With Republicans sweeping to victory in the House, executives may be issuing a sigh of relief as they envision pro-business legislation or, at the very least, the sort of gridlock that will mean no anti-business legislation for at least a couple of years. But marketing, media and ad execs with an eye on the bottom line shouldn't start celebrating too soon. Here's a look at five issues that will make the next two years different from the last two, and there are things -- from disappearing tax deductions to possible regulation -- to think about.
1. The power shifts in congressional leadership.
The House swings Republican, which sets off a series of committee-chairmanship changes. Most important to watch is the House Energy and Commerce Committee, which has oversight of the Federal Trade Commission and Federal Communications Commission and influence on issues from food marketing to privacy. While the regulators at the FTC and FCC aren't going to change, "if the chairmanship of the Commerce Committee moves into Republican hands and they have ability to deal with what kind of money goes to them and who gets appointed, they will take note," said Dick O'Brien, exec VP-director of government relations at the American Association of Advertising Agencies.
And that could take off some of the sharp edge advertisers have been feeling from regulators. "I don't think all of a sudden we're going to go from scrutiny to quiet," he said, "but I think you'll see a Republican resurgence tempering the heat that's been coming at the industry."
Recent issues taken up by the FTC and FCC include the marketing of "green" products as well as the growing concern over online privacy. But according to Stuart Ingis, a partner at Washingon-based law firm Venable, chances are a GOP-led Energy and Commerce committee "will be less regulatory than the current chairman, but we don't know who the next chairman will be"
Those in the running are Joe Barton, R-Texas; Fred Upton, R-Mich.; and Cliff Stearns, R-Fla.
Another committee that will matter is the House Ways and Means Committee, which is charged with debt-cutting and tax deductions (see No. 3). Ranking Republican Dave Camp may get the chairmanship, but it's still unclear how he would view the ad industry.
And beyond the committees, John Boehner, who has a business past that includes sales and marketing experience, will presumably assume the speaker position, replacing California Democrat Nancy Pelosi. Advertisers should expect a Congress with a friendlier business touch.
2. Look out for gridlock.
Some in the business community are cheering the idea of a country divided. With a Republican House and Democratic Senate, gridlock would seem to mean fewer regulations being enacted. But advertisers shouldn't be so sure. Because when the two sides can't find common ground on health-care or financial reform, they focus on whipping boys they can agree on: decency, marketing to children, privacy. "In the past they've often been able to find across the right and the left some areas of agreement," said Dan Jaffe, exec VP-government relations at the Association of National Advertisers. And, he notes, that often means attacking advertising to draw political attention to issues.
The most immediate possibility is privacy regulation. While the FTC seems largely comfortable with the industry's self-regulatory efforts, the politicians in Congress are not as close to the issue as the FTC, noted Mr. O'Brien. And every time there's a slip-up, there's the predictable reaction: We have to legislate. "That there's one where they could come together," he said.
Another possibility is food marketing to kids -- "We must protect the children" can be another unifying rallying cry -- though that's likely to be further off.
More importantly, however, bread-and-butter issues such as reducing the deficit may gain traction on both sides of the aisle, said Venable's Mr. Ingis.
3. Oh, yeah. The deficit.
Right after the election, Congress is going to return for a lame-duck session where it's likely to decide whether it will sustain the Bush tax cuts. Republicans want to sustain them for all, the Democrats for anyone earning less than $250,000 a year.
But against that backdrop, will be an effort to reduce the deficit -- nearly every Republican and Democrat ran on a platform of fiscal responsibility. The danger for advertisers is the government tries to store up some cash by reducing the tax deductions for advertising. Nearly every expert suggests this is a very real threat as Congress looks toward balancing the budget and offsetting revenue forfeited by extending the tax breaks.
"We're not just talking about [tax deductions on advertising] prescription drugs but [on] all spending writ large," said Mr. O'Brien.
And don't think a Republican Congress puts advertisers in the clear. Mr. O'Brien noted that the last, most serious, time the government looked at getting rid of that deduction, in the late '90s, it was led by a Republican -- John Kasich, who was projected as the winner of Ohio's governor's race with 96% reporting on election day.
4. Extreme ideologies.
This election has done nothing if not create a more unpredictable Congress, from the centrist Democrats vowing to fight Obama to the tea partiers vowing they won't be beholden to the GOP. If you once thought a Republican was a Republican was a Republican -- well, not anymore. And while centrist Democrats try find their place, those Dems from deep-blue states may veer more to the left. It could make things unpredictable.
5. Finally, the Financial Consumer Protection Act.
The Bureau of Consumer Financial Protection has already been created, and it's been charged with creating 243 rules and 60-plus studies. As such, its influence could reach far and wide.
The federal agency's future rule making on a host of ambiguous issues -- such as drafting a definition for "abusive" advertising practices or mandating how much information must be included in ads -- could result in overly cumbersome, cost-prohibitive and possibly onerous requirements, according to industry watchers.
"The snowball's rolling down the mountain and creating an avalanche of activity," said Mr. Jaffe.
Then again, the new law is an ambiguous outline of Congress' intentions; regulators have yet to hone the actual rules, which could be very stringent or very slack. One would think a Republican Congress would take a slack approach, but this bill seemed popular with consumers on both sides of the aisle, and siding with banks and credit-card companies in this economy probably won't go over well with voters of any stripe.
Abbey Klaassen and Ken Wheaton, Advertising Age. November 2, 2010
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