Thursday, 12 November 2009

Clarification and commentary on new FTC advertising and endorsement rules

As I mentioned in an article last month, the USA Federal Trade commission has announced new guidelines effective 1 December 2009 for enforcement of the FTC prohibition on deceptive advertising as they relate to endorsements, sponsorships, and non-obvious financial relationships with the those who endorse or promote commercial products or services.

Nothing about the new guidelines is specific to blogs, the Internet, or travel -- they apply equally to all types of products and services and to all media, including print, television, etc., and may have some of their biggest impact on TV infomercials -- but they prompted particular concern among bloggers, Web publishers, and travel writers. The topic generated more comments than most of my articles, mainly from fellow travel writers, as well as extensive discussion (and confusion) throughout the blogosphere.

The new guidelines have prompted me to publish what I hope is a comprehensive Disclosures and Disclaimers page, which I probably should have done a long time ago, and on which I invite and encourage your feedback as readers and as fellow writers and Web publishers.

There were two opposing sources for the degree of anxiety prompted by the announcement of the guidelines.

Lacking a clear definition of themselves as journalists (which many of them neither are nor aspire to be), and lacking any commonly-accepted norms for the separation of advertising and "editorial" content on the Web such as those taken for granted in print journalism (most travel Web sites are essentially online infomercials, a bad thing, as I've said before and will say again at the risk of getting flamed, that discredits genuine online travel journalism and forces readers to assume that everything they read on the Web is advertising unless clearly and identifiably otherwise), many bloggers and Web publishers were unprepared suddenly to be hit with a requirement to live up to the truth-in-advertising rules that have long governed other media (and the Internet, except that the hands-off attitude of Federal regulators towards the Internet has left online publications blissfully ignorant of these unenforced rules).

The FTC appears to have acted from well-founded concern that Internet informercials, shills, and payola shouldn't be exempt from truth-in-advertising rules. But on their side, the Feds don't seem to have had a good understanding of the Internet economics of blogging, Web publishing, and above all of the relationship and cash-flow patterns in Internet advertising, affiliate marketing and e-commerce. As a result, the initial announcement left readers of the rules in the dark, and forced to guess, about how the FTC intends them to apply to some of the most common situations that marketers, Web publishers, writers, and publishers find themselves in. The most difficult questions, I think, involve not travel writing but where and how to draw the line between prohibited "payola" and permissible "affiliate marketing" commissions.

I don't have time today to go into the interesting discussions this has spawned about the ethical issues of travel writers' accepting free or discounted travel services (for some of that, see the #twethics hashtag on Twitter), but I do have some updates and links in the extended article below to more information about what the guidelines might mean from the horse's mouth: the FTC.

On Monday, Blog With Integrity (which I endorse) organized an excellent webinar during which Mary Engle, FTC Associate Director of Consumer Protection, answered questions from bloggers. It was, I suspect, the first direct engagement -- after the fact, which was clearly a mistake -- between the FTC rulemakers and the people affected by the rule. Blog With Integrity is working to get the complete session posted online; I'll update this article if that happens.

It's hard to tell which aspects of the discussion to emphasize, and anything I say is, of necessity, quoted out of an hour of context. If you can, listen to the whole webinar once it is posted online.

The subtext to the session was of conceptual disjunction, with bloggers struggling to understand how to apply FTC language about "endorsements" to their writing and publishing ("If I mention a book in a blog post, is that an endorsement?"), and the FTC's Engle struggling understand questions about what should have been very commonplace examples ("How can I know what, if any, financial relationship an anonymous commenter may have with a product manufacturer or provider of travel services?").

Engle began by stressing that, "It's not about disclosure. Disclosure is a means to an end which is transparency." The FTC's goal is that there shouldn't be any hidden relationships -- between writers, publishers, advertisers, manufacturers, retailers, service providers, etc.-- that deceive consumers. A good idea, I think, but easier said than done in the multi-level-marketing world of Internet advertising, affiliate marketing, and click arbitrage. Like most bloggers, I give "endorsements" -- I say favorable things about products and services -- but I'm also the recipient of endorsements when other people say favorable things about my books.

Engle reassures bloggers and Web publishers that cease-and-desist orders would precede any fines or other sanctions. She also stressed that the FTC intends compliance to be achieved from the top down: "We want companies to institute policies requiring disclosures by those who are promoting their products."

I have yet to see any such new terms trickling down from advertisers in their terms and conditions for affiliates, but Engle's emphasis on them strongly supports Michel Fortin's thesis that if the FTC guidelines are complied with, the biggest changes will be in affiliate marketing -- an industry invisible and largely unknown to most end consumers, but that churns tens of billions of dollars a year in revenues, and provides the majority of the income for most Web publishers, including bloggers and other self-publishers and definitely including those writing about travel. My largest source of income from this Web site and blog is currently commissions as an affiliate of Airtreks.com; most destination and Web sites and online guidebooks make more of their money on hotel advertising and affiliate commissions.

