The economic consulting firm IHS Global Insight estimates this could place 1.7 million U.S. jobs at risk. Today, advertising sales help support 20 million jobs, or 15% of all jobs in the country.
IAB members have no doubt been exposed to the congressional turmoil of late over budget policy in Washington. From one debt ceiling crisis to the next, to sequestration, and a complete shutdown of the government, U.S. budget deficits are driving policy down the same road as a kicked can.
It is widely understood that a reform of our taxation system is the first step forward to finding a long term solution for deficit reduction and economic growth. Early last year, House Ways and Means Chairman Dave Camp (R-MI) and Senate Finance Chairman Max Baucus (D-MT) established a process to begin review of the U.S. tax code, last overhauled in 1986.
IAB has learned Chairman Camp is prepared to formally release the Committee’s draft tax reform bill in the coming days; and, Chairman Baucus will begin briefing Committee members next week to prepare introduction shortly thereafter.
Why does this matter to you?
Many U.S. companies have, for decades, declared advertising as an, “ordinary and necessary cost of doing business.” Similar to employee payroll, office rent and other business expenditures, advertising is considered a standard deduction under applicable U.S. Internal Revenue Service (IRS) tax rules. It is the unified goal of Chairmen Camp and Baucus, and many U.S. industries, to see a lowered corporate tax rate (from 35% to as low as 28%). However, in order to accomplish a lowered overall rate, many deductions find themselves on the chopping block as “pay for’s” to offset the reduced revenue.
Specifically, the House Ways and Means Committee has developed draft tax reform legislation that would be funded by imposing a tax on advertising.
Today, businesses may deduct 100% of the cost of their advertising. The proposal in the Committee’s draft tax reform legislation would allow a business to deduct only 50% of its advertising costs in the year the ad runs but to delay the deduction for the remaining 50% over 10 years - thus deducting an additional 5% each of those years. The Senate Finance Committee draft is widely rumored to mirror this “Cost Recovery” bill language.
While Leadership in both the House and Senate is not prepared to hold a vote on tax reform this year; once introduced, the draft bills will become THE base line for all future debates.
What are the consequences?
The very real consequence of having advertising re-classified (in whole or in part) as a taxable business activity is that client advertisers will do less of it. Any tax percentage assessed will incline companies to reduce advertising and media spending in order to mitigate or off-set any tax. This impacts ad agencies directly -and can adversely affect entire local economies and job bases where agencies and advertising-related businesses play such an important role.
The proposal also does not consider that companies buy new advertising each year and would feel the brunt of this tax annually. Not only would they have less money to spend on advertising year after year, but media companies would also be impacted as advertisers would be forced to reduce their ad buys.
Consider the impact this proposal would have on the economy:
- Employment in the ad-supported internet ecosystem doubled over the past four years to 5.1 million, making it one of the most dynamic sectors in the recessionary American economy, according to a study by researchers at the Harvard University Business School, commissioned by the Interactive Advertising Bureau (IAB).
- The ecosystem contributed $741 billion to the U.S. economy in 2011, close to double 2007 figures, and accounted for 5.1 percent of the U.S. gross domestic product (GDP), an uptick from 3.5 percent four years ago.
What can I do?
Begin thinking about what this change in tax code would mean to your company’s bottom line and ability to keep hiring. Stay plugged into IAB Public Policy news and alerts; and, be prepared for a call to action.
About the Author
Mike Zaneis is SVP & General Counsel at the IAB.
The Digital advertising industry exists in a complex legislative and regulatory environment. Policies in Internet governance, privacy, advertising, taxation, and intellectual property all have significant impacts on the growth and direction of the industry.
And these policies are not being developed in one place. Within the Washington, DC beltway, laws and industry guidance are promulgated by regulatory agencies, such as the Federal Trade Commission or the Federal Communications Commission, the judicial system and past precedent set by court cases, and legislation enacted by Congress.
To make this policy landscape even more complex, the digital advertising industry must also be cognizant of local and international laws. As those working in the industry know, digital advertising is borderless in nature and therefore depends upon a base level of legal cohesion among countries and regions. Disruptions stemming from policies in one nation, or U.S. state, are felt globally. Take, for example, two recent anecdotes from Europe.
On October 21, a data privacy bill before the European Parliament passed through committee on its path to becoming law. This draft bill, created in response to the recent revelations about U.S. national security data-tracking practices, directly impacts the digital advertising industry in several ways. For one, the bill calls for explicit consent before a wider variety of processing activities. The bill would also create new barriers to transferring information about EU citizens to the U.S. Perhaps most importantly, the bill proposes a new definition of personally-identifiable information that includes “online identifiers.” The European Parliament will now negotiate with the Council of the EU to reach a compromise agreement.
