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Update 2: The FTC is now saying that the $11,000 fine is not accurate, at least for the first violation. Fast company got some responses from Richard Cleland, assistant director, division of advertising practices at the FTC, who says:

“That $11,000 fine is not true. Worst-case scenario, someone receives a warning, refuses to comply, followed by a serious product defect; we would institute a proceeding with a cease-and-desist order and mandate compliance with the law. To the extent that I have seen and heard, people are not objecting to the disclosure requirements but to the fear of penalty if they inadvertently make a mistake. That’s the thing I don’t think people need to be concerned about. There’s no monetary penalty, in terms of the first violation, even in the worst case. Our approach is going to be educational, particularly with bloggers. We’re focusing on the advertisers: What kind of education are you providing them, are you monitoring the bloggers and whether what they’re saying is true?” [empahsis added]

Cleland addresses more of the concerns here.

Update: The new FTC guidelines have come out today. The FTC says:

The revised Guides also add new examples to illustrate the long standing principle that “material connections” (sometimes payments or free products) between advertisers and endorsers – connections that consumers would not expect – must be disclosed. These examples address what constitutes an endorsement when the message is conveyed by bloggers or other “word-of-mouth” marketers. The revised Guides specify that while decisions will be reached on a case-by-case basis, the post of a blogger who receives cash or in-kind payment to review a product is considered an endorsement. Thus, bloggers who make an endorsement must disclose the material connections they share with the seller of the product or service. Likewise, if a company refers in an advertisement to the findings of a research organization that conducted research sponsored by the company, the advertisement must disclose the connection between the advertiser and the research organization. And a paid endorsement – like any other advertisement – is deceptive if it makes false or misleading claims.

Bloggers can be fined up to 11,000 per post for not disclosing when they receive payment or free products from a company they're writing about.

Original Article (05/20): We've known for some time that the Federal Trade Commission (FTC) intends to start regulating blogs and social media with regards to word-of-mouth marketing (aka blogs and social media). An article from BusinessWeek this week looks at the FTC's intentions to regulate advertisers who are paying bloggers to write glowing reviews (whether that be in the form of cash or free stuff).

"The world's more ambitious bloggers like to call themselves 'citizen journalists.' The government is trying to make sure these heralds don't turn into citizen advertisers," writes BW's Douglas MacMillan.

Some bloggers are of course taking issue with the idea of such regulation. But there are more than a few points to consider. Carlo Longino at TechDirt writes:

"It's as if the FTC is trying to mandate credibility, and this raises a couple of interesting points. First, audiences generally seem pretty adept at rooting out when people are being paid to talk nice about a company or product, and there are plenty of examples of company's payola schemes getting found out and causing a backlash against them. Second, why do bloggers get singled out for special treatment? Plenty of old-media reporters get freebies tossed their way, but the FTC doesn't seem to think they deserve the same level of attention."

A post from Susan Getgood at Marketing Roadmaps actually looks at official documentation (pdf) from the FTC. It's quite a lengthy document, and published in 2007, it's the most recent document from the FTC on the issue. She sums up three main points from the document related to bloggers:

1. Liability for false statements in a sponsored post

2. Disclosure of receipt of free product

3. Anti-astroturfing. Requires disclosure of material interest when making an endorsement.

For each of these, she pulls quotes from the official documentation. Keep in mind, this document is a request for public comment. Getgood takes the stance that bloggers are perhaps blowing the effects of such regulation out of proportion.

"So what’s the big deal? Doesn’t this all make sense?" she asks. "It will come as no surprise to readers of this blog, but apparently to some: businesses do not always act in the best interests of consumers. Sometimes they even lie. That’s why we’re in a recession."

So I ask you, what do you think of the FTC's intentions? Do you think regulation is in order? Comment.