Decoding the Net Neutrality issue for the advertising sector -- Why care?

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 big question is: will this new techcom sector be sorted out by: 
• Competition/market forces? or
• A new law where Congress dictates 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: AT&T, Verizon, Comcast, Time Warner,  Sprint, which obviously don't want to be regulated.

So why should advertisers care who wins? There are three big reasons why that cut right to the advertising sector's bottom-line and future.

First, companies that advertise very little want to regulate some of the advertising sector's absolutely best corporate clients.

• According to Advertising Age's latest national advertiser rankings (2005):
• 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.
• Collectively these companies spent over $10 billion 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 very bullish for growing future advertising expenditures from the competitive broadband sector.
• 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 pretty obvious to everyone in advertising that more regulation means less investment, less broadband deployment to all Americans,  less marketing competition, which converts simply into less demand for advertising. 

There is a second big reason net neutrality is not in the interests of the advertising sector -- net neutrality will only strengthen the online giants ability to disintermediate 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 disintermediate them and capture the value creation of brokering advertising purchases.
• The practical effect of net neutrality is to prevent any verticalization 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 even stronger in being able to squeeze TV, radio, and newspapers. 

A third big reason net neutrality is bad for advertisers is that it would effectively outlaw broadband from evolving into a two-sided market paid for by both consumer subscriptions AND advertising revenues -- like 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 can not 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 on to consumers and not to the online companies that are generating the video traffic and that are already light spenders of 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.

• Net neutrality is a big threat to some of the advertising sector's best spending clients, and it may be the single biggest potential threat to future national advertising demand -- save for a downturn in the economy.