Contemporaneously, the EU is considering whether or not to allow the U.S.-EU Safe Harbor Framework to continue. This framework allows participating U.S. companies to comply with EU privacy rules through a streamlined self-certification process. Under this framework, Over 4000 companies, and many IAB members, have demonstrated their high level of privacy protection in order to work with European companies and serve European citizens. Although Safe Harbor is focused on addressing commercial privacy practices, the value of the Framework has been questioned in recent months in association with national security concerns.
Were digital advertising practices and technologies static, there would already be a complicated set of rules to follow. But industry practitioners know that digital advertising is never static. Innovations are constantly created that raise new public policy questions. This is evidenced by the FTC’s recent interest in native advertising and the Internet of things.
To help the digital advertising industry identify the policies relevant to them, the IAB has created an online Legislative and Regulatory Tracker. This webpage summarizes draft legislation and regulations that will impact our ecosystem, and categorizes these proposed laws by subject, such as children’s privacy, location privacy, and trade. It also offers IAB’s positions on the draft laws, providing further insight into how IAB is working to promote growth in the interactive marketplace on behalf of its members. Whether you’re a publisher, advertising network, or marketer, we hope you find this service helpful in navigating the complex policy environment.
This tracker will continually be updated and expanded, so check back regularly for up-to-date information on the policies that could affect your business. For more updates on the IAB’s public policy work, visit the IAB public policy website. If you have questions about the tracker or IAB’s other public policy initiatives, please feel free to email me at [email protected].
About the Author
Alex Propes is Senior Manager, Public Policy, at the IAB.
Since releasing the IAB PwC Internet Advertising Revenue Report for the first half of 2013 on October 9, 2013, the IAB has seen misconceptions about the report, mostly centered on programmatic. Speculation about why the report does not cover programmatic revenue came from a highly esteemed and particularly smart writer and editor. We’ve seen guesstimates of programmatic’s contribution to overall interactive ad revenue based on the IAB numbers.
Why we do not report programmatic buying revenue
There are two primary reasons for not breaking out programmatic revenue in the IAB PwC Internet Advertising Revenue Report:
- The industry has yet to reach a consensus on how to define programmatic
buying, spend and selling. If we cannot define it, how can we collect
credible revenue information? Does anyone really expect that a revenue
bucket or a spend bucket that has not yet been clearly defined is being
accurately tracked by any of the entities we would have to get the information
- Programmatic is a FORM of selling. It is not a format or medium of distribution. Currently and throughout its history, the IAB/PWC report has explored formats and mediums; it’s never looked at selling mechanisms.
Guesstimates of programmatic revenue based on the IAB PwC report are not sound
Based on how the revenue data are collected and how they are reported, it is simply not possible to estimate programmatic ‘s contribution to growth in overall revenue. This would be true even if we had an agreed upon definition of programmatic to use in order to make inferences. That is why we do not engage in speculation about how much programmatic contributes to spend in the official report.
It is PwC that independently collects the data and authors the report on behalf of the industry and the IAB. It is PwC that is charged with maintaining the quality of the data collection and reporting. And it is both PwC and IAB that consistently opt to be rigorous on methods and in reporting.
It would be irresponsible to include guesstimates in the official, published revenue report. It would also be inadequate to release the report without providing context. That is precisely why we host a well- attended webinar with our members and members of the press together to hear the revenue numbers from the report along with context from PwC, the IAB and a guest speaker. This occurs twice a year to coincide with the releases of the half yearly and the annual reports. Contrary to what we’ve heard lately, programmatic has been part of the discussion. The materials are posted to the IAB site and readily available to all.
IAB activity aimed at understanding programmatic buying: what it is and how it impacts the broader marketplace
Revenue reporting aside, the IAB recognizes that programmatic buying and selling are an important part of our ever evolving marketplace. In order to serve our members and the larger ecosystem, it is our responsibility to convene thought leaders, experts and practitioners to clarify and illuminate how market forces are operating and changing.
We have the following key efforts underway in the programmatic arena.
In July, we convened the IAB Publishers Programmatic Task Force, a group of 40 publishers working to identify the issues surrounding programmatic selling and understand which ones can have actionable solutions through consensus.
In September 2013 we released a programmatic terminology piece that explains the four dominant methods of selling programmatically entitled, Digital Simplified: Programmatic and Automation - The Publishers’ Perspective.
On the technical side, the Digital Advertising Automation Task Force is working to standardize, implement, & support adoption of common datasets for IOs, media plans & invoices. The Open RTB & Exchanges Working Group supports the development of OpenRTB specifications.
