United States: All Native Advertising Is Not Equal: Why That Matters Under The First Amendment And Why It Should Matter To The FTC – Part I

Editor's Note: This blog post was originally published on September 2, 2014, courtesy of iMedia Connection's Blog. It is repurposed with permission.

In this five part series, originally published in the Summer 2014 edition of the Media Law Resource Center Bulletin,1 we take an in-depth look at the native advertising phenomenon and the legal issues surrounding the practice. After canvassing the many faces of native advertising and the applicable law, the series ultimately examines the pervasive assumption that all native advertising is, and should be regulated as, "commercial speech." This assumption presumes that all native advertising is equal under the eyes of the law, and we come to the conclusion that it probably isn't. Native advertising that is closer to pure content than pure commercial speech may deserve greater or even full First Amendment protection, which would carry significant implications for government regulation2.

Part 1 below provides an overview of the series and introduces the concept and practice of native advertising.

— PART I —

Overview of the Five Part Series

Last December, the Federal Trade Commission held a workshop entitled "Blurred Lines: Advertising or Content" to address the latest and greatest darling of the digital media advertising world – Native Advertising, otherwise known as sponsored content, sponsor generated content, branded content, brand journalism, or some would say, the less flattering infomercial or advertorial. The FTC Workshop capped a year where Native Advertising moved to the forefront of the publishing and advertising industries and the FTC. On its surface, much of the debate at the FTC Workshop and elsewhere centers on deception, namely whether consumers can distinguish between paid ads and editorial content. As FTC Chairwoman Edith Ramirez put it: "while native advertising may bring some benefits to consumers, it has to be done lawfully...by presenting ads that resemble editorial content, an advertiser risks implying, deceptively that information comes from a non-biased source." This may hold true for certain forms of native advertising but maybe not for all. As the FTC Workshop industry panelists explained, native advertising covers a broad range of material, from in feed ads for products, to editorial content that may not even reference a product or a brand. To a certain extent, the native advertising regulation discussion presumes that all native advertising constitutes commercial speech under the First Amendment. However, whether native is classified as "commercial" is a profound legal determination as commercial speech is traditionally subject to less First Amendment protection and more regulation than other forms of more protected speech. The current debate therefore begs the underlying constitutional question—is all native advertising actually commercial speech?

It may not be. Native advertising that does not promote a product or propose a transaction, that is driven by something other than solely economic motivation, and primarily communicates information or opinions with expressive elements, e.g., photography, humor, visual and/or verbal editorial, may not actually be commercial speech in the Constitutional sense of the word. Under Supreme Court precedent, what equals commercial speech is an often tricky inquiry. But the case law makes clear that speech is not commercial simply because it is an advertisement, refers to a product, or is economically motivated. All of these factors together may create a presumption of commercial speech, but each one standing alone does not. If any of these criteria individually constituted commercial speech, then some speech at the core of traditional First Amendment protection, such as political speech, could fall within that definition. And it does not. Yet, many kinds of native advertisements do not have any of these three hallmarks of traditional commercial speech. It would stand to reason that the more native ads constitute solely editorial content as opposed to promoting any product, the further such speech moves away from the less protected commercial to the more protected noncommercial core of the First Amendment. Indeed, native ads that are primarily editorial, noncommercial content may be more akin to the constitutionally protected "inextricably intertwined" commercial/noncommercial line of precedent that counsels higher First Amendment protection warranting strict as opposed to intermediate judicial review.

With this backdrop in mind, this Five Part series tries to answer two overarching questions: what is native advertising and is it commercial speech under the First Amendment? We begin with an overview of native advertising and its recent rise to prominence. Part 2 examines the earliest forms of native advertising, how it was regulated then, and the existing applicable FTC regulatory framework for native advertising today. Parts 3 and 4 cover commercial speech law and the First Amendment's traditional check on advertising regulation. In Part 5, we differentiate the many forms of native advertising to arrive at what we will call native content, i.e., brand-editorial content that does not promote a product, brand or propose a transaction, and primarily communicates information or opinion, and then apply First Amendment commercial speech precedent to native advertising and native content.

