Cosmopolitan’s editor-in-chief Joanna Coles stars in a new sponsored video for Cotton Inc., which was released on Discover Cotton’s website and YouTube page recently. Of the video (you can watch it here), WWD’s Alexandra Steigrad writes, “In a recent sponsored campaign for Cotton Inc., the Cosmopolitan editor in chief appears on camera talking about how she stays comfortable at work. Shot in her office at Hearst Tower, the video (the “Cotton x Cosmo” video) depicts Coles hastily flicking through a rack of clothing before pulling out a blue pair of monogrammed cotton pajamas from a drawer.”

While certainly cute, the video does raise some potentially serious ethical issues, as WWD notes. However, what the industry trade publication does not note is that the Cotton x Cosmo video also raises some potential legal issues, stemming from the fact that it is devoid of disclaimers.

The Federal Trade Commission & Its Guidelines

With quite a few legal issues at hand, let’s start by looking to the Federal Trade Commission (“FTC”) and its mission in the marketplace. The Federal Trade Commission is an independent agency of the U.S. government, established “to prevent business practices that are anticompetitive or deceptive or unfair to consumers; to enhance informed consumer choice and public understanding of the competitive process; and to accomplish this without unduly burdening legitimate business activity.” This includes, among other things, preventing fraud, deception, and unfair business practices in the marketplace, including online and in traditional forms of media, which is largely governed by the FTC Guides Concerning the Use of Endorsements and Testimonials in Advertising, its Native Advertising Guide, and its DotCom Disclosures Guide.

In short: the FTC issues legally-binding rules (by way of the FTC Act) regarding how businesses MUST advertise in order to not deceive or mislead consumers, and guidance for advertisers and publishers on how to abide by the law. With this in mind, the FTC has been relatively on top of the various developments in advertising, including the utilization of social media as an outlet for advertising, and most recently, the use of native ads.

For our purposes, all three of the aforementioned sets of guidelines are useful because the video, itself, is an advertisement. As we can assume from the Cotton, Inc. “It’s Your Favorite for a Reason” message at the tail end of the video, the video was paid for by Cotton, Inc. As we learned from the WWD article, the campaign “was developed by Hearst’s digital division.” (Hearst is Cosmo’s parent company). WWD’s Steigrad also writes, “Hearst has been a pioneer of sorts in the native advertising space when it comes to its magazines.” With this in mind, let’s see just how the video and the corresponding social media posts may violate the FTC’s guidelines and thus, the law …

The Video as an Endorsement

According to the FTC Guides Concerning the Use of Endorsements and Testimonials in Advertising, an endorsement is “any advertising message that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser.” So, “I’m Joanna Coles and my favorite item is my cotton pajamas,” is likely the endorsement here.

So, we have an endorsement. Now what? Well, the FTC’s guides on endorsements state that if there’s a “material connection” between an endorser (Coles, in this case) and the marketer (Cotton, Inc.) – aka a connection that consumers would not expect and that “would affect how consumers evaluate the endorsement” – that connection should be disclosed. This commonly comes in the form of the endorser being paid or compensated in some way (anything from free stuff to discounts on products, etc.) in exchange for making the endorsement.

It is worth noting that the FTC assumes that consumers do NOT know too much. For instance, the FTC has held that it is not common knowledge that bloggers are paid to push products on their sites. So, it is safe to assume that the general public would not assume that Coles is being compensated in one way or another to appear in this video, which should almost certainly is.

And what happens if you have an endorsement in an advertisement? You have to disclose it. And a logo at the end of the video will not suffice. According to the FTC, “disclosures must be clear and conspicuous.” While there are many ways to include a disclosure, the FTC has consistently held that including the word “Sponsored” at the beginning of the ad in a sizable font is always a good way to inform viewers/readers that the message was sponsored by an advertiser, and thereby, avoid violating the FTC Act. The Cotton x Cosmo video does not include any indication that it is sponsored, aside from the inclusion of the Cotton, Inc. slogan at the end of the video, which the FTC would likely deem to be an inappropriate form of disclosing it is sponsored (the FTC prefers “Ad,” “Advertisement,” “Paid Advertisement,” “Sponsored Advertising Content,” or some variation thereof, and held that “Company logos or brand names unaccompanied by a clear text disclosure” are not sufficient). Moreover, the FTC would also likely hold that the end of the video is an inappropriate place for the disclosure, as some viewers might not make it all the way to the end of the minute and a half video.

