A new report by Capitol Matrix Consulting, commissioned by the California Chamber of Commerce, concludes that Assembly Bill 566 (AB 566) poses a significant threat to California’s consumers, small businesses, and the fundamental structure of the digital economy.
The report, “Economic and Fiscal Impacts of AB 566: Global Opt-Out for Internet Users,” details the wide-ranging negative consequences of the proposed legislation.
AB 566 (Lowenthal; D-Long Beach) seeks to mandate a “global opt-out preference setting” for California internet users, allowing them to opt-out of the sale or sharing of their personal data across the many websites they visit. The report warns that this seemingly simple technical change to how the internet operates could have severe unintended consequences, including negative impacts on jobs and the economy, harm to consumers and their online experience, and disproportionate challenges for small businesses, many of which are already struggling.
Significant Job and Economic Losses
The report estimates the impact to websites including news and media outlets, free online services, nonprofit organizations, and e-commerce sites’ ability to support themselves with personalized advertising would have substantial economic repercussions for California. A mere 25% opt-out rate could result in a loss of $3.6 billion in advertising spending in California alone.
This ripple effect across the advertising industry and broader economy could lead to ongoing reductions of:
• More than 73,000 jobs.
• $6.4 billion in labor income.
• $550 million in state taxes.
• $270 million in local taxes.
Diminished Consumer Experience
The report challenges the premise that a global opt-out will maintain current access to ad-supported content. It states, “If a significant percent of users choose the global opt-out option before fully understanding the consequences of this action, the result will be a diminished online experience for all users, with fewer ad-supported websites, less content, less diversity, and fewer perspectives.”
This could lead to a fragmented internet with more paywalls, with consumers losing access to valuable services and content they currently enjoy for free. For example, research shows that 71% of consumers expect personalized online services. [McKinsey & Co.]
Disproportionate Harm to Small Businesses
Targeted advertising is a critical tool for small and medium-sized businesses (SMBs) with limited marketing budgets, enabling them to reach their specific audiences efficiently. The report highlights that if AB 566 leads to consumers unknowingly opting out of third-party personalized advertising, “then a significant business tool to acquire and maintain customers will no longer be available.”
According to the U.S. Census, 87% of California businesses are SMBs, which employ 47% of the state’s workforce; a downturn in their economic output would severely impact the state’s economy. Industries reliant on digital advertising to reach consumers, such as online publishers, news organizations, shopping centers, and nonprofits, would also suffer disproportionately.
CalChamber and its business association allies oppose AB 566 because the legislation will cause a substantial loss of jobs and revenue to the state, create consumer confusion, and disrupt the internet. This bill is unnecessary as California consumers already exercise their opt-out rights under the California Consumer Privacy Act (CCPA) and have access to tools that can make it even easier for them without the massive financial impacts on small business projected by the report.
The California Privacy Protection Agency should focus its education mission on ensuring consumers are aware of their options like California Attorney General Rob Bonta’s press release from earlier this year.
To see the complete study, visit this link.
AB 566 awaits action by the Senate when the Legislature returns from summer recess.
