TikTok and its influencers have a secret sponsored content problem

In spring 2020, several large, family-friendly TikTok accounts posted videos where they pulled pranks on their friends and family members. They all used toys from Basic Fun!’s Joker Prank Shop line, and all of the videos prominently featured them buying the merchandise at their local Walmart.

The posts sure seemed like ads, but few of them indicated that their creators were paid to promote the toys to an especially vulnerable audience: kids. Many of the creators themselves were kids.

But they were ads, according to Influencer Marketing Factory, an agency that took credit for the campaign on its website and its own TikTok account. Influencer Marketing Factory bills itself as “the influencer marketing expert” and did not respond to multiple requests for comment. The company says it has done TikTok campaigns for everything from fitness apps to mushroom coffee. Some influencers labeled those posts as ads or partnerships. Many didn’t. All of them should have, according to truth in advertising rules that are supposed to be enforced by the Federal Trade Commission (FTC) and state attorneys general.

Very few parties seem interested in knowing or following the rules. So much so that a marketing agency seems perfectly comfortable displaying what appear to be violations of them that it helped to create. The two TikTok accounts whose posts were featured in the agency’s Joker Prank Shop case study, @shilohandbros and @haueterfamily, did not respond to multiple requests for comment. Walmart told Recode it wasn’t involved in the ad campaign at all, and Basic Fun! said it no longer worked with Influencer Marketing Factory and was trying to have the case study removed from its site. (The case study and Influencer Marketing Factory’s TikTok about the campaign have since been removed.)

“Because noncompliance is so pervasive, I am not surprised to see agencies showcase work that violates the law,” Robert Freund, a lawyer who specializes in social media advertising law, told Recode.

It’s pervasive because it’s easy: With the internet and social media, there is a seemingly infinite supply of content to regulate and almost no transparency, which makes it exceedingly difficult for the agencies charged with enforcing the rules to know when they’re being broken.

“While it’s the wild west in TikTok, it’s actually really the wild west everywhere,” Kelly Cutler, a faculty member and director of the integrated marketing communications program at Northwestern University, said. “It’s just that other social networks are more sophisticated, and maybe have stronger creative guidelines, better ad formats, more help.”

Lots of money, very few consequences

This isn’t about just one agency, brand, or a handful of creators. TikTok is full of secret sponsored content, or sponcon. Even some of its largest accounts don’t label paid promotions properly, if at all. Charli D’Amelio has more than 140 million followers, making her the second-most followed account on TikTok. She also has a partnership with the flavored water and tea brand Muse, which she doesn’t always make apparent. In a recent Q&A post, she was asked, “What’s so special about the muse drink?”

Holding a bottle of Muse in one hand, she gave her answer. In full: “This one’s pretty simple. They’re really good, and I really like them. And they have a lot of different flavors and a lot of health benefits, so.” She concluded with a thumbs up.

D’Amelio tagged Muse in the description, but she never said Muse paid her, or that she had a partnership with them. She also didn’t use TikTok’s branded content labeling tool, which the platform introduced last year and says creators “must enable” when posting branded content. (Muse and D’Amelio did not respond to requests for comment.)

Patrick Minor, known as @ayypatrick on the platform, has 10 million followers and frequently features Bang brand drinks in his posts, often conspicuously placing them on a kitchen table or bathroom counter. He tags the brand in the posts, but that’s it. Nothing saying he’s paid to put the drink in his posts, and no branded content label. He may well just be the world’s biggest Bang fan, or he could be getting paid to promote the “best energy drink for Kyles and Chads.” His account doesn’t make that clear, and neither he nor Bang responded to requests for comment, so there’s no way to say for sure.

This problem isn’t unique to TikTok. Instagram has been dealing with it for years, giving brands plenty of time to figure out influencer advertising strategies before TikTok came along. By the time the platform was just a year old, it was already awash in sponsored content — some labeled, some not.

