#Sponsored Posts: What are best practices? | Diana Friedman
Hi BICsters,
I took a business law class over the summer through the CUNY School of Professional Studies and wrote my final paper on the regulations surrounding native ads / influencer marketing / sponsored ads (whatever name you like use...). I learned a lot and figured I'd post the paper below in case any of you are curious about this topic, either related to your jobs or BIC assignments. It's a bit long (since the paper had a page requirement :) ), so if you want a short recap, you can read the conclusion section at the end.
Take care!
Diana
The majority of Americans (about 7 in 10) are on some form of social media today (Pew Research Center). People use social media for a variety of reasons: to stay in touch with friends, to get news, to learn about topics or brands they care about, and more. One quick scroll through anyone’s Instagram, Facebook, Twitter, or other social media feed confirms the multi-use aspect of today’s social media channels, with content ranging from individual posts and photos, to news updates, to advertisements, branded posts, and more. Indeed, sometimes the type of content is hard to discern: is a celebrity’s post about a new handbag simply a statement of personal preference, or is it an ad?
This paper focuses on the evolving field of native advertising in the social media sphere, in which individuals acting as “ambassadors” or “influencers” are paid to post about a product, brand, event, or other entity.
To many, social media often seems like a free-for-all environment, where people can say or do anything without incurring real-world consequences, simply because the interaction takes place in a virtual environment. However, the majority of social media content posted by individuals who are paid by a company or brand falls squarely within the realm of advertising. This paper will explore the responsibilities of companies and influencers with regard to “native advertising” (advertising that takes the form of the editorial medium in which it exists) in the social media space, also commonly called “influencer marketing,” “sponsored posting,” or “paid promotion.”
The Role of the FTC
The primary government agency charged with the regulation of advertising is the Federal Trade Commission (FTC). According to former FTC Commissioner Mary Azcuenaga, the FTC “has responsibility (along with the Department of Justice) for enforcing the nation's competition laws, and it is the only agency that administers the nation's most comprehensive federal statute designed to protect consumers from unfair or deceptive practices, the Federal Trade Commission Act” (Azcuenaga, M). While this quote is excerpted from a speech given 20 years ago, the description is compelling because it highlights the dual role of the FTC in both protecting consumers and encouraging competition.
The FTC Act of 1914 is the primary statue of the Commission. It allows the FTC to take on five primary jobs, according to the FTC website (“Federal Trade Commission Act”):
“(1) prevent unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce; (2) seek monetary redress and other relief for conduct injurious to consumers; (3) prescribe rules defining with specificity acts or practices that are unfair or deceptive, and establishing requirements designed to prevent such acts or practices; (4) gather and compile information and conduct investigations relating to the organization, business, practices, and management of entities engaged in commerce; and (5) make reports and legislative recommendations to Congress and the public.”
The mission of the FTC has not changed since it was founded, but the world certainly has. Social media did not exist at the time of Azcuenaga’s speech 20 years ago, and certainly not in 1914. The FTC’s Endorsement Guides, which contain regulations regarding advertising endorsements, last underwent revision in 2009. Prior to that, they had not been updated since 1980—quite a long time in the fast-moving world of media.
Azcuenaga’s speech references a partnership with the Department of Justice because the FTC itself does not make the law. According to an FTC press release, “The Endorsement Guides are administrative interpretations of the law intended to help advertisers comply with the Federal Trade Commission Act; they are not binding law themselves. In any law enforcement action challenging the allegedly deceptive use of testimonials or endorsements, the Commission would have the burden of proving that the challenged conduct violates the FTC Act (“FTC Publishes Final Guides”).”
Understanding “Endorsement”
As mentioned earlier, the majority of social media content posted by individuals who are compensated by a company or brand falls squarely within the realm of advertising, which the FTC addresses in its Endorsement Guides.
The Endorsement Guides were updated in 2009, in large part to address modern technologies such as blogging and “word-of-mouth” marketing (which likely refers to social media and other technologies that allow people to directly and personally engage in promotion to large audiences) (“Truth in Advertising: Advertisement Endorsements”). The FTC clearly states that endorsement refers to a “material connection” between an endorser and an advertiser (a connection that might affect the weight or credibility that consumers give the endorsement) (“FTC Staff Reminds Influencers and Brands to Clearly Disclose Relationship”). The FTC goes on to clarify that a material connection is not just monetary payment; it could include a business or family relationship or free products or travel.