We conclude that all native is not equal, some is more content than others and the closer native approaches primarily editorial content, then the greater First Amendment protection such speech should be afforded. Native ads that do no more than promote a product or brand, or propose a transaction in a way that masks or potentially masks the author of the advertisement, are likely subject to the lower standard of intermediate judicial review and fall within the purview of existing FTC deceptive and unfair practices regulations. On the other hand, regulating native content should be approached with caution by the FTC and other regulators on a case by case basis. Supreme Court precedent suggests that under certain circumstances native content may not be "commercial speech" and any regulations may therefore be subject to the higher standard of strict scrutiny rather than the intermediate level typically applied to FTC regulations of commercial speech. Moreover, the most innovative brands are experimenting with native content – as opposed to the more mundane native ads – and there is a growing consensus among the pioneers that transparency and trust are so integral to brand equity that market forces should self-correct potentially deceptive practices. In other words, the emerging marketplace is encouraging commercial-source disclosure where it makes sense, and before adopting any regulations, the FTC should consider drawing a regulatory line between native advertising – which can be easily regulated – and native content – which may not.

Understanding the Once And Future Native Advertising

What is "Native Advertising"?

The definition of "native advertising", or simply "native", is admittedly an elusive one. There are many definitions put forth by advertising agencies, industry insiders, and analysts that attempt to articulate precisely what this digital marketing practice is.3 In one way or another, all these definitions seem to arrive at the same central idea—native advertising is the practice of designing ads that look and feel like the natural editorial content of a website. The Interactive Advertising Bureau ("IAB")4 recently defined native in similar—if not more elegant—terms as "paid ads that are so cohesive with the page content, assimilated into the design, and consistent with the platform behavior that the viewer simply feels that they belong."5 Part of the problem with defining native is that it comes in many forms. Responding to this reality, the IAB's Native Advertising Playbook breaks the definition down into six core native ad unit categories, namely: (1) in-feed units; (2) paid search units; (3) recommendation widgets; (4) promoted listings; (5) In-Ad (IAB Standard) with Native Element Units; and (6) "Custom/Can't Be Contained."6 We will touch upon each below.

Even more polarizing than the definitional debate is the polemics over the motive of native advertisers. On one hand, critics characterize native as no more than a parlor trick to get readers to view ads.7 In their view, native ads are designed to deceive consumers into clicking through their ads or into believing that the native ad originated with the publisher. On the other hand, many digital marketers argue that native is more about crafting better content to help brands more meaningfully connect with their consumers.8 The advocates argue that the end-game isn't a "gotcha to click" or "bait and switch", it is about delivering users a more relevant experience that consumers connect with and favorably associate with that brand.9 Whatever your view may be, most everyone seems to be doing it. A recent study indicates that about 75 percent of advertisers have gone native and the rest intend to soon.10 Even the last hold outs like the New York Times have thrown in the towel and adopted a native ad platform.11

The Many Faces of Native Advertising

Perhaps the best way to define native is to review it in practice. BuzzFeed is the most oft cited example of native in action. BuzzFeed is a social news and entertainment website whose articles are typically brief, easily consumable, and presented with a humorous spin. BuzzFeed is most known for popularizing its signature "list of" style, in which articles appearing on its site (posted under categories such as LOL, Win, OMG, Cute, and WTF) consist of lists of entertaining facts, funny pictures, or other trivia.12 For example, the article "64 Completely True Facts Only Nerds Will Appreciate", recently ran on BuzzFeed in its typical "list of" format.13 Buzzfeed's native practice falls under IAB's "In-Ad" category. Specifically, IAB classifies BuzzFeed's practice under "endemic in-feed ad", or an ad "in a publisher's normal content well, is in story form where the content has been written by or in partnership with the publisher's team to match the surrounding stories, links to a page within the site like any editorial story, has been sold with a guaranteed placement."14

BuzzFeed's advertisers present their ads in thesame format as the editorial content. These native advertisements appear in-line with the regular content of the site, with the same tone, and often in Buzzfeed's signature "list of" style. Consumers are alerted to the fact that these are sponsored stories by "Presented By" and "Featured Partner" disclosures and light yellow shading. By way of example, here is a recent Clorox native ad run by Buzzfeed entitled, "14 Signs You're a Total Hot Mess."15

On social media sites, such as Facebook and Twitter, native advertising typically refers to the ads that appear on a user's feed. IAB has dubbed this type of native advertising "In-Feed Units." As opposed to banner or pop-up internet ads, these posts are considered "native" because consumers engage with them within the experience of their normal social media feeds.

