Native advertising grows up fast, shedding its rogue image

It was five years ago next month, soon after native advertising had burst on the digital scene, that the Federal Trade Commission took note and convened a hearing on whether the genre was deceptive, regularly disguised as real journalism content.

A lot has changed since. At top-of-the-line operations like the New York Times, the Atlantic and Vox Media, sponsored content is part of the mix, even sometimes the dominant part of the ad base. Those three outlets and other publishers have created well-staffed in-house "studios" to produce the ads.

FTC enforcers (who I visited on a recent trip to Washington) now find that confusing or absent labels are only occasionally an issue.

Estimates vary but typically show that spending on native ads has passed revenue from other forms of digital display in 2017 and that the gap will widen quickly in the years ahead.

Time has been on native advertising's side in several ways, but in one respect particularly:

Opening a piece of sponsored content is entirely voluntary, and the customer decides how much to read or view. (Nor is the genre as susceptible to ad blockers).

That is in soothing contrast to the cacophony of pop-ups, clutter and auto-play video pitches that pollute a typical newspaper site and many others.

But wait, there's more

Besides, digital display doesn't work especially well. A "page view" can be a one-second flash. Some of those "unique visitors" are bots, not humans. Rates sink lower by the year. Facebook and Google hog most of the action and nearly all of the growth. Programmatic buying compounds those problems. 

The sponsored content format allows brands to tell a little story about themselves  — sometimes directly selling the product or service, other times offering relevant information in their field (ready for some retirement planning?), still others conveying a feel-good pro bono message (content about how much a company cares).

Ben Young, CEO of a platform company, who produces a weekly newsletter on native ads told me that, after five years of market growth, "everyone is looking at how to get slick at it" and also getting better at measuring "how to see returns." Vendors now offer systems to convert sponsored content into different formats that will fit into the style of different sites.

Young forecasts that a surge in quality, already started, will accelerate. There is growing "market opportunity on the open web," he added, beyond "the walled garden" of a given publication. Video is hot, in part because it spreads so easily across the Internet with shares.

FTC regulation is in a state of equilibrium

After that initial workshop hearing in December 2012, the FTC took its time, as government is wont to do, formulating a response. In December 2015, it concurrently released an "Enforcement Policy Statement on Deceptively Formatted Advertisements" together with the more user-friendly "Native  Advertising:  A Guide for Business."

In a nutshell, the FTC decided to narrow its focus to direct-to-consumer ads of commercial products (as opposed, for instance to political ads or marketing services to business customers). The test, the guide explains, is transparency: "An advertisement or promotional message shouldn’t suggest or imply to consumers that it’s anything other than an ad."

With that guiding principle, the exact wording of the disclosure, a hot issue back in 2012, is not so important. A label that says advertising is great. But "sponsored content" or "paid content" or "brought to you by" will do, too. In fact, the guide continues: "Some native ads may be so clearly commercial in nature that they are unlikely to mislead consumers even without a specific disclosure."

What's not okay was illustrated in the FTC's best known enforcement action, against Lord and Taylor in March 2016. Lord and Taylor had paid 50 "fashion influencers," (typically young women bloggers) to post Instagram pictures of themselves in a paisley dress offered exclusively by the store's new Design Lab. Their testimonials also were the basis for an article in Nylon edited by Lord and Taylor. Neither mentioned that the influencers had been paid.

I went to see the FTC's lead lawyers on native ad regulation, Laura Sullivan and Michael Ostheimer, when I was in Washington in late October. They explained that as a regulatory principle they had settled on a longtime FTC standard prohibiting "deceptive door openers" —  a standard tracing to the era of door-to-door salesmen in the mid 20th century who were required to say clearly why they were asking to come inside.

Same principle here, but the "door" is virtual, inviting attention to an article or video.

While violators continue to be warned and sanctioned, Sullivan said that the heart of enforcement is "the deterrent effect ... (it's) business education and outreach."  Individual consumers are not likely to file a complaint, Ostheimer added; that would more likely come from a trade group or competitor.

