Influencing Influencers: Proposing a Public FTC Database for Mandatory Influencer Marketer Disclosures
Posted on Mar 7, 2020With the rise of social media platforms, influencer marketing has become a vehicle for product and brand promotion. A dictionary definition explains that an influencer is any individual who has the power to impact someone else’s purchase decisions due to their (real or perceived) authority, knowledge, position, or relationship.[1] Business Insider reports that “the influencer marketing industry is on track to be worth up to $15 billion by 2022, up from as much as $8 billion in 2019.”[2] As influencer marketing has grown in significance over the past decade, the United States government has become involved in regulating the industry. While the rise of influencer marketing has allowed for companies to extensively promote their brands and products, there are also risks associated with it, as seen in the Fyre Festival debacle. Many celebrity influencers involved with the fraudulent festival failed to disclose their endorsements, misleading consumers into not questioning the legitimacy of the event.[3] In this tumultuous landscape, recent news headlines indicate the opportunity for a change to the rules regarding influencer marketing.
According to a statement released February 12, 2020, the Federal Trade Commission (FTC) voted 5-0 approving a call for public comment regarding the update of The Endorsement Guides.[4] These guides direct advertisers on how and when they must disclose connections between sellers and endorsers of an advertised product.[5]The FTC promotes influencer disclosure so the average consumer is aware when a spokesperson is being paid to make a recommendation.[6] The FTC also has a “Disclosures 101” to simplify and communicate the requirements of The Endorsement Guides, instructing social media influencers to disclose “any financial, employment, personal, or family relationship with a brand.”[7]
While the rules within The Endorsement Guides are non-binding, FTC Commissioner Rohit Chopra hopes to change this by “codifying elements of the existing endorsement guides into formal rules so that violators can be liable for civil penalties under [FTC Act] Section 5(m)(1)(A) and liable for damages under [FTC Act] Section 19.”[8] Section 5(m)(1)(A) allows the FTC to pursue civil actions and recover civil penalties (up to $10,000 per violation) in response to unfair or deceptive acts or practices by persons, partnerships, or corporations.[9] Section 19 permits the FTC to seek consumer redress for consumer injury by the conduct at issue, so long as “a reasonable man would have known under the circumstances [that the conduct] was dishonest or fraudulent.”[10] The FTC does not explicitly define the term “influencer,” but should clearly do so if it makes its rules binding.
Strikingly, many influencer marketers are not compliant with FTC guidelines. In fact, a study analyzing Instagram influencers shows that while 71.5% attempted to disclose relationships with sponsors, only 25% disclosed such relationships in compliance with FTC guidelines.[11] While the FTC may need to improve communication of the guidelines to influencers, this disparity may also indicate that many influencers have the goal of disclosing but are not incentivized to disclose properly. Current measures guiding the behavior of influencer marketers are weakly enforced and clearly not sufficient, perhaps due to their non-binding nature. Given this current lack of proper FTC compliance, I support FTC Commissioner Chopra’s goal to change the endorsement guides into formal rules, hoping that civil penalties and damages effectively crack down on improper behavior by influencers. However, the problem remaining is that even with such disclosures, the average consumer is not aware of the financial compensation behind each endorsement.
Thus, to supplement the reforms currently being considered by the FTC regarding civil penalties and damages, I propose the creation of a publicly accessible influencer marketing database managed by the FTC. Similar to how public companies must make public filings with the Securities and Exchange Commission (SEC), influencer marketers should have to describe in detail the extent of their compensation and relationship with the subject of their marketing efforts, in a manner that is viewable and understandable by the public.
A law review note on the topic of influencer marketing explains the motivation for influencer disclosures: “These disclosures are necessary to ensure consumers can accurately evaluate and give appropriate weight to an influencer’s endorsement.”[12] This rationale parallels a motivation for public companies having to disclose their financial statements, since they have a responsibility to properly inform their shareholders and the public (potential shareholders) of the company’s financial health, allowing for proper evaluation of the company. The group of “shareholders” impacted by an influencer endorsement theoretically includes any individual in the public who might evaluate the advertisement and take action as a result, justifying similar treatment of influencers and public companies with regards to disclosure requirements.
