What’s worse than sponsored content? The FTC regulating it

December 6, 2013

What’s more dangerous to consumer well-being, sponsored content or the intervention of the Federal Trade Commission? On Wednesday, the agency held a conference, “Blurred Lines: Advertising or Content,” to “discuss native advertising,” as the New York Times put it. The event attracted several hundred “advertisers, academics and media executives,” who listened to the agency’s views about native advertising — or sponsored content, infomercial, or advertorial, as some call it — those Web ads that are designed to look like editorial content, not ads.

Many if not most top editorial sites offer sponsored content, including the Washington Post, Huffington PostSlateTechmemeBusiness InsiderForbesBuzzFeed, the Boston Globe’Boston.com, the Atlantic, and others, and the list of advertisers includes such household names as IBM, Jet Blue, Pillsbury, Purina, Columbia Sportswear, Dell, UPS, McDonalds, and BMW. The Times piece acknowledges that it, too, will soon be joining the sponsored content caravan that brought publishers about $1.5 billion last year.

When convening a conference to “discuss” something or other, the FTC (or other regulatory entities) is almost never in pursuit of discussion — any more than a police officer who says he just wants to talk. Such conversational assemblies usually become venues in which the agency can issue a veiled threat, either directly or indirectly, to its targets, instructing them sotto voce that unless they change their ways they’ll suffer the agency’s wrath. The regulatory playbook usually dictates that the agency promise targets that unless they start observing “voluntary” restrictions, the agency will have to request legislative authority to make restrictions mandatory. Nothing can be “voluntary” if somebody is threatening to make it mandatory, but the gambit works nine times out of ten.

The FTC Chairwoman Edith Ramirez didn’t make the “voluntary” threat, but she didn’t need to, as it was inscribed in her talk.

“While native advertising may certainly bring some benefits to consumers, it has to be done lawfully,” Ramirez said. “By presenting ads that resemble editorial content, an advertiser risks implying, deceptively, that the information comes from a non-biased source.” The law gives the FTC the power to police deceptive advertising and marketing, a power that it routinely draws on, so Chairwoman Ramirez alluding to deceptive advertising can be read as a prelude to legal action.

Advertisements masquerading as editorial copy date back at least to the late 19th century, when they were called “reading notices,” according to the Encyclopedia of American Journalism. Publishers encouraged the placement of reading notices, which placed brand and company names in news stories without any disclaimers, because it was more profitable than conventional advertisements. “Publishers generally charged at least twice as much for reading notices as for display advertisement,” Linda Lawson writes in Truth in Publishing: Federal Regulation of the Press’s Business Practices. The ads commanded a premium over conventional ads, as do today’s pages of sponsored content, which is why publishers loved them so. Even though reading notices were proclaimed by critics as a fraud on readers, they appeared in the leading newspapers of the 1890s. Procter and Gamble touted Crisco with its ads, and Sears, Roebuck and Co. pushed its catalog. “An official of the Southern Pacific Railroad bragged to members of the California Press Association in 1894 that every paper in New York accepted reading notices,” Lawson continues, and in 1900, an ad agency published a 13-page guide to newspapers that accepted reading notices.

In his memoirs, Washington Gladden wrote about quitting his job as a reporter at the New York Independent in 1874 because he could not convince the paper to stop publishing reading notices and publisher’s notices that looked like news stories. “They seem to be essentially evil, and a weakness to the paper,” Gladden wrote. “My scruple may be a foolish one, but I cannot overcome it.” (Hat tips to Prof. Ronald R. Rodgers for this and several other historical pointers.) Renowned journalist Charles A. Dana despised the form, too, writing in 1895, “Let every advertisement appear as an advertisement; no sailing under false colors.” His sentiment was shared by many colleagues, including Editor and Publisher, which editorialized against them, and Adolph S. Ochs, owner of the New York Times. Idealistic publisher E.W. Scripps, who founded an ad-free newspaper in Chicago in 1911, thought avoiding unlabeled reading notices made “good business sense.”

But reading notices were considered so effective that one 1908 book on advertising devoted an entire chapter to “Puffs, Reading Notices, Want Advertisements, Etc.” The key to writing a good reading notice, author Albert E. Edgar advised, was duplicity. “A reading notice of any kind has a certain amount of value because the public reads them as matters of news and not as items of advertising.” Another guidebook, Fowler’s Publicitycounseled advertisers to avoid words like “best,” “unequaled,” and “unapproached” in their reading notices because “[m]odesty in puff writing is absolutely essential, for anything which is disguised has to be more carefully written than that which is not.”

