United States: Do You See Better, Worse Or The Same With This Regulation Or With That One?

Last Updated: December 9 2013
Article by Maura A. Marcheski and Randal M. Shaheen

On December 4 before a packed house, the FTC held its much-anticipated workshop on native advertising, Blurred Lines: Advertising or Content?, which examined the practice of blending of advertisements with news, entertainment, and other editorial content in digital media.  And like Robin Thicke's summer hit itself, the FTC's workshop raised a lot of questions (and eyebrows) about the future of the medium. In case you missed it, here are some of the highlights.

Chairwoman Ramirez opened by noting that native advertising, while not new, is growing at a rapid rate.  In 2013 alone, 73% of websites currently offer native advertising and an additional 13% are considering it for 2014.  The FTC's resident blogger Lesley Fair gave a historical perspective on FTC enforcement actions against advertorials, infomercials, and paid endorsements; explaining that while times change, that the touchtone for any analysis is (and always has been) whether the practice violates Section 5.

The day's first panel (moderated by Laura Sullivan of the FTC's Division of Ad Practices) focused on sponsored content in digital publications – the forms it takes and how it operates.  Everyone on the panel seemed to agree that transparency and disclosure of sponsorship is important and necessary – whether simply labeled "advertisement" or "sponsored by" a given brand – but how "transparency" can truly be accomplished is a more nuanced (and disputed) issue.

In a theme that was noted repeatedly throughout the workshop, there was considerable discussion as to whether and in what circumstances disclosures were required – either under Section 5, or simply as a matter of journalistic ethics, or in order to maintain brand trust and integrity.

When asked whether it would be prudent to create a framework to differentiate native advertising from other types, Todd Haskell from Hearst Magazine pointed out that there's a benefit to having some consistent principles in native advertising. Specific disclosures, experiences, and practices, however, will look different for each advertiser, he said. Haskell noted the critical piece that publishers have the flexibility to do what is right for their brands. Tessa Gould with the Huffington Post's native advertising studio weighted in that consistency in a definition would encourage companies to adopt best practices.

Steve Rubel, Executive Vice President and Chief Content Strategist at Edelman, said that companies are eager to use the best possible disclosure methods because ads are more effective when consumers can trust what they are seeing. Rubel thinks that five things will ultimately determine the future of native advertising in the long-term: (1) quality; (2) transparency; (3) communication; (4) overuse; and (5) whether it generates business.

The second panel, (moderated by Michael Ostheimer of the FTC's Division of Ad Practices) focused on research that has been done by the panelists on consumer recognition of native advertising. Chris Jay Hoofnagle, a lecturer at Berkeley's Law & Technology Center reported that when he asked people in his research study questions about a mock-up of an ad, 27% thought the ad was written by an independent journalist or editor even though there was a disclosure in the header that it was "sponsored content."

David Franklyn, Professor at the University of San Francisco School of Law, echoed this sentiment and reported on his research which shows that many consumers simply skip over labels like "advertisement" or "sponsored" and don't notice them in the header. As many as 35% of consumers, he said, could not identify an advertisement even when it was labeled "advertisement." There was also discussion regarding the meaning of "sponsor" and whether consumers understand it to mean that the content was created by the sponsor.

Chris Pedigo of the Online Publishers Association said that native advertising is not an attempt to deceive consumers, rather it's meant to enhance the user experience. Of all of OPA's members, Pedigo said that 71% who offer native advertising have not heard complaints.  In terms of particular disclosures, Pedigo does not think there is a silver bullet that will work because various terms are interpreted differently across different audiences.

In the third panel, Mary Engle, Associate Director of the FTC's Division of Ad Practices moderated the panelists' deeper dive into best practices on how a publisher should label or otherwise designate native advertisements. The panel used several hypotheticals with different online native advertisements to illustrate when they thought sponsorship ought to be disclosed.  A divide among the panel quickly emerged: some panelists thought that disclosure requirements ought to be based on content and context (e.g., does it relate to the sponsor's product); some thought that the business relationship behind the advertisement should be the focus of the inquiry.

For example, Robin Riddle of WSJ Custom Content Studios said that when he approaches the disclosure issue, there are two prongs to the inquiry: (1) Who is the creator of content?; and (2) what is nature of the paid relationship? Venable's own Amy Mudge weighed in and said that the disclosure question should turn on a true Section 5 analysis: does the omission of a sponsorship label have a material effect on the buying decision of a consumer?  Amy said if the content of a native ad does not in fact endorse a product of the advertiser or relate to the product category or a competitor's product, there likely shouldn't be a legal need for a disclosure in the headline, at least as far as the FTC and Section 5 is concerned.  One audience member also queried whether – if Section 5 does apply – should publishers who help create content for native advertisers be liable for any claims?

But Sid Holt from the American Society of Magazine Editors thought that consumers should be aware of a commercial relationship, even if the content isn't directly germane to the advertiser's product.  If there is a paid relationship involved in the placement of content, he said, that relationship should be disclosed.  He emphasized his belief that the trouble with native ads is that consumers do not actually know who is the speaker.

Laura Brett, Staff Attorney at the National Advertising Division of the Council of Better Business Bureaus, said that she thinks consumers understand what "sponsored by" means but there needs to be clear labeling (in terms of context clues and format) to ensure that consumers see and know which articles are, in fact, sponsored.  Not everyone on the panel shared this view.

For example, Robert Weissman, President of Public Citizen, suggested that the term "sponsor" is too ambiguous and is used only because consumers do not like the word advertisement.  He noted that the underlying issue in using a "sponsored by" disclosure is having consumers recognize that the opinion does not appear in the publication because of independent editorial judgment.  Mike Zaneis on the panel from the Interactive Advertising Bureau highlighted that the IAB had released native advertising guidelines and encouraged the FTC to allow industry self-regulation in this area.

Bureau Director Jessica Rich closed the workshop.  She noted that the FTC recognizes that native advertising provides great potential for publishers and brands (in terms of higher sales and increased interaction with consumers) and that because native advertising takes so many forms, it might not be wise to use a one-size-fits-all standard.  While the FTC contemplates whether new guidance is necessary, she noted that FTC's Dotcom Disclosure Guidelines are a good starting point for marketers and publishers to consult.  Overall, Mary Engle may have summed up the Blurred Lines workshop most succinctly by noting, "[today] has raised more questions than it has answered."  We applaud the FTC for engaging in this dialogue to get ahead of the emerging issues and for not rushing to enforce or regulate without due diligence.  Big issues like when or how to disclose sponsorship, whether consumers are harmed (or care) if the sponsored content they're consuming was created by a marketer (as opposed to a news organization), and whether it's even possible for human beings to visually detect and understand the source of content will drive the discussion going forward.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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