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FTC investigates ethics of ads dressed up as sponsored content

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It's no secret that media companies have struggled to make up lost advertising revenues in the Internet age. That's why the rise of sponsored content, pioneered by Buzzfeed and other sites, has been a saving grace.

But now, the Federal Trade Commission plans to take a closer look at this new business model, determining if it's ethical to generate ads that look just like the editorial content surrounding it. 

The FTC announced this week plans to hold a workshop at the end of the year with leading industry officials and consumers advocates to begin investigating the issue. They want to understand the origins of so-call "native advertising" and just what impact it has on readers when paid messages "are integrated into, or presented as, news entertainment or regular content."

Native advertising replaces the older, display advertising used by websites since the Web first started making money. Instead of a rectangular banner ad at the top of your screen, native advertising blends right into the editorial content being presented by the site in question. For instance, Buzzfeed may post a list of best ice cream flavors sponsored by an ice cream company. A toy company may present of a list of '90s nostalgia toys.

It's been a remarkable effective way of generating revenue for mostly new publishers, like Buzzfeed, which at the beginning of the year was valued at more than $200 million. According to Forbes (another site that has dabbled in native advertising), Buzzfeed is projected to sell between 600-700 native advertising campaigns this year, with annual revenue projections rising from $40 million to $60 million. It's estimated that the site brings in $92,300 per native ad campaign.

But while native advertising has been a golden egg-laying goose for new media companies, old-school journalists and academics question the ethics of presenting paid content in a manner so similar to editorial content. Some argue it could confuse readers and lower editorial standards. Hence the FTC's interest in the matter.

"I completely understand the value of native advertising," said Joe McCambley, an early developer of banner ads for the web, speaking to the New York Times recently. "[B]ut there are a number of publishers who are allowing P.R. firms and advertising agencies direct access to their content management systems and allowing them to publish directly to the site. I think that is a huge mistake. [...] It is a very slippery slope and could kill journalism if publishers aren't careful."

But even though this quote ran in the Times, there is talk of the Grey Lady herself soon accepting native advertising

This is the second time this year that the FTC has taken an interest in the changing world of online advertising. Paid Content reports that the FTC issued new disclosure obligations related to social media and small screen ads in May.

Photo by russellstreet/Flickr