FTC Publishes Policy Statement and Business Guide on Native Advertising

native adversiting

The biggest news from the Federal Trade Commission’s newly issued guidelines on native advertising may be the line buried in a “final note” at the end of a long, detailed document:  “Everyone who participates directly or indirectly in creating or presenting native ads should make sure that ads don’t mislead consumers about their commercial nature.”  With those words, the FTC suggested that marketers aren’t the only ones who have to worry about native ads; the FTC could be planning to take enforcement actions against publishers, as well.

The guidelines demonstrate the FTC’s recognition that the context of the advertising, and the target audience of the advertising, and not just the platform on which the advertising appears, influence the analysis of when publishers should disclose to readers that particular content has been sponsored by advertisers.

The FTC is charged with protecting consumers from “unfair or deceptive acts or practices in or affecting commerce,” which are proscribed by the Federal Trade Commission Act. From time to time, the FTC issues guidance on what advertisers can do to avoid deceptive and unfair practices in certain advertising contexts. Two years after hosting a workshop entitled “Blurred Lines: Advertising or Content? An FTC Workshop on Native Advertising” for the purpose of exploring the legal issues involved in native advertising, the Federal Trade Commission has at last published its much-anticipated guidelines on consumer protection in the native advertising context. In late December 2015, the FTC published its Enforcement Policy Statement on Deceptively Formatted Advertisements (the “Policy Statement”), and its companion document, the more practical Native Advertising: A Guide for Businesses (the “Business Guide”).

The guidelines have received a mixed reception.  In a recent Advertising Age article, many publishers said they feel they are already in compliance with the measures the guidelines suggest.  But the Interactive Advertising Bureau, a trade association, expressed reservations that some of the guidelines about labeling native ads may be “overly prescriptive,” and cautioned that it is important that the FTC guidelines “not stifle innovation.”

Many predict that 2016 will see the FTC seeking to take enforcement actions in the native advertising realm.  To ensure that your publication is not a test case, it is important to understand what native advertising is and under what circumstances it can be deemed deceptive or misleading.

What is a native advertisement?

While native advertising is the commonly-used, catch-all term for advertising content that looks like editorial content, it is actually only one type of advertising utilizing branded, or sponsored, content.  The FTC defines native advertising as “content that bears a similarity to the news, feature articles, product reviews, entertainment, and other material that surrounds it online.” Two common types of native ads are in-feed ads such as Facebook’s “sponsored post” or Twitter’s “promoted post” (which appear in your “feed” on those platforms), and recommendation widgets which appear at the bottom or on the side of a web page, providing image-plus-text links to sponsored content with words such as “you may also like,” or “recommended for you.”  Other examples include paid search units such as the top or most prominent results from a Google or Bing search, and in-game or in-app product placements.

What’s special about native advertising?

An advertising act or practice that misleads a “significant minority” of “reasonable consumers” and which act is “material” to consumers’ purchasing decisions is a violation of the FTC Act.   If the act or practice affects a consumer’s purchasing decision, then it is material.  The consumer is likely harmed by the act or practice because she would not have made that decision but for the deception.  The use of native advertising raises concerns about consumer deception because if the reader assumes that certain content is editorial, she may view that content as unbiased, not understanding that the content has a commercial message.  Because a successful native ad unit blends in with the editorial content on the webpage, consumers may be deceived by viewing an advertisement where they would expect to see editorial content.  In the words of the FTC, the native format “masks the signals” that typically alert consumers that what they are viewing is advertising.

The Policy Statement itself provides little new information about the FTC’s position on avoiding deceptive practices in native advertising.  Much of the Policy Statement is devoted to a discussion of the various deceptive advertising formats that the FTC has addressed throughout the evolution of the media. As we have learned through several policy statements from the FTC over the years, while the advertising formats change, the law stays the same. Essentially, the requirements for avoiding deceptive advertisement are the same for native advertising as they are for any other type of advertising: consumers must be notified that the content they are viewing has a commercial message, and that message must be truthful.  Like with any new media advertising formats, it is only the way in which such disclosures are made that differs with native ads.

Is all native advertising potentially deceptive?

While the title of the Policy Statement might lead you to believe the FTC considers all native advertising “deceptively formatted,” the Business Guide offers several examples of situations in which no disclosure is needed because no deception is likely. If no objective statement about the product is made, then no disclosure is required.  For example, a race car videogame places billboards along a virtual road, and those billboards contain advertisements for real world products.  The advertisers of those real world products pay the videogame developers to place their ads on those billboards.  But because video game players know from real life experience that billboards are advertisements, no disclosure is necessary.

Let’s say that in that same game, players have the option of filling up at a Mobil gas station.  Mobil paid the game developers to make that gas station look like a Mobil station.  Perhaps on another level the driver can stop at a Gulf station.  The game makes no statement about whether Gulf or Mobil is better quality gas.  Therefore, no disclosure is necessary because the existence of the Gulf or Mobil brands in the game is not likely to be material to the purchasing decision of the players in the real world.

Another example: A women’s magazine publishes a video on YouTube of a makeup tutorial for creating the perfect “cat eye” look. The person giving the tutorial does not mention any specific products she is using, nor are any names or logos visible on said products.  The video is accompanied by the phrase “Presented by CoverGirl” along with the CoverGirl logo.  Even though CoverGirl’s sponsorship of the video is advertising, the video is not because it doesn’t promote CoverGirl’s products. Therefore no disclosure language is required on the video itself.

