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Three Signs Your Native Ad Needs a Disclosure: The FTC Issues Native Advertising Guidelines

FTC LogoIf you’ve ever opened your washing machine to find white socks turned a pale shade of pink, you can relate to the sentiment of Buzzfeed UK’s piece “14 Laundry Fails We’ve All Experienced.” Humorous and empathetic, the piece mimicked Buzzfeed’s editorial tone and style, but also subtly promoted the message of a commercial advertiser—in this case, Dylon, a color dye manufacturer. And in what may be a sign of things to come in the US, the piece drew the attention of the U.K.’s advertising regulator, the Advertising Standards Authority, which cited Buzzfeed for failing to make the piece “obviously identifiable” as commercial content, a violation of the U.K.’s Committee on Advertising Practices Code.

The increasing prevalence of hybrid advertisement-editorial pieces, often called “native advertisements,” illustrates the narrowing gap between editorial features and commercial content. As Jessica Rich, Director of the Federal Trade Commission’s Bureau of Consumer Protection, recently explained, “we’re living in an era where the line between advertising and objective content is increasingly blurry and confusing.” The FTC’s concern about these “blurry” lines, including “deceptive endorsements and fake news sites,” led the Commission to release a long-anticipated Enforcement Policy Statement on Deceptively Formatted Advertisements (Enforcement Policy Statement), along with Native Advertising: A Guide for Businesses (Guidelines). These documents provide important guidance to brands, agencies, publishers, and other players in the advertising world on how to avoid liability for misleading consumers about the commercial nature of online content.

FTC Provides New Guidance Regarding Native Advertisements

FTC Chairwoman Edith Ramirez noted at the FTC’s 2013 native advertising workshop that the practice of disguising ads as editorial content is not a new phenomenon. The FTC has long brought enforcement actions against advertisers that seek to make commercial content appear as though it was created or endorsed by an impartial party.  In the FTC’s view, two elements make an advertisement “deceptive.” For one, the overall “net impression” of the ad must be likely to mislead reasonable consumers. In addition, the misleading element of the advertisement must be material—that is, the deception must be likely to affect consumers’ behavior regarding the advertised product.

Where an advertisement is potentially deceptive, clarifying information must be “disclosed clearly and prominently” to ensure that consumers do not get a false impression regarding the commercial nature of the content.

The FTC’s new Enforcement Policy Statement and Guidelines apply these longstanding truth-in-advertising principles to native advertisements, and provide several key takeaways for brands, agencies, and publishers.

Most importantly, the Enforcement Policy Statement and Guidelines re-emphasize that clarity is key. A native ad’s content, format, and context should make the ad’s source and commercial nature evident to consumers. “Context” involves more than just the surrounding non-advertising content—it also includes when, how, and to whom the native advertisement is served, and consumer expectations regarding the advertising medium. For example, consumer expectations for native ads on publishers’ websites may differ from expectations about native ads appearing in social media streams or web search results.

Unless native advertisements are clearly commercial in nature, specific disclosures are necessary to distinguish promotional content from editorial content. A limited subset of native advertisements, by virtue of their self-evidently commercial messages, will be so obviously promotional that they can be formatted like surrounding non-commercial editorial content without misleading consumers. For example, a native ad presented in a publisher’s news stream featuring an image of a sports car and headlined “Come and Drive [X] today” would not require clarifying disclosures or formatting. Reasonable consumers, the FTC explained, would likely be able to identify the native ad as commercial content based solely on its promotional message.

In most cases, however, brands, agencies, and publishers should include “qualifying information” in and around native advertisements to disclose to consumers that what appears to be editorial content is in fact promotional, commercial content. Disclosures must be “simple” and “unequivocal,” conspicuous, and offered at the same time as the native ad. (That is, disclosures must appear both before a consumer clicks on a native ad’s link and after the consumer arrives at the advertisement’s new page.) Even then, disclosures are adequate only if they are empirically effective at conveying a native ad’s commercial nature to reasonable consumers.

In the Guidelines, the FTC cautioned against using “Promoted” as a disclosure term, asserting that it is “at best ambiguous” and may give the false impression that the publisher’s site endorses the advertising content. Instead, the FTC recommends disclosure terms like “ad,” “advertisement,” “paid advertisement,” or “sponsored advertising content.” In the same vein, the FTC noted that reasonable consumers may interpret terms such as “presented by” or “sponsored by” as indicating that an advertiser paid for, but did not otherwise create or influence, a given piece of content.

As is often the case, the challenge lies in applying these principles to the complex and dynamic online advertising ecosystem. To help, the FTC included 17 examples in the Guidelines, seeking to illustrate when disclosures are required to help identify promotional content or paid endorsements, where those disclosures must be placed, and how the disclosure regime applies to the “digital marketplace” of news feeds, content recommendation widgets, and shared content.

What to Watch Out For

While the Enforcement Policy Statement and Guidelines illuminate how the Commission is likely to evaluate the deceptiveness of native advertisements, considerable uncertainty remains. Brands, agencies, and publishers should take particular care in assessing whether native ads are so “inherently obvious” that no clarifying information is necessary to help consumers distinguish them from editorial content. The FTC provided limited guidance on this question, and advertisers should err on the side of caution until more detailed insight is available.

Moreover, the FTC has stated that no materiality threshold applies to deceptive native advertisements; consumer reliance on the deception is assumed. The FTC believes that consumers engage more willingly with—and give greater credence to—non-commercial content, meaning that deceptively formatted ads are more likely to affect consumers’ behavior. Given this, the Commission presumes that all express and intentionally implied claims in advertisements are material. Similarly, false claims or omissions about a speaker’s bias are presumed material, so native ads should not suggest that paid endorsements are the impartial views of ordinary consumers or experts. Certain misleading formats are also presumptively material, including those that misrepresent advertisements as news or editorial articles, product reviews, and the like.

Lastly, all participants in the native advertising ecosystem, including advertising networks and targeting companies, should become familiar with the FTC’s Enforcement Policy Statement and Guidelines. Just like brands, agencies, and publishers, companies involved in disseminating or targeting deceptive ads are potentially subject to liability. The FTC specifically states in the Guidelines that “everyone who participates directly or indirectly in creating or presenting native ads should make sure that ads don’t mislead consumers about their commercial nature.”