Strict Privacy Regulations Still Pose Threat to News Industry Revenue

Daniel Castro May 26, 2020
May 26, 2020

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Axios reported last week that The New York Times Company would stop using third-party ad networks next year. Some industry watchers immediately cheered the move, arguing that it would boost consumer privacy, and they encouraged more publishers to do the same. This is not too surprising, given that many journalists and privacy activists portray the tech industry, especially leading digital ad platforms like Google and Facebook, as supervillains, undermining consumer privacy and stealing profits from the news media. But the reality is that it is not viable for many publishers to replicate what the publisher of the Times is doing, nor would it have much impact on consumer privacy.

The notion that The New York Times Company is improving privacy for its readers is pure illusion. The company is going to continue to deliver targeted ads to users. But instead of targeting ads to users based on profiles created by third-party ad networks, the company will be creating user profiles itself. It will then sell advertisers access to these readers based on specific audience segmentations, such as age, gender, education, and income. There is nothing wrong with this practice—consumers get access to content, publishers get ad revenue, and advertisers get more effective ads—but whether this profiling is done indirectly by an intermediary or directly by the publisher has little net impact on user privacy.

That does not mean there are no differences. Ad-supported news sites are serving a two-sided market—readers and advertisers—and while there will be little difference for readers, this switch will have a big impact on some advertisers. Third-party ad networks track users across multiple sites, whereas the publisher of Times would only be tracking users on its own. The former is useful to businesses with specialty audiences. For example, a local boutique clothing designer may only want to show ads to users who previously browsed its site or have shown interest in certain designers, rather than broadly targeting a specific demographic.

Few other media companies, especially local news publishers, can follow in the footsteps of the publisher of the Times. As the publisher’s senior vice president of ad innovation stated, “This can only work because we have 6 million subscribers and millions more registered users that we can identify... [This] isn’t a path available for every publishers [sic], especially not local [sic] who don’t have the scale of resources for building from scratch.” Indeed, The New York Times Company already has built the infrastructure for direct ads sales, having cut off targeted ads from third-party ad networks for its European audience following the passage of the General Data Protection Regulation in 2018.

For most publishers, third-party ad networks are still an important source of revenue and attempts to limit or restrict them, including through new data protection laws, would undercut their business models. Recently, some privacy activists have tried to dispute this fact, pointing to a study last year that suggested publishers’ revenue might only increase by about 4 percent when using targeted ads compared to non-targeted ones. But other research has since come out refuting these conclusions. In the first randomized, controlled experiment on the subject, researchers found an average drop in revenue of 52 percent for publishers that did not use personalized ads. This aligned with multiple prior studies that also found targeted advertising performed significantly better than non-targeted advertising.

Ironically, many of the same people who (rightly) complain about the decline of the news industry are cheering on data protection rules that only allow the largest publishers and online ad networks to thrive. As Congress considers consumer data protection legislation this year, it should be careful to remain neutral and not give preference to one business model over another. The online ad industry continues to evolve in response to both regulatory and technology developments, and the goal should be to encourage more innovation that benefits consumers and businesses, including news media.