Advertisers and Agencies Gain Insight on Influencer Marketing

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FTC's Recent Decisions Have Given Valuable Insight Regarding the Management of Social Influencers

The FTC has announced that it will protect consumers from the effects of misleading social marketing strategies, by requiring the clear and evident disclosure of all paid endorsements and testimonials. From September 2015 and onward, there have been three cases of high profile that the FTC has settled according to this policy: with WB, Microsoft, and Lord & Taylor.

The FTC disclosed on July 11 that it had settled with Warner Bros. Home Entertainment (WB) with regards to the company failing to publicize it compensated YouTube influencers for the promotion of its new video game. But this isn't exactly news, is it?

What's odd, however, is the different way that the FTC handled WB's case compared to Microsoft, who also provided payments to YouTube influencers for promotion reasons. This difference can be a valuable lesson for agencies and advertisers alike.

There are similarities in the two cases. Both companies intended to boost the promotion of their video games. They both assigned their YouTube influencer campaigns to third party advertising agencies. However, the difference was in the method of approach that these agencies used; The agency handling WB's campaign contacted the YouTube influencers directly, whereas Microsoft's agency subcontracted the project to Machinima, a multi-channel network, which then approached the influencers.

In both situations, Warner Bros and Microsoft (represented by Machinima) provided monetary rewards to influencers, to ensure endorsements for their products. In the FTC's words, both companies failed to properly inform the public that the influencers received money in order to endorse their products. WB and the FTC ultimately settled. The FTC investigated Microsoft as well, but then dropped the case against the company and moved against Machinima instead, who also settled in the end.

But why was there such a difference?

The FTC justified its decision to drop charges against Microsoft or its agency and only investigated the parties' involvement in the promotion by stating that the company "had a sound compliance program in effect" and had offered both its employees and its agency adequate training. What's more, there was a swift reaction from both parties after finding out that influencers who had received money were publishing endorsements for Microsoft product without disclosure, as they requested Machinima to follow the FTC's regulations.

On the other hand, the FTC disclosed that influencers were instructed by WB to input disclosures "below the fold," meaning under the YouTube influencer's video. In addition, while the FTC acknowledged that WB had employed a pre-approval procedure for influencer videos, at least one video was reviewed and approved without meeting the requirements regarding disclosures.

The FTC reached agreements with both Machinima and Warner Bros. Because of that, most of the information that was discovered through the investigation was held from being publicized. Still, there are a few valuable lessons that can be derived from these cases as far as influencer marketing is concerned.

1. If you plan to base your social media campaign on testimonial and endorsements, you need to have provided for an appropriate compliance program that will guard you from misleading marketing tricks.
2. Although the adoption of such a program is essential, it doesn't suffice. You need to make sure that both your employees and your agency are trained in the proper use of the compliance program. Also, a monitoring procedure needs to be put in place, to minimize the occurrence of internal breaches. The existence of the compliance program is what saved Microsoft from being pursued by the FTC, which only went after Machinima, Microsoft's subcontractor.
3. Advertisers must not shy away from cases of misconduct by their agencies. I am not aware which faults were on WB's side and which on its agency, but, as far as the FTC is concerned, they were all regarded as WB's faults. On the other hand, the FTC didn't go after Microsoft, because they found that both the company and its agency had made legitimate efforts to control the campaign, leading to the conclusion that the failed disclosures were the exceptions that went under the radar of the implemented compliance program.

1. If you assign your social media campaign to an agency, and there are endorsements and testimonials involved, ask what their procedures and policies are when it comes to disclosures. In case they lack such procedures, assist them in getting them in contact with the appropriate legal personnel, in order to create a draft.
2. By the looks of it, monitoring and compliance will start to be scrutinized more often by the FTC. Instead of dealing with it as a handicap, promote its added value. It looks like compliance and monitoring could be targets of scrutiny under the new route the FTC has taken. Present it as an additional value rather than a handicap. Settling with the FTC hasn't been overly painful so far, but that's probably going to change soon. You likely wouldn't want to be the first one to take that hit for your client.
3. Be cautious with subcontractors. If you sense trouble approaching, do what Microsoft did and swiftly endorse a policy in favor of disclosures. You will be providing your client a great service.

New challenges and opportunities arise through the novel routes of branding and customer acquisition. Advertisers and agencies should learn their lessons from the FTC's change in course, and design their strategies with safety in mind.