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The FTC Examines Native Advertising – Part 1

Federal Trade Commission - Native Advertising WorkshopNative advertising has become an increasingly popular and valued advertising option. eMarketer predicts marketers will spend $1.9 billion on native advertising in 2013 a 24% hike from 2012, and devote $3.2 billion by 2017.

With all this interest, the Federal Trade Commission held a daylong workshop entitled “Blurred Lines: Advertising or Content?” on December 4, 2013 to examine the practice of “native advertising” or “sponsored content,” which imitates the form and style of the media in which it is featured.

This workshop brought together publishing and advertising companies, consumer advocacy groups, self-regulatory organizations and academics. Three panels discussed the digital forms of native advertising and how it operates, consumer recognition and understanding of native advertisements and best practices.

Welcoming Remarks by FTC Chairwoman Edith Ramirez:

Chairwoman Ramirez noted that advertisers are using native advertising that is more “seamlessly and inconspicuously integrated into digital content.” The issue for the FTC lies in the “intersection of format and consumer takeaway.”

She then quoted two surveys. In July 2013 the Online Publishers Association membership survey revealed that 73% of members offer native advertising on their sites and an additional 17% are considering it. Another survey showed 41% of brands and 34% of advertising agencies currently use native advertising.

Native advertising is not new, and the basic concepts have been addressed by the FTC for many years. But why the sharp increase in popularity? Brands want to present more relevant content, increase consumer engagement and to generate product awareness and buzz. Also, some brands believe it helps to capitalize on publishers’ reputations, and publishers, agencies and brands believe native advertising provides value to consumers. However, critics claim it improperly exploits consumers’ trust in a publisher or deceives them outright to influence their purchasing decision.

 Legal and Historical Background:

Lesley Fair, Staff Attorney at Bureau of Consumer Protection, FTC and Nicholas Lemann, Professor of Journalism at Columbia University Graduate School of Journalism provided legal and historical context for the workshop discussion.

According to Ms. Fair, the consumer protection discussion always starts with Section 5 of the FTC Act, which states “unfair or deceptive acts or practices in or affecting commerce are hereby declared unlawful.” This section is the evaluation standard for any advertising form. The FTC elaborated further in its 1984 Deception Policy Statement: “An act or practice is deceptive, under Section 5, if it’s likely to mislead consumers who are acting reasonably under the circumstances, and it would be material to their decision to buy or use the product.”

The FTC has subsequently issued various policies, advisory opinions, press releases, enforcement guides and staff letters. It has applied them to numerous types of sales and advertising and consistently looked at the form and context of the ad to determine deception or disclosure needs. But it has always been the law that material connections between an advertiser and endorser should be clearly and conspicuously disclosed.

In 2002, and again in 2013, the FTC sent staff letters to search engines about the failure to disclose that ads were inserted into search engine results. Paid results and natural results were to be separate with “clear and conspicuous disclosures.” The 2013 staff letter added that search engines should adjust disclosure techniques as technology and information delivery evolves.

Next, Professor Nicholas Lemann provided background on the divide between marketing and journalism. After the Civil War, U.S. newspapers relied on a street sales business model. By the late nineteenth century, advertising was an important revenue source.

Concerns about the separation of advertising and editorial content were expressed as early as the 1870s. In 1912, Congress passed the Newspaper Publicity Act, requiring newspapers to annually publish ownership, management and circulation data and to label ads that have been designed to look like editorial content. This law was upheld in a 1913 U.S. Supreme Court decision.

The newspaper business model shifted to long-term subscriptions from street sales. Trust and loyalty were the keys to audience success. Advertisers sought out this audience, and newspapers knew they had to keep their editorial and ad content professional and separate to succeed. Until recently, the separation was absolute.

The business model shifted again as newspapers thought they could sell advertising online in the same way as print. However, advertisers could buy parts of the online paper at lower rates instead of higher rates for the whole.

First Panel Discussion:

Moderator:  Laura M. Sullivan, Staff Attorney, Division of Advertising Practices, FTC
Panelists:  Adam Ostrow, Mashable, Inc.; Tessa Gould, Huffington Post; Todd R. Haskell, Hearst Corporation Digital Media; Jon Carmen, Adiant; Lisa LaCour, Outbrain, Inc.; Chris Laird, The Procter & Gamble Company; and Steve Rubel, Edelman

This panel looked at how native advertising works, what it looks like, what the relationships are in creating it and the issue of transparency.

