By Maha Atal
October 6, 2009

Topic A in the blogosphere: An agency wants to suss out paid endorsements on blogs.

Log on to New York food blog today, and you’ll see an advertisement for cookbook publisher Cook’s Illustrated, served up by Google’s (GOOG) AdSense service.

No surprise, really, since AdSense matches advertisements to website content. Indeed, Adam Roberts, who writes the blog, has twice tested and reviewed recipes from Cook’s Illustrated. What could be more relevant to readers than a link from one recipe site to another?

Yet despite their utility to readers, ads like these might get Roberts, Cook’s Illustrated and Google in trouble with the Federal Trade Commission.

Today, the Commission announced its new “Guide Concerning the Use of Endorsements and Testimonials in Advertising.” The announcement marks the first regulatory update since 1980, and a long overdue attempt to grapple with the digital transition.

Explains Richard Cleland, a staff attorney at the Commission’s Bureau of Consumer Protection: “We’re required to update our rules periodically to ensure that they address relevant issues in the marketplace.”

“Social media has become a relevant marketing force, so we started looking at it in 2004,” Cleland adds. “These guidelines take a long time.”

Of particular concern to Cleland are pay-per-post websites, where consumer bloggers receive direct income or in-kind gifts from companies in exchange for endorsements of their products, and official blogs and social media sites that companies set up to create buzz around their products.

Disclosing the blogger-advertiser relationship

“The issue here,” says Cleland, “is whether, if the consumer knew of the relationship between the advertisers and the blogger, would it affect the credibility of the blogger’s statements?” If so, the new guidelines would permit the FTC to demand that the blogger disclose the connection, with failure to comply resulting in fines as high as $11,000.

As real as the problem of advertising payola may be, the guidelines are causing alarm among bloggers, amateur and professional, who see the FTC’s move as an impingement on free speech. Jeff Jarvis, a technology and media blogger and journalism professor at the City University of New York sees the guides as “dreadful overreach that will drag a lot of innocent people into a bureaucratic dragnet.”

The problem, critics contend, is the lack of clarity in the FTC Guides on what will constitute a violation. Beyond direct payments from companies to reviewers in exchange for specific coverage, the guidelines seem to extend to consumer and personal websites where advertising content and editorial content overlap.

The trouble with targeted ads

Trouble is, targeted advertising is the norm on most websites today, and is often provided by third party services like Google’s. Both blogger and advertising service pocket revenue from readers’ clicks, but the blogger has no power to select his advertisers, while Google has no power to write disclosures or control content. Whom should the FTC hold responsible?

While Cleland agrees targeted advertising is a less cut-and-dry issue than sponsored content, he won’t rule it out as subject to the new rules: “It’s something we’d look at on a case-by-case basis.”

Bloggers like Jarvis say advertising should be off limits to these regulations, since consumers recognize ads as paid content, an implicit form of disclosure and since third party ad services, who make their money on clicks, have an incentive to keep ads relevant rather than fraudulent.

Other bloggers are less worried about the regulation’s impact. Says Amateur Gourmet’s Adam Roberts: “I don’t think they’d spend the time and resources to go after small blogs.” Roberts may have a point—the FTC has never sued a consumer endorser, but has instead historically placed the onus on advertisers to insist upon disclosure from their endorsers.

Still, the vagueness of the FTC Guides is troubling. “I’m not familiar enough with the way that things are working to be more specific,” says Cleland. If regulators aren’t familiar with the models they regulate, that may be the most worrisome thing of all.

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