Corporations, Social Media, & Advertising: Deceptive, Profitable, or Just Smart Marketing?

• Author: Sconyers, Adrienne

1. INTRODUCTION II. BACKGROUND A. Social Media Marketing Spending by the Numbers B. FTC Regulations of Deceptive Advertising and Endorsements C. FTC Regulation in Various Marketing Mediums 1. FTC Regulation of Radio Advertisements 2. FTC Regulation of Newspaper Advertisements 3. Clear and Conspicuous Standard in Television 4. FTC Regulation of Infomercials and the Internet 5. FTC's View on Celebrity and Influencer Social Media Advertising D. FTC Impact on Companies' Profits from Deceptive Celebrity and Influencer Advertisements III. ANALYSIS A. Celebrity Endorsements and FTC Compliance on Social Media B. Read & Comprehend Test C. Clarity on Sponsored Endorsements & Voluntary Endorsements D. Application of Old Standards to New Platforms Would Fail E. Financial Profit of Celebrity Endorsements and FTC Impact on Those Profits IV. RECOMMENDATIONS A. FTC Guidelines 1. Creating a Clear Definition of Read and Comprehend 2. Having Advertising Notifications at the Beginning and End of Social Media Posts 3. Clearly Defining What is a Sponsor or Partner in the FTC Guidance B. Financial Penalties to Corporations C. Financial Penalties to Celebrities and Influencers V. CONCLUSION I. INTRODUCTION

   Companies promote their products through advertising, and for decades, celebrities have played an integral part of advertising products to consumers. For example, millions of kids purchased Nike shoes in the 1990s to "be like Mike." Pepsi hired Britney Spears to promote its soda; and Armani and H&M both hired David Beckham to promote their clothes. (1) Celebrity endorsements span all types of products similar to how advertising spans different kinds of marketing mediums including social media. Social media platforms--such as Facebook, Instagram, Snapchat, and Twitter--have all been used by companies and celebrities to promote products.

   As the platforms for advertising have evolved, the Federal Trade Commission (FTC) has tried to regulate advertisements to prevent deceptive information from negatively impacting the consumer. The FTC's newest regulation in advertising has extended into social media advertisements. This Note addresses the FTC's attempted regulation of celebrity social media advertisements and how those regulations impact the companies that hire celebrities and social media influencers (2) to promote their products and the consumers who follow the celebrities on social media. In Part II, this Note will examine several areas. First, this Part will explore the financial growth of social media via company spending. Second, this Part will lay out the meanings of "deceptive" and "endorsement" as those terms relate to advertising. Third, this Part will delve into the FTC's regulation of other advertising mediums such as radio, newspapers, and television to lay a framework of the FTC's past regulation of deceptive advertising to show why those same regulations could not be applied to social media. Finally, this Part will examine the FTC's impact on companies' profits from deceptive advertisements.

   In Part III, this Note will examine how the FTC's current guidance is perplexing to companies, celebrities, and influencers who want to truthfully advertise on social media. It will also analyze the financial impact on companies who have been found guilty of deceptive advertising. Finally, in Part IV, this Note will recommend that the FTC change its guidelines to (1) create a clear definition for "read and comprehend," (2) require advertising notifications at the beginning and end of social media posts, and (3) define what qualifies as a celebrity sponsor and social media influencer sponsor. There will also be a recommendation that the FTC implement a standard formula for fines that will be used to punish companies, celebrities, and social media influencers who participate in deceptive advertisements on social media.

2. BACKGROUND

   1. Social Media Marketing Spending by the Numbers

      Social media marketing is a marketing medium in which billions of dollars are spent every year in the U.S. and around the world. (3) Projections show that businesses will spend $13.51 billion in 2017, $15.36 billion in 2018, and $17.34 billion in 2019 on social media marketing in the United States.3 (4) Because of its global growth at 20% per year, projections also show that social media advertising will be worth $50.2 billion by 2019, and social media platforms, like Twitter, will comprise 20% of internet advertising in the world. (5) Influencer marketing is already a $500 million industry that will likely grow to at least $5 billion by 2020. (6) The amount of money that a business will spend on celebrity and influencer endorsements likely contributes to these numbers. (7)

