Monday, October 5, 2009

10 Simple Things to Know About the FTC's New Guidelines for Blogs & Brands

Seal of the United States Federal Trade Commis...Image via Wikipedia

The long-awaited new guidelines from the Federal Trade Commission (FTC) were published today, and they aren't much of a surprise. While addressing blogs, message boards, and other forms of new media, the FTC didn't stray from its traditional commitment to ensure that consumers know when they are seeing paid advertising.

What does today's FTC update mean to Social Marketers and bloggers? You may find it interesting what the FTC did--and didn't--say:


1. Sponsorship = Advertising:

Given marketers' and bloggers' use of the term "Sponsored Conversations" to refer to paid blog posts, it is probably no coincidence that the FTC uses the term "sponsorship" in the following statement: “The fundamental question is whether, viewed objectively, the relationship between the advertiser and the speaker is such that the speaker’s statement can be considered ‘sponsored’ by the advertiser and therefore an ‘advertising message.’”

A blogger who posts a product-based statement independently and without commercial arrangements with the brand is not making an endorsement by the FTC's definition and thus needs not be concerned about the rules governing advertising. But as we'll see, a blogger's post that is sponsored can become an advertising endorsement and may trigger legal requirements with respect to factual information and disclosure of commercial arrangements, under certain conditions.


2. The FTC is furnishing guidelines, not rules:

The FTC has the power of Federal law to enforce legal advertising standards, but today's document defines guidelines and not rules. The Commission recognizes that the marketing and communications world is changing and is too complex for hard and fast rules. The FTC notes that it will have to “consider each use of these new media on a case-by-case basis for purposes of law enforcement, as it does with all advertising.”

So, what factors will the FTC weigh in determining if a given relationship between brand and blogger meets the standard for an "endorsement"? Today's FTC document lists the following:
  • Whether the speaker is compensated by the advertiser or its agent;
  • Whether the product or service in question was provided for free by the advertiser;
  • The terms of any agreement;
  • The length of the relationship;
  • The previous receipt of products or services from the same or similar advertisers, or the likelihood of future receipt of such products or services; and
  • The value of the items or services received.

In other words, the FTC is not tightly defining the legal standards for bloggers and brands, but it is telling us enough to advise caution with respect to paid blog posts, endorsements, and disclosure.


3. Independent consumers are still free to share their praise of brands:

Some more histrionic observers felt the FTC's guidelines would limit consumers' ability to compliment and recommend products via ratings, on blogs, and in Social Networks. This is nowhere near the case; the FTC notes that “a consumer who purchases a product with his or her own money and praises it on a personal blog or on an electronic message board will not be deemed to be providing an endorsement.”


4. It is not necessarily an exchange of value between brand and blogger that triggers an endorsement but the existence of a material relationship.

The FTC furnishes three similar examples of a blogger writing about a brand to draw distinctions between what is and is not an endorsement.

The first example is a simple and obvious one--the consumer buys the product and then praises it; this is clearly a legitimate, unsponsored communication.

The second example involves a blogger who posts praise after receiving free product. The key in this example is that the blogger who praises the brand is not targeted by that brand but instead receives a coupon for free product generated by a store computer based upon the consumer's past purchase patterns. In this case, the FTC notes "given the absence of a relationship between the speaker and the manufacturer or other factors supporting the conclusion that she is acting on behalf of the manufacturer (i.e., that her statement is 'sponsored'), her review would not be deemed to be an endorsement."

The last example should be considered carefully by marketers who have established networks of consumers to whom product is regularly distributed. The example involves a consumer who joins "a network marketing program under which she periodically receives various products about which she can write reviews if she wants to do so." Says the FTC, "If she receives a free bag of the new dog food through this program, her positive review would be considered an endorsement." As we'll explore later, the Commission suggests that endorsements made via blog posts require disclosure and adherence to the legal requirements of paid advertising.


5. Giving product to bloggers for the purpose of posting reviews may or may not make the bloggers' recommendations an "endorsement" (but it probably does):

The FTC takes great pains to try to address the issue of brands that disseminate free product for the purpose of garnering positive product reviews in Social Media. The Commission states that a blogger who "receive(s) merchandise from a marketer with a request to review it, but with no compensation paid other than the value of the product itself" may be considered "endorsed" by the brand depending upon "among other things, the value of that product, and on whether the blogger routinely receives such requests."

