On-line Ads Stir Regulatory Interest

Advertising is expected to be a major engine for Web growth, but it may also tighten regulatory oversight

P> On-line advertising is expected to spur the growth of the World Wide Web, but it is also expected to spread government regulation of on-line content.

On-line advertisers "are trying to behave well to avoid having to deal with regulation," said Josh Bernoff, an analyst with Forrester Research Inc., Cambridge, Mass. There's a lot of money at stake; companies will boost the Internet this year with $74 million in on-line advertising, $727 million in 1998, Bernoff predicted.

The prospect of tighter government regulation was raised last week when the Federal Trade Commission announced several scams advertised on-line. The announcements followed the settlement last October of a previous FTC lawsuit against the author of a fraudulent advertisement carried on America Online.

"The FTC has made clear that if they find false and misleading advertising on-line, they will regulate.... That makes a lot of sense," said Dan Jaffe, vice president of the Washington-based Association of National Advertisers.

The Food and Drug Administration also regulates on-line advertising of medical devices and products, just as it regulates print and TV advertising, said Byron Tart, who oversees advertising and promotions for the FDA. "The same rules apply... [and] we may come out with a guidance document" showing what rules will govern on-line advertising of medical products, he said.

On-line advertising would also be regulated if the courts uphold the recent restrictions placed on indecent and obscene on-line material. The restrictions were pushed by Sen. James Exon, D-Neb., but have aroused strong opposition from the Internet industry. "The problem is that it may be fine in 99 percent of the country... [but] you could still be facing two years in jail" if your on-line advertisement violates one community's moral standards, said Jaffe.

New government rules intended to protect on-line consumers' privacy could create an additional burden. Such restrictions would hamper advertisers' efforts to target individual consumers via the Web. Guidelines may be released this spring.

On-line advertising has already attracted numerous corporate advertisers, including automobile manufacturers, beverage companies and numerous infotech companies. Such advertising is "an absolutely necessary force to make the Internet available to all," because it subsidizes the cost of going on-line, said Bernoff.

For example, D.E. Shaw & Co., New York, will soon announce its advertising-supported, free e-mail, said Charles Ardai, president of the new service, called Juno Online Services L.P. The service will offer free e-mail to attract many consumers into an advertising network. "In the end, it is the advertisers who are our customers," said Ardai.

Ardai is confident that he can avoid onerous regulation of advertising by offering his subscribers only the advertisements they are most interested in viewing.

But advertisers may attract regulations when marketing alcohol or cigarettes on-line, said Bernoff. There's no sign of government interest yet, he said, although "eventually, this might draw the attention of regulators" if the advertisers are not careful, he said.

All that the on-line advertising industry asks for, said Jaffe, is that on-line ads be subject to the same regulations and limits on advertisements that apply for TV or magazines.

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