The 1933 act remains a bedrock of securities law in the United States, despite the massive transformations within the economy over the decades since it was passed. While it has by no means been immune to criticism or prevented every financial crisis, there is an overall consensus that the disclosure arrangement it sets up is an important element of a stable securities market. One scholar reviewing the empirical literature on the impact of mandatory disclosure concluded that “the effects of mandatory disclosure on stock returns, volatility and financial development are consistent with mandatory disclosure often having socially beneficial effects.”27
Something like the disclosure philosophy may be a critical piece of the puzzle in grounding the programmatic advertising markets and deflating the bubble. The 1933 act confronted a situation in the financial markets that matches the murky, highly conflicted circumstances of the online advertising markets. The boosters of online advertising have long pushed the notion that the internet is transparent and trackable in a way that earlier generations of advertising were not. But these claims fail to tell the whole story. Online advertising has introduced new blind spots and failed to address some long-standing ones. These have allowed a range of frailties to creep into the marketplace that threaten its long-term stability.
Demonstrably, the programmatic advertising market lacks sufficient incentives for candor. The programmatic advertising industry has remained relatively opaque about the state of the overall marketplace, despite demands from ad buyers and some embarrassing investigations. Ironically, this prevailing refusal to reveal critical data about the state of programmatic advertising to the public contributes to the risk of a catastrophic implosion. Without consistent rules governing the release of these data, buyers and sellers are left reacting to a mess of partial, easily misinterpreted information that is disclosed only when doubts already loom around the veracity of claims made about the marketplace. The likely result is overreaction and potentially cascading losses of confidence.
As in 1933, ensuring that a market reflects reality may require mandating a higher level of disclosure than the industry left to its own devices would provide. Mandated disclosure also empowers research organizations to examine the state of the marketplace and conduct experiments, giving policy makers and the public a better grasp of the economic health of the internet.
So how would the disclosure philosophy of the 1933 act apply to the world of programmatic advertising? The basics would be the same: prior to offering ad inventory for sale in the programmatic marketplace, sellers of attention would be legally required to provide to the public a standardized statement of relevant information. This statement of information would shine a spotlight on precisely the areas we have covered in the course of this book. It might include detailed metrics around brand safety, performance, proof of business relationships, disclosures of conflicts, and so on.
The disclosure mandate will need teeth: these representations can and should put the company selling ad inventory on the hook if they turn out to be inaccurate later. Legal liability is perhaps the heaviest (and slowest) deterrent, but a range of potential punishments are available to those who falsify or otherwise spread misleading information in these disclosures. One might be excluded from selling advertising inventory across certain marketplaces or be clearly marked as a seller with a bad record. These disincentives would deter attempts to obfuscate the value of advertising being bought and sold.
The global scale and the rapid speed of the programmatic advertising marketplace mean that the existing process for securities cannot be adopted wholesale. Registration in the securities context frequently requires teams of attorneys working with reviewers based at the SEC who manually examine submissions. Compliance is often expensive and time-consuming.
But adapting the disclosure approach does not mean replicating it wholesale. We should implement a regime of mandated disclosure in programmatic advertising that does not come at the expense of market dynamism. Disclosures around particular types of advertising inventory might be made available in a machine-readable fashion, allowing buying and selling algorithms to quickly evaluate the information and take actions accordingly. Instead of a single, centralized bureaucracy like the SEC acting as a gatekeeper to the advertising marketplaces of the web, we might simply mandate that these disclosures flow to a more widely spread network of trusted watchdogs that can monitor and verify claims.
As with the disclosure philosophy undergirding the Securities Act of 1933, the goal of regulation in this space cannot be to guarantee that advertising works or will be a success. Wanamaker’s dictum about the uncertainty of advertising remains relevant today: even as we are awash in data about ads and consumers, it remains in many cases impossible to know if an ad is truly effective. Advertising also remains a diverse marketplace. Buyers demand very different things of their advertising—from increasing sales to simply “positioning” their product—and that diversity of incentives is beneficial. No one entity could guarantee that a given piece of ad inventory is “worth buying.” Instead, the purpose of mandated disclosure under such a regulation would be to ensure that buyers of online advertising have access to high-quality information about what it is they are buying in the first place. The decision on whether it is worth the price will be up to them.
There is no doubt that many in the programmatic advertising ecosystem will rail against the imposition of greater legal burdens on the buying and selling of ads. Similar complaints accompanied the passage of the 1933 act. But it is past time for real legal intervention in this space. The rise of the internet has produced a deep entwining of