Several studies show a degree of confusion remains among consumers over whether they are seeing an ad or not, even if labeling is present. But that sort of misunderstanding is to the side of a legal test.

The two agreed that the fast-evolving digital landscape presents challenges —sponsored content on a smart phone, for instance, may be more vulnerable to being confused with editorial. On the other hand, Facebook, in making the platform more open to sponsored content in April 2016, self-policed by introducing a new set of labeling standards.

"We tried to look ahead (in the 2015 guidelines), Ostheimer said, "Video, republication, affiliate sales — I can't think of anything new that is not addressed there."

The state of the art advances

The genre has gone international. In addition to Young's newsletter, there is now a Native Advertising Institute (actually a for-profit conference company) based in Copenhagen. At its annual meeting in Berlin two weeks ago, the institute debuted a first edition of native advertising awards.

I sampled three English-language winners to see what is considered best-of-the-best.

One gold prize went to a Bloomberg Media Studios piece for Optum health services entitled "Day Zero." It is a nine-minute video, recounting a patient's life-and-death search for a second liver transplant after his first began to fail after 20 years. He finds his way to the best place to do the surgery and then to a successful match through an Optum coordinator his employer, Delta Airlines, provided.

Scripting and visuals are slick and content is emotional as well as factual — similar to the shorter good news features that conclude network evening newscasts. But the objective, a Bloomberg spokesperson told me, is to sell business decision-makers on offering Optum in a package of health benefits, and along the way to raise general awareness of the brand of the 4-year-old company.

Another winner, from The Atlantic, was an article, "Restoring the Promise of Public Education" about a desegregated high school in a small Mississippi town that has worked well for years as so many others flounder. Allstate is the sponsor but not mentioned in the story, just in a small box halfway through saying its Renewal Project is sponsoring solutions reports on communities helping themselves.

A splashier production, from the New York Times T-brand studio, is "What it Takes to Be Human," a multimedia introduction to Artificial Intelligence for UBS Warburg investment bank.

Native ads earned their name because they were in the style of whatever publication they appeared. That is no longer always the case, hence the broader designation of sponsored content.

But native can still be a selling point, Young pointed me to an offering from Vox Media, new last month, of ad-sponsored explainers, patterned on the digital family of sites' popular editorial features in that style. The most notable example to date is a fun facts exposition, "The Reason You Love Ice Cream So Much is Simple: Science" (for Ben and Jerry's).

Take a spin through any or all of these, and it is hard to argue that the quality level isn't high. Of course, the sponsors can invest as much time and money as they need to get it right, not so often the case for harried and budget-starved newsrooms.

So what for journalists?

(1) Even so, many may still not consider sponsored content to be real journalism. The pieces are in the service of a brand so not truly independent or likely to have a skeptical, let alone investigative, edge. But the messages are storytelling — and thus competition in the attention economy to works of journalism. That is especially so now that so much of the coin of the realm for consumption is social media shares.

(2) Hey, it's advertising, top-dollar advertising at that, underwriting the Baghdad bureau and a host of other worthwhile and important journalism projects. And that's not necessarily to the exclusion of more traditional TV and print campaigns. So some of the billions being spent do cycle back to ambitious reporting.

(3) To date, several industry sources tell me, sponsored content remains mainly the province of big national players, hard to produce economically and at a quality that will get voluntary views at the local level. That could change, but for now regional newspapers or small digital-only startups are at a disadvantage. The genre is exacerbating, not curing, the problem of news deserts.

(4) Graham Nelson, creative director of Vox' Media's explainer studio (and star of the ice cream ad) wrote recently that the growing industry needs to shed cynicism and an inferiority complex. His piece concluded:

"I want our explainers to be immediately distinguishable as branded content — and yet indistinguishable from our editorial offerings in terms of quality. I want us to have fans. In short, I want to put a merciless end to the qualifier: 'good … for branded content.'”

I suspect most journalists would not share that degree of enthusiasm. It is a safe bet, however, that there will be ever more sponsored content storytellers over the next few years as the ranks of journalists continue to thin.

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