Consumers on Fyre: Influencer Marketing and Recent Reactions of the United States Federal Trade Commission

 

*Content re-posted from the Stanford-Vienna Transatlantic Technology Law Forum  – Transatlantic Antitrust and IPR Developments, Bimonthly Newsletter, Issue No. 3/2017 (June 12, 2017)

 

Social Media Disruptions

Silicon Valley continues to change our world. Technology-driven innovations that are disseminated with the help of the Internet have met with great success. This success translates into heaps of followers, as one can see in the case of platforms such as Facebook and Instagram. However, it is the followers themselves who continually affect the purposes of these platforms. A good example in this sense is Youtube; what started out as an alternative channel for the sharing of low-resolution home videos soon became a place where users could actually create their own content professionally. If well-received, this content leads to real Internet phenomena, and eventually become monetized, via direct or indirect advertising. Individuals around the world now have access to their own TV-stations where they can attract funders and actually make a good living out of running their channels.

Online content creation raises issues that are similar to those in the sharing economy (e.g. Uber, Airbnb, etc.). On the one hand, online platforms connect individual content providers with viewers, in the same peer-to-peer fashion that AirBnB connects an apartment owner and a tourist. Given the service-orientation of both activities, provided they are monetized, a clear issue emerges: when does an individual stop being a peer? In other words, what does it mean to be a consumer in this environment? Relatedly, what legal standards apply to the process of creating such content?

The Fyre Fiasco

The Fyre Festival was supposed to be a luxury music festival scheduled for April and May 2017 in the Bahamas, organized by rapper Ja Rule and young entrepreneur Billy McFarland. The latter has made other business models catering to the rich, such as Magnises, a members-only benefits card programme aimed at wealthy millennials. However, instead of promised luxury and exclusivity, the Fyre Festival organizers could not provide its guests even with the most basic of amenities, ranging from accommodation to food and transport. This led to a massive social media fury, with tens of thousands of reposts on Facebook, Instagram and Twitter, showcasing the disastrous conditions that were far removed from the luxury advertisements and the matching price tags (participants paid up to $ 100,000 to attend the festival). Apart from criminal allegations of mail, wire and securities fraud, Fyre Media – Ja Rule and McFarland’s company – is already faing a $ 100,000,000 class action. In its Introduction, the complaint emphasizes that

[t]he festival’s lack of adequate food, water, shelter, and medical care created a dangerous and panicked situation among attendees—suddenly finding themselves stranded on a remote island without basic provisions—that was closer to ‘The Hunger Games’ or ‘Lord of the Flies’ than Coachella.

Because of the trust-building social media campaign Fyre Media had launched promote the event, festival-goers had no suspicion of fraud before they arrived at the event. Influencers such as Kendall Jenner, Bella Hadid, and Emily Ratajkowski were involved in making Instagram posts about the festival (without any proof of concept), and thereby endorsing the event and communicating to their millions of followers their trust in the Fyre Festival.

The Federal Trade Commission takes action

Influencer marketing is a grey area of consumer advertising. It entails companies reaching out to celebrities who benefit from a faithful following of individuals who they can easily sway to buy certain products. Monetizing a Youtube channel is a process requiring sustained effort, as channel owners will have to strike a balance between keeping their followers entertained and generating enough revenue for their activity. Popularity is correlated with the amount of earnings celebrities can make out of sponsored content.

What makes this into a great marketing technique is also what may hurt consumers the most. The trust-based relation between a celebrity and its fan-base appeals to marketers;  it creates a more genuine story for their products or services. But trust is a fine line, and if a celebrity only endorses material things for money, it means they are not being honest with their audience, who might go and buy those products under mistaken assumptions.

The Federal Trade Commission labels these actions as endorsements, and is very clear that since such advertising tools can persuade consumers to engage in commercial transactions, endorsements must be truthful and not misleading. For this reason, the FTA created the Guides Concerning the Use of Endorsements and Testimonials in Advertising, soft rules designed to address the application of Section 5 of the Federal Trade Commission Act on unfair or deceptive acts or practices.

In the light of its guides and the Fyre fiasco, on 19 April the FTC notified more than 90 online influencers about the need for them to disclose their relations to the brands endorsed on social media. According to the Guides, if there is a “material connection” between an influencer and an advertiser which can influence the credibility of the messages posted on social media, the endorser must make this connection clear. In practice, that means adding different hashtags such as the hashtag #ad, by which the public understands that the celebrity in question has been paid to sing the praises of specific products. Still, not many celebrities seem to be bothered by this existing guideline, as only one post relating to Fyre Festival was actually tagged in a clear and conspicuous way to reveal the commercial interest behind the post itself.

Prior to the Fyre Festival debacle, in 2016 the FTC had filed a complaint against retailer Lord & Taylor, who paid more than 50 fashion influencers up to $4,000 to post photos of themselves in Instagram styling a specific dress and using the hashtag #DesignLab, without the disclosure of the material connection. The consumer deceit charges were eventually settled.

Are the guides enough to tackle the issue of endorsement? Perhaps there might be a deterrent effect with respect to aligning celebrities with legal standards, but the problem is wider if we consider the fact that it is not only celebrities advertising products on social media.

Professional Youtubers

Just like Instagram, Youtube is a huge market for reviews on products or services relating to technology, games, clothing or make-up, just to name a few. Ordinary people become channel owners and post regular videos focusing on a particular theme. With time, some of these people reach quasi-stardom and become known names on the Internet. To take an example, NikkieTutorials, a successful make-up vlogger based in the Netherlands, has gained a total of 6,998,037 followers since joining Youtube in 2008, and her videos have been viewed 537,159,106 times so far. And while that might look like a lot, these numbers really fade into oblivion when compared to one of the most famous Youtubers of all time, the Swedish game vlogger PewDiePie. With a total following of around 55,538,695 individuals, his videos have collected an overwhelming total of 15,449,755,042 views ever since he joined Youtube in 2010 and earned approximately $7,400,000 in 2014 on the basis of this following. But these are only examples of very well established Youtubers; thousands if not hundreds of thousands of people are currently turning to Youtube to make a living, and in doing so, they seek to earn money from potential collaborators.

Youtube monetization often entails two main streams of revenue: AdSense and sponsorships. AdSense is a Youtube feature that allows channel owners to play ads in various formats before their own content, and their remuneration depends on the number of views their videos will score. Sponsorships are separate from the Youtube channel, in that external companies can contact a popular Youtuber and offer to pay that Youtuber for a sponsorship agreement. These agreements are likely to entail that the Youtuber endorses specific companies or products. As one of the most important features of Youtubers is that of being relatable, namely the feeling that Youtubers are normal people, just like their followers, channel owners will likely not want to openly disclose sponsorships. This creates a conflict of interests where the channel owner’s main activity is that of generating consumer opinions and reviews, while at the same time being secretive about the products that he or she is being paid to advertise.

On the basis of Section 5 of the FTC Act, such practices could be deemed to be unfair if they “cause or [are] likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.” However, this seems to be a test that is not applicable to the mundane low-value objects normally advertised online, which begs the question – should the FTC do something more to align social media advertisers with the public interests it upholds? If that is the case, it most certainly cannot do so alone and will need the willingness of the platforms enabling these new practices to properly address this growing problem.

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