But TikTok’s undisclosed ad problem seems to be particularly bad. The app is believed to be especially addictive, with users spending far more time on TikTok than on competitors’ apps. And everything is younger: the users, the creators, and the platform itself. TikTok is only now encountering some of the regulatory and legal growing pains its social media platform peers faced years ago.

TikTok is also very popular with a desirable and elusive demographic: Gen Z. And brands know that influencers can be a great way to reach them.

“Gen Z is very predisposed to influencer effectiveness,” Gary Wilcox, a communications and marketing professor at the University of Texas, said.

There’s a lot of money in influencer marketing. US brands will spend more than $4 billion on influencer ads in 2022, Insider Intelligence predicts, while Influencer Marketing Hub predicts that the global influencer marketing industry will be worth $16.4 billion in 2022. Only a tiny fraction of the brands and influencers who skirt the laws will face any consequences for it, and those consequences are often little more than a slap on the wrist, like a warning letter or a consent order.

There are a few reasons why deceptive ads are so prevalent on social media platforms, Freund said. Influencers and even brands and ad agencies may not know the rules, especially if they’re small and inexperienced.

“They’re not, by and large, going to go research what the legal issues are,” Freund explained. “And in many cases, influencers are not really carefully reviewing the contracts that they signed with brands or agencies.”

MUD\WTR, a company that makes mushroom-based coffee alternatives, paid several TikTok influencers to market its product through Influencer Marketing Factory. But those ads weren’t labeled — something MUD\WTR apparently didn’t realize until a reporter sent the links to them.

“We’re very aware of FTC laws around influencer marketing and care a lot about eliminating deceptive advertising on social media,” spokesperson Elizabeth Limbach said. “And while we do everything in our power to make sure we’re compliant with the laws, it is the influencer’s legal responsibility to disclose that it’s an ad in their caption.”

MUD\WTR said it no longer works with Influencer Marketing Factory and would be reaching out to the influencers to ask them to add the disclosure. But if it didn’t have a program in place to ensure that ads for its products were compliant, MUD\WTR may be partially responsible for the undisclosed ad, even though it went through an intermediary.

“It’s unrealistic to expect you to be aware of every single statement made by a member of your network. But it’s up to you to make a reasonable effort to know what participants in your network are saying,” the FTC says in a guide to frequently asked questions about endorsements on social media.

Even brands and influencers that know and want to follow the rules may feel pressure not to if they see others get away with undisclosed ads, especially if they’re getting a competitive edge over them. And then there are the brands and influencers who know the rules but are willing to take the risk of not following them. Few violators are caught. When they are, the penalties may be far less than the money they make from a noncompliant ad.

“It’s a risk calculation,” Freund said.

Why secret sponcon is so hard to stop

The European Union’s European Commission recently acted on its concerns over hidden ads on TikTok, recently reaching an agreement with the platform to “align its practices with the EU rules on advertising and consumer protection.” (Among other things, the platform was accused of “failing to protect children from hidden advertising.”) TikTok agreed to give users a way to report undisclosed branded content and to review posts from users who have more than 10,000 followers to ensure that its branded content rules are being followed. But consumers in the United States have even less recourse, as TikTok typically isn’t liable for the content its users post.

The FTC is aware of the problem. The agency has tried to spell out, in as plain and simple language as possible, what the rules are and who is responsible for following them. It’s not just the content creators but also the brands and agencies paying them that are supposed to have programs in place to ensure compliance.

Those ad disclosures must be “clear and conspicuous,” according to the FTC’s digital advertising guides. For instance, putting “ad” or “#ad” in the description is fine, but not if it’s so far down that users have to click “see more” to see it. Simply tagging the brand being promoted — which is all a lot of influencers seem to do — isn’t enough.

The FTC is working on updating its 2013 digital advertising disclosure guidelines, which predate TikTok by several years. It’s also looking at how children may be particularly susceptible to deceptive ads. But when it comes to enforcing those guidelines, the FTC has to pick its battles. Social media ad monitoring is not the agency’s only job.

Undisclosed ads are “small potatoes, if we’re really being honest about it,” Northwestern’s Cutler said. “I think it’s a fractional percentage of what is happening in the digital marketing landscape right now that the FTC has their eyes on. I think they’re really worried about data privacy.”

