What does the Net Neutrality decision mean for Online Advertising?

A U.S. appeals court this Tuesday threw out federal rules that require broadband providers to treat all internet traffic equally, increasing the chance that websites that take up a large percentage of bandwidth like Google and Netflix might have to pay a premium to ensure quality service to it’s users.

While the regulatory issues are complex, the basic concept of net neutrality is not: internet service providers (ISPs), such as Verizon and AT&T, and national governments should treat all sites and data on the internet equally and not discriminate or charge different rates based on traffic or any other user metric. In other words, joeschmo.net and Google should be treated the exact same.

In 2010, The FCC adopted regulation to establish an “open internet” and barred ISPs from blocking against any sort of web content. In 2011, Verizon challenged this regulation and the D.C. Circuit Court of Appeals ruled in Verizon’s favor Tuesday. Read more about the case. What this decision essentially does is allow ISPs the opportunity to create a tiered system of internet speed based on bandwidth-use. In other words, ISPs will be able to charge internet companies a premium for their users to experience their site at high speeds. While questions on civil liberties and monopolistic practices are paramount here, the effects of this decision on a commercial level are far reaching indeed, online advertising being no exception.

One of the greatest concerns around this decision is that without net neutrality, innovation could be stifled and barriers of entry to the tech and digital marketplace could become too great for startups and other internet ventures to succeed. If ISPs charged a premium for high speed internet, then new ventures that do not have the capital to pay for the service potentially fail before they even begin because the impossibility of a good user experience would overshadow the value of the service. In turn this would greatly impede on an advertiser’s consideration set and ability to diversify a digital buy. If sites need to pay a premium for speed, the sites who can’t pay decrease in traffic and the internet becomes a group of concentrated impression pockets.

Every player in the advertising place could be affected by this. For networks whose pitch is often scale and full delivery, this trend could greatly depreciate the value in their offerings and impede on their abilities to keep up site rosters and relationships. For programmatic buyers, a decrease in impression supply could increase the average price levels on inventory and thus make a once efficient model much more expensive. For publishers, higher premiums for bandwidth would mean greater overhead that would need to be offset with either higher prices on ad space or the culling of assets (layoffs) to retain profit margins, and an already competitive agency world would need to adjust commissions and fees to compensate for higher advertising costs, possibly causing brands to take their strategy and planning in house.

But what all these increases in advertising costs really do in the end is hurt the small medium enterprises. While the higher costs would cause larger brands to rethink their media budget, SMEs who are following consumers into the digital space but are working with smaller budgets could be limited and potentially harmed by the increased premiums on digital real-estate and pushed aside by the larger corporations that are able and willing to pay the hiked prices.

It should be said that this is not yet a reality and that the issue is still within in the court system. Furthermore, the decision in some ways was actually positive, laying out ways in which the FCC can enforce net neutrality. However, the issue should be taken seriously among all advertisers. In an article entitled Loss of Net Neutrality Could Be Bad for All Online Video, Christopher Rick concludes: “Can you afford to have your ads not reach 100 million people that they reach now? Can you afford to serve one billion less ads than you do now? Can you afford to not get together with others in your industry and put your foot down…firmly on the side of net neutrality?”

Can we?


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