Kim Kardashian promoting a product on her Instagram.

Sponsored content: It has become the lifeblood of media companies looking to bolster anemic print and digital revenue streams.

But just as bloggers came under federal government regulations to ensure that consumers knew when these e-correspondents were being paid to write about a brand or product, now WWD has learned that the concept of sponsored content has caught the attention of the Federal Trade Commission.

And there are two words that might sum up media companies’ reaction to that: Uh-oh.

After all, sponsored content — otherwise called native advertising — is expected to be a $59 billion global industry by 2018, according to Adyoulike. While there is no indication that media companies or brands are doing anything wrong per se in their attempts to develop online and print content, the FTC will soon begin holding media companies accountable for deceptive practices.

Part of the change is linked to how media companies have adapted to the difficult times. There are few of them around today that do not have some kind of in-house sponsored content unit that produces advertising for its partners. That transformation to hybrid publisher/creative agency has grabbed the attention of the FTC as part of its ongoing effort to ensure that consumers can differentiate between advertising and editorial content.

Although the FTC works with publishers, it has never penalized a media company with a fine.

“If they are creating the sponsored content, then yes, we will begin looking at them,” said Mary Engle, head of the FTC’s Advertising Practices Division.

Engle cited a key case last year that changed the agency’s stance, namely the complaint against Lord & Taylor, in which the retailer tapped Nylon Media for a native campaign.

Nylon produced the content for L&T about a collection from L&T’S apparel line, Design Lab. The Instagram campaign focused on a paisley asymmetric dress, which was featured in an article on must-have items. Nylon did not disclose that the dress was part of the campaign.

Lord & Taylor’s Design Lab Instagram campaign. 

Additionally, L&T contracted Nylon to post a photo of the dress on its Instagram page, but that wasn’t disclosed as an ad, either. Central to the social campaign was the inclusion of a team of 50 fashion influencers, who were gifted and paid between $1,000 and $4,000 to post photos wearing the dress. Those posts weren’t labeled as ads, either.

“The Lord & Taylor case gave notice to the fashion industry, which maybe wasn’t paying too much attention before,”Engle said. “It’s important to everyone to understand their legal obligations.”

An L&T spokeswoman said: “Lord & Taylor is deeply committed to our customers and we never sought to deceive them in any way, nor would we ever. When it came to our attention that there were potential issues with the April 2015 campaign, we took immediate action with the social media agencies that were supporting us on it to ensure that clear disclosures were made. We cooperated fully with the FTC’s inquiry and have, of course, agreed to uphold the current version of the guidelines.

“It is worth noting that the FTC issued new guidelines after the campaign launched. We applaud the new guidelines that clarify the rules. We have educated our teams about them and require that any outside agencies or partners we work with understand and adhere to them as well. Further, we encourage the FTC to continue to update and communicate their guidelines clearly and swiftly as the digital and social media landscape rapidly evolves. We remain dedicated to our core values of transparency and honesty in everything that we do for our customers.” 

Engle declined to comment on why the FTC did not pursue Nylon and just L&T, but noted broadly that the agency has begun looking at influencers, their relationships with publishers and the role of social media.

“Generally, it comes back to if they [influencers and publishers] are promoting a particular brand or product and if they have a financial or material connection to the brand, that should be disclosed,” she said, pointing to the fallout from the lack of transparency from the Kardashians.

It came to light last year that the Kardashians were not disclosing what products they were endorsing via social media on behalf of brands. A letter was sent by the nonprofit group Truth in Advertising outlining the issue, and since then, the family members who are paid to endorse products designate a sponsored post with “#ad” or “#sp.” Now most media companies spend more time working with lawyers to vet influencers or the agencies that represent them. And influencer agencies spend time laying out the rules to their clients.

But according to Karen Robinovitz, cofounder and chief operating officer of Digital Brand Architects, part of the problem is a lack of clarity of the rules themselves since the landscape is changing so quickly. Robinovitz’s firm represents influencers, and some of her clients even worked on the Nylon/L&T partnership. She claimed that they abided by what they understood the guidelines to be, and once they learned of a violation, they corrected it.

