The European Commission has released a study on the impact of recent developments in digital advertising on privacy, publishers and advertisers. The purpose of the study is to assemble evidence on the digital advertising industry that could inform future policy options for supporting the evolution of a more balanced digital advertising ecosystem. The European Publishers Council (EPC) and its members have given substantive feedback on their perspective and experience from the digital advertising ecosystem and attended a workshop to test the findings.
Overall, the study demonstrates that the digital advertising market is not competitive and the way in which it currently works has negatively affected multiple areas such privacy, democracy and the environment. The EU legal framework offers tools to address some of the issues that have been identified (e.g. lack of transparency, dark patterns), however, the existing toolkit is not sufficient to remedy all identified problems. As a result, policy interventions may be needed in order to:
(a) improve accountability in the online ad ecosystem,
(b) increase individuals’ control over how their personal data is used, and
(c) enable advertisers and publishers to “know their audience” and communicate with them directly through advertising.
The main trends identified in the study are:
Over the past 10-15 years, search advertising and social media advertising channels, where large platforms play key roles, have grown at an extremely rapid rate compared to the channel which directs the most advertising revenue towards publishers (“other” display). Some large platforms can generate advertising revenue both as a publisher (by selling ad inventory on the platforms and services they own) and as an intermediary (by providing advertising technology services to advertisers and other publishers). The combined revenue of the largest European publishers has stagnated over the past ten years, while Alphabet (Google) and Meta’s revenues increased by more than 500% during the same period. The evidence in this study indicates that this is due to lack of transparency and large and growing imbalances in bargaining power, not due to existing or proposed rules on privacy and data protection.
The way that digital advertising is bought and sold can be extremely complex. Advertisers and publishers, especially large ones, often work with a range of intermediaries – sometimes referred to as “ad tech” companies - to buy and sell advertising through different channels. This complexity has given rise to concerns about transparency, cost, security, privacy, data protection and competition.
European publishers struggle to compete for digital advertising revenue because large platforms have more access to data than they do. Over the past ten years, European publisher revenues have stagnated or declined while large platform revenues have increased. A significant amount of digital advertising revenue flows towards large platforms which compete with publishers to sell ad space next to the content they host, as well as providing intermediary services for publishers and advertisers to buy and sell ads. This dual role creates a “frenemy” dynamic, with some publishers saying that they would lose advertising revenue if they did not work with these large platforms.
This has created an unsustainable situation for advertisers and publishers. Advertisers and publishers often describe the relationship with large platforms in negative terms and describe a sense of “dependency”. Some advertisers and publishers are concerned that moves by large platforms to limit access by other companies to data generated through the use of their platforms and operating systems on what they claim to be privacy and data protection grounds will result in less transparency and less competition in digital advertising in the future.
Lack of transparency in digital advertising limits evidence-based decision-making because advertisers lack independent data to assess the performance of digital advertising. This strengthens the position of players with strong market power and deters advertisers from switching to emerging alternatives that are less intrusive, even though there is evidence that some advertisers would prefer to rely on models that minimise the processing of unnecessary personal data. More independent data about the performance of alternative models compared to the status quo is needed to encourage widespread adoption among advertisers and publishers.
The study had three specific objectives:
describe how digital advertising has evolved over the past 10-15 years and how this has impacted European publishers and advertisers (large and small). This includes assessing, based on independent and objective evidence, the efficacy and efficiency of digital advertising with respect to its societal and environmental impact.
assess the extent to which there is an imbalance in the relationship between publishers and advertisers, on the one hand, and the major platforms and digital advertising intermediaries on the other.
inform the development of options for promoting and supporting a more transparent and balanced digital advertising ecosystem that
a. is more respectful of the Charter of Fundamental Rights, in particular the right to privacy
b. pays particular attention to the vulnerability of children and young people
c. supports a free and good quality press and independent media
d. minimises waste and environmental impact
e. complements related parts of the regulatory framework, including the proposed Digital Services Act package.
EPC will continue to engage with legislators and to help inform and shape any future regulations.
Download the study here