The FTC clarifies that last portion of their statement in this way: "If that blogger frequently receives products from manufacturers because he or she is known to have wide readership within a particular demographic group that is the manufacturers’ target market, the blogger’s statements are likely to be deemed to be 'endorsements.'" In the view of the FTC, "Although the monetary value of any particular product might not be exorbitant, knowledge of the blogger’s receipt of a stream of free merchandise could affect the weight or credibility of his or her endorsement."

In other words, someone who maintains a review blog and regularly receives free product for the purpose of authoring and posting reviews is more likely to be considered an "endorser" than a blogger who only occasionally receives products to review. Some find this curious, because it seems contrary to established practices in traditional media. There are, of course, journalists--such as movie reviewers or food critics--who frequently receive free product, but their articles in newspapers and magazines are not considered "endorsements" per the FTC.

To those who want to make the case that bloggers are being treated differently than journalists in traditional media, the FTC has a response: "The Commission acknowledges that bloggers may be subject to different disclosure requirements than reviewers in traditional media." In other words, get over it!

Regardless of whether you find this guidance puzzling or not, this much is clear: The FTC is putting brands on notice. Giving free products to popular bloggers or recruiting networks of consumers into "word of mouth marketing programs" for the purpose of distributing free products for review will likely be considered and regulated as paid media.


6. The fact that compensated bloggers are free to say whatever they want does not prevent their posts from being considered legal endorsements:

It doesn't matter that a brand pays a blogger and then permits him or her to express anything s/he wants, without editorial control or rules. And it also doesn't matter that bloggers compensated by a brand feel they are expressing their true and honest opinions, unbiased by the commercial arrangement. The FTC notes that “an advertiser’s lack of control over the specific statement made via these new forms of consumer-generated media would not automatically disqualify that statement from being deemed an ‘endorsement’ within the meaning of the Guides.’”


7. The fact that compensated bloggers are free to say whatever they want does not protect the brand from the legal responsibilities that come with paid advertising:

The FTC understands that marketers may not have control over what bloggers say, but "if the advertiser initiated the process that led to endorsements being made – e.g., by providing products to well-known bloggers or to endorsers enrolled in word of mouth marketing programs – it potentially is liable for misleading statements made by those consumers."

The risks to brands also include the risk that a compensated blogger fails to disclose the material relationship. Notes the FTC, "In employing this means of marketing, the advertiser has assumed the risk that an endorser may fail to disclose a material connection or misrepresent a product, and the potential liability that accompanies that risk." The Commission promises, should legal action result from a blogger's failure to disclose, that it will "exercise its prosecutorial discretion" and "consider the advertiser’s efforts to advise these endorsers of their responsibilities and to monitor their online behavior."

In short, marketers must understand they are accepting certain legal risks by entering into Sponsored Conversations. These risks can be mitigated by carefully apprising bloggers of rules for disclosure and accuracy and then monitoring them for compliance, but this does not completely eliminate all risk.


8. Because Social Media is a vehicle for authentic peer-to-peer dialog, the presence of sponsored speech (i.e., advertising) is suggesting a greater need for disclosure than may be required in other media.

The FTC recognizes that the medium matters; consumers are more likely to recognize advertising as advertising in some media more than others. A TV ad is clearly "sponsored" and thus does not require any special disclosure on the part of advertisers or networks. But in Social Media, the distinction between earned and paid media is far less evident to consumers.

The nature of Social Media and the FTC's greater expectation for disclosure is evident in their revised example pertaining to a video game blogger who is sent a free game system by a manufacturer, along with a request that the blogger write about the system. Notes the Commission, "Because his review is disseminated via a form of consumer-generated media in which his relationship to the advertiser is not inherently obvious, readers are unlikely to know that he has received the video game system free of charge in exchange for his review of the product, and given the value of the video game system, this fact likely would materially affect the credibility they attach to his endorsement" (emphasis mine).


9. If your organization doesn't have Social Media guidelines in place, create and communicate them ASAP!

The FTC notes that employers are liable for the actions of their employees in Social Media. For example, if an employee participates in a Facebook forum or bulletin board by praising his or her employer's brands but fails to disclose his or her relationship to the brands, that could trigger prosecution.

