Impact of ePrivacy Regulation

ePrivacy Regulation: the key questions answered

What is the European Union’s proposed ePrivacy Regulation?

The ePrivacy Regulation proposes that people should make one clear decision about how they would like the data generated by their online activity to be used. They would make this decision at a ‘device level’ rather than at a ‘website level’. For every internet browser, tablet or smartphone that they use, they would specify whether they give consent for others to use the data from that browser or device.

How is this different to the General Data Protection Regulation (GDPR)?

The GDPR, which has already been passed by the European Parliament and comes into force in May 2018, sets out a single set of rules for the collection, processing and use of EU citizens’ data. It also includes extremely severe financial penalties for any business using data illegitimately or irresponsibly.

The GDPR includes new, stricter definitions of consent that involve citizens freely and explicitly actively agreeing to specific uses of their data. However, it also recognises that there are a range of different legitimate uses of data that it’s reasonable to expect people to agree with , in order to use a website. In some cases, this can involve the use of data for market research and marketing purposes.

What would change under the ePrivacy Regulation?

Because the ePrivacy Regulation involves giving consent for data to be shared at a ‘device level’, it cannot distinguish between the legitimate and illegitimate uses of data. It would also be unable to distinguish between websites for which the use of data for marketing is essential for them to function, and websites that don’t need to use data in this way.

The ePrivacy Regulation will present choices over the use of citizens’ data in very simple terms, with no reference to the context in which websites and apps might use their data, or the consequences for citizens’ experience of the internet. It is therefore likely to result in a majority of people refusing consent for their data to be used. This will leave them unable to use many apps and websites. It will also remove large amounts of data from the digital ecosystem, with very severe consequences for the way the internet works.

How would this affect digital advertising?

Digital advertising depends on the use of data in a number of very important ways.

Data enables advertisers to target audiences wherever they are online, rather than just advertising on specific websites. This gives smaller websites and publishers a share of advertising revenues that they would otherwise not have access to. It also makes the process of buying and selling advertising far more efficient.

Data also enables advertisers to target relevant people based on their online behaviour. This increases the effectiveness of advertising and the value of digital advertising units. The latest research from IHS Markit shows that behavioural data increases advertising effectiveness 500% and the value of digital advertising 300%.

Perhaps most importantly though, data is essential for giving advertisers confidence that their digital ads are being viewed – and for tracking how effective they are. Most advertisers today see this as an essential precondition for spending their advertising budgets online. The internet is a far less attractive advertising platform without such data.

The three-fold importance of data to advertising explains why 66% of all digital advertising depends on the use of behavioural data – and 90% of all advertising growth has involved the use of such data. IHS Markit’s econometric modeling predicts that, if the ePrivacy Regulation were enforced, the digital advertising industry in the EU could lose half its value.

How would it change people’s experience of the internet?

The most direct and immediate consequence of the ePrivacy Regulation for citizens’ experience of the internet would be that a number of apps and websites would stop working – because their central functioning depends on data. Citizens would need to keep returning to their browser, smartphone or tablet settings, in order to change their preferences and enable them to use such sites.

The longer-term consequences would be even more significant. Steep declines in digital advertising revenues mean that publishers and other websites would need to charge for services that have previously been free. New research from GfK shows that 68% of Europeans have never paid to access online content or use services like email – and so this would be a very significant change for them. The same research found that 88% said they would use the internet ‘much less’ if required to pay. In this way, the ePrivacy Regulation could have significant consequences for the accessibility of the internet as a whole.

How would it affect the media industry?

The business models of most newspapers and journals depend on digital advertising revenues and the reluctance of EU citizens to pay for content means that there are very limited options for replacing this revenue. The GfK research finds that even the 30% of citizens who say they would consider paying for online news content are only prepared to pay €3.80 per month. This is far less than news publishers with paywall websites need to charge to make their business models financially viable.

The net result is that many newspapers will be forced to close , there will be less investment in quality, independent news reporting, and EU citizens will be less informed than they were before.

IHS Markit’s econometric analysis finds that the impact of ePrivacy Regulation would be felt disproportionately by smaller publishers and media companies that do not have access to their own, first-party audience data . This is likely to increase the relative share of digital advertising revenues enjoyed by large social media sites while penaliszing smaller, independent publishers. It also raises barriers to entry for new, innovative internet publishers , reducing the dynamism of the digital ecosystem in Europe.

What would this mean for Europe as a whole?

Because the proposed ePrivacy Regulation is so simplistic and inflexible, it will inevitably result in severe unintended consequences: a stalling and less dynamic economy, less-informed citizens and ultimately, the decline of democracy itself.

A healthy digital advertising ecosystem doesn’t just support advertising agencies, publishers and social media platforms. It has wide-reaching consequences for the EU economy as whole. IHS Markit’s analysis finds that €526 billion of the EU economy benefits from digital advertising, and that digital advertising helps to support over 6 million jobs.

Research shows that EU citizens have very little appetite to pay for online services that have previously been supported by advertising. Given that the ePrivacy Regulation could reduce digital advertising revenues by half, this has severe consequences for a very broad range of digitally driven businesses. The media would shrink, with less resource and less financial incentive for newspapers to support high-quality and objective journalism. Politics in Europe would become less informed and more polarised, threatening the future health of democracies – and the EU itself.

The positive impact of the internet cannot be separated from the free flow of data. When the use of that data is obstructed, the internet instantly becomes less commercially viable, less dynamic and less accessible. For these reasons, the proposed ePrivacy Regulation will inevitably distort the nature of the internet. This cannot help but have very severe, unintended consequences for the EU and its citizens.