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Could Federal Government Privacy Policy Kill Online News?

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Last week I attended the 25th anniversary celebration of the Kennedy School of Government's Shorenstein Center on the Press, Politics and Public Policy. During the opening session Ken Auletta, media reporter for the New Yorker, interviewed Vivek Kundra, former U.S. chief information officer (and currently a Shorenstein Center fellow).

In response to Kundra's observation that the future of news would be hyperlocal, Auletta observed that there wasn't enough local advertising revenue to support hyperlocal news. And that was that; the conversation then moved on to other topics. It was assumed that the question of the economic viability of local news wasn't a topic of public policy; it would be purely a matter for the dog-eat-dog free market to determine.

Unfortunately, this is not an unusual attitude in the media policy community. Although privacy policy is a booming area within the Washington, D.C. policymaking community, discussions about privacy have traditionally been divorced from media policy. Not surprisingly, it was nowhere to be found at the two-day Shorenstein Center conference on the future of news.

But the economics of local advertising and thus the economic viability of the news, especially expensive investigative reporting of government, are heavily determined by Federal privacy policy, which regulates "behavioral targeting" (also known as "behavioral advertising" or "behavioral marketing").

Behavioral targeting refers to the ability of advertisers to track the behavior of online users not only within one website but across all their online activity. This data can also be linked to contextual data such as demographics, geographic location, and past purchases. The more information about an online user's behavior that an advertiser has, the better the advertiser can target appropriate ads to the user's interests, and the more the advertiser is willing to pay for the ad. In short, the better the behavioral targeting, the less privacy the user has.

What does this conflict mean for media policy? It means that the norms of democracy and privacy are in direct conflict. Democracy depends on a vibrant free press, one that has the financial means to cover government. And for local media, that means having enough advertising revenue to cover the cost of investigative reporting. On the other hand, Americans value their privacy. They don't want corporate America to be able to track all their online behavior.

A rigorous 2009 survey of Americans found that 66 percent of adult U.S. citizens oppose behavioral targeting. Once the actual methods of behavioral targeting were explained to the respondents, opposition increased to 86 percent. When asked if there should be a law that requires that websites and advertising companies delete all stored information about an individual, if requested, 92 percent agreed. Another reputable survey in 2009 found substantially similar results.

Given a tradeoff between privacy and a vigorous media, arguably the central issue for media policy in our time is the question: are we willing to sacrifice local media and arguably our democracy for the sake of privacy? (As a caveat, political news may be financed through other means than advertising, but I'm assuming here, in keeping with the conventional wisdom within the news industry, that government funding of such news would be unacceptable, and that non-profit and audience funding would be insufficient, except for the small subset of political junkies.)

That wouldn't be a difficult question to answer if both democracy and privacy were private goods. Then we could leave it to individuals to make sound tradeoffs between the two values on their own.

Indeed, the assumption that privacy is a private good is the way the Federal government and much of the mass media have framed the issue. The argument is that if individuals know how they are tracked and can control the degree of tracking, they will make responsible decisions about not only what is good for them but also, presumably through Adam Smith's invisible hand, the good of society.

Consider the Federal Trade Commission's proposed privacy framework published in December 2010:

Commission staff proposes that companies provide choices to consumers about their data practices in a simpler, more streamlined way than has been used in the past... One way to facilitate consumer choice is to provide it in a uniform and comprehensive way. Such an approach has been proposed for behavioral advertising, whereby consumers would be able to choose whether to allow the collection and use of data regarding their online searching and browsing activities. The most practical method of providing such universal choice would likely involve the placement of a persistent setting, similar to a cookie, on the consumer's browser signaling the consumer's choices about being tracked and receiving targeted ads. Commission staff supports this approach, sometimes referred to as 'Do Not Track.'

Congressional legislation introduced in 2011 embeds these choice principles. This legislation includes the House's Do Not Track Me Online Act of 2011 and the Senate's Commercial Privacy Bill of Rights Act of 2011.

The media policy issue arises because a healthy democracy is a collective good whereas privacy is a private good. Individuals receive the full benefit of their decisions protecting their own privacy, but only a small fraction of the benefit of their decisions that strengthen democracy. As a result, if individuals are given a choice about what information companies can track about them -- the cornerstone of public policy regarding privacy -- they should be expected to opt for too much privacy and too little democracy, even if society as a whole would be better off if they chose more democracy.

The incentives are akin to those for providing the national defense. If Americans were left to voluntarily contribute to the national defense, then the national defense would collapse. Similarly, to the extent Americans are empowered with wondrous new tools and perfect information to voluntarily set all their privacy settings, then democracy may be sacrificed.

Of course, Americans are well aware of tradeoffs between privacy and access to information. They know if they don't allow companies to track their behavior by, for example, allowing websites to deposit cookies on their computers, they may not be able to access certain websites and otherwise access much of the "free" content on the Web. But this tradeoff is rarely expressed in terms of a conflict between the needs of democracy and the desires of the individual.

To the extent that citizens are willing to sacrifice their privacy to receive information about private but not public goods, democracy is imperiled. The future of democracy may depend on citizens as information consumers not being able to easily distinguish between these two types of privacy tradeoffs. To the extent that such a tradeoff does exist, then the "Do Not Track" button should perhaps be renamed the "Democracy Shutoff" button.

It is important to note that as of the year 2011 we are still only at the starting gate of the information arms race between advertisers and the consumers they track. The tools available to both parties to the conflict remain primitive. Only a minority of online display ads even use any of today's relatively primitive behavioral targeting technology.

Meanwhile, advertisers' privacy policies remain prohibitively costly for most consumers to read and act upon. The outcome of this information arms race will most likely be shaped by Federal policy, which has traditionally been called privacy policy but, from the standpoint of this argument, should be called media policy.

To return to the question of the long-term vitality of hyperlocal news, we may now posit that in a hypothetical world of perfect behavioral targeting for advertising, hyperlocal news would be highly profitable. I would expect such a world to, with some safeguards, please advocates of public policies to create a vigorous, democracy enhancing media, such as the Shorenstein Center. But I would also expect that many Americans would react in horror to the resulting loss of privacy.

It's about time that the media policy community brought the tradeoff between privacy and democracy out of the shadows.

Note: This post has been updated from its original version.