The FTC notes that legitimate efforts to create and enforce rules that protect consumers from injury "would warrant consideration in its decision as to whether law enforcement action would be appropriate." Moreover, the FTC notes that "although the Commission has brought law enforcement actions against companies whose failure to establish or maintain appropriate internal procedures resulted in consumer injury, it is not aware of any instance in which an enforcement action was brought against a company for the actions of a single 'rogue' employee who violated established company policy."

So, get your Social Media policies in place and actively enforce them. Not only is this a good, common sense practice, it also helps to establish a defense in the event one of your employees strays into a legal minefield.


10. The FTC has outlined when material relationships must be disclosed, but it still hasn't said what constitutes "clear and conspicuous" disclosure on blogs, microblogs, or elsewhere in Social Media.

The FTC's approach to disclosure requirements is based on three primary questions:

  • Does a material relationship exist between endorser (i.e., blogger, consumer posting in Social Media, etc.) and brand?
  • If so, would the presence of this material relationship affect the weight or credibility given to the endorsement by consumers?
  • If so, is the endorsement likely to be recognized as paid advertising by consumers based on the circumstances, communications vehicle, and medium?

The FTC outlines a slew of diverse and subtle examples of when material arrangements relating to endorsements must be disclosed, both in Social and traditional media. For example:

  • A film star appears in a commercial endorsing a food product in exchange for a $1M fee or royalties on sales; no disclosure is required because such payments likely are ordinarily expected by viewers.
  • A well-known professional tennis player appears on a talk show and raves about the laser vision correction surgery at a clinic that she identifies by name. The athlete does not disclose that she has a contractual relationship to speak publicly about the clinic. Consumers might not realize that a celebrity discussing a medical procedure in a television interview has been paid for doing so, and knowledge of such payments would likely affect the weight or credibility consumers give to the endorsement. Thus, disclosure is legally required.
  • The same tennis player under the same contract endorses the clinic via a real-time Social Media site, and the same rules apply; consumers might not realize that she is a paid endorser and knowing this might affect the weight consumers give to her endorsement, so the relationship with the clinic should be disclosed.
  • A physician endorses an anti-snoring product. Consumers would expect the physician to be reasonably compensated for his appearance in the ad, so no special disclosure is required to alert consumers the physician was paid.
  • But the same physician in the same ad may require disclosure if he receives a percentage of gross product sales or he owns part of the company; either of these facts would likely materially affect the credibility that consumers attach to the endorsement. Accordingly, the advertisement should clearly and conspicuously disclose such a connection between the company and the physician.

So, assuming a brand does have a commercial arrangement with a blogger, the blogger endorses the brand's product, and this relationship requires disclosure in the blog post, what meets the legal definition of "Clear and Conspicuous" disclosure? The FTC doesn't attempt to address this question at all. In other FTC documents, it establishes standards as to how proximal and evident disclosures must be, but the new guidelines do not attempt to address acceptable disclosure in Social Media. It is left to brands to discern if its disclosure policies are sufficient under the laws and guidelines established by the Commission.

Marketers are advised to ensure sponsored bloggers write and construct their blog posts in a way that make the disclosure immediately apparent to even the most casual of readers. This means disclosure in the headline or in the first part of the blog post and not a brief mention at the end!

The FTC guidelines are purposely vague, but their direction is clear. The FTC is taking a conservative approach to whether compensation to bloggers and others in Social Media--be it cash or free product--must be disclosed to consumers. The Commission's guidance suggests that the sorts of arrangements that involve remunerating others to promote products via WOM make their blog posts and other comments in Social Media legal endorsements. Since these endorsements are not expected or recognized by consumers as paid media, the FTC believes that disclosure is most likely required.

Marketers and bloggers who engage in these sorts of commercial arrangements must understand their legal obligations and the risks of failing to adhere to FTC laws pertaining to advertising. Marketers must be prepared to ensure that bloggers disclose material relationships and do not make false or unsubstantiated claims; bloggers who are compensated are also potentially legally liable for their failure to disclose commercial arrangements or for incorrect claims communicated via their blog posts.

As noted, the FTC believes each situation is unique and must be evaluated on a case-by-case basis. As enforcement actions occur in the future, we will be provided with further clarifications to how the Commission and courts interpret the legal issues of sponsorship, endorsement, and disclosure in our new and evolving Social Media channels.

