On February 12, 2020, FTC Commissioner Rohit Chopra issued a series of tweets announcing that the Federal Trade Commission (FTC) voted to closely review and conduct a “self-critical analysis” of the FTC’s non-binding endorsement guidelines, which specifically address advertisers and social media platforms to ensure influencer advertising does not deceive consumers. The growth of social media advertising and its potential for consumer deception spurred the FTC’s review. Commissioner Chopra notes in his FTC statement that “[a]dvertisers see big returns in promoting seemingly genuine grassroots endorsements and reviews. According to one estimate, companies spent $8 billion on advertising through social media influencers in 2019. Due to its perceived effectiveness, spending on influencer marketing is projected to increase to $15 billion by 2022.”
Rapid Growth of Influencer Marketing
The rapid growth of influencers has contributed to this booming form of advertising. There were only 190 influencer platforms and agencies in 2015, which grew to 335 in 2016, 420 in 2017, 740 in 2018 and 1,120 in 2019. Profits drive this growth. In 2019, the average earned media value for each $1 spent on influencer marketing rose to $5.78, an increase from $5.20 in 2018. And there’s been an approximate 1,500% growth in Google searches for this type of marketing over the past three years. The number of posters on a per entity basis grew from 320 in 2017, to 600 in 2018, and to 660 in 2019, while only approximately 14% of posts sampled by one report were allegedly fully compliant with the FTC’s guidelines. With increased profits derived from influencer marketing, one estimate claims that 65% of influencer marketing budgets will increase in 2020, compared to only 38% planned budget increases in 2018. About 17% of companies spend over half of their marketing budgets on influencers.
In response to this growth, it is clear that the FTC is looking for sufficient deterrents to ensure advertisers and influencer platforms do not misrepresent influencer marketing as unbiased posts by true consumers touting products and services they enjoy unprompted. Specifically, Commissioner Chopra noted that the FTC may evaluate “whether to create new requirements for social media platforms and advertisers and whether to activate civil penalty liability.” Emphasis added.
A Framework for Civil Penalties
The most concerning aspect for industry is the FTC’s clear focus on potentially creating a framework for imposing civil penalties on advertisers and social media platforms. The FTC identified giants like Instagram, YouTube, and TikTok, noting that “[f]ake accounts, fake likes, fake followers, and fake reviews are now polluting the digital economy, making it difficult for families and small businesses looking for truthful information. Tech companies may have little incentive to address this misinformation. The FTC will need to be forward-looking to stop fraud from festering.” The FTC also made clear that it is not targeting postings by smaller influencers because these are “not a cause for major concern.”
Commissioner Chopra’s tweets also foreshadow a potential focus on civil penalties to deter and punish violators. For example, he shared: “When companies launder advertising by buying positive reviews or paying social media influencers to pretend that their endorsements are untainted by money, this is illegal payola.” He further explained that advertisers must be “held accountable” for engaging in tactics to pressure influencers to make their posts appear authentic by disguising the fact that they are paid advertisements.
Recent settlements also indicate the FTC’s perceived need for civil penalties to protect consumers and to ensure compliance. In February 2019, the FTC settled allegations that Creaxion Corporation, Inside Publications, and the principals of both companies misrepresented that paid athlete endorsements for a client’s mosquito repellant were independent consumer opinions. The companies also misrepresented that promotional advertising was independent journalistic content. The FTC settlement did not impose monetary penalties.
In November 2017, the president and vice president of CSGOLotto, a game “Skins” gambling website, shared social media posts and videos about winning money on the website without disclosing that they owned the company. They also paid other gamers to make positive posts about the website. They falsely claimed their videos and posts as well as the influencers’ posts reflected the unbiased views of impartial users and didn’t disclose the material connection they or their influencers had to the company. This FTC settlement similarly did not include monetary penalties.
Industry Input on FTC Guidelines
The FTC is seeking input from stakeholders on revisions to the FTC guidelines. This is a critical opportunity for industry actors to retain counsel and submit comments on necessary revisions to ensure that any new rules comport with industry needs and abilities to market effectively to consumers. Industry does not benefit from engaging in deceptive advertising, as the exposure is too significant, and the damage deceptive advertising imposes on consumer confidence in a company’s products and services could be irreparable. But it is also important that the FTC hear from advertisers and influencer platforms directly, since these parties know their own business operations better than the FTC. Sometimes advertisers and influencers cannot comply with rules that are so stringent they negatively impact business operations or significantly increase the costs required to come into compliance. Working with the FTC in this process is the only way industry can be heard on this very important topic, and hearing industry’s voice is especially critical since future enforcement and monetary exposure could be significant.