Last week, the FTC hosted a public workshop on native advertising to examine how best to address occasions in which certain media outlets blur the traditional line between advertisements and editorial content.  The workshop brought together a collection of brand-name companies that use native advertising, content-placement companies that help brands place such advertisements online, and media outlets that create and host native ads.

Native advertising has become a buzzword in online marketing, as publishers look for new revenue streams and advertisers seek alternate ways to engage their audiences.  Native advertisements can take a variety of forms, but all are intended to look “native” to the outlet in which they appear, unlike traditional display or pop-up advertisements.  Some panelists described native ads as less intrusive than traditional advertising, while others highlighted the potential for consumers to believe the ad was actually written by an independent media outlet when it might not have been.

The workshop focused on familiar topics like transparency and how to avoid deceiving consumers, but it also raised a host of new questions about how to think about those issues in the context of native advertisements, especially when those ads appear online.  Below the jump, we provide six key takeaways from the workshop as we wait and see what further steps the FTC may take in this complicated area.

1.  The FTC’s Concern With Native Advertisements Is Not New

Native advertisements are not new, and the FTC’s interest in preventing deceptive advertising also is not new.  In her opening remarks, FTC Chairwoman Edith Ramirez said the agency has long been concerned with the ability of consumers to distinguish between paid and unpaid content.  In fact, the FTC’s first settlement for a deceptive native advertisement occurred in 1917, with an ad for the first electric vacuum cleaner, according to Lesley Fair, a staff attorney with the FTC’s Bureau of Consumer Protection.  Since then, the agency has pursued actions against newspaper advertisements designed to look like news articles, infomercials pretending to be hard-hitting investigative reports, and online diet pill advertisements that portrayed themselves as news sites.

2.  Native Advertisements Take Many Forms

There is no standard native advertisement format, in part because an ad that feels “native” to one media outlet is unlikely to feel “native” to another.  As a result, publishers and advertisers have created a myriad of possible approaches to native ads, sometimes referring to them as “sponsored content,” or labeling them as “presented by” a brand, or incorporating a brand’s logo into the article and surrounding it with display ads for that brand.

There also is no standard way to create a native advertisement.  Some advertisers write their own native advertisements, which are hosted on media sites or social networking services.  Others are created by media outlets, with varying levels of influence from advertisers.  Some publishers, such as The Wall Street Journal and The Huffington Post, have in-house teams of advertising writers who create sponsored content and are separate from the editorial newsroom.  Others, such as Mashable, may use their editorial writers to draft sponsored content.  In other cases, a native advertisement may not be paid for at all but could just be posted to an open platform, such as when a company posts content about one of its brands on its own social media account.

 3.  What About Readers?

FTC officials repeatedly quizzed panelists on how readers can tell if an article was written by an independent news site, or was designed to promote a specific advertiser.  A panel of researchers who study consumer behavior had few clear answers, but suggested readers are likely to skip over labels that appear atop a native advertisement, such as one identifying it as “sponsored content.”

However, distinguishing between a paid advertisement and editorial content may not be a problem for some readers.  Although more than 40% of the readers surveyed by Professor David Franklyn, at the University of San Francisco School of Law, wanted a clearer distinction between advertising and editorial content, a growing number “don’t care” about the difference and just want to read content and enjoy it, Franklyn said.  That may be why publishers see such strong engagement with native advertisements.  At Mashable, readers spend more time engaging with sponsored content than with many editorial articles, according to Adam Ostrow, the site’s Chief Strategy Officer.  As a result, native ads have a click-through rate of 8 to 15 times higher than traditional ads, he said.

4.  Transparency is important . . .

The theme of the day was transparency, meaning the ability of readers to distinguish between native advertising and editorial content.  In her opening remarks, Chairwoman Ramirez explained that ads that resemble editorial content run the risk of deceptively suggesting that they come from an unbiased source.  There was a general consensus among panelists that there should be transparency to maintain trust for the publisher and the brand.  Ostrow said that transparency is “front and center” for his publication because it does not want to lose readers’ trust.  Similarly, Tessa Gould, Director of HuffPost Partner Studio at the Huffington Post, said that transparency is “nonnegotiable.”  On the advertiser side, Chris Laird from Proctor & Gamble emphasized that transparency in advertising makes good business sense and described it as a “brand building imperative.”