Is affiliate marketing per se payola in the FTC's eyes? Engle didn't seem sufficiently familiar with the concept to give a clear answer. What sort of disclosure is required to avoid deceiving readers about affiliate marketing, where a product or service is mentioned in an affiliate link, so the Web publisher gets a commission if the visitor follows the link? "It depends on whether consumers understand that you're getting a commission," Engle said. "It doesn't have to be that most consumers are misled. Even If a significant minority of consumers are misled, the ad is deceptive."

That led to the suggestion by some participants in the webinar that maybe the FTC should do some research on what consumers actually understand and expect -- with the implicit subtext that maybe they ought to have done that research before promulgating the new guidelines.

Engle said that it should be OK "if you have a broad disclosure at the top of the page, [but] it's not sufficient if the disclosure is just under 'FAQ' or "About'." And explicit disclosure is only required in cases where the financial relationship isn't one that readers would expect: "There are some sites that are clearly product review sites where the consumer wouldn't expect that they pay for everything they review." Would this apply to reviews of travel services? Do readers expect travel writers, or the publishers of their work, to have paid for their travel? Or do you assume that travel writers have received subsidized, free, or discounted travel services? I didn't get to ask.

I did get to ask about anonymous book reviews or other anonymous reviews and comments. After some hesitation -- she clearly hadn't thought about it before -- Ms. Engle suggested that, "Maybe there could be a warning to readers: 'I don't know who these reviewers are. They might be paid to post these reviews. They might be shilling.'" Not a bad idea; we'll see if review sites like Amazon.com or Tripadvisor.com add a shill alert like this to each of their review pages.

Engle resisted giving any black-letter advice on what would constitute a sufficiently prominent disclosure, but did say that, "A blanket disclosure policy is probably not going to be sufficient unless you can be sure that people will see it. The disclosure needs to be clear and prominent. One per page is probably OK, rather than having to have a disclosure on every link."

Some links to other blogs and articles analyzing the guidelines, particularly those that have focused on the actual language of the guidelines and/or who have gotten quotes from the FTC about what they intend the guidelines to mean:

Link | Posted by Edward on Thursday, 12 November 2009, 13:05 ( 1:05 PM) | TrackBack (0)
Comments

Your post is tremendously helpful. Thanks to your prior FTC post I joined the Town Hall talk led by FTC's Mary Engle. I need to figure out what precisely affiliate marketing is - new to me - and also wanted to check out the shill alert. Keep up the great job!

Posted by: Karen Kefauver, 12 November 2009, 18:05 ( 6:05 PM)

Great Article. Keep up the great work. Sure to help out plenty

Posted by: , 24 July 2010, 22:00 (10:00 PM)

HI

Im new at internet marketing (i want to work from home as ive a baby and a toddler) and im a bit confused will these new rules effect me and if so how?

Posted by: marion, 26 July 2010, 02:29 ( 2:29 AM)

Hi Edward,

Certainly food for thought. I have just started out on affilate marketing and came across your post in one of my searches. I havd heard of the FTC's ruling on disclosure, but have not understood it. You post have made things clearer to me, but I still need to do some more reading to find out exactly how it affects me in what I am actually doing.

Anyway, you have certainly got me thinking.

Posted by: Hiro Adams, 26 July 2010, 07:30 ( 7:30 AM)

Hello Edward!
I am just getting started blogging...
Your blog is great!
Thank You for the inspiration!!!
Martin

Posted by: Martin Rysan, 27 July 2010, 17:45 ( 5:45 PM)

Hello Edward.
The things should be presented as they are what they have, paying people just to get some positive review and boost sales or improve conversion ratio is a bad thing. It surely misleads the real buyer :(

Posted by: , 18 September 2010, 10:00 (10:00 AM)

Thank you, Edward! That might be the first time I understood the new rules even though they are no longer new.

Posted by: Stan Smith, 27 October 2010, 10:15 (10:15 AM)

DISCLAIMER FOR BLOGGER REVIEWED BOOKS? PREPOSTEROUS! WE NATURALLY ASSUME THAT THERE IS SOME TIT-FOR-TAT WITH AUTHORS AND CRITICS. SOME RELATIONSHIPS HAVE TO BE HIDDEN - TO PROTECT THE FEW WHO HAVE TAKEN RISKS.

Posted by: Karen, 6 December 2010, 17:32 ( 5:32 PM)

Hmmm, sounds like there's some gray areas as far as affiliate marketing goes... Has anything solidified since then?

Posted by: Alexander Rodriguez, 9 December 2010, 12:46 (12:46 PM)

I am an affiliate marketer in Canada possibly referring US customers to other website. Does FTC rules apply to me?

Posted by: Bruno, 1 February 2011, 13:53 ( 1:53 PM)

lucky for those who aren't US affiliates...for us US affiliates the game just got a lot harder

Posted by: , 1 March 2011, 04:09 ( 4:09 AM)
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