2009 Outlook


Jeff Perlman, Executive Vice President – Government Affairs
Clark Rector Jr., Senior Vice President – State Government Affairs
Robert Kohlmeyer, Manager – Government Affairs



2009 marks the beginning of change in Washington, and the advertising industry may be seriously hampered by it.


New Congressional Leadership

When the 111th Congress convenes in January, Rep. Henry Waxman, D-Calif., will chair the powerful House Energy and Commerce Committee. Waxman, the current chairman of the House Oversight and Investigations Committee, has long been a strong critic of advertising. Of note, he has called for stricter regulation of direct-to-consumer advertising of pharmaceuticals, tobacco advertising and product placement. Waxman challenged longtime Chairman John Dingell, D-Mich., who was ousted in a 137-122 vote of the Democratic Caucus. While Waxman has not yet set an agenda for the upcoming congressional term, it is anticipated that many advertising issues will face increased attention.

At the subcommittee level, Reps. Ed Markey, D-Mass., and Bobby Rush, D-Ill., are expected to continue to chair, respectively, the Telecommunications Subcommittee and the Consumer Protection Subcommittee of the House Energy and Commerce Committee.

On the Senate side, Sen. Jay Rockefeller, D-W.Va., has announced his intention to chair the Senate Commerce Committee, replacing Sen. Daniel Inouye, D-Hawaii.
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Direct-to-Consumer Pharmaceutical Advertising

Direct-to-consumer advertising of pharmaceuticals continues to come under fire despite the 2007 passage of the Food and Drug Administration Amendments Act (Public Law 110–85). As originally introduced, the bill called for a three-year moratorium on new drug ads, preclearance of new direct-to-consumer advertising by the FDA and inclusion of warning labeling on new pharmaceutical products. These strict marketing restrictions were repeatedly rejected by Congress. An enacted amendment introduced by Rep. Edolphus Towns, D-N.Y., and strongly supported by the AAF, instead gives the FDA authority to assess monetary penalties for advertising found to be false or misleading.

Despite this shift in the power given to the FDA to monitor drug ads, as well as increased self-regulation by individual companies and their trade associations, some in Congress have called for significant restrictions on marketing both prescription and over-the-counter medications. Even though Congress recently rejected the proposal, Rep. Henry Waxman, D-Calif., said publicly in December that he would support legislative efforts to give the FDA authority to impose a moratorium on new prescription drug ads.

Reps. John Dingell, D-Mich., who at the time chaired the House Energy and Commerce Committee, and Bart Stupak, D-Mich., sent letters to pharmaceutical company heads last year asking them to abide by a number of "guidelines," including a two-year moratorium on advertising new prescription drugs and to not market prescription drugs until a valid outcomes study of the product is completed.
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Food Marketing to Children

Several studies and other reports published in 2008 found self-regulation efforts to be successful in fighting back childhood obesity. The Children's Food and Beverage Advertising Initiative, first implemented in July 2007, released a progress report on the first six months of changing the nutritional profile of food and beverage products in child-directed advertising and on the participants' compliance with their individual company commitments, finding overwhelmingly satisfactory results. Of note, many of the companies revised their advertising plans ahead of schedule, ensuring full compliance six months before they were required to do so. Companies limited their advertising only to better-for-you products, as well as healthy lifestyle messages. There were also fewer child-directed ads on the whole.

The Federal Trade Commission released the results of its own children's food marketing study, finding that the food and beverage industries have made significant self-regulation progress in the past three years. The FTC calculated that 44 major food and beverage companies spent $1.6 billion to promote products to American children under 18 in 2006 using integrated campaigns combining traditional media with packaging, point-of-purchase, sweepstakes and the Internet. The Institutes of Medicine had previously estimated that food companies spend $10 billion annually on advertising to children. The FTC has again lauded industry self-regulation; both the Children's Advertising Review Unit and the Children's Food and Beverage Advertising Initiative were cited as positive efforts.

At a joint hearing of the Labor, Health and Human Services, Education and Related Agencies and Financial Services and General Government Subcommittees of the Senate Appropriations Committee, Sen. Tom Harkin, D-Iowa, a longtime advocate of childhood nutrition, stated that, concerning children's food advertising, "self-regulation is the better route to go."

Nevertheless, some advocacy groups continue to push for stringent and uniform nutrition standards, permitting food advertising to children only when the products meet a certain threshold, or an outright ban on all children's food advertising.
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Product Placement

The Federal Communications Commission is conducting a Notice of Proposed Inquiry on simultaneous disclosure of embedded advertising and a Notice of Proposed Rulemaking on all other facets of product placement. The FCC sought comments in 2008 on whether it should require broadcasters to include an on-screen "crawl" whenever there is an instance of product placement on television. The AAF filed comments in response to the notices, arguing that advertising underwrites free broadcast media and that consumers are not confused by instances of product placement. These comments are available here.
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Behavioral Targeting

In the closing months of 2008, lawmakers expressed renewed concerns over behavioral targeting as a consumer privacy issue, with some suggesting a "Do Not Track" registry similar to the "Do Not Call" telemarketing registry. Additionally, the Federal Trade Commission is working on a revised proposal for self-regulation of behavioral advertising. The AAF filed comments on the FCC's proposal, which are available here.

