The U.S. digital marketing, advertising and media industry lose $8.2 billion annually, according to a study prepared by EY for the Interactive Advertising Bureau, as a result of ad fraud; stolen video programming, music and editorial content; and malware.

The report observes that each of these categories, i.e., "invalid traffic," "infringed content" and "malvertising," can be interrelated.

An excellent example is a consumer who visits an infringed content site containing malware and infects the consumer's browser with a robot that is later used to drive invalid traffic. If the industry can eliminate the profits earned by serving ads next to infringed content, it can reduce the amount of money available to drive illegal activities in the supply chain.

Thus, for example, content producers lose $2 billion in revenue from infringement, while advertisers and content producers lose $456 million in legitimate advertising opportunities. Malware from infrigement sites helps to produce invalid traffic (e.g., robot-generated ad requests made without the consumer's consent) that costs advertisers a total of $4.4 billion in out of pocket expenses. Ad blocking and site blacklisting that is considered to be primarily for the purpose of combating malware results in the further loss of advertisement opportunities valued at $781 million and $57 million respectively.

The report recommends improvement in business practices, "such as knowing your business partners and investigating new business relationships using address information, tax IDs and backkground checks" to help industry reclaim some of the $8.2 billion in costs.

Advertising--or more specifically, the ability of advertisers to "deliver the right ad at the right time to the right user"--helps fuel the Internet ecosystem. This report suggests that content theft doesn't just impact the balance sheets of publishing dynasties and Hollywood studios and record labels. There are downstream consequences for Internet vendors, ecommerce and consumers.

CNBC talked to CreativeFuture CEO Ruth Vitale about the findings. She points out that illegal downloads heavily impact smaller media companies that focus on independent productions, and that 5.5 million people are employed in the creative field in the U.S.

Posted by Hance Haney at 6:28 PM | Permalink