Endorsement qualifies as commercial speech, which is defined by the Supreme Court as speech “where the speaker is more likely to be engaged in commerce, where the intended audience is commercial or actual or potential consumers, and where the content of the message is commercial in character” (“Commercial Speech”).
Clarifying “Disclosure”
Endorsement is a legal advertising tactic; it becomes illegal when it is not made clear to consumers that endorsement (consisting of a material connection between the advertiser and the endorser) exists. The method for making an endorsement relationship clear is called disclosure. But who is responsible?
The FTC’s 2009 Endorsement Guides place the burden of appropriate disclosure on both the marketer and the influencer; in these revised guidelines both “may be liable for false or unsubstantiated claims made in an endorsement – or for failure to disclose material connections between the advertiser and endorsers (“FTC Publishes Final Guides”).
Often, bloggers, social media influencers, and other digital brand ambassadors have skirted the issue of disclosure (Martens and Wheat). Indeed, prior to April 2017, the FTC only named marketers in social media endorsement cases (Burnstein).
Consider the 2016 case of Warner Brothers Home Entertainment, Inc., in which the FTC cited lack of disclosure for paid promotion of the video game, “Middle-earth: Shadow of Mordor.” Warner Bros. paid very influential gaming personalities, such as YouTube star PewDiePie, for glowing video reviews and social media posts. But PewDiePie was not named by the FTC for his lack of disclosure, only Warner Bros. (which reached a settlement with the FTC) was named.
In a similar case, the FTC issued a 2016 complaint to Lord & Taylor for paying multiple fashion influencers to promote one of its dresses. While the department store brand contractually required its influencers to tag Lord & Taylor in their posts, they did not require disclosure of compensation for the posting (Kim and Dosier). Lord & Taylor settled its case as well.
Settlements can cost companies dearly. While there is an exception for first-time violations, according to attorneys from Knobbe Martens law firm, “each violation thereafter may result in a civil penalty of up to $16,000 per violation per day” (Kim and Dosier). When you consider the nature of social media posting (with many endorsement posts often going out in short periods of time, often from many different influencers), the potential for fines (as well as associated legal fees) is quite high.
A Tricky Issue
Greenberg Traurig law firm partner Nathan Muyskens applauds the new focus on placing the burden of disclosure on all parties involved (Barber). “The FTC is finally realizing that if companies are going to use these new types of advertisements, the folks who are getting the immediate benefit from it—the influencers—need to be on the same page,” said Muyskens in a National Law Journal article.
However, Muyskens also realizes that while brands may require disclosure in a contract (“most big companies ‘know the rules’ when it comes to disclosures”), it is not always possible to control influencers’ behavior online (Barber). “The problem is a lot of influencers think they have to maintain their own credibility, so they don’t necessarily want to put that [sponsorship disclosure] designation on their postings,” said Muyskens.
Unprecedented FTC Action
Given the reluctance (and often, sheer disregard) of many influencers to take responsibility for disclosure, the FTC took the unprecedented action of sending out 90 warning letters in April 2017, many of which went directly to influencers. Although specific names have been withheld, the FTC released the form letter that it sent, which stresses that disclosure for any endorsement comprised of a “material connection” between an endorser and marketer must be “clear” and “conspicuous” (“FTC Staff Reminds Influencers and Brands to Clearly Disclose Relationship”).
The FTC’s warning letters were spurred by a petition from advocacy group Public Citizen, submitted on September 7, 2016 (Martens and Wheat). Part of the public outcry, according to attorneys at the Sheppard Mullin law firm, could be attributed to the “increasingly blurred” line surrounding compensation. It is no longer a simple question of whether an influencer has been paid, they say; consumers now have to wonder if a “praiseful Instagram post” is a result of “free merchandise, an early look at a new video game, or even the expectation of some kind of payment in the future” (Martens and Wheat).
