FTC Guidelines on Native Advertising: Not Good Enough

-- ShayBanerjee - 17 October 2015


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.

In reality, the major shortcoming of the guidelines is that the FTC did not go far enough. The principles it provides work well for traditional marketing, 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

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? ].

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, SEO, and banner advertisements?[6].

Research suggests that there is something more insidious going on. In fact, the evidence indicates 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 [a native] ad.”[7]. If they knew the ads were not real editorial content, consumers, one can imagine, would prefer to avoid them, a conclusion implied time and time again in the literature.[8].

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 civil society’s “organ of truth, [following] no caucuses but its own convictions” – that inviolable standard set by the great Joseph Pulitzer – native advertising is contrary to the values inherent to our democracy. The question must arise: is a media that tricks readers the type we want to save?

The Guidelines

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.

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].

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].

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.

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.

[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.

[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.

[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.

[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.

[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”).

[6] Id. at 128 (making a similar argument about an IBM sponsored native ad)

[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/.

[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)

[9] See generally FTC, _Comm'n Enforcement Policy Statement on Deceptively Formatted Advertisements, Note 2.

[10] 15 U.S.C.A. 45(a)(1); See also, generally Transcript of FTC Workshop on Native Advertising 11-24, Note 6.

[11] FTC at 11.

[12] Id. at 12.

[13] Id. at 13.

[14] Id.

[15] Id. at 7.

[16] Id.

[17] Id. at 16