Similar to the "In-Feed" units is the practice of "Promoted Listings" as defined by the IAB.16 These native ads are most commonly found on retail sites such as Etsy and Amazon that typically do not have editorial content. Here the product promotion is designed to fit seamlessly into the browsing experience, linking to the advertised product or brand page. "Paid Search Ads" are another native variation on this theme. Paid Search Ads appear on all search engines and are found above or adjacent to the organic search results with a link directly to the promoted product or brand page.17 In the search depicted below, for instance, a search for basketball shoes returns at the top a sponsored results for Zappos.com—offset in a slightly different color with the word "Ad."

Another example of strategically positioned native ads involves what IAB classifies as "Recommendation Widget" advertising.18 Commonly found on news media sites such as the Huffington Post, CNN or the Wall Street Journal, this variety of native advertising provides links to suggested stories alongside a site's other editorial content. Typically, a third-party recommendation widget company, such as Taboola, will contract with publishers as a middle-man between them and the advertisers. The company will then vet and coordinate sponsored links and push them into the widget—usually appearing on the publisher's site as a section titled "From Around the Web" or something similar. For instance, on WSJ.com, users may see stories surrounded by the words "Sponsored Links"; these are paid ads pushed to the site by a recommendation widget.19

The most innovative native advertising practice falls with the "Custom/Can't Be Contained" IAB category.20 Here, what we are seeing is publishers and advertisers collaborating on content and developing narratives to engage consumers. In its simplest form, a brand will hire a publisher to draft an article or other content relevant to the brand's identity and publish it as an article "presented by" the brand. In other instances, the brand may draft the copy itself or the advertiser and publisher could collaborate.

For example, GQ recently produced an article for Verizon called "The Global Gentleman", featuring the fashion choices of trendy jetsetters (who of course pair their bespoke Italian suits with Verizon global data plans).21 In another example, Mashable wrote a series for Marriot called the "Future of Travel" that reviewed accessories and apps for making travel easy.22 Mashable also recently created a content series for American Express called the "Female Founders Series" that included videos, articles, and graphics profiling female entrepreneurs in tech "presented by American Express."23 Huffington Post—a publisher that has incorporated native since 2008—has three distinct elements in its custom native offering to advertisers: (1) "content creation services," i.e., a team that helps brands tell stories thru articles, info graphics, videos, etc...; (2) content promotion, i.e., once created its promoted with in-stream native ad units on HuffPo; and (3) socialization of the content on social media accounts, even pre-populating the Twitter handle with social shares.24 Notably, in many instances, including the Marriot and American Express examples above, the brand, product or service is not even mentioned. Importantly, most publishers and advertisers engaging in these cutting edge native practices make transparency and trust a particular point of pride.25

Mobile Moves to Native, or Vice Versa

Finally, we note that the next generation native ads—just like everything else—are going mobile. Less a practice and more of a platform shift, many of the most popular mobile apps have developed or have plans to develop native platforms. The major social media platforms, like Facebook and Twitter, have more or less brought the same online native experience to mobile—displaying ads in users' mobile news feeds.

Other mobile apps, however, have been more innovative. Instagram, for instance, began rolling out native ads on its app late in 2013.26 Instagram delivers native ads by enabling brands to insert pictures of their products (stylized with characteristic Instagram filters) directly into users' photo streams. Thus, Instagram users browsing through photos of their friends' vacation might also encounter a photo of a Michael Kors watch, a pair of Levis, or a shiny Lexus paid to appear there by those respective brands.27

Other recent entrants into the native advertising field include the popular photo sharing app Snapchat28 and popular GPS navigation app Wayze.29 Both apps present ads consistent with the natural context of the app. Snapchat allows advertisers to interact by sending users pictures and short videos that quickly disappear after about 10 seconds, and Wayze presents ads as suggested destinations within the context of providing GPS navigation.

