Yahoo scandal exposes Net advertising perils

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It looks a lot like a case of too much consumer control.

A Yahoo chat-room- pedophilia scandal has exposed an ugly, but often hidden, truth about marketing online: You don't always know what content will appear alongside your ad.

State Farm, PepsiCo and Georgia-Pacific, stunned to find their ads were being delivered to chat rooms that were being used by pedophiles to make contact with children, pulled their ads from the Internet portal. Yahoo eventually shut the chat rooms down.


The Web's freewheeling culture of blogs and chat rooms that are open to the world presents unique challenges to monitoring the environment ads appear in. "Companies are increasingly concerned with whether it's worth the legal risk to have these public forums, blogs and chat rooms," said Jeff Newberger, partner at law firm Brown Raysman Millstein Felder & Steiner, which does work for Yahoo and America Online. "The Internet is still uncharted water from a legal perspective."

The Yahoo incident could reverberate across the portals and the entire Internet, said Gary Dunlap, senior VP-group head of Edelman Public Relations, who is a specialist in corporate-crisis intervention. "From a public standpoint, this may be a bellwether situation, and may create the government taking a look at whether or not it should regulate Web sites."


Recently, Kraft Foods was appalled to learn its Google-sponsored links appeared on a site devoted to white supremacy. The Los Angeles Times last week had to shut down its "wikitorial" experiment-an online feature that allowed readers to add comments to the paper's editorial-after child pornography and obscenity were posted by unknown users. In 2003, MSN made its chat areas open only to subscribers to "better protect children," according to a company statement, but the company this year started a consumer blogging product which has thousands of subscribers. And America Online was recently served with a lawsuit accusing it of running a chat room where an underage girl was seduced.

The repercussions of this incident for Yahoo-now a major media company with the stature and revenue of a TV network-could be disastrous if the portal cannot demonstrate it will protect its users and advertisers going forward.

"From a corporate PR standpoint, they need to very quickly disclose what has occurred, how quickly they've moved on it and what specifically is going to be done going forward," said Mr. Dunlap.

State Farm Mutual Automobile Insurance Co. pulled its advertising throughout the portal after the insurance company was shown screen shots by a Dallas TV station in April of chat rooms that were aimed at adults want-ing to have sex with children. Yahoo developed technology to filter the ads out of those areas by mid-June, according to Phil Supple, State Farm spokesman. State Farm resumed advertising and ran an ad on Yahoo's home page June 24. PepsiCo had ceased advertising in the rooms and Georgia-Pacific Corp. also pulled its advertising.

"We were shocked and appalled that our advertising would appear in proximity to those chat rooms," Mr. Supple said. "We monitor our ads, but there are so many pages on the Internet, you can't monitor them all."

Yahoo closed its user-created chat rooms after the news report. A $10 million lawsuit was filed last week on behalf of a 12-year-old molestation victim whose photo appeared in a Yahoo chat room. Yahoo spokeswoman Mary Osako would not confirm or deny the suit. Nor would she acknowledge why it closed chat rooms, which it did not monitor, saying, "The use of our products for illegal activities is prohibited."

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