Let’s say instead that the makeup tutorial is performed by a popular vlogger using CoverGirl products.  The vlogger tells her audience why she chooses CoverGirl products over others in achieving the perfect cat eye.  The labels on the products are clear to the viewers.  That video is promoted in feed on Facebook, and because of the nature of the Facebook platform, it is specified that the video comes from the CoverGirl Facebook page.  Because of her experience with using Facebook, it would be clear to the reasonable consumer that the video is an ad for CoverGirl.  However, once the Facebook user clicks through to the video, the viewer should hear a disclosure by the vlogger that the video is an advertisement for CoverGirl products. Deception is likely because the viewer could reasonably believe that the content of the video reflects the impartial opinion of the beauty expert vlogger, and would not likely attribute it to the advertiser.

What’s new from the FTC?

The above examples demonstrate some nuances of the analysis of whether any ad format is deceptive, not previously addressed by the FTC: (1) that the Commission will evaluate “the particular circumstances in which the native ads are presented to consumers,” including “consumers’ ordinary expectations based on their prior experience with the media in which the ads appear” (Guide); and (2) that the Commission will “consider the ad’s format on reasonable or ordinary members of [the] targeted group [of consumers]” (Statement). However, the Business Guide, and past guidelines from the FTC, also make the potentially conflicting statement that if “a significant minority of reasonable consumers do not notice, process, or comprehend” the disclosure, then the disclosure is insufficient.

Assuming most advertising is targeted to some group, it remains unclear, then, how broad or narrow an audience the advertiser must consider.  In the context of an ad for a cruise ship, is it less than half of all “reasonable consumers” generally, or is it, for example, ordinary members of Generation X who like to travel? The Commission’s statement that it will give some weight to consumers’ prior experience when evaluating whether an ad is deceptive similarly clouds instead of clarifies. An advertiser could not know how many consumers, out of all the consumers who see its ad in their Twitter feed, have enough prior experience with Twitter to understand its content is an ad.  Does this mean that if an advertiser is targeting millennials on Twitter no disclosure is necessary, but if it’s targeting baby boomers it is?  Regardless, by factoring the presumed experiences of a certain consumer group, the FTC grants itself the ability to subjectively determine whether disclosure was necessary or effective. In an attempt to provide guidance on how to make effective disclosures in native advertising, the FTC may have made the analysis for advertisers more difficult.

What should disclosures look like?

In 2013, the FTC published a comprehensive guide on how to make effective disclosures in digital advertising — the “Dot Com Disclosure” guide. The Policy Statement addresses the main categories of those guidelines in the context of native advertising:

  • Proximity and placement
    • The disclosure must come before the advertising message, such as in front of or above the headline of the content.
    • If graphics are dominant, or thumbnails are presented to the consumer, the disclosure should be placed within the graphic or on the thumbnail itself, rather than merely in the written description of the content.
    • The disclosure must remain with the content when it is shared by consumers, for example, through social media or email.
    • Another disclosure should be made on the page which the consumer clicks to or taps through.
  • Prominence
    • Disclosures should stand out, such as by using contrasting colors, shading, and borders.
    • Audio/visual advertisements require audio/visual disclosures.
    • Disclosures in videos must appear long enough for the consumer to read and them.
  • Clarity of meaning of language
    • Don’t use words that have different meanings to consumers in different contexts.
    • Be consistent across ads.
    • Don’t use logos or brand names alone without text disclosures.
    • Best practices = use “Ad,” “Advertisement,” “Paid Advertisement,” or “Sponsored Advertising Content.”
    • In the recommendation widget and other similar contexts, avoid “Promoted” or “Promoted Stories” (because those phrases are ambiguous as to whether the site is endorsing the content)
    • “Presented by X,” ” Brought To You By X,” “Promoted by X,” “Sponsored by X” may be used when the advertiser funded or underwrote the creation of the content, but did not create or influence the content.

The bottom line

It is apparent from the Policy Statement and the Business Guide that the type of consumer comprising a target audience for a commercial message is a key factor in analyzing whether and how to disclose the advertising message. The FTC also recognizes that not all native advertising is deceptive.  Consumers’ experience with the platform on which the ad is placed can negate any potential confusion as to whether the content there is advertising or not.

Like spam email and banner ads before it, digital native advertising is merely the newest way for advertisers to convey a commercial message, but the consumer protection principles and rules remain the same. The Policy Statement and Business Guide help advertisers apply those principles and rules in the native advertising context.  Publishers should take heed.

If you have any questions about complying with FTC guidelines on native advertising, or any other marketing and advertising law matters, please contact Amanda Schreyer, a member of Prince Lobel Tye’s Media Law Practice Group and the author of this alert, at aschreyer@princelobel.com.  You can follow her on Twitter @SchreyerEsquire, and you can follow the Prince Lobel Media Law Group at @PLT_Media


[i] The two preceding paragraphs were published previously in substantially similar form in this author’s article Beyond the Buzzwords: Sponsored Content, Native Advertising, and Consumer Protection, published in the American Bar Association’s Landslide magazine.

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