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Marketing Takes a Beating in Beltway

As if the recession pummeling the industry wasn't enough, the business is starting to feel besieged by the Beltway.

There are efforts to strip the $4.7 billion direct-to-consumer-drug category of its tax deductibility; congressional concern over consumer tracking on the internet, endangering the $23.4 billion online-ad market; Food and Drug Administration scrutiny of such household names as Cheerios and Tylenol; proposed guidelines from the Federal Trade Commission seeking disclosure for paid blog posts, even tweets; and, of course, the federal government's strong hand in setting -- and sitting on -- ad budgets at Chrysler and General Motors. With a new Congress and an administration seeking funding for health care and other programs, marketing has become an unpopular and easy target ripe for regulation and shakedown to fund the federal piggy bank.

"Advertising is the makeup on the public face of capitalism, for better or for worse, so any tension that people feel about capitalism comes right down to their feelings about advertising," said Randall Rothenberg, CEO of the Internet Advertising Bureau. "If what happens in business offends them, the advertising gets blamed. If we don't like gas-guzzling cars, the advertising gets blamed, because it is easier to blame the advertising than it is to blame the millions of people out there struggling in Michigan building cars."

To fight back, marketers and their big associations are lobbying government officials, talking up the millions jobs supported by advertising, proposing voluntary rules to govern themselves and steeling themselves for a lot more.

It'd be easier, perhaps, if all the new pressure came from one direction. But events are being generated from different corners of Washington and the country as the new administration and frustrating recession generate umpteen attempts to fix things. This is not a centrally organized, concerted attack.

Missing the broader story

"If you look at the Reagan years and the Bush years, I think that the government was far less activist and far more pro-business," said Sam Craig, professor of marketing at New York University's Leonard N. Stern School of Business. "But there's still some randomness here as well." Paid endorsements have always been scrutinized, but new technology has opened new avenues for abuse, he said. "The privacy issues have always been around, but the technology has made things much more acute and the Orwellian nightmare much closer to reality."

Nobody in Washington is connecting all those stories into one, said Nancy Hill, president-CEO of the 4A's, the trade group for ad agencies. "You've got so many different bodies coming at us from some many directions. You've got the FDA and Tylenol, you've got TARP funds with Chrysler. These are all completely different people who have only been working together for about five months now. They don't really necessarily know what the other is doing and don't see it as a broader marketing story."

The marketing world, however, can't help but feel a concerted effect. "We're absolutely under fire," said Clark Rector, senior VP-government affairs at the American Advertising Federation. "It's not just a perception; it's a reality we're living every day."

The new administration and its majorities in both houses of Congress are unquestionably taking a more aggressive view of things. Marketers were shocked in May when the FDA warned General Mills of "serious violations" in Cheerios' claims to reduce cholesterol. But if the warning letter for Cheerios was extraordinary, the 14 warning letters issued back in April seemed equal parts astonishing and baffling. The FDA sent those letters to inform various pharmaceutical companies that their sponsored links needed to include risk information.

The problem is that the FDA has no clear guidelines on digital advertising, as it does for other media. The pharmaceutical industry had been following the "one-click rule," an agreement to provide all the necessary risk information within one click of the sponsored link. The FDA said in April, however, that drug makers had to include that information on the paid keyword ads themselves -- despite the obvious word limits on those tiny ads. That created a ball of confusion among drug companies, their agencies and the FDA that still hasn't been resolved.

'Scared shitless'

"All we know is that while the situation might not be resolved, and there aren't any regulations yet on [search ads], the FDA has spoken and our clients are listening," said one health-care-ad-agency president. "They're scared shitless."

Marketers are struggling to figure out how to handle the new challenges, a struggle that carries huge stakes. "The government, the FDA, Congress, they have no idea of the repercussions of some of these decisions," said a high-profile attorney who has represented both the health-care and advertising industries. "They talk about wanting to boost the economy, yet more regulation will shrink the industry and have a negative domino effect: less advertising by companies, less work for ad agencies, less work for production houses and graphic people, less advertising in media."

Congress's look at online advertising, for example, may produce legislation meant to protect consumer privacy, but that same legislation could blow apart the business as it exists today. It's unclear what form it would take, but the key legislator, Rep. Rick Boucher, D-Va., seems to be leaning toward an opt-in regime requiring any third-party ad network or server to ask first before setting a cookie or serving an ad. The notion that a firm couldn't say, target an ad based on a user's affinity for sports, fashion or surfing, or the fact that he or she lives near Long Beach, threatens the basic process by which ads are served and targeted on the web.

While a bill probably won't make it to a full House vote this summer, at least, the online-ad business is taking the threat seriously. Hoping to head off new government regulation, it recently issued a set of "principles" for self-regulation to be enacted by 2010.

The various industry associations are coordinating their responses, picking which battles to fight. "Each one of the associations plays to its strengths," said the AAF's Mr. Rector. "In terms of the AAF, that means using grass-roots efforts. We've had absolutely fantastic responses on the DTC deductibility issue, for instance. We've been sending out alerts, we have Facebook pages and we use Twitter, and the feedback we're getting from the Hill is that people up there are getting a lot of calls from ad-industry people. It's incumbent upon all of us in the industry to step up."

Far-reaching consequences

Marketers are also arguing that messing with the economics of the ad market would have a farther-reaching effect on the general economy than the government is bargaining on. "Advertising is the whipping boy for a lot of the ills people perceive in the marketplace," said Bob Liodice, president-CEO of the Association of National Advertisers. "We want to have an unencumbered advertising and marketing environment, and every time the government sticks its nose in our business, it gets complicated, it gets dirty, it gets messy. Our job is to provide an unencumbered environment, because advertising generates $6 trillion of economic activity and supports 21 million jobs in the economy."

The industry argues, moreover, that instead of targeting Madison Avenue, Pennsylvania Avenue should be asking how marketing could help the wobbly economy. "What is fascinating is if you flip the problem upside down and ask, 'What role can marketing play in the recovery of this economy and the growth of this economy?'" said John Greco, president-CEO of the Direct Marketing Association. "It's idealistic, but there really ought to be a larger movement in Washington that looks at how do we take all the good that marketing does and support that? All of the discussion is always about the negative."

Then, too, advertisers and marketers may be more sensitive to the new pressures because of the pressure they already face, said Mr. Craig, the NYU professor. "When business is good, I think it's a lot easier to deal with increased scrutiny and regulation," he said. "But when you're already bleeding because the economy is bad, it's just a lot tougher to deal with."


Nat Ives and Rich Thomaselli, Advertising Age. July 27, 2009

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