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Posted at 10:44 AM ET, 02/18/2011

Pandora IPO echoes larger anxieties over Do Not Track

By Hayley Tsukayama

In its recent filing for an initial public offering, the Internet music streaming company Pandora included some language that showed how the company is planning to deal with Do Not Track and other privacy proposals.The company's mention of Do Not Track as a possible risk factor echoes the concerns raised by opponents of the measure -- namely that will hurt online business models.

"The Pandora IPO shows that this battleground is extending from Capitol Hill to Wall Street," said Jeffrey Chester of the Center for Digital Democracy.

In its IPO filing, Pandora listed the need to join a self-regulating body or to comply with new privacy regulations as a potentially costly factor. "[G]overnment regulators have proposed 'do not track' mechanisms, and requirements that users affirmatively 'opt-in' to certain types of data collection that, if enacted into law or adopted by self-regulatory bodies or as part of industry standards, could significantly hinder our ability to collect and use data relating to listeners," the filing said. Pandora went on to say that it needs to collect information on listener data to personalize its music streams and target advertising.

Google and other companies have said that a Do Not Track option is too difficult to implement, and Pandora's explicit mention of Do Not Track as a risk factor shows that that fear is not going away.

Chester said that Do Not Track horrifies the online marketing industry. "They're spending billions of dollars on a ubiquitous data collection system, only to find it might be thrown in the digital junk heap," if Do Not Track is approved.

The idea has brought together a range of groups determined to push legislation based on the popular Do Not Call program. Chester said there's a growing movement to have a policy that mandates a person be left alone. This movement is gaining steam; three major Internet browsers have now launched Do Not Track functionality in their products in response to consumer concerns.

Behnam Dayanim, an privacy and data protection attorney, said Do Not Track is clearly hear to stay. "Generally, the trend is clearly toward some type of Do Not Track mechanism becoming the norm," said Dayanim, who practices with with Axinn, Veltrop and Harkrider. "The real question is whether self-regulated or mandatory."

Rep. Jackie Speier (D-Calif.) recently proposed two bills to deal with consumer privacy. Speier's "Do Not Track Me Online Act of 2011," if passed, would give the Federal Trade Commission 18 months to establish standards requiring online opt-out mechanisms and "require a covered entity to respect the choice of such consumer to opt-out of such collection or use" unless consumers change their preferences.

Dayanim said he doesn't see Speier's bill passing in this Congress. "It directs the FTC to implement rulemaking that mandates some method of Do Not Track," he said. "It leaves quite a bit to the discretion of the agency, but I have difficulty seeing it pass the Republican-controlled House." He said the bill is too static, even though it leaves a lot of discretion to agencies.

"This bill is a line in the sand," he said. "But sand shifts in the Internet space, and who knows what the next wave of technology will bring and what next issue will be?"

Dayanim said that if there is no legislation on Do Not Track at the federal level, it will be interesting to see how agencies apply existing rules to the problem and whether states will begin to enact their own legislation.

Another thing to consider, he said, is that while consumers may want privacy protections, they also like getting things for free. So much of the free content on the Internet is based on behavioral advertising and it's unknown how many people would truly forgo free content to protect their information. "Some of the concern voiced on that front may not prove, ultimately, to be well-grounded."

Still, Do Not Track could have an effect on Pandora's business model and whether Do Not Track takes the form of a government mandate or industry self-regulation, the company and others like it will likely have to make some adjustments. Dayanim said that Internet businesses are particularly adept at adopting quick changes.

"Is this an area where self-regulation can work?" he asked. "We don't know that yet. But in many cases, public reaction and pressure have worked to change standards. It's hard to say.

"I think that it's going to be a challenge for companies like Pandora, but trend is toward some form of Do Not Track," he said. "Ultimately the challenge will be to ensure there's sufficient nuance and a range of options for consumers so they can pick and choose when they want to be tracked and when they do not want to be tracked."

On Friday, the Center for Digital Democracy and U.S. PIRG, an organization of non-profit, non-partisan state Public Interest Research Groups, filed comments on the FTC's proposal calling for stronger consumer protections and online security safeguards.

In the comments, U.S. PIRG Consumer Program Director Ed Mierzwinski said, "No consumer can be expected to understand -- let alone control -- the array of sophisticated and pervasive data mining and personalized targeting techniques that confront them in today's online digital marketplace. The use of sensitive data by marketers requires the FTC to quickly adopt new consumer privacy safeguards."

The Federal Trade Commission will accept comments on the proposal until Feb. 28.

By Hayley Tsukayama  | February 18, 2011; 10:44 AM ET
Categories:  FTC, Privacy  
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Comments

The WSJ series on privacy invading apps identified Pandora as the among the worst. It apparently collects and resells an array of personal user data to marketers. Much of the information gathered has nothing to do with music preferences.

I decided to drop Pandora from my iPhone 4 after it began the practice of having a print ad for a product and an audio ad for the same product play simultaneously. That is much too close to being bombarded with ads on broadcast television for my taste.

Posted by: query0 | February 21, 2011 11:17 PM | Report abuse

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