Brief:

• The Federal Trade Commission (FTC) this week took the first step toward cracking down on marketers that disguise paid advertising as authentic reviews or endorsements from an influencer. The commission voted to seek public comment on whether to update its rules on the use of testimonials in advertising, according to an announcement.
• The commission will consider whether there needs to be tougher penalties for companies that neglect to disclose paid endorsements or engage in illegal "astroturfing," Commissioner Rohit Chopra said in a statement. Astroturfing is an organized effort to influence opinion by mimicking a grassroots movement.
• The FTC has pursued enforcement against companies for disguising their advertising in influencer campaigns and online reviews, but is unsure whether those efforts are deterring misconduct, Chopra said. Public comments must be received within 60 days of the FTC's request, which will appear in the Federal Register soon, per the announcement.

Insight:

The FTC's call for public comment about possible revisions to its rules, formally known as the Guides Concerning the Use of Endorsements and Testimonials in Advertising, reflects the massive growth in influencer marketing as advertisers seek ways to capture consumer attention in a crowded media marketplace. Even as influencers are frequently cited as a more authentic channel for engaging ad-averse younger consumers, the lack of proper disclosure and transparency in the space has started to receive more pushback from both marketers and regulatory bodies as it matures.

Kylie Jenner, Huda Kattan, Zach King and James Charles are among the personalities who have parlayed their massive social media audiences into lucrative endorsement deals with major brands, not to mention microinfluencers with audiences as small as a few thousand followers. Spending on influencer marketing is forecast to reach $15 billion by 2022 from $8 billion last year, Business Insider Intelligence estimates based on Mediakix data.

The FTC has grown more concerned about the potential abuses of influencer marketing, akin to the payola scandals of the 1950s and '60s that implicated record companies and radio broadcasters. The agency also is concerned that the current rules aren't strong enough to deter abuses.

Chopra cited examples of recent enforcement actions that didn't result in monetary penalties for disguising paid advertising as authentic endorsements. The agency determined that retailer Lord & Taylor didn't require 50 social media influencers to disclose that they had been paid to wear a dress in social media posts. It also charged Sunday Riley, an influencer who runs a cosmetics company with her name, for ordering employees to write fake reviews on Sephora.com and advising them on how to avoid detection. In both cases, the commission settled its charges without any fines, Chopra said.

"Going forward, we need to seek tougher remedies for companies that are illegally astroturfing or disguising their advertising as an authentic endorsement or review," Chopra said in his statement. "The FTC will need to take bold steps to safeguard our digital economy from lies, distortions and disinformation."

Despite these concerns, the FTC has cracked down on influencers who didn't disclose their financial relationships with sponsors. The agency in 2017 settled its first complaint against two social media influencers for not disclosing their connection to a business they touted to online followers. Trevor "TmarTn" Martin and Tom "Syndicate" Cassell, two influencers in the gaming industry, were charged with deceptively endorsing CSGO Lotto without disclosing their part ownership of the gambling website, the FTC said.

Since then, the FTC has published more comprehensive guidelines for the social influencer industry. In November, the agency released its latest publication, "Disclosures 101 for Social Media Influencers," on its website to help influencers to understand the rules on disclosures and endorsements. The FTC guide emphasizes that influencers are responsible for the disclosures, and provides examples of effective and ineffective methods.