points to a fact sheet stating why Web sites like YouTube, Facebook, Twitter and Wikipedia would not be affected.
The Hollywood Reporter notes that chairman and CEO of the MPAA and former Connecticut Senator Christopher Dodd "finds himself in the middle of a war."