The FTC can’t go after everyone, so it goes after the most egregious cases it can make an example out of. When the agency sued wellness brand Teami in March 2020, it wasn’t just over improperly disclosed Instagram ads from prominent influencers; it was also over unsubstantiated claims they made about Teami’s health benefits, which is a big consumer protection no-no. Teami ended up paying out almost $1 million, but the FTC didn’t go after the influencers involved, which included Cardi B and Jordin Sparks. Ten of them only got warning letters from the FTC and some bad press. The FTC has also sent what’s known as a Notice of Penalty Offense to hundreds of companies letting them know that failing to disclose relationships with endorsers could subject them to monetary penalties.

The FTC isn’t the only agency with enforcement powers in this area. State attorneys general can also go after brands and influencers for unfair or deceptive practices, though that work has mostly focused on fake reviews, the use of fake social media accounts to make a brand or product seem more popular than it actually is, and making false claims.

Private parties also have recourse. A travel advocacy group recently sued a travel influencer, accusing her of making false claims and not disclosing paid promotions on her Instagram and TikTok accounts. (The suit also accused the influencer of saying she had sponsorships that she didn’t.) The group noted that it felt compelled to bring the suit itself because the FTC “has not acted with haste in social media advertising enforcements,” and that “travel influencing is largely unregulated.”

Freund thinks we might see more lawsuits in the future. “I predict that we will see consumer class action litigation over these social media disclosure rules,” he said. “It’s just a matter of time for plaintiff’s attorneys to figure out that this is a type of claim that could be successful.” And as soon as one lawsuit is successful, many more will likely follow.

For now, users can report undisclosed ads to their state attorneys general or the FTC through its fraud reporting portal. They can also report them to TikTok through the report post function, although the drop-down menu doesn’t list deceptively labeled ads as a reason; you’ll have to just pick “other.”

While TikTok itself may not be on the hook, legally, for undisclosed branded content that users post on its platform, the company told Recode that it has guidelines about disclosing ads, and content that is found to violate those guidelines will be removed. The platform also said it uses a “combination of technology” to screen for undisclosed ads and that it reviews reports of possible violations made by users.

Last year, TikTok introduced a branded content toggle, which creators must now use when they post branded content, though a quick scan of some of the most popular creators’ accounts indicates that many of them don’t. Astrology influencer Cole Prots, whose @jkitscole account has 3.4 million followers, told Recode that he doesn’t use the toggle because “it causes a lot of struggles to get approved by TikTok,” and he believes posts with it get less engagement.

It may be in TikTok’s best interest to police itself

The problem isn’t just that these platforms are difficult to police. There’s also the question of who is being harmed by undisclosed ads and how bad that harm is — especially when compared to the many other, arguably worse harms we’ve seen in social media and online advertising.

“If I try this product I’ve never used before but this person says it’s good, and I try it and don’t like it or it doesn’t do what I think it should, then I’m probably not going to go back and repurchase that product,” Wilcox, the University of Texas professor, said.

Many consumers — even the young ones — are also savvy enough to know when they’re being sold something, even when the ad isn’t labeled, according to Cutler. “Generation Z, young kids, they want to participate in that unique, organic experience,” he said. “They don’t want to be sold to.”

In the end, the real push against deceptive ads may not come from enforcers or the threat of them, but from the platforms themselves. Timelines and For You pages full of shady ads will turn off users, and users are more valuable to platforms than anything else.

“A great way to aggravate your users is to show them stuff that they didn’t sign up for and that they don’t want,” Cutler said. Users don’t want to be bombarded with ads, especially when it feels like their favorite creators are trying to trick them, or that the creators are no longer being authentic. These users may not stick around if that’s what TikTok increasingly becomes.

“From my perspective, the biggest risk is to TikTok itself,” Cutler said. “Generation Z, and really all social network users … they’re not going to wait around forever. If they’re not having a great experience, they’ll move on.”

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