Two bills in Congress could impact Google and Facebook ad sales

Key Points
  • A Democrat-backed bill that would change how Google and Facebook sell political ads is sitting in the Senate Rules Committee
  • A Republican's measure, which would strip away a key legal loophole for internet firms, has already cleared the Senate Commerce Committee
  • Either could crimp ad growth but the second is more likely to hit first
Sen. Rob Portman, R-Ohio
Tom Williams | CQ Roll Call | Getty Images

The U.S. Senate is considering two bills that could, if made into law, dent ad growth at Facebook, Google parent Alphabet and other internet companies.

As is often the case in Washington, the bill with the lower profile has a better chance of becoming law.

Goodbye to a key internet loophole?

That's the bill the Senate Committee on Commerce, Science and Technology passed and sent to the full Senate for consideration on November 8.

Dubbed SESTA, the Stop Enabling Sex Traffickers Act, it would take away a key legal defense that internet companies have enjoyed since 1996.

That's when Congress granted a loophole to companies that host internet services on their web sites, which absolved them of liability for content their users uploaded.

That loophole now stands in the way of the SESTA bill launched by Senator Rob Portman, Republican of Ohio, which has been pushed by advocates for victims of human and sex trafficking.

Russian-bought Facebook ads could have reached millions of voters

It has the momentum of moral justice, because thousands of women, girls and boys have been exploited and had their lives destroyed by predators they've met online.

Because the legislation launched by Portman, a Republican, deals with the most unsavory underbelly of the internet, few have talked about it — except for the Electronic Frontier Foundation, the Columbia Journalism Review and other advocates of free speech online.

Those organizations point out that repealing what's called the exemption of Section 230 of the 1996 Telecom Act could have an unintended and dire consequence.

It could cause Google and Facebook to restrict the uploading of legally-risky content to their sites and give them de facto market control over internet speech.

For the companies, that could mean lower sales of the ads that have made them two darlings of growth investors.

Shares of Google parent Alphabet have surged almost 30 percent this year, while Facebook has soared 55 percent.

Stop the Russians!

Portman's bill has gotten less attention than another introduced by Senator Amy Klobuchar of Minnesota and backed by other Democrats, including Senator Mark Warner, ranking member of the Intelligence Committee.

That bill, which is also co-sponsored by Republican Senator John McCain of Arizona, deals with a different exemption enjoyed by Google and Facebook, one having to do with disclosures for online political ads.

That bill, the Honest Ads Act, has the support of more than 30 members of Congress. It would require political ads that air online to have the same disclosures that political ads on radio and TV currently do -- like who paid for the ad.

It's high profile given that executives of the companies — and another from Twitter — were grilled in both houses of Congress earlier this month, after Russian propagandists used those platforms to try to influence the 2016 election.

The bill could crimp revenue growth at the internet companies, since foreign people and organizations would no longer be able to buy ads, and the long list of legally mandated disclosures would make these ads less attractive on mobile devices.

That matters, given that political ad sales have grown sharply, based on a report from Borrell and Associates.

Yet its chances of passage are further away than those for Portman's bill.

Of the 33 members of Congress who sent a signed comment to the election commission backing new rules, not one was a member of the GOP majority.

The Klobuchar bill, introduced in October, sits with the Senate rules committee and has not been put to a committee vote, let alone cleared one, as Portman's bill has.

Neither bill is a sure thing, given that Google over the last two years has been among the largest U.S. corporate spenders on lobbying.

Yet of the two pieces of legislation, the one backed by Portman and headed for the full Senate already, is more likely to impact investors first.

Correction: A previous version of this story misidentified a bill co-sponsored by Senators Klobuchar and Warner. The Honest Ads Act was introduced Oct. 19.

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