Traditional networks broadcasting on systems owned by Comcast (CMCSA) - Get Report , Charter Communications (CHTR) - Get Report , AT&T (T) - Get Report and Verizon (VZ) - Get Report are desperate for the type of data that Google and Facebook (FB) - Get Report can offer to advertisers. Meanwhile, the exodus of blue-chip advertisers such as Johnson & Johnson (JNJ) - Get Report from YouTube over concerns about offensive content illustrate the challenges of selling ads against content created by an unsupervised legion of bloggers.
A new resolution passed by the House and Senate, if signed as expected by President Trump, would lift Federal Communications Commission restrictions on how internet service providers can use customer data. These same ISPs own traditional pay-TV networks.
"It wasn't as much going to affect the telcos and cable companies as much as it would the networks that operate through these set-top boxes," Moody's analyst Neil Begley said.
The Obama FCC in October required broadband providers that owned networks to obtain an affirmative "opt-in" agreement from consumers before they could disclose some information about their customers to advertisers.
Companies such as Google and Facebook that do not own ISPs are regulated by the FTC and can use data unless users actively "opt out." The ISPs cannot use data for a passive viewer under the old rules, while the internet ad groups can use consumer data without active permission.
Trade groups representing cable and telecom companies, as well as current FCC Chairman Ajit Pai, have argued that the ISPs and the networks on their pay-TV systems faced an unfair disadvantage under the Commission's rules.
Moody's argued last year that the Obama FCC privacy rule gave Google and Facebook an advantage.
"Targeted programmatic advertising, which uses consumer data, is used by these companies to efficiently place advertisements in front of the customers much more prone to consume a particular product being advertised and affected by the ad, resulting in a higher return on the advertising investment," Moody's said. "Absent an alignment of rules between the FTC and FCC regarding these privacy laws, a distinct competitive advantage will be given to online digital advertisers as more advertising dollars will continue to move in secular fashion from traditional television providers towards digital platform providers."
Eliminating the FCC's restrictions on customer data won't immediately move the needle for TV networks, Begley said. The networks' ability to use data and technology such as programmatic, or automated, ad sales will become increasingly important as the video market evolves, however.
Google has just launched YouTube TV, a $35-per-month online bundle of the major TV networks and other channels. If the service succeeds, the online ad giant can apply its data techniques to ready-for-prime-time content.
Meanwhile, some of Google's home-brew content has caused problems with advertisers. Companies such as AT&T and Verizon, which also own pay TV systems, must have been all-too happy to have notified YouTube that they will pull spots to avoid the risk that their brands would appear in spots next to offensive videos.
YouTube's recent woes underscore the difference between selling ads against prime-time TV that has been vetted by regulatory lawyers and videos created by someone like PewDiePie, the Swedish gamer and YouTube star who crashed the internet with a video scandal earlier this year. "It demonstrates the girth and growth of user generated content ... and the difficulty in curating and managing it and monetizing it," Begley said of Google's challenge, noting that YouTube uploads more than 400 hours of video every minute.
These developments come as the ad market passes an inflection point that must concern TV networks. Digital advertising spending surpassed TV advertising in 2016 for the first time, according to eMarkter. This year, eMarketer projects that digital advertising spending will hit $83 billion, compared with nearly $73 billion to be spent on TV advertising.
As companies such as Google look for growth, the TV market presents a massive opportunity that is largely free of the type of online video scandal that has recently rattled YouTube advertisers.
"Programmatic advertising matched with user generated content is a challenging mix," Begley summed up. "However, programmatic advertising matched with curated content like TV content will be 'huge.'"
The data and video wars between Google, Facebook, ISPs and broadcasters are about to heat up, with privacy a potential casualty in the online ad data blitz.
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