Law in the Internet Society

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FTC Guidelines on Native Advertising: Not good enough

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FTC Guidelines on Native Advertising: Not Good Enough

 -- ShayBanerjee - 17 October 2015

Introduction

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In a satisfying and long-overdue victory for Internet users located in the U.S., the FTC recently issued guidelines addressing “native advertisements” (“N-A’s”) – a deceptive marketing practice used by advertisers to disguise promotional material as "journalism." Those who have made a living on manipulating readers are, unsurprisingly, outraged by the FTC action. Mark Howard, a senior executive at Forbes, grumbles that the guidelines “limit the…creativity and innovation” of advertisers and publishers.[1]. Yet concocting novel ways to trick consumers is not "innovation," but a market inefficiency that should be discouraged and eradicated.
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In an important victory for citizens of the Net located in the United States, the FTC recently issued enforcement guidelines addressing “native advertisements,” a deceptive practice internet marketers use to make ads not look like ads. Some, such as Forbes’ Mark Howard, are outraged, claiming that the guidelines “limit the…creativity and innovation” of advertisers.[1]. Apparently, concocting new ways to trick people into reading things under false pretenses is what passes for "innovation" nowadays.
 
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On the contrary, the major shortcoming of the FTC guidelines is that they do not go far enough. N-A's are a revolting tactic in the Internet universe, the type 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.

This paragraph needs to be sharpened, it does not say enough. Need to return to it.

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In reality, the major shortcoming of the guidelines is that the FTC did not go far enough. The principles it provides work well for print media, but are insufficient to prevent the harms of deceptive advertising tactics in a digital universe. The fact is that native advertising is a revolting tactic that serves little purpose other than to deceive. Thus, the FTC should feel no qualms about prohibiting the tactic outright.
 

Native Advertising

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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

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Native advertising “encompasses…advertising and promotional messages that match the design, style, and behavior of the digital media in which it is disseminated.”[2]. By replicating the look and feel of editorial content, native ads are supposedly a powerful mechanism to increase “consumer engagement” with brands, possessing a click-through rate that is 8 to 15 times higher than traditional banner ads.[3] In 2013, native ads were used by 73% of mainstream digital publishers. These publishers view native ads as an effective way to help save their industry, whose revenue streams have otherwise been strained by the realities of the Internet economy.[4].
 
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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 trust that reputable publishers past and present have earned from readers.
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But what is the source of this increase in “consumer engagement”? Advertisers argue that native ads allow them to provide relevant messages consumers actually enjoy.[5]. Samsung, for example, might compose a piece on retailer adoption of mobile payment technologies and feasibly argue that consumers seek its industry expertise on the subject. The problem with this argument, however, is that if consumers are so eager to read Samsung’s take, why use the publisher at all? Why not simply publish the piece on samsung.com and drive traffic to the page through social media and banner advertisements?[6].
 
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Research suggests that there is something more insidious going on. In fact, the evidence suggests that readers simply do not realize they are looking at ads. As one study states, “no matter what steps publishers have taken, there is still significant confusion on the part of readers as to what constitutes an article and what constitutes an ad.”[7]. If they knew the native ads were not real editorial content, one can imagine consumers would prefer to avoid them, a conclusion reached time and time again in the literature.[8].
 
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This is a section ties the essay together and it is very weak. The reader needs to believe that there is something fundamentally wrong, something irreparable, about how consumers engage with native advertising, As a reader, I currently do not.

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Based on all this, native advertising certainly feels like deception. If consumers cannot tell the difference between a native ad and editorial content or decipher whose interests are being served, they will be unable to make fully informed decisions. Furthermore, insofar as journalism is democratic society’s “organ of truth, [following] no caucuses but its own convictions” – that inviolable standard set by the great Joseph Pulitzer – native advertising stands in the way of a fully informed citizenry. The question must be asked: is a media that tricks readers really the type we want to save?
 

The Guidelines

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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 advertiser's interests, a disturbing revelation that helped lead to the creation of the FDA.[6]. In 1913, 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 renowned 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.”

This paragraph is disjointed. The purpose here must be to covey that the separation of Church and State is indispensable to the American tradition. All I've done so far is name a bunch of historical points with a connection that is tenuous.

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Against this backdrop, the FTC last month issued its Enforcement Policy Statement on Deceptively Formatted Advertisements.[9]. Since its inception, the FTC has fought “unfair or deceptive acts…affecting commerce” through enforcement actions pursuant to Section 5 of the FTC Act.[10]. Detailing this history, the Statement provides enforcement guidance on native advertisements based on two historical legal concepts: net impression and misleading door openers.
 
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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.
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The FTC will prohibit native advertisements according to the Statement based on “the net impression it conveys to reasonable consumers.” This determination derives from factors including the ad’s appearance, similarity to non-advertising content, and distinguishing qualities.[11]. For example, “if a natively formatted ad appearing as a news story is inserted into the content stream of a publisher site that customarily offers news and feature articles, reasonable consumers are unlikely to recognize it as an ad.”[12]. In all cases the advertiser will also need to disclose the ad’s true nature or source in “simple, unequivocal language.”[13]. Specifically, the FTC advises firms to include the word “Advertisement.”[14].
 