Technology and the Rise of Native, i.e., why it is here to stay

The recent explosion of native advertising in digital marketing the past couple of years begs the question—Why now? One of the prime movers of native's rise is also the reason why it will become a mainstay in digital advertising: the rapid evolution of technology.

First, social media has fundamentally realigned the way brands communicate and interact with consumers. Facebook and Twitter—media platforms that hardly existed a decade ago—have begun to mature into integral components of advertising and brand campaigns that provide direct and real time interaction and feedback with consumers. Almost equally as important is native's ability over social media to connect consumers with one another, to communicate about a brand, and share experiences.30 Native on social also provides an ability to cross-promote across multiple platforms and drive traffic to content sponsored experiences.31

Second, online behavioral advertising ("OBA") capabilities have increased dramatically in the past few years.32 Brands are now better able to track who their customers are, how they engage with their websites and social media platforms, how long they stay on particular pages, what items they browse, and where they travel on the internet or in the physical world, all while measuring what they do with brand content, and virtually every other quantifiable aspect of consumers' behavior.33 Technology enables targeting of content to users by demographic, device or location, among others.34 It also provides brands the capability to maintain comprehensive, cross-platform custom "profiles" to store all of this information.

Third, "big data"—perhaps the only buzzword more buzzed about than "native advertising"35—allows brands to leverage these vast resources of social media and OBA consumer data to craft and deliver better, more individually-tailored advertising to various sub-sets of consumers. And finally, the move to mobile lets brands interact with consumers at any time, in any place, on portable devices whose small screens demand a less obtrusive commercial communication than your traditional banner ad or pop-up.36

In a nutshell, native capitalizes on the confluence of social, OBA, big data and mobile to deliver a timely relevant message, and increase consumer engagement, in a seamless fashion that ultimately—if done right—generates brand awareness and equity. Many of these technological developments have only become mainstream in the past couple years. If Moore's law37 has anything to say about it, we can expect the native landscape to be even more complex and sophisticated just a few years from now. This holds especially true given the underlying economics driving publishers to develop different way to derive more revenue from advertising,38 as well as consumer "commercial" fatigue in our on-demand, instant anything age.39

Footnotes

1 The MLRC has graciously allowed republication of this article. For more information on the MLRC check out www.mlrc.org.

2 Disclaimer – the MLRC Journal is a legal journal. With that in mind, we give the caveat up front that our writing style here is going to be a little less loose and little more dense that our typical blog.

3 See Josh Sternberg, Time to Define Native Advertising, April 18, 2013, available at http://digiday.com/publishers/time-to-define-native-advertising/.

4 The IAB is perhaps the most prominent online advertising self-regulatory agency, with constituent members representing 86% of all online ads. See About the IAB, available http://www.iab.net/about_the_iab .

5 IAB Native Advertising Playbook, Dec. 4, 2013, available http://www.iab.net/media/file/IAB-Native-Advertising-Playbook2.pdf [hereinafter "IAB Plabook"].

6 Id.

7 David Carr, Storytelling Ads May be Journalism's New Peril, New York Times, September 15, 2013, available at http://www.nytimes.com/2013/09/16/business/media/storytelling-ads-may-be-journalisms-new-peril.html?_r=0.

8 Todd Wasserman, Is Native Advertising Just Another Word for Good Advertising?, Mashable, May 13, 2013, available at http://mashable.com/2013/05/13/native-advertising-buzzword/.

9 Id.

10 New OPA Study Reveals Native Advertising Best Practices, Marketer Goals and Metrics, Online Publishers Association, July 10, 2013, available at http://www.online-publishers.org/index.php/opa_news/press_release/new_opa_study_reveals_native_advertising_best_practices_marketer_goals_and.

11 Michael Sebastian, New York Times' Native Ads Take Shape, Include a 'Full Content Studio', AdAge, November 13, 2013, available at http://adage.com/article/media/york-times-native-ad-strategy-takes-shape/245242/?qwr=FullSite.

12 See generally www.BuzzFeed.com.

13 Tanner Ringerud, 64 Completely True Facts Only Nerds Will Appreciate, Buzzfeed, April 1, 2014, available at http://www.buzzfeed.com/awesomer/completely-true-facts-only-nerds-will-appreciate.

