By: Benjamin Black

Background on Influencer Marketing Trends and Regulations

 

The phenomenon of influencer marketing has exploded across the U.S. in the last few years. U.S. influencer marketing market size has increased from $1.7B in 2016 to an estimated $6.5B in 2019. Similarly, the number of U.S. influencer marketing platforms and agencies have nearly doubled over the same time period. Present trends show that influencer marketing is only going to increase as people spend less time watching traditional TV, and spend more time on social media, with its worldwide communication platforms.

 

But what is influencer marketing, and why is it different than traditional marketing? Influencer marketing identifies individuals with large social media followings and seeks to convert that influence into potential buyers. Usually influencers have a niche expertise, such as consumer technology, beauty products, photography, or video gaming. This expertise draws interested consumers who develop trust in the influencer’s opinions. These consumers may also see the influencer’s opinions as unbiased, assuming influencers have no formal brand affiliation.

 

Influencer marketing also leverages influencers as content creators. Many influencers have honed the art of producing compelling photos or videos for their audience. Not only is the content creatively appealing, but the content is also curated to create a sense of connection. This reinforces the feeling that influencers are more relatable than traditional celebrities. Potential buyers may feel a kinship to influencers’ lives through the perceived authentic window of the influencers’ consistent tweets, pictures, and videos.

 

In this way, influencer marketing both narrows the targeted buyer segment and leverages the trust that the buyer builds with the influencer. It isn’t surprising that brands around the world want to tap the already interested followings of tech reviewers on YouTube or Instagram models.

 

With the rising popularity in influencer marketing comes the need to understand the rules and regulations surrounding it. Currently, influencer marketing regulations in the U.S. are being developed, and the regulations that do exist are largely unenforced. But this trend may not last for long.

 

U.S. Influencer Marketing Oversight

 

In the U.S., the Federal Trade Commission (FTC) oversees consumer protection and advertisement regulations, including those surrounding influencer marketing. As a precursor to regulations targeting influencer marketing, the FTC established endorsement guidelines nearly a decade ago. These guidelines require that endorsers/advertisers clearly disclose their material connections such that the endorsement disclosure is 1) easily findable, 2) easily understandable, and 3) allows the consumer to obtain sufficient information to make a judgment about the value of the endorsement. Financial relationships aren’t the only relationships which must be disclosed; family relationships must be disclosed as well, but neither the regulations nor the guidelines spell out what types of family relationships must be disclosed.

In April 2017, the FTC reminded influencers and brands that these existing endorsement guidelines apply to them as endorsers and advertisers. For example, a car brand would need to disclose that a short video on Instagram is an advertisement or paid endorsement when they pay a famous basketball player to drive in the brand’s car with his kids.

 

Past Enforcement Action

 

In September 2017, the FTC launched its first foray into influencer marketing enforcement. The FTC brought action against two popular YouTubers who violated endorsement guidelines by promoting the gambling site CSGO Lotto on their personal social media accounts from November 2015 to June 2016 without disclosing that they owned the website. Specifically, the influencers lauded how much money they were making gambling on their own site. They also paid other social media influencers to promote their gambling site, and these other social media influencers failed to disclose their paid-for endorsements. Ultimately, the settlement was rather tame because the gambling site ceased operations after the public reaction to the revealed deception in June 2016. The settlement focused on requiring future material disclosures of financial relationships and endorsements.

 

Existing and Developing Guidance for Regulatory Compliance

 

Alongside the 2017 enforcement action against CSGO Lotto, the FTC released expanded endorsement guidance for influencers. Similar to previous endorsement guidance, the expanded guidance revolved around context and content specific “clear and conspicuous disclosures” of connections between endorsers and marketers. Both familial and financial connections should be disclosed to aid evaluators of the endorsement. Additionally, endorsements should reflect the honest opinion of the endorser and can’t be used to make a misleading claim that the brand itself couldn’t legally make.

The guidance follows a question and answer format, oftentimes relating to specific social media outlets. For example, the FTC advises that a “clear and conspicuous disclosure” for a YouTube video would be in the video itself and not solely in the description. Similarly, Instagram posts and Tweets should have #ad near the beginning of the text. Snapchat and Instagram Stories should superimpose a disclosure over the image. Even video game streamers are advised to have a continuous, clear and conspicuous disclosure throughout the entire stream.

 

Examples from the guidance include:

  1. All individual content involving an ad or sponsorship should have its own “clear and conspicuous” disclosure, which is:
    • Close to the claims to which they relate;
    • In a font that is easy to read;
    • In a shade that stands out against the background;
    • For video ads, on the screen long enough to be noticed, read, and understood;
    • For audio disclosures, read at a cadence that is easy for consumers to follow and in words consumers will understand
  2. Things to avoid
  3. Both brands and influencers are responsible
    • FTC inquiry is based on a reasonable consumer; make sure consumers understand the disclosure
    • Advertisers and brands must have programs to ensure influencer compliance with FTC guidance
  4. Situations that should be disclosed include any time there is:
    • Receiving a product for free or being lent a product to review;
    • Payment for the endorsement;
    • Any (even unpaid) endorsement to a brand to which you have a financial or familial relationship

 

 

Future Scope of Agency Enforcement Efforts

 

Since the release of the guidance in 2017, the FTC has not launched any major action against influencer marketing despite widespread noncompliance. To showcase widespread noncompliance, the independent, non-profit, watchdog organization TruthInAdvertising.org (TINA.org) compiled a small database of ads that fail the FTC’s standard for disclosing material connections to the promoted brands. TINA.org has also sent letters to influencers advising compliance and filed formal complaints with the FTC. But there is no record of FTC institution of any action against influencers or brands since CSGO Lotto in 2017.

Furthermore, the lack of penalties may be a contributor to noncompliance with influencer marketing guidance. The FTC brings cases involving influencer marketing under Section 5 of the FTC Act, which generally prohibits deceptive marketing. However, the penalties under this statute are relatively minimal. The penalty for violating the FTC endorsement guidelines can result in disgorgement of money received from violations, but there are no civil fines for violations of the FTC Act. The FTC’s reluctance to involve monetary penalties is showcased in the CSGO Lotto action where the FTC focused on requiring future material connection disclosures.

 

Conclusion

 

Although current FTC enforcement action is sparse and minimal, this could change quickly in the near future. Entrepreneurs are constantly pushing the boundaries and can get caught by these changes in the law. Entrepreneurs should understand how their businesses intersect with the law and keep apprised of history of the law and current trends in order to avoid potential pitfalls which may endanger their businesses.