Prof. Randal C. Picker, University of Chicago Law School
December 19, 2012

Media comes in all forms these days and so does government regulation of it, as a recent Federal Trade Commission report, “Mobile Apps for Kids: Disclosures Still Not Making the Grade,” makes clear.  The FTC has been on a privacy tear this year having issued, with the recent Mobile Apps report, five different substantial reports in 2012.  But the Mobile Apps report moves beyond privacy to also look at in-app advertising, and that takes us much closer to more traditional efforts to regulate media.  There is much to commend in the report, but it misfires in its analysis of advertising.

The report is the FTC’s second look at the mobile apps marketplace for kids and comes on the heels of its first mobile apps report issued in February 2012.  With the explosion in smartphones and tablets and the rise of Apple iOS and Android as content platforms, our media consumption is changing rapidly and much of it is taking place through mobile apps.  In the mobile apps reports, the FTC has undertaken to study that marketplace and kudos to the FTC for generating real data about what is going on in that marketplace.

The report is short and accessible and well worth reading, but I will focus here on the most media-relevant part of the report, the FTC’s analysis of in-app advertising.  Apps often come in two versions, a fee version without advertising and a “free” advertising-supported version.  Content has often been financed through these tools with some content, such as books, being almost exclusively fee based and other content, such as newspapers and magazines, financed through a mix of fees and advertising.

The FTC study looks at a random selection of 400 Apple iOS and Android kid-oriented mobile apps.  Of those 400 apps – really, 396 as four apps wouldn’t download at all – 59 apps, or roughly 15%, disclosed in advance on the download page for those apps whether they contained advertising.  Of that group of 59 apps, 35 apps stated that they came with advertising while 24 apps stated that they did not contain advertising.  The actual results of the study showed that 230 of the 400 apps contained ads, while the balance didn’t contain ads.  And of the 24 apps that stated they didn’t contain advertising, 10 of those apps actually contained advertising.

The FTC noted that parents might be concerned about the presence of in-app advertising and concluded that “[w]hile everyone may not share these same concerns, parents should be given the opportunity to make this choice for their children prior to downloading the app.”  To be clear, this isn’t a legal requirement imposed by the FTC through the report, but instead the FTC “strongly urges the mobile app industry to develop and implement ‘best practices.’”  I leave to you how we should think about government urgings of self-regulation in the content marketplace.

I find these data fascinating, but not for the reasons that the FTC does.  The behavior of the advertisers suggests that they don’t think that consumers care that much about whether or not the consumers have a chance to learn in advance about the presence of in-app ads.  On the FTC numbers, 166-170 of the apps were ad-free and yet only 14 firms thought it important to disclose that in advance of download.  That suggests that they didn’t think that this was an important competitive advantage in attracting consumers.

Why not?  Be clear on what is at stake here: pre-download disclosure of advertising.  The ads in the apps are perfectly clear to consumers once they have the apps in hand.  There is no absence of after-the-fact disclosure of the ads, as you either see them or you don’t.  The whole point for the FTC is about in-advance disclosure of the possibility that a consumer might be exposed to ads.

That seems particularly odd given that we are working at the margins.  Consumers, kids and adult, are exposed to an enormous amount of advertising already and so this regulatory effort is devoted to trying to shrink down a handful of ads when consumers are exposed to ads by the truckload.  Ad-adverse parents can of course delete a mobile app quite easily if they would prefer that their child not be exposed to additional ads.

The FTC also points to an example of particularly bad advertising, a situation where a drawing app for kids was matched with an ad “See 1000+ Singles.”  No one presumably can be very happy with how that ad worked out.  Not the parents, not the kids, but not the advertiser or the app developer either.  Any clicks that the advertisers pays for are almost certainly inadvertent and not from the target market for the ad.  But we shouldn’t casually regulate, either directly or indirectly through urging of self-regulation, what will be the normal process of learning in a new medium.

As all of that suggests, I see little basis for the FTC’s push toward advance disclosure of in-app advertising.  On the whole, given the First Amendment issues, U.S. law has been careful about how it regulates content and advertising and we need to exercise that same level of care as we turn to new media such as mobile apps.