Nylon’s Design Lab article. 

“There almost needs to be a gathering of thought leaders across media, digital, influencers,” she said. “Does there become a symbol like there is with copyright [for sponsored content] that starts standardizing the labeling?”

Chris Hercik, senior vice president of creative and content at Time Inc.’s native studio The Foundry, explained why the space is so important today: “If you start looking where content marketing is going, two-thirds of digital dollars will move to social distribution,” he said.

As a result, Time Inc., like its competitors, has been focusing on video and social media influencers. In order to tap into a broader social reach beyond that of its ad partners and titles, Time Inc. is creating its own influencer network. Social media stars benefit from the publisher’s access and in exchange, the firm gets greater social reach. Hercik would not comment on whether influencers are being paid.

But influencers can be tricky to monitor, as they have multiple relationships with brands and publishers that they may not always disclose. This may spell trouble for media firms now that the FTC will hold them accountable for influencers. At the same time, Robinovitz claimed that the influencer isn’t always at fault; sometimes brands — especially luxury brands — ask her clients not to label their social media posts as ads.

In those cases, she advises her clients to not accept the job in that case. She also noted that while influencers are on the FTC’s radar, editors and celebrities — Kardashians notwithstanding — are not to the same extent.

Robinovitz cited a few double standards, namely instances in which editors accept press trips and do not mention in their social media posts that those trips have been paid for by brands. She also pointed to clothing and accessories given by brands to celebrities and editors alike — and the lack of transparency about those relationships. Influencers typically are made to tag those posts, but editors have more leeway, she said.

“Our point of view is this is what it is, let’s just make sure everyone is abiding by the same publishing rules,” she said.

A silver lining here is that a financial penalty from the FTC comes only when a company violates a prior order, and the agency generally doesn’t go out of its way to pursue a case unless the parties make no attempt at correcting the problem. This is due to the fact that the agency has limited resources, Engle offered, but she also explained that with the rise of third-party platforms, the importance of full disclosure is heightened.

For advertising, it can sometimes be tricky for sponsored posts to be labeled as such when they hit third-party platforms.

“We don’t have complete control over the way our content is projected across different platforms,” said senior vice president and chief revenue officer of Hearst’s Digital Media division, Todd Haskell. “It needs to be transparent to the reader at the point of promotion, not just the point of consumption. That’s a moving target. The platforms are evolving.”

What Haskell was referring to is the way sponsored content is labeled on platforms like Facebook and Google once it migrates from Hearst’s sites to third-party platforms. Sometimes the label of “ad” isn’t extended on platforms, and thus is not labeled.

Automated technology, which allows brands to disseminate their content on multiple web sites, is central to the issue.

Although it was not a sponsored content issue, Google recently felt the impact of automation gone wrong when The Guardian realized its advertisements were appearing on YouTube videos from extremists. The news organization pulled its marketing from Google, which owns YouTube, and other brands, such as Wal-Mart Stores Inc., AT&T, Verizon and Johnson & Johnson, followed suit, after they learned their ads were displayed next to YouTube’s videos promoting hate speech, terrorism and racism. About 250 advertisers pulled their spend from YouTube, which could cost Google $750 million, according to an analyst at Nomura Instinet. The issue has brought to light the need for more control of ad placements by brands and ad buyers on Google and other dominant third-party platforms.

In order to be less ensnared by the domination of such platforms, Vox Media has developed “Concert,” a video player that has an ad server, which allows publishers to control the advertising and labeling around their content.

“This is an alternative,” said Lindsay Nelson, Vox Media’s chief marketing officer. “We put so much emphasis on Concert because you lose control when you distribute content on Facebook and Google. You lose the premium environment.”