The reading notices were declining as the Progressive Era commenced, C. Edwin Baker writes in Advertising and a Democratic Press, but took a real tumble in 1912 when Congress withdrew postal mailing subsidies for publications that did not mark reading notices as advertisements. Although it has been decades since publishers depended so heavily on postal subsidies to deliver their newspapers — magazines still depend heavily on them —  reading notices have never made a real comeback in dailies. I’d argue that the prejudice against reading notices became too ingrained in the newspaper culture to ever return, but then I would have to explain why some of the nation’s top newspapers are flogging them on their websites. It bears acknowledgement that the overt corruption of reading notices was replaced by covert corruption: Outlets generally avoided publishing stories that might alienate such dominant advertisers as the tobacco industry, the car dealers, the real estate industry, and department stores.

The most articulate foe of sponsored content is Wall Street Journal Managing Editor Gerard Baker, who recently denounced the form as a “Faustian pact.” Baker argues that advertisers who covet sponsored content are short-sighted: It’s in the advertiser’s long-term interest to help publications maintain their reputations as purveyors of honest journalism, not packagers of puff masquerading as news.

Baker is optimistic about publications resisting the sponsored content siren. But I’m not so sure. As Newspaper Death Watch recently reported, corporations have leverage they never really had before to make publishers bend. They can erect their own “informative” and “interesting” websites to push their products, as Coca-Cola and others have. (Currently playing at the Coke site: “The Secret History of Charlie Brown’s Christmas.”) Advertiser-based sites, known in the business as “brand journalism,” would be immune to the sort of legal scrutiny the FTC hopes to apply to the news and information sites running sponsored content. After all, if you load coca-colacompany.com in your address bar, you can’t very well accuse its proprietor of deceptive advertising if he attempts to convince you to buy a Coke.

Given the power of the First Amendment, the FTC will have to step more lightly in its legal thrusts against news and information websites than it does against advertisers, whose rights to commercial speech are huge but do not include a right to deceive. Would FTC action encourage advertisers to switch to their own sites rather than fight the regulators, preventing publishers from finding a way serve the mutual benefit of both reader and advertiser? The publication-reader-advertising symbiosis that worked so well for so many decades has obviously broken down, and the flight to sponsored content marks a failure of publishers and advertisers to build something of its equal. Perhaps the rise of content is my fault because I’ve never clicked on a banner ad in my life!

Whether sponsored content is my fault or not, I resist the idea that the FTC should determine whether an incompletely labeled page of sponsored content constitutes deceptive advertising in the same way that say, hypothetically, an advertisement touting the cancer-curing powers of Coca-Cola might. If the FTC seeks the power to decide what is an advertisement and what is editorial, I would have it seek that mandate from Congress and quit with its implied threats. Perhaps if the FTC leaves the Web alone, publishers and advertisers will eventually come to their senses about sponsored content, understanding that blurring their identities together damages both: That is, a publisher’s credibility suffers when it looks like it’s shilling for advertisers, and an advertiser’s reputation is at peril when readers begin to believe that the advertiser is somehow responsible for the site’s controversial editorial content. Still, if some Web publishers and advertisers want to destroy their cultural standing, it’s not the FTC’s place to intervene.

In the early going, it’s mostly editors like Baker who are speaking sense against the sponsored content menace. I hear few on the business side singing his tune. It’s as H.L. Mencken wrote late in his career: “[A] reporter’s code of ethics are all right so long as they do not menace newspaper profits; the moment they do so the business manager, now quiescent, will begin to growl again.”


Unsponsored content is my business model. Send yours to Shafer.Reuters@gmail.com. Did I hear right that Twitter is adding ads? Sign up for email notifications of new Shafer columns (and other occasional announcements). Subscribe to this RSS feed for new Shafer columns.

BUY: A zoomed image of a computer monitor shows a website selling button clipart for online shops in Vienna November 27, 2013. REUTERS/Heinz-Peter Bader


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Freedom of the press belongs to those that own one.

Posted by tmc | Report as abusive

If they banned advertising altogether people would still buy MacDonalds, use Dell computers etc etc in substantially the same numbers. In my view it will be a change for the better both for business efficiency and for quality of lifestyle. Go for it FTC.

Posted by BidnisMan | Report as abusive

Oh, and ‘the press will not cease to exist’ people will simply learn to pay for news.

Posted by BidnisMan | Report as abusive

@BidnisMan People would probably still buy products that everyone already knows about without advertising. However, there are many products, especially newly developed products, that most potential consumers would never even know exist, let alone actually buy, without advertising.

Posted by Sewblon | Report as abusive

Coming at this from a PR-person’s perspective, there’s no prohibition from having stories about new products appear. They just have to meet the standards of a reporter or editor in order to be covered. To have paid media and earned media appearing in an undifferentiated way increases the impact of the former at the expense of the later. There need to be clear guidelines that help readers differentiate between journalism and marketing and the FTC should play a role.

Also, the idea that publishers and advertisers will do the right thing if money is on the table seems a bit unlikely to me . . .

Posted by GregPC | Report as abusive

Journalists expect certain First Amendment privileges because they are journalists. If press is to have any meaning, then you can’t mix spam in with it, unless you label it accordingly. That’s all. Just label it if anyone paid for the specific story or content. Brought to you by…

Posted by AlkalineState | Report as abusive