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12 comments:

Cee-cee said...

Well you wrote this article: http://www.experiencetheblog.com/2009/06/transparency-or-lack-thereof-on-kohls.html

and Kohl's Management is still posting on Kohl's Facebook page without disclosure - I screen copied the whole post if you need a copy.

Kelly Reisenbuechler on Kohls FaceBook:

Kelly Reisenbuechler I love my new store in downtown Napa! What a great addition to the neighborhood and the local economy.


Kelly Reisenbuechler's profile on LinkedIn:

Kelly Reisenbuechler’s Experience

March 2007 — Present (2 years 8 months)Senior Territory Marketing Coordinator Kohl's Corporation

Augie Ray said...

Cee-Cee,

In the case you mention, I think this is obviously a case of employees acting of their own accord rather than an organized effort on the part of Kohl's to deceive. In this case, as mentioned in my blog post, the question is more one of whether Kohl's has established and is enforcing rules with respect to employee behavior.

I might also add that I don't find it ethically objectionable that a Kohl's employee might express support for his or her store on Facebook--provided they disclose they are employees. But as a marketer, my question is whether having the Kohl's Facebook fan page become a message board for employees is really in Kohl's best interest; might employee message crowd out the important focus on consumers that Kohl's is trying to estbalish on Facebook?

So, for both practical and legal reasons, I hope Kohl's is establishing Social Media engagement rules, monitoring the Facebook page, and educating employees if and when they violate their rules.

As for your concern about Kelly, it's not that I disagree, but I also think we need to understand Kohl's is a giant corporation with many employees, and sometimes they will stray out of enthusiasm for their employee. Kelly needs to disclose her relationship if she continues to post about Kohl's, but I don't think we need to throw the book at either Kelly or Kohl's quite yet!

Chris Catania said...

Hey Augie,

This is a really nice, helpful and in-depth post that I'll be passing along to some of my friends and clients. It's also a good follow up to the Social Media Today Blogger Ethic Webcast. And now I'm wondering what you think about this whole FTC from the consumer perspective.

Do you think that this means that the FTC thinks that consumers are not smart enough to know the difference or make judgements on their own when reading blogs?

Also, a lot of comparisons are being made to TV ads and that they don't have to disclose because the consumer already "knows" that it's and ad. Don't you think that consumers will be able to "know" (if their not already) the difference with blogs eventually, too?

Though, the new FTC "rules" do cause everyone to be more "careful" and are primarily designed to protect the consumer, I think the fact that the FTC has left the "how's of disclosure" up to advertisers and marketers makes me think that the FTC should have just stayed out in the first place. Is it not just a mute point if they don't give any clear rules?

Augie Ray said...

Chris,

Thanks for the comments. I've seen some of the reaction to the FTC's guidelines, and frankly I tend to think it's a little over-exaggerated. I don't think this is Big Brother or that the FTC thinks consumers are stupid--I just think they want to set a level playing field for marketers.

First of all, let me answer one of your questions very clearly: Do I think consumers can recognize undisclosed advertorial on blogs as easily as they recognize ads on TV? Absolutely not! A TV ad interrupts the content and takes a significantly different form from the content. But a blogger who posts his or her opinion in one post and then posts a paid and sponsored opinion in the next (without disclosure) doesn't make the line between content and advertising at all evident.

If we set aside the clarity of TV advertising for a moment, then there's a more subtle question to be asked: Do I think consumers are capable of sniffing out paid blog content from non-paid? Yes and no. I think sometimes it's obvious, but with millions of blogs and no third-party standards for disclosure, it's likely consumers won't be able to accurately judge every Sponsored Conversation. (Heck, is my supportive opinion of the FTC's guidelines my real opinion, or did the Feds slip me a few bucks to say kind things? Should it really be up to you to guess, or should I be forced to disclose material relationships so you get ALL the info you need to make up your mind?)

People VALUE each other's opinions and make purchase decisions based upon what is said on blogs and rating site, and I see nothing wrong with telling marketers that a certain minimum standard of disclosure is expected when buying coverage in Social Media.

Rather than take the FTC's rules as an insult to consumers' intelligence, I think it's better to consider this from the perspective of marketers. Without legal rules, what should my brand do if competitors start buying undisclosed blog attention and sentiment? Should I sacrifice my values and jump into the pay-for-play tool? Or keep to my values and suffer consequences? Or do I sue--but without FTC guidance, on what basis would I bring an action?