The IAB regularly holds Town Hall meetings where different ecosystem players convene to discuss and debate some of the bigger challenges we all face. These town halls provide inspiration for many solutions that ultimately make our businesses better. Coming soon is a Town Hall on programmatic selling and buying.
Will the IAB add revenue reporting capabilities?
Yes. We will be trying to supplement revenue reporting so that we capture dynamics and transactional forms that are outside of the purview of the IAB PwC report. We seek the right way to measure programmatic spend and the support from our members to provide this kind of research.
About the Author
Sherrill Mane is SVP, Research, Analytics and Measurement, at the IAB.
- Human Error - The more manual steps needed to launch a campaign, the more room there is for errors to occur which may result in discrepancies. With new vendors and products plus the use of code based HTML5 creatives with many assets instead of a tidy flash file, the mobile marketplace isn’t as automated as the desktop marketplace.
- Ad Serving Sequencing - Just like with desktop campaigns there are often multiple parties tracking a single campaign. Typically all of the ad calls don’t fire at once, even if they are all tracking the same thing. Latency and short session time common in mobile make the difference in ad calls a more significant variable than on desktop.
- Reporting - Every vendor has their secret sauce to differentiate themselves in the marketplace. Sometimes it has to do with the metrics they measure or how they validate traffic. As the mobile marketplace matures reporting offerings will be become more consistent, but until then it is important to make sure you are comparing the same things across reports.
- Targeting - Similar to reporting targeting offerings will differ in their features and capabilities. While this is true for desktop targeting as well there is more variability in mobile such as multiple ways to identify location.
IAB releases Publisher’s perspectives on programmatic as first part in educational series
Programmatic buying and selling of advertising, real-time bidding, and marketing automation is changing the way we transact digital media. Though numbers are very sketchy, by some accounts over 20% of all digital advertising is sold “programmatically” - and it’s growing rapidly.
Yet programmatic competes with Native advertising for the title of “Buzzword of 2013”. And the hyperbole couldn’t be more extreme. Concerns are rampant. Sales people are worried about becoming obsolete, losing their jobs to machines, and declining yields. Some buyers of digital media are worried that only crappy inventory is available programmatically. Aside from perhaps the ad tech community, there’s a great deal of smiling and nodding going on when people talk about the importance of programmatic, and not a lot of understanding. Ad agencies are worried that automation will mean standardization and less of a role for creativity and creatives. On the other side, many see new technological innovation as the source of great potential value - creating significant efficiencies, new markets, and continuing to drive advertising dollars to digital.
There is significant confusion in the marketplace around the meaning of terms like “programmatic”, “RTB”, “programmatic direct”, “programmatic premium”, and other verbiage, often being used interchangeably. New technologies are emerging which are creating significant value, but there is also a lack of clear technical standards to ensure interoperability across different platforms. Buyers and sellers are concerned with the limited transparency and number of vendors involved in the programmatic transaction. And programmatic raises internal, organizational challenges for brands and agencies, and particularly for publishers with their existing direct sales teams and incentives.
Agencies and their clients have a lot to lose if programmatic isn’t implemented coherently: a set of technologies that aim to create market efficiencies could, instead, create a fragmented, illiquid marketplace if each media agency insists on creating its own proprietary marketplace with its own standards and its own technologies.
In the spirit of creating value for the entire marketplace and driving advertising dollars to digital, the IAB is working to tackle many of these challenges. Today it is releasing Digital Simplified: Programmatic and Automation - The Publishers’ Perspective, the first in a new IAB educational series that offers easy-to-understand documents for the industry. The piece aims to provide clarity, from the publishers’ perspective, on the different “programmatic” transaction types. It outlines the four main ways of buying and selling “programmatically” and provides a clear framework for distinguishing between them. It also highlights other factors commonly associated with each of these types of “programmatic” selling.
This is the first output of a newly created IAB Programmatic Publishers Task Force, chaired by Alanna Gombert, Senior Director Programmatic and Trading at Condé Nast and formerly of Ad Meld and Google. The new Task Force is aimed at providing premium publishers a forum to come together to work on issues related to the programmatic agenda and how it impacts them. Its goal is to help publishers establish market clarity and education around the programmatic ecosystem - both internally and externally. Barely a month after its launch there are now over 30 premium publishers participating in this initiative and the list is growing. In addition to working on clarity around definitions and terminology, the group is also working on issues around transparency across the value chain and sales force organizational issues.
The Programmatic Publishers Task Force is a key part of the overall IAB programmatic agenda. This agenda focuses on firstly identifying and addressing the key business issues in the programmatic landscape, and secondly working on technical standards and implementation of standards to address these issues. On the business side, in addition to its work with publishers, the IAB, in conjunction with The Winterberry Group, is conducting a thought-leadership research study to provide an effective roadmap to “programmatic” capabilities based on surveys and interviews with its members, to be released by the end of 2013. It is also working on mobile specific programmatic issues. On the technical side, it is working on both digital automation implementation and open RTB standards.
