Commentary

Why Advertisers Should Oppose Net Neutrality

While at first glance it may not be obvious how the public policy debate over "net neutrality" affects the advertising sector, it does--and big time. Let me explain "net neutrality" in the context of advertiser interests.

In simple terms, net neutrality is the politics of convergence.

As "convergence" makes the tech and communications sectors collide and creates more direct competition between the sectors than ever before, the choice is: will competition and market forces sort it out, or will government dictate which sector is competitively advantaged over the other?

In "brand" terms, the main opposing "brand" players in this public policy fight are the online giants like Google, Yahoo, Ebay, Amazon, and IAC that want net neutrality regulation of broadband companies; versus the broadband companies like Time Warner, Verizon, AT&T, Sprint, and Comcast, which obviously don't want to be regulated.

So why should advertisers care who wins? There are three bottom-line reasons why.

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1) The companies that advertise very little want to regulate some of the advertising sector's best corporate clients. According to Advertising Age's 2005 rankings: none of the biggest "brand" supporters of net neutrality--Google, Yahoo, eBay, Amazon, or IAC--are in the top 100 companies that advertise nationally. That's because online giants already have their own huge network of users that they can email or reach all by themselves. The online giants simply don't have much need for big national advertising campaigns now or in the future.

On the other hand, the biggest "brands" that oppose net neutrality are three of the nation's five biggest spenders on advertising and four of the top 16. These key "brands" include: #3 Time Warner, #4 Verizon, #5 AT&T, #16 Sprint, and #83 Comcast--and collectively these companies spent over $10 billion on advertising in 2005. Not only do these companies advertise a lot now, they will continue to advertise a lot in the future because increasing broadband competition for the customer demands more advertising.

Competition is what drives demand for advertising. The broadband sector is vibrantly and increasingly competitive, which is bullish for advertising growth. Supporters of net neutrality do not believe competition offers enough protection for online business models, so they support government regulation of the Internet and broadband access.

It should be obvious to everyone in advertising that more regulation means less investment, less broadband deployment to all Americans, less marketing competition--all of which would mean less demand for advertising.

2) Net neutrality will only strengthen the online giants' ability to dis-intermediate advertisers from their corporate clients. Google may be the single biggest threat to the traditional advertising business model. It is clear to most everyone in the TV, radio and newspaper industries that Google is trying to dis-intermediate them and capture the value creation of brokering advertising purchases.

The practical effect of net neutrality is to prevent any vertical-ization of broadband competitors into Google's advertising market. Less competition to Google's growing chokehold on digital advertising is not in advertisers' interests.

If Congress passed the law that Google is backing, it would freeze Google's current business advantage in place, while outlawing broadband competitors from innovating and competing with Google in search-related businesses. Google would be able to squeeze TV, radio, and newspapers even more.

3) Net neutrality would effectively outlaw broadband from evolving into a two-sided market paid for by both consumer subscriptions AND advertising revenues--the way newspapers, magazines and cable currently operate. In crass economic terms, net neutrality is all about making it law that consumers alone pay for the Internet and that Internet access cannot also become an ad-supported medium as it evolves to be capable of handling video.

This type of bad law would shift the tens of billions of dollars of new costs it will take to upgrade the Internet to do video--completely onto consumers and not to the online companies that are generating the video traffic and who are already light spenders on advertising. How is it in the interests of the advertising sector for the Internet not to become at least partially supported by advertising revenues?

In conclusion, net neutrality may not be on the radar screen of the advertising sector, but it should be. Not only is net neutrality a big threat to some of the advertising sector's best spending clients, it may be the single biggest potential threat to future national advertising demand--save for a downturn in the economy.

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