Social media advertising through “Influencers” is about to
change. These personalities can bring in anywhere from $10,000 to $100,000 for
each sponsored product recommendation or review. Typically, their posts are made
to look objective, namely independent and reliable. This is so because, up
until today, the market has largely evaded the FTC, leaving consumers unable to
distinguish the account owner’s financial gain.
In 2017 the FTC sent notices to dozens of companies informing
them that their social media advertising practices through influencers are
illegal – mostly for failure to disclose financial incentives. A letter from March
20th, 2017 to Adidas Group North America stated: “The FTC’s
Endorsement Guides state that if there is a ‘material connection’ between an
endorser and the market of a product – in other words, a connection that might
affect the weight or credibility that a consumer give the endorsement – that
connection should be clearly and conspicuously disclosed, unless the connection
is already clear from the context of the communication containing the
endorsement.” Furthermore, “The [FTC] Endorsement Guides apply to
marketers and endorses. FTC staff guidance makes clear that marketers should
advise endorsers of their disclosure responsibilities and should monitor their
endorsements to ensure that appropriate disclosures are made.” (source
A December 2018 report by the consumer watchdog organization
Truth in Advertising claimed that, based on their analysis of approximately
1,400 social media posts, not even a single recipient heeded the FTC’s warnings.
As a result, earlier this year, Truth in Advertising filed a formal complaint
with the FTC.
The industry is about to turn a new page. Some issues that
companies will need to address in the near future are their obligations to: 1)
inform contracted influencers of FTC endorsement guidelines, including transparency
and truth in advertising requirements; 2) introduce waiver, indemnification,
confidentiality, and possibly insurance clauses in their contracts with
influencers; 3) and supervise and monitor influencer behavior to ensure it
complies with FTC Endorsement Guides. Violation of the Guides, if prosecuted, may
result in orders requiring that a defendant turns in all profits generated from
the illegal action.