Bills introduced at the state level would have required notice of data tracking activity, security of consumers' personal information, the ability to opt-out of all behavioral tracking, and deletion of all personal information after 24 months.

Representatives Ed Markey, D-Mass., and Byron Dorgan, D-N.D., have indicated that consumer privacy will be a key issue in the 111th Congress.
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Tobacco Advertising

The House of Representatives passed a bill would have taken authority over tobacco advertising from the Federal Trade Commission and granted it to the Food and Drug Administration. The bill would have directed the secretary of Health and Human Services to publish an interim rule enacting a number of unprecedented advertising restrictions, including banning all outdoor advertising for tobacco products within 1,000 feet of any elementary or secondary school or playground and requiring most tobacco advertising to be limited to black text on a white background. The AAF believes that advertising authority should remain with the FTC, the agency with the most experience and expertise in the regulation of consumer advertising. Legal scholars at both ends of the political spectrum agree that the advertising restrictions would violate the First Amendment's guarantee of free speech. The bill was not voted on by the Senate, but we expect the tobacco advertising to remain a prominent issue in 2009. The AAF sent letters to House Heath subcommittee members to express our strong opposition to several of the marketing provisions of H.R. 1108. These comments are available here.
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Mobile Marketing

At a May 2008 FTC workshop on mobile marketing, major cell phone carriers highlighted mechanisms already in place that allow consumers to block any surreptitious or otherwise unwanted text messages. At the time, the FTC stated they have no current plans to revise mobile marketing policies. Despite this, the increased adoption of Internet-capable mobile devices, as well as location-based and other new technologies suggests that consumer groups will increase the attention devoted to mobile marketing techniques. The costs of premium content, opt-in and opt-out requirements, and the ways data are shared between companies will continue to be debated in the coming year.
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Automobile Advertising

As the domestic automobile industry faced possible bankruptcy, the AAF urged members of Congress to support a financial aid package for the Big 3. In 2007, General Motors Corporation, Ford Motor Company and Chrysler collectively accounted for $4.6 billion in measured advertising spending, or 3.3 percent of all measured advertising spending. That spending supports countless jobs in the media, advertising agencies, productions houses and other industry suppliers. The impact is local as well as national, as 52.1 percent of the spending is directly by the automakers and the rest is primarily by automobile dealers and associations. Without assistance, we warned that automobile advertising would suffer steep declines, causing lost jobs at many media outlets and advertising agencies that depend on the automobile companies for a substantial portion of their revenue. A copy of our letter is available here.
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Generic Top-Level Domains

The International Corporations for Assigned Names and Numbers (ICANN) has proposed expanding the number of generic Top-Level Domains in use on the Internet. Top-Level Domains are the portion of the Internet address to the right of the dot (.com, .org, .gov, etc.) and are currently limited to a relative few. The ICANN proposal would allow individuals, corporations or groups to purchase new gTLDs that could include virtually any word or phrase, including company or brand names. The AAF and other industry groups have requested a delay in rolling out new domains until several concerns are clarified, including protecting companies, brand owners and their trademarks and avoiding consumer confusion with the rapid expansion of domain names. A copy of our comments is available here.
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State Advertising Taxes

In 2008, a ballot initiative to amend the Florida constitution was proposed that could have opened the door to a tax on advertising services. The initiative, known as Amendment 5, would have cut the property tax by an average of 25 percent-an estimated $9 billion in 2011-and replaced lost revenue, including education funding, through legislation. While the amendment did not mandate how legislators find new revenue, a generally understood option was to increase the state sales tax from six to seven percent and to eliminate existing sales tax exemptions, including advertising.

Ultimately, the Florida Supreme Court removed the initiative from the ballot, affirming a lower court decision that the language of the amendment was misleading and did not adequately explain all provisions of the proposal. The AAF and the Florida advertising clubs were instrumental in educating the public and lawmakers as to the potential harmful economic consequences had Amendment 5 been approved. When the proposed amendment was removed from November ballots, polling numbers suggested that the amendment was far from reaching the 60 percent approval threshold.

Nevertheless, declining state tax revenue caused by the national financial downturn has caused state legislators to scramble for ideas on ways to raise new money. A report issued by the Center on Budget and Policy Priorities stated that at least 15 states face serious budget gaps early in the new fiscal year and expects more states to make similar announcements. We know from past experience that when searching for new revenues, many state legislators will look at expanding the sales tax to excluded goods and services, often including advertising and other business services. We believe that it is not a question of if, but where and when, we will face ad tax fights.
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Conclusion

It is more essential than ever that we keep a vigilant watch on activities in Congress and the 50 state capitals for threats to advertising. If you are an AAF member interested in receiving our government affairs newsletter, AAF Government Report, or legislative alerts, please send an e-mail to government@aaf.org.


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