Manisha Reddy
Associate Editor
Loyola University Chicago School of Law, J.D. 2019

Nearly 40% of publishers using native advertising are not compliant with the Federal Trade Commission’s (“FTC”) guidelines; this figure has improved from one year ago, when only 30% of users were following the guidelines. In 2017 alone, the FTC estimates that the revenue generated from native advertising will total $20.9 billion, with an estimated 610 new advertisers each month this number is projected to increase to $59 billion in 2018. The number of corporations using native advertising has increased over the years because of social media platforms like Instagram and Facebook, where much of the in-feed content is paid or sponsored.

Native Advertising

Native advertising is a form of paid media where the advertising experience follows the form and function of the user experience in which it’s placed. Marketers are relying on native advertising more and more as studies demonstrate that this form of advertising has click – through rates that are four times higher than non-native displays. Native advertisements can appear in a range of forms including in-feed content, in-feed social, and custom advertisements. For example, native advertising on social media platform Instagram will take the form of a typical Instagram post that any user would submit, but with a disclaimer that the post is being paid for or sponsored by a particular company. It is important that native ads look and feel like a natural part of the user experience; the more natural, the stronger a user’s engagement becomes. Some of the most popular native ad displays include in-feed display ads, in-feed native video ads, carousel ads, and slideshow ads.

New FTC Regulations

In 2015, the increase in native advertising usage over the past decade or so led the FTC to promulgate new guidelines. These guidelines recommend that publishers use clear, unambiguous language to disclose a native advertisement and place a disclaimer directly above a headline or on an image within the article so a reader can see it clearly. The FTC does not recommend terms such as “promoted or “promoted stories,” as they are ambiguous and may potentially mislead consumers that the ad is being paid for or endorsed by the publisher site instead of by a specific company. In their guidelines the FTC says it prefers language such as “ad,” “advertisement,” “paid advertisement,” or “sponsored advertising content.” The Interactive Advertising Bureau immediately commented on the guidelines, noting that the new language guidelines were too intrusive and could potentially affect commercial speech protections and conventional advertising methods. On the contrary, the Center for Digital Democracy is a strong proponent of the FTC’s new rules for native advertising, and believes that the FTC’s guidelines may not be enough to prevent misleading behavior by publishers and users.

Influencers and Paid Content

In a recent study, only about 8% of people were able to identify native ads as a paid marketing message. The FTC worries that their guidelines may not be enough, and are beginning to punish those companies that blatantly disregard their rules. One of the first big settlement cases involving native advertising was between the FTC and Lord & Taylor, one of the oldest luxury department stores in the United States. The FTC brought an action against Lord & Taylor in 2016 alleging that the company deceived consumers by running advertisements in online publications and Instagram posts without proper notification that these posts were sponsored for and paid for by their company. The FTC alleged that Lord & Taylor had paid 50 fashion influencers to post Instagram pictures of themselves wearing a particular clothing item, but failed to disclose that they had provided each influencer with the item as well as compensation for their post. Lord & Taylor’s campaign reached 11.4 million users and resulted in 328,000 brand engagements, and sold out the clothing item. The FTC found that Lord & Taylor had indeed breached the FTC’s regulations, setting a precedent that the FTC is serious about holding publishers and corporations accountable that do not comply with its guidelines. Part of the settlement agreement between the FTC and Lord & Taylor includes a new monitoring and review program for the corporation’s endorsement campaigns to ensure that they are not misrepresenting its paid commercial advertising from an independent or objective source. The lawsuit against Lord & Taylor is just the beginning of the FTC’s crackdown on publishers who fail to comply with the native advertising guidelines. In a time where transparency between corporation and consumer is important to social media users, it is in the best interest of companies to disclose their paid content. But with thousands of new social media users a month, a growing “influencer” market, and a large online marketplace, the FTC may want to control the use of native advertising, but they may not have the means to do so.