14 See IAB Playbook, supra note 4.

15 Clorox, 14 Signs You're a Total Hot Mess, Buzzfeed, March 14, 2014, available at http://www.buzzfeed.com/clorox/signs-youre-a-total-hot-mess.

16 See IAB Playbook, supra note 4.

17 Id.

18 Id.

19 In the graphic below, for instance, the "Sponsored Links" appearing on the WSJ's website were pushed there by third-party advertising network Chitika. See http://chitika.com/about.

20 See IAB Playbook, supra note 4.

21 See Verizon Wireless Brings you the Global Gentleman, http://www.thesartorialist.com/photos/verizon-global-gentleman-or-the-sainthood-of-garance-dore/.

22 Id.

23 Blurred Lines: Advertising or Content? An FTC Workshop on Native Advertising, Federal Trade Commission, Dec. 4, 2013, [Hereinafter "FTC Workshop"], Transcript at 43-44, available at http://www.ftc.gov/news-events/events-calendar/2013/12/blurred-lines-advertising-or-content-ftc-workshop-native. .

24 Id. at 48-49.

25 Id. at 91-92. Brands are keenly aware of the dangers of obscuring the source of native content after the now infamous scientology debacle with The Atlantic. After failing to adequately alert readers that a pro-scientology puff piece was in fact paid native content, The Atlantic faced significant public backlash and eventually revised their advertising guidelines. See http://www.adweek.com/news/advertising-branding/after-scientology-debacle-atlantic-tightens-native-ad-guidelines-146890 .

26 Cotton Delo, Monthly Cost of an Instagram Ad Campaign Can Approach $1M, AdAge, April 2, 2014, available at http://adage.com/article/digital/monthly-cost-instagram-ad-campaign-approach-1m/292441/.

27 Id.

28 Kristopher Mazara, Behind Snapshat's Decision: The New Native Ad Platform, Apollo Matrix, Feb. 26, 2014, available athttp://apollomatrix.com/behind-snapchats-decision-the-new-native-ad-platform/.

29 Tim Peterson, Waze Maps Out Native Ad Platform, AdWeek, Nov. 7, 2012, available at http://www.adweek.com/news/technology/waze-maps-out-native-ad-platform-145035.

30 FTC Workshop at 65, 71, 72.

31 FTC Workshop at 70.

32 See 2014: The Year Advertising Gets Personal, Social Media Today, Jan. 8, 2014, available at http://socialmediatoday.com/gurbaksh-chahal/2041621/2014-year-advertising-gets-personal.

33 Id.; FTC Workshop at 90.

34 See 2014: The Year Advertising Gets Personal, supra note 31.

35 See Sanjeev Sardana, Big Data: It's Not a Buzzword, It's a Movement, Forbes, Nov. 20, 2013, available at http://www.forbes.com/sites/sanjeevsardana/2013/11/20/bigdata/.

36 FTC Workshop at 73.

37 See Moore's law, generally predicting technological capacity increases exponentially every two years. http://en.wikipedia.org/wiki/Moore's_law.

38 Jack Shafer, What's Worse than Sponsored Content? The FTC Regulating It, Dec. 6, 2013, Reuters, available at http://blogs.reuters.com/jackshafer/2013/12/06/whats-worse-than-sponsored-content-the-ftc-regulating-it/.

39 John Gregoire, Native Advertising: Roundtable Discussion Featuring 18 Native Ad Experts, CPCStrategy.com, December 17, 2013, available at http://www.cpcstrategy.com/blog/2013/12/native-advertising-experts/ (Quote from Kunal Gupta, CEO of Polar, Inc: "From a publisher's perspective, native advertising is receiving such attention because it is an exciting revenue generating opportunity in an industry that is seeing a decline in ad revenue. As their readership increasingly migrates to a publisher's mobile sites and apps, an effective native advertising model allows for ads which focus on engagement and are non-disruptive. Look at the decline of the commodity of the banner: with ad fatigue and declining click-through, the banner isn't driving the revenue in for the publisher it once did. And when was the last time you shared a banner ad with your friend?").

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