Each panelist presented what native advertising products they work with or offer and their role in the ecosystem. Publishers and advertisers work together to create much of this content where an advertiser’s product is not promoted but the advertiser is being associated with relevant ideas, topics and themes. Publishers discussed the different labels, colors and other visual cues they use to differentiate native advertising. Many disclosure techniques are used together, and often advertisers have all the ad units on that page. When it comes to social sharing, a tweet, for example is pre-populated to encourage continuation of the disclosure. For content recommendation platforms and other intermediaries, language is included next to the recommended links.

Native advertising in the digital realm presents multiple opportunities over traditional media. For a publisher with multiple brands, they have a greater ability to cross-promote across the brands. Another opportunity is the ability to scale. Next, if using a third party like Outbrain, publishers can drive people to their site. Also, when created well, readers want to share the native advertisements. The reader is the most important asset, and sharing increases that because more eyeballs are on the content. More sophisticated technology allows for better targeting, tracking of what is viewed, immediate measurement of the impact on business results and a more real time environment.

Regarding transparency, the panelists strongly agreed about its importance. Chris Laird said, “If you lose trust with the reader or consumer of the content, you’ll hurt your equity over time.” He even went so far as to say it is an imperative, not a requirement. Panelists agreed that publishers need to stand by their policies, and in the absence of policies, advertisers need to ensure disclosures are made.

Ms. Sullivan observed the numerous techniques and terminology being used with native advertising and asked about standardization. Much of the variance comes form legacy print policies and procedures. Panelists only agreed that best practices based on general principles could be recommended. The complexity of the digital realm, cultural differences and other factors make a universal standard impossible. They felt publishers should have the flexibility in the details to do what is best for their environment, their readers and their brands. The publishers also felt that their readers were sophisticated enough to distinguish native advertising from editorial content. If they did not like what they saw, they would “vote with their eyeballs.”

Second Panel Discussion:

Moderator:  Michael Ostheimer, Staff Attorney, Division of Advertising Practices, FTC
Panelists:  Chris Jay Hoofnagle, Berkeley Law & Technology Center; David J. Franklyn, University of San Francisco School of Law; Jamie Cole, Red Barn Media Group; Jeff Johnson, UI Wizards; Dan Greenberg; Sharethrough, Co-Chair of Interactive Advertising Bureau’s Native Advertising Taskforce; Michelle De Mooy, Consumer Action; and Chris Pedigo, Online Publishers Association

The second panel presented research on ways consumers recognize and understand native advertising and whether context changes consumer expectations and the potential for deception.

The panelists presented some very interesting information. Some takeaways include: 

  • People often skip over labels because they do not even notice them.
  • >50% of people in one survey did not know what “sponsored” meant.
  • 35% of people in a survey said an ad was not an ad, even when “Ad” was included in gray-toned text.
  • Context is extremely important regarding deception.
  • One-third of people in a survey said they do not care if content is paid.
  • Less commercial looking material was rated as more credible.
  • The efficacy of disclosures are highly context specific and highly specific to what is said.
  • Context matters more than labels.
  • Human visual perception is active, goal-directed and attention-limited, meaning the eye goes to where people think needed information is located.
  • Color discrimination is limited. Human vision is optimized to see contrasts, not absolute levels. Do not rely solely on color. Use redundantly with other cues.
  • Disclosure language impacts perception about whether content is paid.
  • Context has a major impact on perception.
  • 71% of Online Publishers Associations members have heard no complaints about native advertising, and 29% report hearing very few.

Regarding the credibility of perceived native advertising, a growing number of consumers report not caring while many more want clear and conspicuous differentiation. The context of the advertisement also plays a role in credibility.

Mr. Ostheimer subsequently asked about the efficacy of various techniques and language variations to help people perceive paid content. The panelists agreed that there is not “single silver bullet.” Specific words are understood in so many different ways that labels are less effective than context. they believe the FTC should focus less on specific wording and more on context, design, coding, etc.

The second part of this summary post will include the keynote speaker and the afternoon panel sessions.

What has been your experience with native advertising as either an advertiser or a consumer? Do any of the panelists’ conclusions surprise you? 

About Jennifer Nash

Jennifer Nash is the owner and president of Living Business, a consulting business that focuses on the intersection of strategy, marketing and operations.


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