Daily Journal
October 28, 2009

Sponsored Social Media, Now Regulated

by Anthony DiResta 

A couple of weeks ago, the Federal Trade Commission released its highly anticipated Guides on Testimonials and Endorsements. Simply put, blogging is now a regulated industry.

Although the FTC has attempted, in recent days, to soften the blow of this news, and to explain the Guides' consequences, it would be a mistake to examine the Guides in isolation. State attorneys general can apply the Guides under state laws that involve deceptive and unfair advertising. Plaintiffs' lawyers can use the Guides in consumer class action litigation. Advertisers can use the Guides to challenge their competitors' marketing campaigns.

Thus, the Guides must be taken seriously and soberly. Unfortunately, there has been a great deal of misinformation and contrasting interpretations about the Guides floating around the past couple of weeks - and I believe we need to take a deep breath, exhale, and look at a three central issues.

First, one of the agency's central goals was to examine the role of social marketing and apply well-established regulatory and legal principles to Web 2.0 or emerging social media platforms. The FTC expressly noted in its analysis of new media that by the year 2011, the amount of money to be spent on social media marketing will be $3.7 billion.

Digging deeper reveals a couple underlying themes in the agency's analysis. One is that the use of social platforms by consumers for commercial purposes is pervasive and wide-spread. The other is that the impact of social marketing is persuasive to consumers.

From a 30,000 feet perspective, I believe the FTC perceives a changing paradigm in advertising and marketing, and desires to scrutinize the consumer impact of emerging technologies as marketing platforms. In a Web 1.0 or the traditional media environment, the role of the marketer was to disseminate communication to a passive consumer. Now with Web 2.0, consumer-generated media, the consumer is no longer passive; he or she has control of the information. As such, the agency apparently concluded that the role of marketer has fundamentally changed: advertisers are not just to "advertise to" but to "engage with" the consumer.

Second, while coming to grips with this new paradigm, the FTC laid down the foundation for potential liability of advertisers and bloggers (or speakers) alike in regards to "sponsored" communications that constitute "advertising messages." Specifically, the advertiser or brand is responsible for the activities of the agents or representatives of the message, and the blogger or speaker is responsible for inappropriate disclosures of "material connections," unsubstantiated claims, or other misleading or deceptive statements to ultimate consumers.

Unfortunately, the FTC failed to clarify the parameters of this potential liability. For example, the FTC has directed that advertisers or brands must adopt policies and practices that educate or train the ultimate speaker about what disclosures are necessary, to ensure that whatever claims made are substantiated, and to monitor those communications. But, as a practical matter, just what is expected? How much training is required, and in what format? What is required to fulfill the duty to monitor and for how long?

Third, notwithstanding the obvious frustrations presented by the Guides, these challenges present opportunities, presenting a significant role of self-regulation - and the industry must be willing to step up to the plate. Indeed, the FTC recognized the role of self-regulation, citing with approval to the Code of Ethics and Standards of Conduct adopted by the Word of Mouth Marketing Association.

I see self-regulation playing a significant role in filling the voids and ambiguities presented by the Guides. For example, industry should adopt criteria and standards for what constitutes adequate and meaningful disclosure. Furthermore, brands and advertisers should adopt key principles for social marketing policies that articulate reasonable procedures for training and monitoring of their message carriers.

Sponsored social media is now a regulated industry. The Food and Drug Administration is now about to study the use of Web 2.0 in drug advertising, so it is crystal clear that governmental scrutiny will not go away. Yet, how industry responds in the coming months will likely be evaluated by the government as an indicator of whether private stakeholders can be trusted to preserve the integrity of social marketing.