The attorneys also note the rise of non-celebrity brand ambassadors, who bring a sense of “authenticity,” but also tend to bring many violations in terms of lack of disclosure. For this reason, the FTC stressed in its April 2017 warning letters that material connections need not be outright payment. “Our goal is to influence influencers to comply with those established principles,” said an FTC employee in a blog post on the FTC website (Fair).
Best Practices in Disclosure
In order to remove as much ambiguity as possible from a field rife with gray areas, the FTC provided concrete examples of endorsement disclosures that would (and would not) meet the “clear and conspicuous” criteria. The examples cover three general areas: terminology, placement, and clarity.
First, the FTC recommends that language of sponsorship is clear and direct. They advise influencers to stay away from broad terms such as “Thank you,” “#partner,” and “#sp” (which some influencers use to denote “sponsored,” but which is not always clear to consumers) (Fair). While the FTC does not require specific terminology in disclosures, it does require that the nature of the connection between the parties is immediately clear. Sheppard Mullin recommends the hashtags #ad, #sponsored, #sponsoredpost, and #workingwith as “clear” choices (Martens and Wheat).
Second, the FTC requires that “people should be able to spot the disclosure easily”; placement should come toward the beginning of a post and should not require a click-through (Fair). Sheppard Mullin provides additional guidance for YouTube influencers and others who endorse via video: “in the case of a video, make sure the disclosure appears early in the video and is prominently seen and/or heard” (Martens and Wheat).
Finally, the FTC requires that it is easy to read the sponsored language. They recommend against slipping disclosures into a string of hashtags where they could be lost or hard to comprehend (Martens and Wheat).
Additional recommendations from the Knobbe Martens law firm advise marketers to always include specific disclosure requirements as part of all influencer contracts, for every single endorsement (Kim and Dosier). Marketers must also monitor the compliance of their contracted influencers says the law firm; it is no longer enough to put a clause in a contract and wash your hand of the matter.
Conclusion
While it seems as though there are many gray areas surrounding native advertising on social media (specifically, individual posts that are paid for or compensated by a company or brand), the FTC has regulations (formalized as the Endorsement Guides) that are applicable in the social media environment. The principle behind the guidelines is simple: “consumers have the right to know if they are looking at paid advertising” (Kim and Dosier).
The FTC acknowledges that endorsement, defined as a “material connection” between an endorser and a marketer, is a valid advertising tactic, even on newer technologies such as social media, but that the tactic must be laid bare. In other words, disclosure must occur.
Disclosure—the practice of publicly acknowledging a material connection—is the responsibility of both parties (marketers and endorsers). Given the work of the FTC since its revision of the Endorsement Guides in 2009 (and the settlements it has reached with big brands such as Lord & Taylor and Warner Bros. in recent years), most major marketers are now aware of, and comply with, disclosure guidelines on social media.
Endorsers, however, have proven to be a larger hurdle in a digital environment. For this reason, the FTC sent out 90 warning letters in April 2017, many of which were addressed directly to social media influencers, and served to educate the endorsers of their personal responsibility for disclosure, in addition to that of the companies with which they work.
While the regulations about the need for disclosure are clear, less clear is the form the disclosure should take and when it should be done. The FTC, and many law firms and related entities, have provided practical guidance regarding the language, placement, and clarity of social media disclosure. However, FTC regulations are still open to some interpretation as specific disclosure language/placement/clarity is not mandated, and thus, there is no “industry standard.”
Ultimately, more should and could be done to educate companies/brands, influencers, and consumers about disclosure requirements and the various forms that disclosure can take. While “#ad” is fairly clear, “#workingwith” (as recommended by law firm Sheppard Mullin) is, in my opinion, somewhat vague and does not meet the FTC criteria of “clear and conspicuous” disclosure. This is just one demonstration of the subjectivity inherent in the FTC’s disclosure criteria.
It will be interesting to see how this issue evolves as the social media landscape continues to develop. With approximately 70 percent of Americans currently using social media, it’s a good bet that brands will continue viewing social channels as prime advertising space and social media influencers as ideal brand ambassadors. If the FTC can continue to educate all parties (marketers, influencers, and consumers) that social media endorsement is advertising, while continuing to enforce regulations and inform people about best practices in disclosure, it seems likely that native advertising on social media will continue its successful trajectory.