However, some panelists pointed out that the distinction between what constitutes advertising and what constitutes editorial content is not always clear.  Panelists discussing best practices wrestled with the question of whether there should be disclosures when an advertiser pays for content, such as an article, that does not specifically mention its brand or a competitor and does not explicitly sell a product.  One of the hypotheticals discussed was an eye glasses company paying for an article to appear in a digital publication about how the use of electronic devices worsens eyesight.  Panelists identified two key types of disclosure that might apply in this case: (1) identifying the author/creator of the content (publisher or advertiser) and (2) identifying the paid relationship.  At least one panelist felt strongly that a paid relationship between a publisher and an advertiser should always be disclosed, regardless of the substance of the content, because otherwise the reader is deceived into thinking that the content is there due to independent editorial discretion.

5.  . . .  But May Be Difficult to Achieve

While there was a consensus among panelists that transparency is important, there was less agreement about how best to achieve it.  Panelists discussed the various ways publishers (and advertisers) could identify native advertising such as using advertiser logos, typeface, positioning (such as architecturally mandated segregation), differing fonts, colors, borders, shading, and disclosure language.

The wording of disclosures received the most attention.  Terminology that was discussed included “sponsored by,” “presented by,” “you may also enjoy,” “around the web,” and “you may like.”  “Sponsored by” seems to be a popular choice, but the panelists discussed how there is no consensus on what that means in practice.

Given the variety of native advertisements, some said that “sponsored by” could mean the advertiser wrote the content, paid to be mentioned in the content, paid for the placement of the content, or underwrote the website.  Many panelists pointed out that ambiguity in the terms may be clarified by the context in which they appear.  However, as discussed above, Franklyn’s research showed that labels alone may be ineffective because people tend to skip over them when reading online.  Jeff Johnson, principal consultant at UI Wizards, recommended that a combination of visual indicators be used to distinguish paid from unpaid content.

Panelists appeared to be in agreement that there should not be a prescribed method for identifying native advertising.  One publisher panelist stated that publishers must identify native advertising in a way that is “natural” for the online platform and should have flexibility, guided by best practices, to do what is right for their respective industries and reader base.  Another panelist opined that rather than prescribe consistency, it is better to have a more open marketplace about disclosure because in the end, the entities that are the most clear and transparent will have a competitive advantage with readers and then marketers will follow suit.

According to the panelists, the issue of adequate disclosures is further complicated when the paid content is shared on social media.  FTC moderators asked whether it was important for labels/disclosures to be carried through when the paid content is shared by readers.  Publisher panelists pointed out that while publishers have control over how paid content is labeled on their own sites, they do not have control over how it is labeled when readers share the content on social media.  Panelists discussed what steps are available for publishers to aid in transparency when content is shared.  Panelists from Hearst and the Huffington Post explained that in an effort to aid transparency, their publications prepopulate the text of social media posts with default language when a user shares certain sponsored content.  Mary Engle, the Director of Advertising Practices at the FTC who moderated the day’s final panel, stated that it was important for the original content to be properly labeled in the first instance.

6.  No Clear Path Forward Was Outlined by the FTC

On the morning’s first panel, the FTC moderator asked if the industry could coalesce around a framework for distinguishing advertisements from editorial content.  But the day ended on a less certain note, as the workshop “raised more questions than it answered,” according to Engle.

Jessica Rich, the Director of the Bureau of Consumer Protection, reiterated that there is “considerable interest” in developing best practices on native advertisements.  But she noted that it “may not be possible” to come up with a common set of terms for native ads.  Rich also noted that industry groups like the Interactive Advertising Bureau and ASME already have created best practices in this area, and that existing law and standards provide opportunities for FTC enforcement actions against deceptive ads.  Rich said the agency would consider what it learned during the workshop, to determine if additional guidance would be helpful or not.