Pandora Subpoena Highlights Potential Privacy Crackdown

In what could be a larger push by the federal government to stem — or at the very least, control — the sharing of personal online information, a federal grand jury has served Internet radio provider Pandora with a subpoena. The company is believed to be just one of many mobile-app makers that have been served with a similar subpoena, which suggests that the federal government is looking into the practices of information sharing on apps on the iOS (s aapl) and Android (s goog) platforms.
The disclosure, released in an updated S-1 filing as part of Pandora’s preparation to go public, said that Pandora was not the target of the investigation, and that the company believes other app publishers have been served as well. Pandora said that even though it is not the target, it could be affected by the subpoena, which will consume resources and attention and could result in costly litigation.
While it’s unclear who the target of the probe is, the fact that Pandora has been served — and other app makers as well — suggests this could be part of a larger potential crack down on app makers who rely heavily on user information. It’s likely that federal government’s “Do Not Track” campaign is expanding beyond websites to include mobile apps.
That’s not surprising considering the Obama administration’s interest in privacy and the Federal Trade Commission’s recent push for rules that would limit the ways websites track and share user information. That’s something we’ve been following after growing concerns about online privacy, highlighted by a Wall Street Journal series on the topic. But it could ratchet up the pressure on apps that use personal user data for everything from marketing and advertising to personalized recommendations, which Pandora and many other apps do.
The FTC has recommended “do not track” tools for consumers and called on browser makers and websites to police themselves. Mozilla, Google and others have complied with simple tools aimed at allowing users to stop companies from tracking their movements online. But it’s unclear if that will appease the FTC, which appears to be looking for more sweeping measures. And now it’s not just websites and browser makers who are in the government’s sights, but mobile app makers too.
In its filing, Pandora said its current practice of gathering and using member data could change over time as privacy regulations and enforcement evolve. The company could be forced to scale back its use of data due to consumer demands or imposed limitations if it joins certain self-regulatory bodies or adheres to changing industry standards. But it’s clear that Pandora, like many companies, could suffer a loss of revenue if it has to change the way it uses personal data.

“Restrictions on our ability to collect, access and harness listener data, or to use or disclose listener data or any profiles that we develop using such data, would in turn limit our ability to stream personalized music content to our listeners and offer targeted advertising opportunities to our advertising customers, each of which are critical to the success of our business. We have incurred, and will continue to incur, expenses to comply with privacy and security standards and protocols imposed by law, regulation, self-regulatory bodies, industry standards and contractual obligations. Increased regulation of data utilization and distribution practices, including self-regulation and industry standards, could increase our cost of operation, limit our ability to grow our operations, or otherwise adversely affect our business,” the company said in its filing.

It remains to be seen how much of an impact any of this will have on app makers. The FTC is limited in how much it can enforce — but a grand jury investigation suggests the government is concerned about possible illegal activity. While that might not effect companies who are legally using consumer data, the case should send a warning to anyone using consumer data that they need to plan for a day that includes a lot more restrictions on the use of that information. Building a business that relies heavily on user data could get dicey if the government has its way.