Under the Influence: Disclosure Rules For Celebrity Social Media Endorsements
More and more brands are paying online “influencers” to engage with, positively review and market their products. However, recent federal actions, as well as a strong push from consumer groups, illustrate the importance of clearly disclosing the sponsored nature of such content. A quick scroll through one’s Instagram account invariably reveals numerous product endorsements, the majority of which fail to comply with guidelines set by the Federal Trade Commission (FTC). Brands, creators and endorsers have long assumed that government regulators would take a laissez-faire approach to enforcing endorsement rules in the social media space, but as recent events demonstrate, the time to clean up your paid influencer program is upon us.
FTC Endorsement Guides
Compliance with applicable advertising laws is critical across all media, regardless of whether the platform has been around for decades (e.g. print, radio, television) or is relatively new (e.g. blogs and social media). FTC Endorsement Guides apply to social media and are intended to offer insight into what the FTC’s attitude regarding various marketing activities, including paid endorsements. The Endorsement Guides themselves do not have the force of law behind them. However, practices inconsistent with the Endorsement Guides may result in law enforcement actions for violations of the FTC Act. Although there are no fines for violations of the FTC Act, law enforcement involvement can result in orders requiring the defendants in the case to surrender money they received as a result of their violations.
Clear and Conspicuous
The FTC does not mandate the specific wording of disclosures. The FTC’s position is that consumers must be presented with the information they need in order to reasonably evaluate sponsored statements. The agency explains that descriptors like “Sponsored,” “Promotion” and “Paid Ad” are effective. They also detail that a message or post with “Ad:” or “#ad” would likely be effective but “#sp” and “#spon” (both commonly used) are not. According to Michael Ostheimer of the FTC’s Ad Practices Division, “If you have seven other hashtags at the end of a tweet and it’s mixed up with all these other things, it’s easy for consumers to skip over that. The real test is, did consumers read it and comprehend it?” Accordingly, Ostheimer suggests that disclosures which appear at the beginning of a message or tweet would better satisfy the FTC’s “clear and conspicuous” requirement.
Consumer Groups Urge FTC to Hold “Influencers” Accountable
Even though the use of disclosures on social media posts is increasing, recent reports suggest that many influencers (most commonly within the fashion and beauty product industries) do not always follow the rules. In September 2016, Public Citizen, Commercial Alert, Campaign for a Commercial-Free Childhood and Center for Digital Democracy sent a letter to the FTC's Bureau of Consumer Protection “requesting that the FTC investigate and bring enforcement actions related to the practice of non-disclosed advertising through ‘influencer’ user profiles on Instagram.” The letter goes on: “Companies pay ‘influencers,’ or social media users with a large following, to post endorsements of their products without disclosure. While there is evidence of the illicit ‘influencer’ market on Twitter and SnapChat, the “influencer” industry on Instagram represents one of the most prominent and ethically egregious violations of FTC policy.”
The letter references specific Instagram influencers who the groups allege represent a growing trend of deceptive native advertising that disproportionately targets young people. Referring to such practice as “serial non-compliance with FTC’s endorsement policy,” the groups urge the FTC to preserve the integrity of fair advertising rules by both directing enforcement actions at infringing advertisers and publically reprimanding high-profile influencers — the latter of which would be a new approach by the agency.
Not only do marketers, celebrities and agencies have to worry about whether the FTC is going to investigate their campaigns, but they must now also operate in fear of being called out by “watchdog” groups. Faced with mounting public pressure and increased regulatory oversight, brands and advertisers are being forced to tighten up their practices with regard to influencers.
Recent FTC Enforcement
For the past two years, the FTC has taken enforcement action against disguised social media ads. In May of 2015, the FTC approved a final consent order against Lord & Taylor, who paid 50 models to post a photo of themselves wearing a Lord & Taylor dress on Instagram without disclosure of payment. In the consent order, the FTC stated that paid endorsers must disclose when they have been paid to endorse. It is important to note that the final consent order did not penalize the individual models.
Similarly, in September of 2015, the FTC settled with Machinima, Inc. for failing to disclose that they had paid endorsers to promote the Xbox One system and games. In that case, Machinima, an entertainment network, agreed to settle FTC charges that it engaged in deceptive advertising by paying influencers to post YouTube videos endorsing Xbox products. The influencers failed to adequately disclose that they were being paid for their seemingly objective opinions.
In 2016, the FTC reached a settlement with Warner Bros. Home Entertainment, Inc. with respect to charges that the company deceived consumers during a marketing campaign for a video game. The complaint alleges that Warner Bros. failed to adequately disclose that it paid online influencers to post positive gameplay videos on YouTube and social media. Warner Bros. paid influencers from hundreds to tens of thousands of dollars, gave them a free advance-release game and told them how to promote it. On a couple of occasions, the YouTube influencers disclosed only that they had been given early access to the game, not that they had also been paid. The FTC contends that Warner Bros. required the influencers to positively promote the game, post the video with a strong call-to-action to purchase the game, not disclose any bugs or glitches, and not communicate negative sentiment about Warner Bros.
The Time to Comply Is Now
The FTC’s clear position on this issue (underscored by recent high-profile settlements) and the strongly-worded letter from consumer groups both serve as reminders that influencers must disclose material connections clearly and conspicuously. Presently, the level of non-compliance with the FTC Guides on this issue is staggering, and there is every indication that this high-profile flouting of advertising rules will soon be reined in.
Adam Z. Solomon is a partner at Michelman & Robinson, LLP (M&R), a national law firm with offices in California, Chicago and New York. Mr. Solomon represents clients in all aspects of advertising, digital marketing, promotions and compliance. He can be reached at (212) 730-7700 or firstname.lastname@example.org.