References
Pew Research Center. “Social Media Fact Sheet,” 12 Jan., 2017, http://www.pewinternet.org/fact-sheet/social-media/.
Azcuenaga, Mary. “The Role of Advertising and Advertising Regulation in the Free Market,” 8 April, 1997, https://www.ftc.gov/public-statements/1997/04/role-advertising-and-advertising-regulation-free-markethttps://www.ftc.gov/public-statements/1997/04/role-advertising-and-advertising-regulation-free-market.
Federal Trade Commission. “FTC Publishes Final Guides Governing Endorsements, Testimonials,” 5 Oct., 2009, https://www.ftc.gov/news-events/press-releases/2009/10/ftc-publishes-final-guides-governing-endorsements-testimonials.
Federal Trade Commission. “Federal Trade Commission Act,” https://www.ftc.gov/enforcement/statutes/federal-trade-commission-acthttps://www.ftc.gov/enforcement/statutes/federal-trade-commission-act.
Federal Trade Commission. “Truth in Advertising: Advertisement Endorsements,” https://www.ftc.gov/news-events/media-resources/truth-advertising/advertisement-endorsementshttps://www.ftc.gov/news-events/media-resources/truth-advertising/advertisement-endorsements.
Federal Trade Commission. “FTC Staff Reminds Influencers and Brands to Clearly Disclose Relationship,” 19, April, 2017, https://www.ftc.gov/news-events/press-releases/2017/04/ftc-staff-reminds-influencers-brands-clearly-disclosehttps://www.ftc.gov/news-events/press-releases/2017/04/ftc-staff-reminds-influencers-brands-clearly-disclose.
Wex Legal Dictionary/Legal Information Institute. “Commercial Speech,” https://www.law.cornell.edu/wex/commercial_speechhttps://www.law.cornell.edu/wex/commercial_speech.
Barber, C.R. “FTC Tells Paid 'Influencers' to Disclose When Instagram Posts Are #Ads,” National Law Journal, 19 April, 2017,
http://www.nationallawjournal.com/id=1202784055128/FTC-Tells-Paid-Influencers-to-Disclose-When-Instagram-Posts-Are-Ads?slreturn=20170605160559http://www.nationallawjournal.com/id=1202784055128/FTC-Tells-Paid-Influencers-to-Disclose-When-Instagram-Posts-Are-Ads?slreturn=20170605160559.
Dosier, C. and Kim, L. “Influencer Marketing: The FTC's Evolving Policies on Paid Promotion Disclosure,” Knobbe Martens Blog, 3 March, 2017, https://www.knobbe.com/news/2017/03/influencer-marketing-ftcs-evolving-policies-paid-promotion-disclosurehttps://www.knobbe.com/news/2017/03/influencer-marketing-ftcs-evolving-policies-paid-promotion-disclosure.
Martens, L. and Wheat, I. “Using Hashtag #Disclosures in Social Media Advertising.” Sheppard Mullin “Law of the Level” Blog, 20 Jan., 2017,
http://www.lawofthelevel.com/2017/01/articles/social-media/using-hashtag-disclosures-social-media-advertising/http://www.lawofthelevel.com/2017/01/articles/social-media/using-hashtag-disclosures-social-media-advertising/.
Burstein, A. “FTC Puts ‘Influencers’ on Notice: Disclose Marketing Relationships in Social Media Posts.” Broadcast Law Blog, 26 April, 2017, http://www.broadcastlawblog.com/2017/04/articles/ftc-puts-influencers-on-notice-disclose-marketing-relationships-in-social-media-posts/http://www.broadcastlawblog.com/2017/04/articles/ftc-puts-influencers-on-notice-disclose-marketing-relationships-in-social-media-posts/.
Fair, L. “Influencers, are your #materialconnection #disclosures #clearandconspicuous?,” Federal Trade Commission Business Blog, 19 April, 2017, https://www.ftc.gov/news-events/blogs/business-blog/2017/04/influencers-are-your-materialconnection-disclosureshttps://www.ftc.gov/news-events/blogs/business-blog/2017/04/influencers-are-your-materialconnection-disclosures.