The FTC would ideally enforce the proposed database’s disclosure requirements through civil actions and fines. While monitoring every instance of improper behavior would be difficult, the FTC could target celebrity influencers or randomly investigate influencers to find instances of non-compliance and pursue civil action accordingly. The database would assist the FTC by providing data on influencer compensation and by making it easier to identify cases of non-disclosure. For example, a celebrity known for endorsing products who has not made extensive disclosures on the database would draw the scrutiny of the FTC.
The proposed public database would go further than simply requiring disclosures for each endorsement effort. Rather, the FTC would require disclosure of all endorsements and earnings from each influencer marketing endeavor.This disclosure would give insight into the magnitude of each endorsement influencers make and each influencer’s total annual impact, perhaps raising healthy skepticism with regards to their endorsements. If one can easily see the financial extent of each of an influencer’s endorsements, as well as a list of all the products or brands the influencer endorses, the public will have an increased ability to evaluate endorsements.
While it is unreasonable to expect the average consumer to check the database regularly, the database would provide information for researchers and other individuals seeking to better understand instances of influencer marketing. I argue this information is valuable since excessive endorsements would likely draw some level of scrutiny to the endorsement being made. Of course, while it would be cumbersome and impractical to request a disclosure that “X influencer was paid $Y million” on the actual advertisement itself, the database solution provides a way to still make that information public.
Overall, it is evident that influencer marketing plays a powerful role in the United States. Going forward, the FTC has the power to affect change through updating The Endorsement Guides and through cracking down on influencers when necessary. I hope the FTC considers this public database proposal, but more importantly, I hope that much needed reform occurs in the influencer marketing space to better protect consumers.
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[1] See Influencers, Bus. Dictionary, http://www.businessdictionary.com/definition/influencers.html [https://perma.cc/ATZ3-S9FN].
[2] Audrey Schomer, Influencer Marketing: State of the Social Media Influencer Market in 2020, Bus. Insider (Dec. 17, 2019), https://www.businessinsider.com/influencer-marketing-report.
[3] Davis Richardson, Blame the Fyre Festival Fiasco on the Plague of Celebrity Influencers, Wired (May 4, 2017), https://www.wired.com/2017/05/blame-fyre-festival-fiasco-plague-celebrity-influencers/.
[4] Press Release, Fed. Trade Comm’n, FTC Seeks Public Comment on its Endorsement Guides (Feb. 12, 2020), https://www.ftc.gov/news-events/press-releases/2020/02/ftc-seeks-public-comment-its-endorsement-guides.
[5] Daniel Jasnow & Matthew Mills, FTC Looks to the Public for Changes to the Endorsement Guides, JD Supra (Feb. 13, 2020), https://www.jdsupra.com/legalnews/ftc-looks-to-the-public-for-changes-to-13055/.<
[6] The FTC’s Endorsement Guides: What People Are Asking, Fed. Trade Comm’n (Sept. 2017), https://www.ftc.gov/tips-advice/business-center/guidance/ftcs-endorsement-guides-what-people-are-asking.
[7] Disclosures 101 for Social Media Influencers, Fed. Trade Comm'n, (Nov. 2017), https://www.ftc.gov/tips-advice/business-center/guidance/disclosures-101-social-media-influencers.
[8] Josh Constine, FTC Votes to Review Influencer Marketing Rules & Penalties, Tech Crunch (Feb. 12, 2020), https://techcrunch.com/2020/02/12/ftc-influencer-marketing-law/.
[9] 15 U.S.C. § 45 (2018).
[10] 15 U.S.C. § 57b (2018).
[11] Robert Williams, Study: Just 25% of Instagram Influencers are Compliant with FTC Rules, Mobile Marketer (Mar. 14, 2018), https://www.mobilemarketer.com/news/study-just-25-of-instagram-influencers-are-compliant-with-ftc-rules/519086/.
[12] Laura E. Bladow, Worth the Click: Why Greater FTC Enforcement Is Needed to Curtail Deceptive Practices in Influencer Marketing, 59 Wm. & Mary L. Rev. 1123 (2018), https://scholarship.law.wm.edu/wmlr/vol59/iss3/8.