An ad's an ad.

Photographer: FRANK PERRY/AFP/Getty Images

A Real Crackdown on Fake Ads

Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.
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Regulators in the U.S. and the U.K. are cracking down on so-called native advertising -- essentially ads that masquerade as content. This creates problems for marketers who have embraced the deceptive format as a replacement for increasingly useless banner ads. It also reminds publishers that, in the digital world, a subscription-based business model is far safer than an ad-based one.

The term "native advertising" stems from a 2011 talk by entrepreneur Fred Wilson, who discussed "native monetization" -- ways to integrate advertising into a site's basic experience so it doesn't feel alien. Internet-era evangelists often invent a new term and claim they've got a disruptive innovation, when in fact they've just repurposed a tired pre-digital practice. Such was the case with Wilson.

Publishers, especially those of glossy magazines, have long done their best to present ads as core content, blending messages from advertisers into advice columns and lifestyle recommendations. Quality newspapers created ad-driven supplements that were often hard to distinguish from their news pages. In every such case, a subtle back-and-forth between editorial and commercial operations went on and compromises were worked out on how different advertorials had to be from non-sponsored content. As the former editor of a few print publications, I was often party to such talks, insisting on clearer labeling as salespeople pushed for subterfuge. (I didn't always win.)

It's an open secret that advertisers will pay more for an ad that doesn't look like one. If you give them a chance to avoid flagging their promotions as such, they will grab it every time. In the digital era, this suddenly became easier than ever. I can see two main reasons for this.

Firstly, the creators of "digitally native media" (that word again!) didn't inherit the scruples of old editorial operations. They built from a clean slate and saw no point in being constrained by so-called legacy considerations.

Secondly, digital media quickly discovered that, unlike in print media, the effectiveness of display ads was easily measured and revealed as extremely low. Click-through rates started falling almost immediately after banner ads emerged. Last year, the average CTR for all display ad formats was 0.06 percent -- less than one click per 1,000 views. It has hovered around this extremely low level for years now. Given such inefficiency, only companies with enormous audiences such as Google and Facebook can make any serious money showing display ads.

Besides, there's a lot of cheating going on. The average viewability of ads on publishers' sites is 46.3 percent: the majority of ads don't get seen except by robots. 

Finally, about 200 million people globally use ad blocking software because display ads irritate them.

It's hard to persuade advertisers to close their eyes to the wastefulness of running display ads. So media outlets decided to tempt them with the chance to blend brand communication with their main offerings. And it has worked beautifully. Business Insider, a top apologist for the native advertising model, reported last year that spending on the format was growing exponentially and would reach $5.7 billion in 2018, compared with $1.9 billion in 2015. Even the New York Times got into the business and saw it grow fast, claiming that labeling the content "paid post" or "stories from our advertisers" was enough to set it apart. The Times later dropped the word "stories" from the second label, after some readers complained it was misleading. In a column about the practice, Public Editor Margaret Sullivan wrote:

If native ads look too much like journalism, they damage credibility; if they look nothing like journalism, they lose their appeal to advertisers. A fine line, indeed.

Regulators appear determined to draw the line as clearly as possible.

In the U.S., the Federal Trade Commission has issued a guide on how to label native advertising and an enforcement policy on "deceptively formatted advertisements." The FTC isn't fooled by the digital-age terminology; it plainly states that the practice of deceptive advertising is little different now than it was in print media in the 1960s. It tells publishers that, as a general rule, the more the format and style of a native advertisement resembles a site's own journalism, the more clearly the piece must be labeled as an ad. Publishers will almost certainly test the new guidelines this year and get a few nasty surprises. I'm not sure, for example, that this Netflix ad is marked clearly enough as such: "Paid post" in pale, tiny lettering is too inconspicuous compared with the brightly colored infographic that opens the story.

The U.K. Advertising Standards Authority is already setting precedents on native advertising. In a recent ruling, it censured the Telegraph for running a badly labeled ad for Michelin tires: References to the article being sponsored, and "in association with Michelin" were deemed insufficient to clarify the nature of the transaction between the brand and the news organization. What did "sponsored" mean? Did the new site retain editorial control over the content or not? Is it, perhaps, an ad?

Another recent ASA ruling chastised BuzzFeed for one of its famous listicles, "14 Laundry Fails We've All Experienced," sponsored by Dylon, a laundry product made by the German company Henkel. (The listicle, removed by BuzzFeed from its site, can still be found in Google's cache). The ruling deemed a small-print "Dylon, Brand Sponsor" at the top and Dylon's slogan at the bottom insufficient: One was not prominent enough and the other was too low down.

This is just common sense. Regulators may suspend disbelief for various reasons, but everybody involved, marketers and publishers included, understands that the only reason not to label an ad as an ad is to give the advertiser an impression that readers will be deceived into taking it for journalism. 

The emerging regulatory approach will not eliminate all the trickery and creativity employed in deceiving consumers. Any system invites attempts to game it,  but a business model shouldn't be founded on the success of such attempts. The ultimate achievement of a media outlet is to get enough paying subscribers to sustain its activities. Without ad dependence, negotiations with advertisers interested in one's actively engaged, paying audience become easier. The New York Times is moving towards that goal, albeit slowly, as subscription revenues increase and those from advertising decline. This should be the goal for "digital natives," too: The advertising model may collapse at any moment under the weight of all the little deceptions that are getting packed into it.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Leonid Bershidsky at lbershidsky@bloomberg.net

To contact the editor responsible for this story:
Marc Champion at mchampion7@bloomberg.net