Labeling aside, a central reason for the FTC’s caution is to make sure that consumers are not confused when they see a native ad, which can be slightly at odds with the mission of advertisers and publishers. After all, the whole point of native advertising is to produce sponsored content that fits seamlessly into editorial workflow in print and digital. Even though the FTC requires that such content is labeled — although they don’t agree on a universal word used for the label, which could contribute to the confusion — publishers often push the envelope for their marketing partners.

According to a study by content and marketing firm Contently, with the Tow-Knight Center at CUNY and Radius Global Market Research Firm, 44 percent of the 1,212 people surveyed who were shown a native ad could not decipher the company that had paid for it. Fifty-four percent surveyed said they felt deceived by native advertising before, and 77 percent surveyed did not even identify native ads as “advertising,” with 34 percent describing it as “editorial content” or a hybrid (43 percent).

Chief experience officer Josh Stinchcomb, who oversees Condé Nast’s sponsored content shop 23 Stories, said misleading the consumer not only carries a legal risk, but also a “reputational” one.

“We take to heart the FTC guidelines. We look at everything through that lens in terms of how we tag things,” he said.

But 23 Stories is in the business of producing sponsored content that is camouflaged to blend in with editorial. An example of blurring the lines is Condé’s Teen Vogue magazine, which put Grimes on its cover last April as part of an editorial spread. The cover story included a spread and interview by Stella McCartney, who tapped the singer for her fragrance, “Pop.” (Grimes and other Teen Vogue cover faces would appear in a TV music video for Pop over the summer). The editorial spread in Teen Vogue managed to find its way into the October issue of sister publication Glamour as a sponsored content package on hair color for L’Oréal. WWD reached out to Grimes’ agent, who indicated the singer was made aware of such usage of her image for a competitor’s brand.

Nonetheless, the package has the same layout and design concept as the rest of the magazine — the only difference is the pages to the ad unit are not numbered. The use of celebrities makes the section all the more confusing and the utter dearth of designation that L’Oréal paid for the creation of the ad unit is an indication of the complexity of the problem — and the difficulty of policing it.

Grimes’ Teen Vogue shoot used in Glamour. 

“The line we’re trying to walk is that we want it to look native to the environment…to have a certain design aesthetic,” said Stinchcomb, who admitted that “we’re seeing that these things are looking more like the regular magazine than they used to.”

He argued that the unit was tagged in some way — which, in the case of the Grimes photos in Glamour, if you consider L’Oréal’s Twitter handle next to Snapchat and Instagram logos as labeled, then, sure — and offered that the reason the advertising is so “endemic” in the pages of the glossy is because editors at the magazines work with 23 Stories. Although the executive wasn’t boasting, he agreed, and stressed that it should be labeled.

Another blurry trend in native advertising is to feature multiple brands in a sponsored package. In Town & Country’s issue in May, the Hearst-owned glossy ran a front-of-book section titled: “Jewels of Mystery: An A to Z User’s Companion.” The package featured historical figures and stars through the ages wearing gems that spanned the alphabet. For instance, for “C,” Paloma Picasso is pictured adorning a citrine pendant to the 1990 Frankfurt Opera. Here’s the catch: the unit was ad-backed by Tiffany & Co. but wasn’t labeled as “sponsored,” even though only Tiffany’s gems were used as present-day examples. The only way a consumer would be able to tell that the unit wasn’t editorial was by noticing a thin gray trim on the spine of the package and the lack of page numeration.

Town & Country’s “Jewels of Mystery” feature is denoted as sponsored by a gray border (left). 

“Magazines have always been really brilliant at contextualization,” said president, marketing and publishing director of Hearst Magazines Michael Clinton, who brushed off the question of whether it was a violation of FTC rules. “Magazine readers know they are going to get a full endemic experience. For our kind of business, this works.”

In fact, Hearst has been a trailblazer in the print native advertising space, trotting out similar campaigns with Bulgari in T&C, a Wal-Mart package for Good Housekeeping and cover wraps and peelback covers galore in its various titles, including Marie Claire, O, The Oprah Magazine and others. It also worked with Cotton Inc. for a companywide digital advertising play that featured Joanna Coles, who was at the time editor in chief of Cosmopolitan, cheekily testifying that she wears cotton pajamas when working late in the office.

