Canada's ad industry cracking down on paid endorsements on social media

Canada's advertising industry is taking long-overdue steps to curb misleading posts on blogs and social media that double as paid product endorsements in an effort to keep so-called influencers — celebrities and other individuals who have large followings online — honest.

Advertising Standards Canada, the ad industry's governing body, is in the process of revising its rules regarding bloggers, celebrities and other social media influencers who mention companies, products or services in their posts in exchange for payment.

The new rules, expected to be implemented by early 2017, will require such individuals to disclose whether they've received payment — either in the form of cash, free products or other considerations — in exchange for the mention.

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Bloggers will need to include statements within their posts or videos while users of social media platforms such as Twitter, Instagram and Snapchat will have to include hashtags such as #sponsored, #spon or #ad.

"Endorsement or testimonials must disclose any material connection between the endorser, reviewer or influencer and the entity that makes a product or service available," said Janet Feasby, vice-president of moves tstandards at Advertising Standards Canada (ASC).

"If there is a connection, it must be clearly and properly disclosed in proximity to the representation of the product."

Sponsored posts common

The rules come in response to a complaint received by ASC, Feasby said. While there is nothing technically wrong with bloggers and influencers accepting payment for posts, not disclosing the remuneration can mislead readers and audiences, she said.

Sponsored posts and mentions are common across numerous fields, including fashion, travel and technology, but it's difficult to gauge just how common. A survey in 2014 of 40 popular YouTube video game reviewers by news site Gamasutra, for example, found that a quarter of them had accepted payments in exchange for positive coverage or mentions. Viewers of those videos likely didn't have any idea that they were effectively watching advertisements.

Influencers with a high number of followers can charge premium rates for product mentions. Danielle Bernstein, a New Yorker who runs the popular fashion blog We Wore What, told Harper's Bazaar last year that she charges companies between $5,000 US and $15,000 US to feature specific products in her Instagram feed, for example.

In the U.S., the Federal Trade Commission established similar disclosure rules in 2009, so ASC's move is overdue. The only problem with the new Canadian rules is that violators won't face much of a penalty. As an industry organization, ASC doesn't have the power to issue fines and can only ask companies and brands to comply.

ASC has been administering the Canadian Code of Advertising Standards since 1963, and Feasby says companies only rarely ignore its compliance requests. In cases where they have, ASC has asked the platform on which the company's offending ad ran to stop running it.

Fines must come from Competition Bureau

For blogs and social media disclosures, the standards organization will be targeting sponsoring companies rather than individuals. If an influencer is paid to post about a product but doesn't disclose it, for example, ASC will contact the brand in question and request that steps be taken to prevent further posts.

Fines could be a deterrent, but the power to issue them would rest with the Competition Bureau. The government agency currently considers influencer non-disclosures under existing "astro-turfing" rules, which prohibit "representations that appear to be the authentic experiences or opinions of impartial third parties," according to spokesperson Phil Norris.

The Competition Bureau has recently taken action against astro-turfing, such as when it fined Bell Canada $1.2 million last year for having employees post fake reviews of the company's products and services online, but it does not yet have specific rules for bloggers and influencers.

In the United States, the Federal Trade Commission has only half-heartedly enforced its rules.

In June, for example, the agency slapped Warner Bros. on the wrist for failing to properly disclose it paid YouTubers for positive coverage of one of its games. The FTC ordered the company to disclose such deals in the future but stopped short of issuing a fine.

Echoes of payola scandal

The FTC is now considering tightening its rules as influencers are finding ways around them, such as burying the #ad hashtag amid a large number of other hashtags at the end of a post.

The situation is reminiscent of the payola scandal at U.S. radio stations in the 1950s and 1960s, where a number of popular DJs were accused of playing songs in exchange for payment from record labels.

After a senate investigation, DJs were stripped of their programming ability, and payola was made a misdemeanour offence. Radio stations were still allowed to accept pay-for-play, but they had to disclose it as such and couldn't count such plays against any broadcast quotas they had to meet.

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Further investigations came in the 1980s after record labels outsourced their payoff schemes to third-party independent promoters, culminating in cumulative fines of $27 million for three major record labels in 2005 and 2006.

Radio stations and record labels have largely cleaned up their acts in the offline world, but it took many years. The efforts by the FTC and ASC to encourage better disclosure of what is, effectively, payola online isn't going to stop the practice, but it is an important first step.

Keeping bloggers and influencers fully honest is likely going to require additional steps, starting with a willingness by regulators to fine both the individuals and the companies involved. Proactive monitoring of whether the rules are being followed, rather than responding to complaints, would also be a good move.