Paid social media endorsements prompt new ad rules – but few complaints so far

Paid product endorsements on social media may have raised the eyebrows of Canadian advertising regulators but so far they’ve generated almost no complaints from consumers.

Advertising Standards Canada (ASC), the self-regulatory watchdog for Canada’s ad industry, unveiled new guidelines on the issue last October. In the six months since then, however, Canadian consumers have filed only “one or two” complaints about social media endorsements, said Janet Feasby, VP of standards at ASC.

That figure is extremely low, considering that 1,639 complaints were filed with ASC for all of 2016, including 439 dealing with various forms of digital advertising. Those figures are from the ASC’s 2016 Annual Ad Complaints Report released this week.

This tweet from the Twitter account of Canadian YouTube star Lilly Singh uses the hashtag #sponsored to indicate it is a paid promotional post.

Under the new ASC rules announced last fall, if a company pays or compensates someone to promote its products on social media, those online posts must be clearly identified as advertising or sponsored content.

ASC is a national organization that promotes best practices for advertising. It maintains a code of standards for members and handles complaints from consumers who believe the code has been violated.

ASC, Canada’s Competition Bureau and the Federal Trade Commission (FTC) in the U.S. have all moved to crack down on companies that post fake reviews on social media. The growing business of paying celebrities to endorse products on Twitter, Facebook and Instagram has also raised concerns that consumers will mistake that content for authentic testimonials instead of paid promotions.

“A lot of consumers wouldn’t necessarily know if an endorsement is accurate or not. This type of regulation applies to things like video testimonials, Twitter endorsements and blogs,” said Steve Szentesi, a columnist for Canadian Lawyer magazine whose Toronto practice specializes in advertising and competition law.

Social media celebrities

Last year the FTC cited YouTube gaming channel Machinima for failing to identify several Xbox One reviews on its site as paid promotional content. Five Machinima reviewers were paid up to $30,000 each to create positive reviews of Xbox One, which were subject to final approval by Xbox’s parent company, Microsoft. (The FTC did not cite Microsoft for any violations.)

According to the ASC, paid posts by celebrities like Kim Kardashian are exempt from its new guidelines because consumers may “reasonably expect” such content to be promotional in nature.

The FTC ordered Machinima to remove the reviews or clearly label them as sponsored content. Failure to comply would have resulted in a $16,000 fine against Machinima.

A study released last year by Captiv8 suggests there’s even bigger money to be made by celebrities with huge social media followings. The average fee charged by a celebrity with seven million or more followers is $187,500 per post on Facebook, $150,000 on Instagram and $60,000 on Twitter, the report estimates.

ASC’s Janet Feasby.

ASC has posted details on its website of one specific consumer complaint it received during the first three months of 2017 involving social media endorsements.

“In a social media post on Instagram, an influencer described her experience with a facial product,” the ASC summary explains. The ASC said it agreed with the consumer’s complaint that “the Instagram post was disguised advertising and failed to disclose the relevant information that the posting contained sponsored content.”

ASC has not named the cosmetic company that sponsored the Instagram post. Under ASC’s policy, an offending advertiser is not identified publicly if it takes steps requested by ASC to rectify the situation. In this case, the cosmetics firm agreed to ASC’s request to add the hashtag #ad to the Instagram campaign so it would comply with ASC rules.

Simply adding the #ad hashtag to a paid post, however, doesn’t necessarily meet compliance standards.

“Each case is unique. We have to look at the overall impression,” said Feasby. “If the hashtag is buried, it may not be enough. You can even say ‘X Company gave me this product to review’ but it has to be very clear.”

What are the rules?

The new section of the ASC code applies to the practice of “endorsers/reviewers/influencers” promoting brands through social media “blogs, posts and reviews.”

The code “requires clear and prominent disclosure of any material connection between an endorser/reviewer/influencer and the endorsed product or service. And the disclosure must be made in close proximity to the representation.”

For examples of this, ASC cites FTC rules. According to the FTC site, a paid social media endorsement has to be authentic and truthful: “You can’t talk about your experience with a product if you haven’t tried it” and “if you thought it was terrible, you can’t say it was terrific.”

FTC regulations require companies to disclose their material relationship with a social media endorser. The disclosure must be “clear and conspicuous,” “use unambiguous language” and “should not be hidden or buried.”

Advertising and competition lawyer Steve Szentesi.

While the FTC noted it “is not mandating the specific wording of disclosures,” it recommends using the words “sponsored”, “promotion” or “paid ad” to denote paid endorsements. “Starting a tweet with ‘Ad’ or ‘#ad’ – which only takes three characters – would likely be effective,” the agency states.

Canada’s Competition Bureau issued its own rules on social media endorsements in 2015. They also mirror the FTC’s regulations, stipulating that reviews must be “authentic” and that “a connection between the endorser and the marketer of the product, that would affect how people evaluate the endorsement, should be disclosed.”

An interesting part of ASC’s new clause is that it does not apply “when that material connection is one that consumers would reasonably expect to exist, such as when a celebrity publicly endorses a product or service.” Still, many celebrities are using hashtags like #ad or #sp (for ‘sponsored’) just to be on the safe side.

What’s the penalty?

Although ASC can’t levy fines or lay charges against advertisers that don’t comply with its standards, it can refer cases and complaints to the Competition Bureau under an amendment to the ASC code that was also made last October. Feasby said no ASC cases have been referred to the Competition Bureau yet.

Unlike ASC, the Competition Bureau “has a lot of teeth,” said Szentesi.

He said the Bureau can ask an advertiser to stop violating the Competition Act or try to negotiate some sort of voluntary settlement with the advertiser, such as paying a fine or issuing a correction notice.

BCE Inc. reached an agreement with the Competition Bureau in 2015 to pay a $1.25 million penalty for a deceptive marketing technique called astroturfing. BCE had failed to disclose the fact that positive online reviews of Bell products – posted on sites including the Apple and Google Play app stores – had been written by BCE employees.

“In an extreme case (the Bureau) can go to a competition tribunal or court” Szentesi said.

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Christine Wong
Christine Wong
Christine Wong has been an on-air reporter for a national daily show on Rogers TV and at High Tech TV, a weekly news magazine on CTV's Ottawa affiliate. She was also an associate producer at Report On Business Television (now called BNN) and CBC's The Hour With George Stroumboulopoulos. As an associate producer at Slice TV, she helped launch two national daily talk shows, The Mom Show and Three Takes. Recently, she was a Staff Writer at and is now a freelance contributor.

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