      A celebrity or social media influencer who has between three and seven million followers can charge businesses the following prices: $30,000 per post on Twitter, $75,000 per post on Instagram or Snapchat, $93,750 per post on Facebook, and $187,500 per post on YouTube. (8) A celebrity who has over seven million followers can earn the most on YouTube by charging $300,000 per post. (9) Social media influencers also earn good money on social media. Bloggers with over 500,000 monthly impressions can earn between $1,000-$5,000 per post. (10) Instagram influencers with over 500,000 followers can earn over $3000 per post. (11) Vloggers with over 500,000 subscribers can earn $3,000-$5,000 per video. (12) Because of the amount of money businesses pay celebrities and influencers to promote their products and services on social media and the billions of dollars projected to be spent on social media marketing, (13) the FTC has an obligation to American consumers to provide clear guidelines on deceptive advertising on social media.

   2. FTC Regulations of Deceptive Advertising and Endorsements

      The FTC was founded in 1914 (14) to regulate businesses using deceptive and unreasonable practices in commerce that affected the consumer. (15) Since its inception, the FTC has regulated advertisements in various mediums including radio, television, and social media. The FTC's crackdown on deceptive advertising began in 1938, when the Wheeler-Lea Act was added as an amendment to Section 5 of the FTC Act. (16) The Act added the language "unfair or deceptive acts and practices in commerce" to section 5. (17) After the Act's creation, the FTC's common law definition of deception was "any representation that had a tendency or capacity to mislead or deceive a prospective purchaser." (18)

      According to the FTC Policy Statement on Deception, the elements of deception are the following: (1) a misleading representation or omission to the consumer, (2) how the reasonable consumer would react to the deceptive advertisement, and (3) whether the misleading representation or omission is material. (19) For the first requirement, the FTC will look at a whole advertisement because "[T]he issue is whether the act or practice is likely to mislead, rather than whether it causes actual deception." (20) For the second requirement, a seller is in danger of deceiving the consumer if the advertisement sends more than one message to the reasonable consumer. (21) However, a seller is not being deceptive when the representation is the intended message (22) or when the non-reasonable consumer misunderstands an advertisement's representation. (23) For the final requirement, materiality can be presumed in a variety of ways, including when a corporation willingly promotes its products to the consumer, when false information is knowingly given to the consumer, or when there is an intent to differentiate products or services through an implied claim in the advertisement. (24)

      In addition to overseeing deceptive advertising, the FTC also regulates unfair advertising. The FTC's definition of unfair has changed over the years. In 1964, an advertisement was unfair if it: (1) violated common law, public policy, or statutes, (2) was "immoral, unethical, oppressive, or unscrupulous," and (3) "causes substantial injury to consumers (or competitors or other businessmen)." (25) By 1980, the FTC's Unfairness Policy Statement required unfairness to the consumer to be (1) "substantial," (2) "not outweighed by an offsetting consumer or competitive benefits that the practice produces," and (3) reasonably unavoidable. (26)

      Because businesses often advertise their products and services using endorsements from public figures, deceptive and unfair advertising can have a relationship to endorsements. Endorsements are addressed under section 5 of the FTC Act. (27) An endorsement is:

      any advertising message (including verbal statements, demonstrations, or depictions of the name, signature, likeness or other identifying personal characteristics of an individual or the name or seal of an organization) that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party than the sponsoring advertiser, even if the views expressed by that party are identical to those of the sponsoring advertiser. (28) Product endorsers must give their "honest opinion" of a product or service. (29) To give an honest opinion, "[T]he endorser must have been a bona fide user of [the product] at the time the endorsement was given." (30)

      As an example, a famous celebrity makes an infomercial for a blender that could perfectly blend anything in five seconds, but during filming, the celebrity could not even make a smoothie with the blender. (31) Thanks to TV magic, the celebrity perfectly blends the smoothie in five seconds on the infomercial that consumers see on television. (32) The reasonable consumer would believe that the blender works. (33) However, the FTC would consider the infomercial false advertising because the celebrity did not give an honest opinion as a bona fide user. (34)

      Prior to the FTC's regulation of infomercials, the FTC filed a complaint against a singer and his family for promoting an acne product in television and magazine...