For more information on the IAB’s work on programmatic marketing please go to iab.net/programmatic or contact Carl Kalapesi (below).
About the Author
Carl Kalapesi is the Director, Industry Initiatives at the Interactive Advertising Bureau (IAB) focusing on Programmatic, Quality Assurance Guidelines (QAG) and brand safety, performance marketing, networks & exchanges and multicultural. He can be reached on Twitter @carlkalapesi or via email at at [email protected].
The latest annual ranking of U.S. universities by U.S. News & World Report came out on Tuesday, and while I’m personally pleased with how some higher learning institutions performed (Go Tigers!), I’m a bit dismayed that none of the top 10 has much of a reputation for their Digital Marketing or Advertising programs. In fact, only one school in the top 20 offers an undergraduate major with a digital focus.
Why does any of this matter? Because there’s a growing disconnect between the needs of the market and the available resources at universities. Marketing and Advertising— digital marketing, in particular, and digital advertising—are driving the mobile and digital revolutions which have created billions of dollars in equity value and hundreds of thousands of jobs. While academic programs struggle to incorporate current trends into a semester-long course, IAB member companies express exasperation at finding qualified college graduates to fill entry-level positions.
The timing is right for all of this to change. Struggling under mountains of college debt, students (and parents) want assurances that their degrees will lead to careers, not just jobs. Colleges face their own financial crises and as the competition for students increases, every institute of higher education—from community colleges to state universities to liberal arts colleges—will recognize that there are worse academic sins than preparing students for life and work after the classroom.
The IAB Digital University Study
Digital advertising and marketing aren’t the only sectors of the economy that are growing, of course. But they might be the most underrepresented among university programs. IAB recently commissioned a study of current offerings of undergraduate programs in advertising, marketing, and digital media studies at recognized U.S. institutions. Choosing “best” of anything is clearly subjective, and so we chose our criteria carefully. We looked at five requirements for colleges to satisfy in order to make our list:
1. The university is nationally and internationally recognized in various disciplines
2. The university offers undergraduate degrees in advertising, marketing, media studies, or business
3. The advertising program includes an emphasis in interactive advertising, digital media, or at least offers several courses with a focus on interactive and social media advertising
4. The marketing program allows for elective courses outside the business school
5. The university offers courses in digital media design that are available to non-art majors
Location, while not a primary factor, was also taken into consideration. Programs in New York and California received additional attention.
The following programs, in no particular order, show the most promise in addressing the five factors (the U.S. News & World national rankings are listed in parentheses after each university):
- University of Texas at Austin - BA in Advertising with an emphasis in Media Studies (#52)
- New York University - BBA in Marketing or BS in Media, Culture and Communication (#32)
- Syracuse University - BA in Advertising (#62)
- University of California at Berkeley - BA in Media Studies (#20)
- Southern Methodist University - BA in Advertising with Media Emphasis (#60)
The following programs have established and recognized interactive advertising programs but may not meet other requirements.
- Michigan State University - BA in Advertising with an emphasis in Management and Media (#73)
- University of Washington - Master of Communications in Digital Media (#52)
- University of Michigan, Dearborn - BBA in Digital Marketing (#36 Regional Ranking)
There’s a lot here to consider. The digital industry needs more top schools to introduce relevant digital courses and majors. IAB, as an industry leader, need to become actively involved in the programs that are being offered and figure out a way to enhance their reputation.
And here’s why: In order for the digital economy to continue to flourish, the current and next generation of post-secondary students must be prepared for interactive advertising careers. On-the-job training can only go so far and can be much more efficient if new employees have the requisite skills and knowledge before entering the workforce.
IAB is committed to professionalizing the digital advertising workforce of the 21st century, creating accredited credentials that set industry-wide standards of knowledge and expertise. We started in 2012 with the Digital Media Sales Certification program and have certified nearly a thousand sales professionals in little more than a year. Now, this week, we launched the Digital Ad Operations Certification program, the first-ever certification for digital ad ops professionals at ad agencies, digital publishers, trading desks, demand and supply-side platforms, exchanges and brands. We will continue our efforts in 2014, introducing new certification programs wherever the marketplace deems necessary.
But education, training and workforce development need to occur further upstream. Private industry—the digital employers who represent the greatest need for a trained and capable workforce—must make its need for qualified graduates known to colleges and universities, and to partner with these institutions, providing scholarships, endowing chairs, funding programs, and joining faculties. IAB sees a major role for itself in helping to make these partnerships possible. Look for further developments in 2014.
About the Author