The Video as Native Advertising

Before we move on from the video, though, we have to consider it in connection with the FTC’s recently released Guides on Native Advertising. The FTC defines native ads as “content that bears a similarity to the news, feature articles, product reviews, entertainment, and other material that surrounds it online.” So, the Cotton x Cosmo video fits neatly within this description, and as a result, is held to yet another standard in order to avoid being labeled as deceptive in violation of the FTC Act.

In its Native Advertising Guide, the FTC states: “Advertisements or promotional messages are deceptive if they convey to consumers expressly or by implication … that they’re something other than ads.” Is this not what is going for the majority of the Cotton x Cosmo video, considering that the viewer does not learn that the video is sponsored by Cotton, Inc. until the very end, and it is made in a way that suggests it is something other than an ad – that is, after all, the point of native advertising.

The Guides go on to state: “Some native ads may be so clearly commercial in nature that they are unlikely to mislead consumers even without a specific disclosure.  In other instances, a disclosure may be necessary to ensure that consumers understand that the content is advertising.” With the aforementioned in mind and assuming that consumers might believe that the Cotton x Cosmo video is something other than just an ad, the FTC requires that such videos be accompanied by a disclosure, as discussed above. “Why would it be material to consumers to know the source of the information?” the FTC asks. Well, “because knowing that something is an ad likely will affect whether consumers choose to interact with it and the weight or credibility consumers give the information it conveys.”

So, it seems that the video requires a disclosure from the perspective of it being a native ad, as well as for containing an endorsement. And remember that the FTC states, “If a disclosure is necessary to prevent deception, the disclosure must be clear and prominent,” and arguably, the Cotton, Inc. slogan at the end of this video does not suffice. 

The Social Media Posts

And in case that’s not enough, Cosmo and Coles both posted stills from the video on their Instagram accounts tagging Cotton Inc.’s company handle in the photos. This may be problematic, as well, as the photos lack disclaimers.

Because the photos at issue are the result of a sponsored video, and arguably also operate as ads of some sort, especially since the pajamas in the photos are tagged as Cotton, Inc., they probably require an indication that they are sponsored. And the fact that they are social media posts does not matter. The FTC published a specific DotCom Disclosures Guide not too long ago, which requires the use of “clear and conspicuous” disclosures “no matter what the format or what space constraints exist.” So, #Ad or #Sponsored is required for social media posts that serve as endorsements, traditional ads or native ads.

SO, WHAT?

We can likely conclude that Cosmopolitan and Cotton, Inc. are in the wrong in at least one way in connection with the video. So, what? Well, violations of the FTC Act do not come without potential legal ramifications. While it was long reported that the FTC lacked the authority to impose civil penalties, we learned that this isn’t the case. In 2011, the FTC charged Nashville, Tennessee-based Legacy Learning Systems with $250,000 in settlement damages, marking the first ever-monetary component for a violation of the blogger endorsement rules. The FTC has also targeted Ann Taylor LOFT in connection with a 2010 event, which aimed to lure bloggers by noting that the “Bloggers who attend will receive a special gift, and those who post coverage from the event will be entered in a mystery gift card drawing where you can win up to $500 at LOFT!” Thereafter, Cole Haan came under fire for failing to disclose a Pinterest campaign. Such actions suggest that the FTC is, in fact, on the lookout for violations of its guidelines.

As for which party would be liable if the FTC decided to take action (which seems unlikely since its been quite lax regarding potential violations as of late): The Guides state that both advertisers (Cotton, Inc.) and endorsers (Cosmo/Hearst) may be liable for failure to disclose material connections that they share.

Also worth noting is what this says about the ethics of large scale publishers, something WWD notes in its article. Steigrad writes: “WWD reached out for comment from Coles, who didn’t address the ethical implications […] Typically publishers have turned a blind eye to the potential conflicts of interest surrounding digital editors creating or appearing in content for advertisers as long as it is labeled.” Thoughts?