Dark clouds for the advertising industry? Legal Committee of the European Parliament proposes ban on personalized advertising.

15.12.2020

The EU Digital Services Act is taking shape - with possible implications for the advertising industry. There have been voices in the European Parliament ("EP") calling for restrictions on the use of personalized advertising, and in some cases even a ban.

The Digital Services Act is intended to replace the E-Commerce Directive and create a single European market for digital services. Currently, in addition to the E-Commerce Directive, the member states each have their own national regulations. The digital single market is therefore highly fragmented, an obstacle to a strong European digital industry.

One of the declared goals is to create control structures for large digital corporations and to restrict their power. It is intended to create a market environment in which the large digital corporations cannot exploit their market position in an unfair and dominant manner. The strategy for this is based on several pillars. Among other things, the pre-installation of a corporation’s own apps and the preferential treatment of owned services are to be prevented. In addition, transparency is to be created through explicit consent requirements, for example for the combination of data. An amendment to the liability regime for online platforms is also being considered.

What changes are intended for personalized advertising?

Headwind for the principle of personalized advertising is now coming from parts of the European Parliament. A report by the European Parliament's Legal Affairs Committee, together with a recommendation to the European Commission, was recently agreed upon by a comparatively narrow majority in the EP. The report assumes that the creation of user profiles by tracking user behavior in conjunction with targeted advertising leads to an emphasis on content that primarily appeals to emotions. This – so is the fear - promotes sensationalism in news feeds and recommendation systems and thus ultimately impairs the free formation of users' opinions.

This statement is based on the consideration that context-based advertising intervenes to a lesser extent with the privacy of users than personalized advertising and is therefore preferable. The report further assumes that the decision-making logic behind the provision of personalized advertising is non-transparent and that personalized advertising is therefore beyond any supervision.

The report therefore calls for the examination of options for regulating personalized advertising. One of these options ultimately leads to a ban on personalized advertising via the intermediate step of gradual restrictions. Instead, the advertising industry should focus on context-based advertising without the need for user profiles. Such advertising should only be permitted on the basis of voluntary, unambiguous, informed consent for the specific case in question. Furthermore, measures are to be taken to create transparency.

What's next?

The ball is now with the EU Commission. It is up to the Commission to decide whether and in what form it will take up the recommendations. It has the sole right of initiative in this regard. It remains to be seen whether the dark clouds in the advertising industry's sky will turn into a thunderstorm. We will report back.