Why the FTC's Influencer Disclosure Policy Is Completely Off Target

The FTC's new guidelines won't impact micro-influencers, who know they can skirt the rules without getting caught.

learn more about Gil Eyal

By Gil Eyal

Natee Meepian | Shutterstock

Opinions expressed by Entrepreneur contributors are their own.

It appears that some of the world's most prominent celebrities have found themselves in hot water after failing to disclose sponsored relationships with brands on their Instagram posts. The Federal Trade Commission sent letters to 45 major celebrities and social influencers claiming as such, and is threatening to take action against them.

The letters arrived just as many of these celebrities were involved in one of the biggest fiascos in music event history. With white sand beaches, five-star villas and supermodel attendees such as Bella Hadid and Emily Ratajkowski, the Fyre Festival organizers sold an uber-luxe fantasy -- contradicted by the eventual images of the FEMA-like tents and soggy sandwich boxes that were reality. The marketing campaign, which featured several sponsored Instagram posts from celebrity influencers (paid as much as $250,000 for one post alone, according to reports) has resulted in a class-action lawsuit that the FTC labelled as a direct violation of its disclosure guidelines.

Related: 6 Must-Do's When Creating an Influencer Marketing Campaign

In the letter described earlier, the FTC targeted 45 celebrity influencers, including Jennifer Lopez, Lindsay Lohan and Kourtney Kardashian, and asked for "clear and conspicuous" messaging in an effort to stop misleading consumers. Paid posts must be mentioned in the first three lines of the caption; cryptically thanking the brand won't cut it, nor will burying #sp amongst rows of hashtags.

With influencer marketing claiming a $2 billion market share in 2016, the number of brands and companies activating influencers is on the rise. Press reports of influencers failing to disclose paid posts have been rife, and it's clear the FTC felt compelled to act. Establishing these guidelines is a start, but there are some serious flaws in its strategy for pursuing macro-influencers with mammoth followings.

Social media users are savvy. They know that Kim Kardashian West probably doesn't wear a Waist Gang Society Waist Trainer, just like LeBron doesn't drive a Kia. And she doesn't take SugarBearHair Vitamins. At least, not for free. These big names don't praise products without being compensated, and their fans have long stopped believing that they are promoting anything just for the heck of it.

Related: Fixing the ROI Problem With Influencer Marketing

You have to wonder whether including a proper disclosure would have stopped anyone from spending money on tickets to the Fyre Festival. Despite claims in the media that this could signal the death of influencer marketing, you'd be hard struck to find any attendees who claim they would not have bought one if only those celebrities included a disclosure that they were paid to endorse the event. The fans knew they were being compensated, and these disclosures are practically meaningless.

What's worse is that they really only impact the larger influencers, because the smaller ones know that the chances of someone at the FTC looking at their posts are slim. It takes an enormous fiasco like the Fyre Festival to get any action, and with hundreds of thousands of promotions run by micro-influencers on social platforms each month, the strategy has very limited impact. In fact, data from my company, HYPR, suggests over 30,000 different micro-influencers (with less than 100,000 followers) run disclosed sponsored posts (and at least 30,000 more run undisclosed posts), composing well over 90 percent of sponsored promotions.

And this is where the FTC fails in its approach: These guidelines are akin to tax officials making an example of high-income tax violators in a bid to prevent fraud across the board. It's a self-fulfilling prophecy. And because of the FTC's stance towards macro-influencers and their millions of followers, it's unlikely these smaller fish will ever be caught -- and they know it. They don't disclose. Or they disclose with a notification that you have to hit "read more" to see (also called "under the fold") because they know they're small enough to run under the radar. And unlike their bigger counterparts, their fans don't automatically suspect they're being compensated.

Related: A Guide to Working With Instagram Influencers: What to Look For

The same outcome applies when restricting regulatory efforts to big brands. The bigger brands do a smaller portion of activations compared to their niche counterparts activating micro-influencers. Our data shows that over 25,000 brands activate on Instagram every month. These smaller players know it's unlikely the FTC is even monitoring them -- or their content.

Meanwhile, the guidelines themselves are shrouded in ambiguity. The hashtags #spon and #sp are unacceptable, so what is? The FTC has failed to provide clarification, sending mixed messages about what constitutes as "clear and conspicuous" disclosure. Keeping the rules vague invites brands and influencers to push the boundaries. If disclosure is the way forward (and that's a big if), specific visuals or codes at the beginning of each video or post should be the minimum requirement. There's also an argument for a specific way to disclose on each social platform. This would allow for more clarity but would also allow the FTC to use tools that can identify at scale whether proper disclosures were made.

Playing devil's advocate, a case could be made for whether or not celebrity sponsored content should be disclosed at all. Television advertisements that feature celebrities or influencers don't require disclosure because viewers are aware these endorsers wouldn't be plugging a product or service sans payment. Why does Selena Gomez have to state that Pantene is paying her to swish her glossy locks in its commercials? It's obvious to everyone she's being compensated, unlike an article posted anonymously by a person no one knows.

Related: How to Create a Happy Marriage Between Brands and Influencers

As it stands, the effectiveness of disclosure itself is unclear as a way to notify consumers. Studying over 10,000 random posts with the hashtag #ad, we noticed that over half of them weren't actual promoted posts, but instead people trying to pose as influencers, or influencers creating the illusion that brands are funding them. Influencers carry with them a reputation for being trailblazers and "celebrities" in their area of expertise, and there's a staggering amount of people utilizing these platforms in an attempt to elevate their social status. The result is that consumers don't know if they're looking at a sponsored post or not, and there's the potential for them to simply dismiss it because they see these hashtags so often.

Perhaps a better solution is to scrap the guidelines altogether, and start educating consumers about what they are seeing on social platforms. We need to teach consumers to be cautious buyers, as well as tell influencers they're more than welcome to throw in #notsponsored or #Ijustlikeit if a product post is a genuine recommendation. Either way, with the uncertainty surrounding the booming industry of influencer endorsements, social users should continue to adopt the age-old adage: buyer beware.

Gil Eyal

Founder and CEO, HYPR

Gil Eyal is the CEO and Founder of HYPR, which organizes social media information and makes specific audiences reachable at scale. Founded in 2013, HYPR’s search engine leverages its smart index that houses profiles and audience demographic information for over 10 million influencers globally.

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