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The FTC also warns against “misleading door openers,” a term originating from door-to-door salesmen who approached prospects by pretending to be surveyors or prize-givers.[15]. States the FTC, “when the first contact between the seller and a buyer occurs through a deceptive practice, the law may be violated, even if the truth is subsequently made known to the purchaser.” [16]. Thus an advertiser may be liable for deception even if “a party other than the sponsoring advertiser is its source.”[17].
 
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Just a summary of the law. Need to give the Reader more to work with.
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The Statement is a step in the right direction but also seems to create unnecessary confusion. First, there is a real question here regarding whether native advertisements are de facto prohibited under these guidelines. Based on the data discussed previously, if the FTC actually adheres strictly to the net impression factors, it is difficult to imagine an ad that both does not mislead reasonable consumers and could be described as a “native ad.” Second, in a digital environment, “misleading door openers” are everywhere. Within hours, material from any article on a high-traffic website will be reposted hundreds of times on other sites, most of whom will list the publisher but care little about brand disclosure requirements. What is the advertiser to do about these? The Statement does not provide an answer.
 
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This is a solid effort, but the guidelines feel like an unnatural fit. In the Internet society, sharing information is essentially free. An advertiser who wants to reach consumers has literally millions of channels to do so. This is why big publishers are struggling in the first place and also why native advertising leaves a bad taste in one’s mouth. There is simply no good reason to pursue such tactics unless the goal is to deceive consumers by piggybacking on the reputations of publishers. Generally, governments prohibit activities that needlessly prey on ordinary citizens. Perhaps the FTC should have just kept things simple.
 
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[1] Sydney Ember, F.T.C. Guidelines on Native Ads Aim to Prevent Deception, N.Y. Times (Dec. 22, 2015), http://www.nytimes.com/2015/12/23/business/media/ftc-issues-guidelines-for-native-ads.html?_r=2.
 
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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. 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 N-A's and organic content; they will simply describe the article as originating from Forbes (or wherever). 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.

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[2] FTC, Comm'n Enforcement Policy Statement on Deceptively Formatted Advertisements (Dec. 22, 2015) at 10, available at https://www.ftc.gov/public-statements/2015/12/commission-enforcement-policy-statement-deceptively-formatted.
 
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[3] 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.
 
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The last sentence here is basically the central criticism, on which the entire analysis rests. It needs to be unpacked, and probably made earlier in the essay.
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[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.
 
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[5] See e.g. Transcript of FTC Workshop on Native Advertising at 43 (“our approach has always been to marry the themes and ideas and topics that are relevant to brands with editorial content…that isn't promoting the brand”).
 
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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.
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[6] Id. at 128 (making a similar argument about an IBM sponsored native ad)
 
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[7] 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/.
 
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The point that has not been driven home in the essay, but that must be made, is that there is no purpose of native advertising other than manipulation. If the goal is demonstrate a corporation's expertise, there are ways to do so in the Internet universe that are free and that do not take up the banner of reputable publishers. If the goal is to expand the name recognition of your brand, you can use display advertisements. The decision to utilize N-A's comes from an inherently bad place where the sole motivation is to reorient the consumer's thought-flow. In 1000 words, that was danced around but never stated.
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[8] See Lazauskas; Bartosz W. Wojdynski & Nathanial J. Evans, Going Native: Effects of Disclosure Position and Language on the Recognition and Evaluation of Online Native Advertising , J. of Advertising (Dec. 2014), available at http://www.tandfonline.com/doi/full/10.1080/00913367.2015.1115380; Sophie Borman et. al., Effects of Sponsorship Disclosure Timing on the Processing of Sponsored Content: A Study on the Effectiveness of European Disclosure Regulations (March 2014), available at https://www.researchgate.net/publication/260412359_Effects_of_Sponsorship_Disclosure_Timing_on_the_Processing_of_Sponsored_Content_A_Study_on_the_Effectiveness_of_European_Disclosure_Regulations; Lucia Moses, How Native Advertising Confuses People in 5 Charts, Digiday (May 4, 2015), http://digiday.com/publishers/5-charts-show-problem-native-ad-disclosure/. Also see Paul Hill, Can Native Advertising Help Brands Overcome ‘Banner Blindness’? (Dec. 5, 2013) (on general consumer aversion to advertisements)
 
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[9] See generally FTC, _Comm'n Enforcement Policy Statement on Deceptively Formatted Advertisements, Note 2.
 
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[1] Sydney Ember, F.T.C. Guidelines on Native Ads Aim to Prevent Deception, N.Y. Times (Dec. 22, 2015), http://www.nytimes.com/2015/12/23/business/media/ftc-issues-guidelines-for-native-ads.html?_r=2.
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[10] 15 U.S.C.A. 45(a)(1); Also see generally Transcript of FTC Workshop on Native Advertising 11-24, Note 6.
 
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[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.
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[11] FTC at 11.
 
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[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/.
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[12] Id. at 12.
 
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[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.
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[13] Id. at 13.
 
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[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.
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[14] Id.
 
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[6] Id.
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[15] Id. at 7.
 
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[7] 15 U.S.C.A. 45(a)(1).
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[16] Id.
 
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[8] See Virginia Board of Pharmacy v. Virginia Citizens Consumer Council, 425 U.S. 748, 771-72 (1976).
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[17] Id. at 16
 
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[9] Georgetown Publ'g House Ltd. P'ship, 122 F.T.C. 392, 393-96 (1996) (consent order).
 
 
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