Attention Turns to FTC Ahead of Commission’s First Foray Into Native Advertising

The FTC has been relatively mum on the issue thus far, lawyers and consumer advocates said. Chairwoman Edith Ramirez didn’t mention native ads during an April speech on the FTC’s role in monitoring the advertising industry (http://1.usa.gov/11in6km). Lawyers have said the FTC’s decision on how it handles native ads will have significant legal and business implications (CD Sept 18 p17). Media consulting and research firm BIA/Kelsey said in a 2012 report that native ads will be one of the biggest drivers of advertising revenue growth in the coming years. Spending on native ads on social media platforms alone will grow from $1.5 billion in 2012 to $3.9 billion in 2016, the report said (http://xrl.us/bn3mk5).

Though the FTC hasn’t weighed in on native ads directly, it has “opined on a similar set of facts,” said Venable ad attorney Amy Mudge, who’s on a panel at the event. Mudge gets questions from clients -- mostly national brand advertisers -- about native ads “on a daily basis,” she said. To provide guidance, Mudge goes to what she calls “my tool box": the FTC’s dot-com disclosure (http://1.usa.gov/cScCMo) and search engine ad guidelines (http://1.usa.gov/19pBwrb); a 2005 FTC letter on sponsored product placement (http://1.usa.gov/5w4uwp); and the commission’s endorsement and testimonial guidelines (http://1.usa.gov/aOsiV6).

The guidelines lay out “sound” basic advertising disclosure principles that map well onto native ads, Mudge said. Public Citizen President Robert Weissman, who will also speak at the workshop, agreed. The dot-com disclosure guidelines, especially the section on social media, are “very analogous” to native ads, he said. For Mudge, the 2005 letter in particular gives “a lot of good information about their thinking” on ad disclosure. “The FTC said ‘we're not going to ban a practice ... we're going to look at it on a case-by-case basis and make the call then,'” she said. For instance, the letter determined the music competition show American Idol didn’t need to disclose to the audience a sponsorship deal with Coca-Cola simply because all three judges drank from large Coca-Cola cups during the show.

When analyzing ad practices, the FTC uses a basic principle: “Consumers should understand when they're receiving an advertising message as opposed to when they are being impartially informed,” Sullivan said. That’s why the FTC recently updated some of its ad disclosure guidelines to better address digital marketing, which “changes rapidly,” she said. The dot-com disclosure guidelines were revamped in March and the search engine ad guidelines were tweaked in June. The FTC’s Sullivan declined to speculate on how the current guidelines might address native ads specifically. The workshop “is an opportunity for us to learn” about what’s occurring “in this particular part of this digital market space,” she said.

One of the more divisive native ad issues is sponsored content not necessarily about the sponsor’s product, Weissman said. In September, the Better Business Bureau’s National Advertising Division looked at this exact issue (http://bit.ly/HoQBgy). Qualcomm sponsored a series -- “What’s Inside?” -- on technology news site Mashable.com. The series looked at the technology inside a number of products, none related to Qualcomm, and Qualcomm had no editorial control over the articles, according to NAD. During the sponsorship period -- November 2012 to March 2013 -- each article had a yellow bar indicating the content was sponsored, NAD said. But when the sponsorship ended, “the advertiser contended there is no continuing obligation to indicate the articles are sponsored,” according to NAD.

NAD agreed with this arrangement. In this situation, “advertisers may still have an obligation to identify itself as the sponsor because consumers generally will attach different significance to articles that are sponsored than those that are not sponsored and purely editorial,” it said. “As a result, failing to disclose the sponsor of an article may deprive consumers of insight into why a particular article was published, including the motivations of the author.”

This is where a native ad divide occurs. Mudge believes Qualcomm, in this instance, was entitled to “call out” its sponsorship if it wanted to, but that there shouldn’t be a requirement to do so. Weissman disagrees. If there’s “a commercial transaction that is going on,” the consumer should “absolutely” be aware of it, he said. “It’s not a close call.”

The NAD’s opinions are important because it has “a Batphone” to the FTC, Mudge said. “Historically, they have a good relationship.” The NAD is trying to get ahead of this issue, and has several similar native advertising cases in the pipeline, Mudge said. Laura Brett, the staff attorney for the NAD, will speak at the workshop. “We hope to hear their views,” Sullivan said, declining to comment on the FTC’s view of the Qualcomm decision.

"It is unlikely the FTC will take such an expansive view of Section 5 if and when they follow the workshop with a staff report,” Mudge wrote in a Venable blog post (http://bit.ly/1eGBk5T). Ad practices change so quickly, Weissman said, that the FTC “often comes in when advertisers feel, ‘well this is standard practice.’ That’s not a rationale for the agency not stepping in.” Industry self-regulation, while beneficial for “the most egregious abuses,” is “unlikely to challenge an advertising or industry norm,” Weissman said. “I think the outcome will depend on what we hear at the workshop,” Sullivan said. “We'll be discussing the role for self regulation and we certainly are open to hearing whether guidance would be helpful in this area.” (cbennett@warren-news.com)