In defense of the new landscape, media sources said the fashion media world has always had a kind of murky relationship with brands, calling in for editorial shoots products of key advertisers to ensure they got their credits in the magazine. It isn’t directly “pay-pay-for-play,” but often veers very close to that.

One insider called it a “thin Chinese wall.” However, those shoots — editorial credits or not — were clearly editorial and often included products from nonadvertisers. Plus the magazine paid for the stylist, model, photographer and all the other hangers-on.

The FTC said it is concerned with violations of mislabeling content, not on whether something may be ethically off.

Perhaps a bigger question is: why are media companies trading in what remains of their editorial integrity with such alacrity?

“When you start compromising, it’s often because you haven’t figured out a business model to be a successful business and a successful entity,” said Vox Media’s Nelson. “As print magazines’ revenue declines, these are the companies that are trying to figure out ways to reinvent their advertising businesses and sometime they swing too far.”

But digital companies are also guilty of blurring the lines — especially the larger firms like Vice Media and Buzzfeed, which have really defined the digital sponsored content space. Both Vice and Buzzfeed declined to take part in this story.

Vice has reportedly pulled stories because sponsors were not pleased, and a few years ago it was criticized for not clearly stating that The Creators Project, one of its channels, was funded by Intel.

And Buzzfeed has almost too cleverly disguised its sponsored content as editorial. Last year, Buzzfeed’s U.K. team was taken to task by the British Advertising Standards Authority when it ran a listicle, “14 laundry fails,” without labeling it as paid content by Dylon.

Buzzfeed’s “14 Laundry Fails” listicle sponsored by Dylon. 

Last summer, Buzzfeed separated its entertainment and news units, a move that to some indicated that the company realized it needed to draw a line, and to others it signaled the ability to focus on growing the entertainment business.

At Refinery 29, where about 80 percent of revenue is tied to sponsorship or custom advertising it creates for brands, there’s little debate regarding any kind of separation between news and entertainment.

“First and foremost, we’re a media and entertainment company,” said Refinery cofounder and co-chief executive officer Philippe von Borries. “We’ve built one of the most valued — and from a revenue perspective — largest businesses in the space, digitally, by being focused on one audience, and by being able to work with brands in a way to leverage our expertise about knowing everything we do about that audience and creating great entertainment. That’s the business.”

The ceo said anecdotally that in recent years, the company has seen an uptick in luxury, fashion and beauty advertising as brands in the space have begun shifting their budgets to digital. Insiders told WWD that many of those larger brands prefer to see their ads in print at legacy magazine titles, but spend less on their web sites.

“They go to the magazine companies for magazines,” said Refinery 29 cofounder and co-ceo Justin Stefano. “If they want digital, they are going to go to people who really know how to do it because that’s all they do all day long. We wouldn’t go to a luxury brand and try to sell a print ad. It’s just not what we’re the best at.”

The company declined to break out financials, but Von Borries offered that its business “really took off” in 2008 with native advertising and that it essentially launched with a newsletter that it monetized.

“You can’t really split [the business]. Our business is about branded entertainment,” he said. “We’re not in the business of running pre-roll advertising.”

When asked how a branded content business can be objective while being sponsored by brands with messaging goals, the ceo’s seemed somewhat confused and annoyed by the question.

“We’re not an agency, if that’s the question,” Stefano said, giving his definition of a media company today, which is indeed central to the FTC’s change of thinking.

“There are things that we do, there are ad products that we have where we’re making stuff for the brands, but we don’t think of ourselves as an agency,” he continued. “We’re a media company. That’s what makes us different, and why brands want to work with us because we’re using tens of thousands of pieces of content across our channels every month for ourselves. Because we’re doing it for ourselves, it gives us a lot of data and insights that we can use when we’re doing it for other brands.”

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