FTC Guidelines on Native Advertising: Not good enough

-- ShayBanerjee - 17 October 2015

Introduction

In a satisfying and long-overdue victory for Net citizens located in the U.S., the FTC recently issued guidelines addressing “native advertisements” (“N-A’s”) – a deceptive practice utilized by advertisers to trick consumers by presenting advertisements under the guise of “journalism.” Those who have made a living on manipulating consumers are, unsurprisingly, outraged by the guidelines. Mark Howard, a senior executive at Forbes, grumbles that the guidelines “limit the…creativity and innovation” of advertisers and publishers.[1]. Howard’s criticism is laughable. Concocting new ways to mislead consumers is not “innovation,” but inefficiency repugnant to the functioning of a market economy.

On the contrary, the major shortcoming of the FTC guidelines is that they are insufficient to confront the dangers of N-A’s. N-A’s are a revolting tactic that citizens should despise and governments should prohibit outright. Here the FTC has applied principles from an age of print media to a digital environment, and thereby grossly underestimated the disruptive nature of N-A’s to American society.

Native Advertising

N-A’s encompass “advertising and promotional messages that match the design, style, and behavior of the digital media in which it is disseminated.”[2]. Figure 1 displays an recent example of an N-A on Forbes. The boxes on either side are advertisements for SAP. The “article” in the middle is also an advertisement for SAP, though no one would blame you for not noticing. The “article” is an N-A, and a recent study showed that more than half of people cannot tell that it is an advertisement.[3]. N-A’s were used as an advertising tactic by 73% of online publishers in 2013.[4]. According to Adam Ostrow, Chief Strategy Officer at Mashable, N-A’s possess a click-through rate 8 to 15 times higher than traditional display advertisements.[5] While Ostrow sees this as an optimistic sign of “consumer engagement” with brands, research suggests that consumers simply do not realize they are looking at advertisements. If they did, one can imagine they would prefer to avoid them.

Figure 1

Publishers view N-A’s as the savior of a media industry that has struggled to generate reliable revenue streams in the Internet society. In truth, however, a media that stands in the way of a fully informed citizenry is not worth saving. N-A’s fall neatly into a category of destructive advertising tactics that exploit consumers, degrade public trust in journalism, and cheapen the media’s vital role as democratic society’s “organ of truth, [following] no caucuses but its own convictions” – that inviolable standard once set by Joseph Pulitzer. Put simply, readers must be able to decipher whose interests editorial content is serving, and corporations are not at liberty to piggyback on the reputations that reputable journalists past and present have earned from readers.

The Guidelines

Protecting the wall between advertising and editorial content has long been a matter of public concern. In 1905, the American Medical Association published an expose on patent medicine companies and newspapers, who were crafting advertising contracts that were voidable if the newspaper published any content detrimental to the company’s interests, a disturbing revelation that helped lead to the creation of the FDA.[6]. In 2013, Congress enacted the FTC Act, Section 5 of which prohibits “unfair or deceptive acts or practices in or affecting commerce.”[7]. Since then, the Supreme Court has repeatedly held that the First Amendment does not protect deceptive advertising tactics.[8]. For years, the FTC has utilized Section 5 to prohibit misleading advertising across a variety of formats. In a particularly cited case, the FTC successfully invoked Section 5 against a bookseller who deceptively formatted a direct-mail ad to resemble a personalized, handwritten message, which simply read, “Try this. It works! - J.”

Given this history, it is no surprise that last month the FTC released its Enforcement Policy Statement on Deceptively Formatted Advertisements. The Statement was issued pursuant to Section 5 and targets the proliferation of N-A online. Holding that “an ad is deceptive if it…is not readily identifiable to consumers as an ad,” the Statement requires advertisers to disclose information that clearly and prominently identifies N-A’s as advertisements. To make this determination, the FTC will decide, as it has done in print media, whether the “net impression” of the N-A is permissible, examining factors that include the N-A’s appearance, similarity to non-advertising content, distinguishing qualities, and the language used to disclose the advertisement.

The Path Forward

Although a positive step toward protecting consumers from manipulation, the FTC Statement also reeks of a federal agency that has not fully come to terms with the nature of digital media. An N-A is not akin to a newspaper ad – it exists in a space where content migrates rapidly. Within hours of the article referenced in Figure 1 being posted, it showed up on dozens if not hundreds of other sites and news aggregators – many of which are outside the reach of FTC regulation. These sites rarely differentiate between native advertising and organic content; they will simply describe the article as originating from Forbes. Thus, even if we assume that slapping the phrase “Sponsored by X” on top of an N-A is sufficient to inform consumers about the nature of the source – and the research shows that it is not – it is nonetheless an insufficient solution for consumer protection in the Internet age.

The simple reality is that both the fluid nature of digital environments and the particular manner in which consumers digest information online render N-A’s a wholly unacceptable practice under Section 5. If corporations want to raise awareness about their brand, they should do so on their own websites and social media pages or through traditional display mechanisms that do not intentionally replicate editorial content. True, many consumers will rationally choose to avoid viewing these advertising forms – but that is their right as free citizens. Brands are not entitled to our patronage – it is their burden to earn it.

[2] FTC, Comm'n Enforcement Policy Statement on Deceptively Formatted Advertisements (Dec. 22, 2015), available at https://www.ftc.gov/public-statements/2015/12/commission-enforcement-policy-statement-deceptively-formatted.

[3] Joe Lazauskas, Study: Article or Ad? When it Comes to Native, No One Knows (Sep. 8, 2015), https://contently.com/strategist/2015/09/08/article-or-ad-when-it-comes-to-native-no-one-knows/.

[4] Ginny Marvin, 73% of Online Publishers Offer Native Advertising, Just 10% Still Sitting On the Sidelines (July 22, 2013), http://marketingland.com/73-of-online-publishers-offer-native-advertising-just-10-still-sitting-on-the-sidelines-emarketer-52506.

[5] Transcript of FTC Workshop on Native Advertising (Dec. 4, 2013) at 75, available at https://www.ftc.gov/news-events/events-calendar/2013/12/blurred-lines-advertising-or-content-ftc-workshop-native.

[6] Id.

[7] 15 U.S.C.A. §45(a)(1).

[8] See Virginia Board of Pharmacy v. Virginia Citizens Consumer Council, 425 U.S. 748, 771-72 (1976).

[9] Georgetown Publ'g House Ltd. P'ship, 122 F.T.C. 392, 393-96 (1996) (consent order).