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Clearing the waters of paid influencer campaigns

Industry insiders weigh in on what's on the line - and what still needs clarification - when creators accept money from brands.
March 23, 2016

Sponsored content has long been a mainstay in the online influencer ecosystem. Almost as long as there has been a YouTube, online creators have been pairing with brands to promote everything from coffee creamer  and boutique hotels to gaming consoles and home furnishings.

The pay-off to the advertiser is in the ability to reach a young and often hyper-engaged audience with a direct message delivered by someone they care about. The creator, meanwhile, gets to put a few extra dollars in the bank, beyond the usual ad-share rev earned off their chosen video platform.

But if not done right, there can be backlash for everyone involved — the brands, the influencers and the multi-channel networks that often broker the deals between two.

“If there’s no clear disclosure, audiences feel betrayed. Once it gets out in the (online) comments (section) that something was paid for, you see a million messages saying ‘Oh, so-and-so is a sellout,’ and the controversy outweighs the message,” said Jonathan Davids, founder and CEO at influencer marketing platform Influicity, which works with networks, talent and brands.

Avoiding that scenario is perhaps why so many in the industry are paying attention to a recent ruling by the Federal Trade Commission (FTC), which attempts to answer critical questions around online paid endorsements, including what needs to be disclosed and who is on the hook for making the practice transparent.

Earlier this month, the FTC, an independent federal body that promotes consumer protection and regulates business practices, approved a final consent order against gaming MCN and digital media co Machinima requiring the MCN to disclose when it has compensated online influencers to endorse or provide positive reviews for products.

The commission maintains Machinima stepped over the line when, in 2013, a number of influencers in its creator network were paid (some for $1 for every 1000 views, others for lump sums as high as $30,000, according to the FTC) to showcase a Microsoft gaming system and associated games. The videos were made with no disclosure that they were paid for the endorsements, leading Jessica Rich, director of the Bureau of Consumer Protection, in a statement by the FTC to opine that “people see a product touted online, they have a right to know whether they’re looking at an authentic opinion or a paid marketing pitch.

“That’s true whether the endorsement appears in a video or any other media,” said Rich.

The campaign came to light in the gaming community in January 2014, which prompted a probe into the matter by the FTC shortly thereafter.

The FTC issued an order in September 2015 and, following a public comment period, approved it on March 17. The order prohibits Machinima from misrepresenting any sponsored campaigns, and requires that the MCN make all influencers aware of their own responsibilities to make disclosure. Machinima will be required to monitor these influencers and their disclosures.

Machinima, for its part, issued a statement to StreamDaily saying the MCN is “actively and deeply committed to ensuring transparency with all of its social influencer campaigns.”

The campaign in question took place prior to Machinima’s change of management in March 2014 (which saw the on boarding of now CEO Chad Gutstein, and, shortly thereafter, chief content officer Daniel Tibbets and former chief revenue officer Jamie Weissenborn), the company notes in the statement.

The FTC has also since updated its own guidelines and FAQs regarding social media and influencer campaigns, including how disclosures can be stated and when influencers can use their own judgment.

The FTC’s official stance on endorsements from influencers currently reads: “When there exists a connection between the endorser and the seller of the advertised product that might materially affect the weight or credibility of endorsement (i.e., the connection is not reasonably expected by the audience), such a connection must be fully disclosed.”

Industry-wide, the Machinima case is also being examined and, according to Paul Kontonis, president of the Global Online Video Association (GOVA), a non-profit organization aimed at promoting growth in the online video industry, could set a major precedent for brands and networks.

Kontonis told StreamDaily the rules surrounding paid influencer campaigns have not always been clear, which is why the recent order “will profoundly impact the marketplace.”

GOVA itself is currently w0rking on formalizing best practices regarding paid influencer campaigns for its industry members, including Machinima. (Gutstein is among the industry professionals on GOVA’s board of directors).

“We don’t have a lot of precedent surrounding this. It’s not like there have been a lot of settlements to work off of. We have to come together with representation from the MCNs and with the FTC to talk about things like what counts as an influencer versus a celebrity,” said Kontonis.

While disclosures are necessary for paid campaigns, Kontonis said how visible the disclosures are and where they appear on the video remains unclear.

“To be safe, you basically have to have (disclosures) everywhere,” he said.

Adding to the complexity of the issue, Davids said disclosures is not always an attractive option to brands.

While he couldn’t name specific clients, he said his company has dealt with those that try to get around disclosure requirements.

“Brands have been doing this for years. Some clients of ours will ask us, ‘Can the influencer do this and just not mention that we paid for it?’,” he said.

Davids answer: an adamant “No.”

Another issue clouding the water, according to Davids, is what actually constitutes payment.

“Sometimes it’s not that someone will write a cheque, but the influencer might get a product for free and review it. Does that count?” he asked.

According to the FTC, rules around getting things for free can vary depending on the value (the FAQ reads, “If an app developer gave you their 99-cent app for free in order for you to review it, that might not have much effect… But if the app developer also gave you $100, that would have a much greater effect on the credibility of your review. So a disclosure that simply said you got the app for free wouldn’t be good enough.”) However, the guidelines do not state what dollar value is considered a high enough amount to require disclosure.

Davids said the best disclosures are friendly, informal and, ideally, at the beginning of the video, not the end.

“We’ve found with some of our clients, when they go for a more obvious disclosure, they still have a positive experience,” he said.

Kontonis said the risk of not disclosing is too big, and there’s no point in trying to fool viewers — especially millennials, who have a higher tolerance for branded content.

“Especially if it’s well-executed with the right kind of spokesperson that they could reasonably see actually liking the product as well as endorsing it,” he said.

Among the recommendations under consideration, Kontonis said GOVA will look at various elements of paid influencer campaigns that haven’t been clear prior to this case — what constitutes an influencer, where is the acceptable location within the video for a disclosure, and who is responsible for brokering the deals.

“The network might tell the influencer, ‘you can’t make this video (without a disclosure)’ but that might not stop the influencer from just doing it,” he said.

Microsoft did not respond to requests for comment on this issue at press time.

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