So, I think the intent isn't to imply consumers are incapable but to give marketers the guidance they need to prevent a bunch of exploration of the dark fringes of the ethics of Sponsored Conversations.

I hope that helps clarify what I'm thinking. What about you? Do you think I'm taking an appropriate approach to this topic?

Davina said...

So much information, thanks for breaking it all down.

Disclosure is key, and as Chris mentioned, people watching TV generally know they are watching a paid ad, plus there's that tiny "paid celebrity endorsement" on the screen; they can see it in a magazine or paper, even with the Advertorial fine print.

I think the biggest thing is the much overused "transparency" regarding blogs and sponsorships: if you got it for free, say so; if you had a free trip, say so; if Brand X signs your paycheck, say so.

Augie Ray said...

Thanks Davina! I totally agree. It's funny how many self-professed Social Media gurus preach transparency but are griping about the heavy hand of government now that they simply are requiring transparency!

Thanks for the comment; I appreciate it!

Lisa said...

1st- this is a fine article, you explain so clearly what is painful to read in the original FTC document due to their formatting restrictions.

http://www.ftc.gov/os/2009/10/091005endorsementguidesfnnotice.pdf.

2nd- Folks might appreciate the significance of these new FTC guidelines with the knowledge that this is the first time in 30 years that the FTC guidelines on this subject have been revised.

3rd- This is a shout-out to the FTC. Is it possible for you folks to hire PoetPainter (@stephenanderson) to improve your important document's readability? Really- must accuracy sacrifice readability in the 21st century?

But 4th and finally and most importantly- the FTC guideline document ends on an example (#9) talking about a member of a "street team" who talks about an advertisers products to earn points which translate into awards or prizes. The document says the incentives need to be disclosed conspicously. I ask: How do you think this ending point guideline affects companies like Izea?

Augie Ray said...

Lisa,

Thanks for the comments! And I appreciate the great points you've added to the discussion.

Yes, the government could certainly use some usability help, couldn't they? The 81-page document is not a quick or pleasant read!

As for your last point: I've tried to avoid mentioning IZEA by name because I am not a fan of their model. An AdSense-like market where bloggers and advertisers get matched up isn't--in my opinion--the right way for brands to leverage influence in Social Media.

I think example #9 in the FTC guidelines fits with much of what is said elsewhere in the document. While the FTC doesn't get specific, it's clear they believe that free product given regularly to the same bloggers or targeted to large bloggers triggers a legal endorsement and requires disclosure. And personally, I think full disclosure in instances such as these is absolutely the right way to go to earn trust, market authentically, and embrace transparency.

In the end, I still feel there's just too much focus on "Sponsored Conversations." Smart brands will develop authentic relationships with bloggers, but they'll even more so find ways to get real consumers talking to each other. That is the sort of Social Marketing that doesn't require disclosure!

Chris Catania said...

Hey Augie,

Thanks for taking the time to explain and answer my questions. Yes, I do think you're taking the right approach on this topic. And I think one of the next steps is to continue to let the consumers speak to this issue and better understand the impact it has on them.

And if I remember correctly, during the SMT webcast, you mentioned that you had done some sort of test letting people read a blog post with a disclaimer note and one without. That sort of testing is a step in the right direction when it comes to understanding the issue from the average consumer/reader perspective.

Great job as always on covering this topic--may the discussion continue!

Urs E. Gattiker said...

Dear Augie

I still find it is unfair to demand disclosure from bloggers regarding getting a sample of a product and reviewing while journalists don't need to.

We posted some quotes out of the document and our take here:

http://commetrics.com/articles/sheer-transparency/

Thanks for this post.

Urs
@ComMetrics

Augie Ray said...

Thanks for the comment Urs. My feeling is that the FTC doesn't need to be be "fair." They can pretty much do what they want (and the IAB claiming their rules are unconstitutional is, IMO, pretty laughable.)

Plus, since bloggers ARE different than journalists and are NOT bound by the traditional rules enforced by typical national media, I am not sure the FTC is really being all that unfair.

That said, I am neither a supporter nor a detractor of the FTC policies--I just read, interpret, and report!

I appreciate the comments and the link. Thanks!

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