WASHINGTON — The Federal Trade Commission has officially weighed in on controversial online native advertising for the first time, setting new standards and business guidelines that if not met, could lead to millions of dollars in civil fines, as the line between editorial and advertising has become increasingly blurred in the digital age.
Native advertising has emerged as a big money-maker for media companies in recent years, and everyone from The New York Times, Buzzfeed and Atlantic Media to Vice Media, Condé Nast, Time Inc. and Hearst Corp. is getting in on the action. The creation of content for brands that are labeled as “sponsored” or “promoted” has helped traditional outlets develop new streams of revenue that help to stem declines in print sales. On the flip side, native advertising has been the growth driver behind most digital companies. According to data from Business Insider Intelligence Unit, spending on native ads reached $7.9 billion this year, and it will mushroom to $21 billion in 2018. That’s up from just $4.7 billion five years ago.
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Native advertising has become so widespread that even comedian John Oliver mocked the proliferation of such content last year on his show, “Last Week Tonight with John Oliver.” In the segment he highlighted the struggle between editorial independence and advertising better known as the line between church and state.
“Ads are baked into content like chocolate chips into a cookie, but actually, it’s more like raisins into a cookie because no one f—-ng wants them there,” Oliver said, while noting that a “press cannot be free and independent if nobody is willing to pay for it, and it seems nobody is going to.”
And that point hasn’t been lost on the FTC.
While the FTC did not deem the practice of native advertising deceptive, it essentially put advertisers and publishers on notice. The commission established principles for native advertising, explaining when a company should use a “clear and prominent” disclosure to distinguish it from editorial content.
If a company is found in violation of an enforcement order, the potential is there for the FTC to levy multimillion-dollar fines.
The commission voted 4 to 0 on Tuesday to issue a new enforcement policy statement that lays out its thinking and new standards on content paid for by an advertiser. The policy statement expands on earlier FTC standards related to deceptively formatted advertisements in other media. A business guide was released in conjunction with the enforcement policy.
“The FTC’s policy applies time-tested, truth-in-advertising principles to modern media,” said Jessica Rich, the director of the FTC’s bureau of consumer protection. “People browsing the Web, using social media or watching videos have a right to know if they’re seeing editorial content or an ad.”
An ad’s format is considered deceptive if it “materially misleads consumers about the ad’s commercial nature, including through any implied or express representation that it comes from a party other than the sponsoring advertiser,” the FTC said.
“If the source of advertising content is clear, consumers can make informed decisions about whether to interact with the advertising and the weight to give the information conveyed in the ad,” the FTC said.
But with the rapid changes emerging in digital advertising, native ads are proliferating and federal officials are concerned that consumers could be deceived.
The FTC held a daylong workshop titled “Blurred Lines: Advertisements or Editorial?” in December 2013 examining ethical questions around native advertising, as previously reported.
The new enforcement policy drew in part from input provided by a wide range of experts who participated in the workshop from the fields of journalism, advertising, law and publishing. In addition, the FTC staff has been monitoring how native advertising is used, as well as relevant consumer research in the past two years.
The objective of the new standards is to give businesses clear guidance and help them modify their methods related to native advertising if they think they might not be in compliance, ultimately helping them avoid potential enforcement action, an FTC spokesman said. The commission will rely on the set of applicable standards in making a determination of whether certain native advertising is deceptive.
The FTC has challenged deceptive ads over the years in a wide variety media, ranging from “advertorials” that appeared as news stories or feature articles to direct-mail ads disguised as book reviews and infomercials presented as regular TV or radio programming, among other formats.
Skechers USA Inc. agreed in 2012 to pay $45 million to settle FTC charges that it violated federal laws making deceptive claims to consumers in advertisements for its toning shoes. Consumers who purchased the named toning products were eligible for refunds directly from the FTC.
The FTC spokesman said that was a case of redress. The largest civil penalty ever levied against a single defendant by the FTC (that was not a redress case) was imposed on Google Inc., he said, noting that the agency collected $22.5 million on charges that Google misrepresented privacy assurances to users of Apple’s Safari Internet browser.
While there is a potential for direct civil penalties in native advertising cases, of which there have been none to date, the FTC can send a warning letter to companies before it resorts to seeking civil penalties. If that court or settlement order is violated, companies can then face penalties and possibly contempt, he said.
Native advertising is a new frontier for the FTC.
“With the emergence of digital media and changes in the way publishers monetize content, online advertising known as ‘native advertising’ or ‘sponsored content,’ which is often indistinguishable from news, feature articles, product reviews, editorial, entertainment, and other regular content, has become more prevalent,” the commission said. “In digital media, a publisher, or an authorized third party, can easily and inexpensively format an ad so it matches the style and layout of the content into which it is integrated in ways not previously available in traditional media.”
As a result, the signals to consumers can be “masked” as to the true nature of the advertising or promotional message. At the same time, business models have changed and many publishers have begun to offer advertisers “formats and techniques that are closely integrated with and less distinguishable from regular content so that they can capture the attention and clicks of ad-avoiding consumers,” the FTC said.
The commission said the recent proliferation of natively formatted advertising in digital media has “raised questions about whether these advertising formats deceive consumers blurring the distinction between advertising and non-commercial content.”
In addition to the enforcement policy statement, the FTC issued a guide for businesses on native advertising. The FTC said in order for businesses to ensure their native advertising is not deceptive, they should take certain steps, including making sure the ad or promotional message is transparent.
“An advertisement or promotional message shouldn’t suggest or imply to consumers that it’s anything other than an ad,” the FTC guide said.
Another step companies should consider is the use of disclosures when the native ads are not clearly commercial or could cause confusion and mislead consumers. If a disclosure is used, it must be “clear and prominent,” the FTC said.
The business guidelines contain several hypothetical examples of when businesses should disclose and other examples of when it might not be necessary. It also instructs businesses on how to make the disclosures prominent and understandable.
“In assessing whether a native ad presented on the main page of a publisher site is recognizable as advertising to consumers, advertisers should consider the ad as a whole and not just focus on individual phrases, statements or visual elements,” the FTC said. “Factors to weigh include an ad’s overall appearance; the similarity of its written, spoken, or visual style or subject matter to non-advertising content on the publisher site on which it appears, and the degree to which it is distinguishable from other content on the publisher site. The same assessment applies to any click- or tap-into page — the page on which the complete ad appears.”