Social media stars feel pinch of regulatory agency

It may appear that YouTube user PewDiePie's love for playing Warner Bros.' "Middle Earth: Shadow of Mordor" video game was genuine and innocuous — but the federal government says the YouTube star was paid for his endorsement of the game.

A recent Federal Trade Commission (FTC) scolding of Warner Bros. has put the spotlight on celebrity endorsers on YouTube, including the popular PewDiePie, who has more than 47 million subscribers. It also opened the door to more frequent regulation of the so-called "sponsored social" advertising industry.

The FTC said that companies that hire internet celebrities who produce sponsored content must reveal that arrangement clearly. One entrepreneur says it's about time.

"I'm happy to see that the Federal Trade Commission is getting more aggressive and more vocal and going after big brands and well-known names," said Ted Murphy, whose company Izea serves as a platform for celebrities to get paid for advertising brands on social media. "I don't think the majority of people have taken that seriously."

Enforcement could be tough for smaller-profile pitchmen and women, but the FTC's pursuit of agreements with high-profile stars could set an example.

In penalizing Warner Bros., the agency wanted to send a message, as well, to YouTube celebrities, including PewDiePie, a 26-year-old Swedish gamer whose real name is Felix Kjellberg.

The agency said in a release that Kjellberg and other YouTube broadcasters had failed to sufficiently reveal that they had been paid by Warner Bros. for the game reviews.

Jessica Rich, director of the FTC's Bureau of Consumer Protection, said in a news release that the case against Warner Bros. was crucial to ensure that online viewers are protected.

"Consumers have the right to know if reviewers are providing their own opinions or paid sales pitches," she said. "Companies like Warner Bros. need to be straight with consumers in their online-ad campaigns."

Some say violations will be tough to track.

"There certainly should be some regulation but it will be very challenging for them to enforce," said Shalyn Dever, founder of Chatter Buzz, a company that conducts social media campaigns for clients.

She said that if a company wanted to pay $5 to someone who has a social media following for a positive video about their product, there is little the FTC can do to stop the company from circulating that video repeatedly.

"We don't want to inhibit the growth of social media as a way for consumers to get advice from other consumers," he said. "But if people are being paid or compensated to make these claims, that goes to the credibility of the endorser."

Vladeck said updates to the agency's rules made clear that social media fell under the same rules as television and radio.

"We have, for a long time, said that when you are endorsing a product, unless it's clear like a television ad, you have to at least acknowledge that you are being compensated," Vladeck said. "You need to make that clear. We updated our endorsement guide in 2010 to make crystal clear that we are also talking about social media."

Bloggers also must disclose when they have been paid to write a post.

At Izea, the disclosure is made automatically by the program as it prepares a social media post, Murphy said. For instance, tweets include a hashtag that says #ad.