When the Stars Comply

Regulators want social media stars to be more transparent about product promotions

In August, the Competition and Markets Authority (the CMA), a UK regulator, launched an investigation into the practice of social media influencers. More specifically, it will be looking into those who use their platforms to promote products to their audiences.

The premise of the investigation is the concern expressed by the CMA of social media stars endorsing brands without disclosing to followers whether they have been paid to do so or not. In a press release, the regulator revealed that it had already written to a number of influencers to “gather information about their posts and the nature of the business agreements they have in place with brands”.

By now, it is hardly a secret that those with larger followings on social media can utilise this for a lucrative stream of income. According to Captiv8, a platform connecting brands with influencers, someone with 3 to 7 million follows can potentially garner around $100,000 for each post on their various platforms. Statista, a research company, reckons that, just on Instagram alone, celebrity endorsements were worth $1.07 billion in 2017.

At the same time, businesses who make agreements with these influencers for the promotion of their products benefit from exposure to an attentive crop of consumers. Influencers often attract followers who closely observe the things that they do, including the products and services that they use. There is thus a great degree of trust and rapport that is established between influencer and follower. As such, businesses who can get these popular figures to endorse their products and recommend them to their fans can benefit from an effective means of boosting sales.

Although the use of social media in this way is relatively new, it does not quite avoid the prerequisites of the law. The CMA will be seeking to enforce consumer protection rules which obligate influencers and brands to ensure that when paid promotions take place, this is clearly disclosed to consumers. When this does not happen, it is perceivable that followers may mistake certain endorsements as constituting an influencer’s own views. This may result in followers being more inclined to buy products than they would have otherwise have been.

Thus, the CMA will be examining to what extent influencers and brands distinguish between paid and non-paid product promotions. “Social media stars can have a big influence on what their followers do and buy,” says George Lusty, the CMA’s Senior Director for Consumer Protection. “It’s really important they are clearly told whether a celebrity is promoting a product because they have bought it themselves, or because they have been paid or thanked in some way by the brand.”

Honesty is the Best Policy

Central to the CMA’s investigation will be the Consumer Protection from Unfair Trading Regulations 2008. This statutory instrument, which implements the EU’s Unfair Commercial Practices Directives, is designed to prohibit any unscrupulous behaviour undertaken by businesses operating in the UK and contains rules for determining when such activities take place.

The Regulations defines ‘unfair commercial practice’ as any practice which ‘materially distorts or is likely to materially distort the economic behaviour of the average consumer with regard to the product’.¹ Among these prohibited practices includes ‘misleading omissions’², which is where a business fails to disclose ‘material information’.³ Where a businesses promotes one of its products, the material information which relate to this includes ‘the identity of the trader, such as his trading name, and the identity of any other trader on whose behalf the trader is acting’.⁴

Both brands and influencers would be classed as ‘traders’ under the Regulations when engaging in paid product promotions on social media. Therefore, both are barred from omitting material information when promoting products or services where ‘it causes or is likely to cause the average consumer to take a [decision to buy a product] he would not have taken otherwise’.⁵

Accordingly, what the CMA is principally concerned with is when social media stars upload content endorsing products without clearly stating if the post has been paid for. In its letter to marketing professionals in August 2016, the CMA noted this issue:

The use of editorial content [articles, blog posts, video blogs, commentary] in the media to promote a product where a trader has paid (financially or otherwise) for the promotion, without making thus clear to the reader, is unlawful and may lead to enforcement action.

There thus are two components to the legalities of brand endorsements. The first is whether the content endorsing the brand has been paid for or rewarded for (by free samples for example). The second is to what extent the brand had editorial control over the promotional content being produced, of which the law imposes a low threshold. In arrangements with influencers, brands will often provide instructions as to how promotional content should be produced. They may indicate particular features which need to be talked about and demonstrated in a video post, for example. If such instructions are given, then the editorial control will be evident.

If both of these aspects can be identified, then the obligation to state when promotions are paid for will need to be complied with. However, one may question as to who the obligation falls on exactly. The structure of the law appears to impose a dual-responsibility placed on both brands and influencers to ensure that they are in compliance. As the Regulations require paid promotions to be disclosed to followers, it will initially be for the brand to instruct the influencers with whom it works with to inform fans that it paid for the product promotion. The onus will then be on that influencer to fulfil that requirement to comply with both contractual and statutory obligations.

This seem to be the correct interpretation. Earlier this year in July, the Advertising Standards Agency, which works closely with the CMA, took action against Louise Thompson, a British reality TV star, for not disclosing to her fans a product placement on an Instagram post. Daniel Wellington, the watch-maker which Miss Thompson was working with, required the star to use either ‘#ad’ or ‘#sponsored’ in the post to make the disclosure. This is a practice which the ASA supports and encourages more of.

It will therefore be interesting to see whether the CMA will view these hashtags as enough to make followers aware of paid promotions. It is crucial that brands and influencers make the disclosures as clear as they can. Thus, the investigation will not only include influencers submitting information relating to their posting practices, but also the regulator hearing from social media users who have bought products endorsed by people they follow. This should help the CMA to determine what users expect when it comes to product promotions and the best way in which they could be informed of such.

With Popularity Comes Responsibility

Those using their social media platforms to endorse brands will now have to be more weary of the legal burdens tied to such work. “This is an area that is ripe for investigation and regulation,” says John Cassels, a partner at Fieldfisher working in the competition and regulation practice. For now, the obligations placed on brands and influencers are not particularly onerous, especially when it merely consists of including a hashtag. But it is yet to be seen what the CMA will find in its investigation, and what enforcement action it may take thereafter. The regulatory intervention has only just begun.

Sources:

[1] The Consumer Protection from Unfair Trading Regulations 2008, SI 2008/1277, reg 5 para 2(b).

[2] Ibid, reg 6.

[3] Ibid, reg 6 para 1(a).

[4] Ibid, reg 6 para 4(b).

[5] Ibid, 6(1).