With Recent FTC Announcement, Transparency More Important Than Ever in Native Ads

Editor’s note: This article has been updated to correct a factual error. The Federal Trade Commission has not issued a new rule; rather, it has clarified how an existing regulation may be applied in a changing media landscape, where publishers are now operating their own in-house advertising studios.

Sometime this year, the Federal Trade Commission (FTC) plans to issue guidance on native advertising—advertising that mimics journalism or entertainment—but at an event last week, the FTC’s associate director of advertising practices, Mary Engle, gave an address that hinted at what that guidance may cover. Speaking at the Clean Ads I/O conference in New York June 3, Engle clarified that the laws regulating unfair and deceptive acts and practices also apply to any publisher—any broadcast, print, or digital channel—that has a hand in creating deceptive ads. This is particularly relevant given the growing number of publishers that have launched in-house studios to create native ads.

For the advertising industry, this announcement signals that transparency is no longer simply a best practice for responsible advertising; it is a requirement.

Companies involved in all facets of the advertising and media industry should take note: As native advertising booms, publishers and advertisers alike must embrace transparent native ad strategies to avoid the erosion of consumer trust—and potential regulatory action. Taking this approach isn’t just about risk management, however. Companies have the opportunity to both build trust with consumers and to create engaging, effective content.

BSR recently published a report, commissioned by Participant Media, on responsibility in advertising, in which we explored native advertising and its implications for the future of ads. In that report, “Transparency, Purpose, and the Empowered Consumer: A New Paradigm for Advertising,” we found that native advertising represents a growth opportunity for the industry, but transparent labeling and policies by brands and media companies are important in retaining consumer trust. In a survey by The Participant Index Impact Panel and Nielsen conducted on behalf of BSR, 91 percent of respondents said it was important to them that there is clear differentiation between content and advertising.

Native advertising is not new, but it has come under increasing public debate in recent years, especially as print and digital banner ads fall out of favor. According toAdvertising Age, brands spent about US$3.2 billion on native advertising in 2014, which was an increase of more than 46 percent from 2013. In 2015, that will rise to a projected US$4.2 billion, with nearly two-thirds of marketers saying they will increase how much they spend on native.

Many new media companies have embraced native advertising: For instance, Buzzfeed’s Founder and CEO Jonah Peretti has publicly stated that 100 percent of the company’s revenue comes from branded content and partnerships. Buzzfeed, like other media companies, now has an in-house creative agency that develops its own ads. Traditional media outlets have also gotten on board, including The Atlantic, The Guardian, The New York Times, The New Yorker, Time, and The Wall Street Journal.

While some outlets have very strict parameters between “church and state,” others do not. For example, as Advertising Age reported back in 2013, “The New York Times is going to label the hell out of its native ads.” But at The Guardian, journalists—as well as its multimedia, digital, and marketing teams—are involved in creating native content.

Every media company appears to have a different approach to native advertising, and this has sometimes resulted in public snafus. 

This story is excerpted. Please visit the BSR blog to continue.