The American Privacy Rights Act, currently under review, poses interesting challenges to the core functioning of online ad-supported businesses. Unlike traditional models of state privacy laws, like the California Consumer Privacy Act and Colorado Privacy Act, the new federal privacy bill introduces more stringent consent requirements surrounding the transfer of sensitive data commonly used for targeted advertising.
Businesses leveraging targeted ads may face significant hurdles in implementing an affirmative express consent requirement. This could destabilize online service models funded through targeted advertising, forcing them to adopt models involving subscription fees for content access. These models are able to exist due to the fact that targeted ads typically generate more revenue for publishers than non-targeted ads, as they are more relevant to consumers. Existing models enable consumer rights without being an undue burden on businesses.
The implications of amending the established ad-supported regime have been touched upon by the Federal Trade Commission in a 2020 report. Alterations to the regime could potentially undermine its economic value and benefits to consumers. Furthermore, the current draft of the bill presents areas of ambiguity that need to be addressed to provide clarity for businesses attempting to comply with its requirements.
The draft bill does not provide clear direction around whether sensitive and previously collected data may be utilized for targeted advertising. An interpretation of the permitted purposes, as outlined in Section Three of the draft bill, could potentially inhibit businesses from using this previously collected data for targeted advertising – a practice endemic to many state privacy law compliance programs already in operation. There are similar concerns relating to the legislation’s potential to disrupt freemium models where consumers choose between accepting targeted ads or paying for content access.
Further complicating matters, the opt-out rights detailed in the draft bill differ from those outlined in Colorado and California’s state privacy laws. Specifically, there is no provision that permits transfers to service providers in the federal draft. This omission could disrupt basic advertising functions including contextual and first party ad serving, as well as measurement and frequency capping.
Seeking to align more closely with existing state privacy laws, the draft bill proposes the creation of a ‘centralized mechanism’ and ‘registry of identifiers’ to enable consumers to communicate their opt-outs. The draft bill also gives the Federal Trade Commission the authority to develop these operational details.
While privacy protection and the establishment of a uniform national standard is commendable, the draft bill in its current form poses significant challenges to the digital advertising industry. To mitigate potential disruptions, it is recommended that lawmakers consider adopting the opt-out approach similar to state privacy laws while taking steps to address identified areas of ambiguity.
As the ongoing review of the draft bill continues, interested parties are encouraged to stay abreast of the updates and legal implications. To delve deeper into this discussion, you can refer to the original analysis provided by Alan Friel and Kyle Fath in their Bloomberg article.