For the advertising industry, 2016 was a continuation of the industry’s efforts toward transparency, compliance and collaboration in the digital space. It was anything but business as usual.

Social media reigned supreme, despite serious snafus by Facebook and others. SnapChat’s augmented-reality filters burst onto the scene and garnered big time interest from advertisers willing to pay the big time price tag. International social media platforms were also front-and-center, with advertisers seeking opportunities to reach millions of Weibo users. In that vein, the ad industry reached a new three-year deal with SAG-AFTRA in April for the commercials contracts, which includes a new social media waiver.

In June, K2 Intelligence issued a report commissioned by the Association of National Advertisers detailing non-transparent business practices employed by media buying agencies to retain rebates and incentives, particularly those related to digital media placements. Earlier this month, the Wall Street Journal reported that the U.S. Department of Justice was investigating ad agencies for bid-rigging in commercial production.

Privacy and data security were among the most talked about — and most litigated — issues for advertisers. From geofencing push notifications to text message campaigns, “privacy by design” and “just-in-time disclosures” became more than just buzz words. Daily fantasy sports lost its lead in the fourth quarter, but survived sudden death overtime. Pokémon Go! had advertisers scrambling to sponsor Pokéstops, until the Pokémon craze … stopped.

Plenty of topics were trending this year. Here are the five that dominated the advertising industry in 2016 and will continue in 2017.

1. Media Buying: Clear as Mud

In June, K2 Intelligence released a report alleging a variety of schemes undertaken by media buying agencies to deny their advertiser clients rebates and other incentives paid to the media buying agencies by media owners. The report sent shock waves throughout the industry. The controversial conclusions suggested that there is a fundamental disconnect between advertisers and their media agencies regarding the basic nature of the advertiser-agency relationship — specifically, who’s being paid for what, how the money flows, and who should receive media rebates and incentives.

The report’s revelations further illustrated the long-perceived lack of transparency in the media-buying world. In the report’s wake, the dialogue between advertisers and their agencies about transparency has become more frank and a search for common ground on some of the issues identified in the report has intensified. The ANA released best practices guidelines and a template agreement for advertisers to use with media buying agencies that addresses the schemes outlined in the K2 report.

How marketers and their media agencies will resolve these issues has yet to be seen. But open dialogue on the issue — actual or perceived — is considerably better than allowing the status quo — a “fundamental disconnect” — to remain.

2. TXT MSG?

“Privacy by design” and “just-in-time disclosures” were the mantra of everything privacy in 2016. Several companies were slapped with class actions involving text-messaging programs.1 Regulators took notice too.

Advertisers, to say the least, felt the impact of the Federal Communications Commission’s 2015 updates to its Telephone Consumer Protection Act rules. This is evidenced by the uptick in litigation involving reassigned telephone numbers.2 In these cases, marketers tried to do the right thing by obtaining consent to engage in their text message programs, only to learn that the phone numbers in their databases had been reassigned to new individuals.3

In other cases, advertisers and some professional sports teams were sued over data collection on their apps.4 From collecting geolocation information to recording conversations, advertisers were unpleasantly surprised about their apps' data collection capabilities — capabilities advertisers often did not want or need.

3. Gamification Nation

App developers are increasingly relying on the free-to-play, in-app purchase model to generate business and engage consumers. These types of microtransactions yielded over $3 billion this year.

In furtherance of capitalizing on this industry, several app developers created virtual stores and marketplaces to permit consumers to make purchases and even wagers on activities within their games. Though wildly successful, these virtual stores and marketplaces came under fire in 2016. For example, the popular mobile app game, “Game of War,” offered a virtual casino, which became the subject of litigation as accusations were made that the company was operating an illegal lottery.5 In another action, a game publisher was sued for allegedly fostering an environment where players could wager virtual items on the outcome of various matches through its online marketplace in violation of the Racketeer Influenced and Corrupt Organization Act.6 Although that action was dismissed, the Washington State Gambling Commission is currently investigating the gaming company over similar allegations.

Last month, DraftKings and FanDuel reportedly agreed to merge after they spent the year staving off protracted litigation with several state regulators over the legality of their fantasy sports games. Despite legislative success, the merger is likely a product of the cost of survival — nationwide private and public litigation — including a $12 million false advertising claim settlement with the New York Attorney General.7

Finally, a state court ended two interesting lawsuits involving Karen Gravano and Lindsay Lohan over the use of their likenesses in the highly popular Grand Theft Auto video game.8 The court ultimately decided in favor of the video-game publisher, finding that neither actresses’ likeness was misappropriated.9

4. Striking A Deal: The SAG-AFTRA Commercials Contracts

With the then-current SAG-AFTRA commercials contracts — valued at $3 billion a year — set to expire in March 2016, the industry kicked off this year with a seat at the bargaining table. The new contract had some important changes. Wages and pension & health contributions received their anticipated increases in line with the averages of such increases in other collective bargaining agreements. Yet new and expanded waivers appear to give signatories greater flexibility to use professional and non-professional performers in their commercials, where appropriate.

While the “Live Event, Man on the Street, and Hidden Camera” commercials waiver was expanded to all mediums, the new social media waiver gives signatories a way to produce commercials used on social media channels in a manner more consistent with current marketing practices (i.e., disposable content). In addition, the bargaining parties agreed to an experimental coverage waiver for non-professional endorsers. It waives the application of the contract to endorsers (and certain other individuals) providing testimonial endorsements in commercials, provided the terms of the waiver are strictly followed. And if those waivers don’t work, a waiver was also established whereby producers can seek SAG-AFTRA’s approval to produce outside the terms of the commercials contracts where the creative necessitates use of non-professionals.

Finally, new four-week internet and new media use cycles were put into place along with new provisions related to stock footage, foreign use, award shows and reels, and PSAs. The bargaining parties also agreed to study alternate methods of compensation and the impact technology has had on the advertising industry and the contracts. Both studies will be considered during the next collective bargaining cycle.

5. Endorsments

The Kardashians (and Jenners) need no introduction. They’re everywhere. Indeed, the Kardashian endorsement machine was in full swing this year, and faced its fair share of criticism. Kim Kardashian West, for example, posted about her love of Sugar Bear Hair vitamins over the summer. Her posts resulted in a New York Times article questioning whether the lack of disclosures in certain posts are due to a genuine love of the products by celebrities, or a failure to comply with the FTC’s endorsement guides.10 In August, Truth in Advertising called into question the Kardashians’ endorsement practices, cataloging over 100 instances of their alleged failure to comply with the endorsement guides. The organization shared its findings with the FTC.

As more marketers put their messages in the hands of influencers in 2016, the FTC’s enforcement efforts increased with respect to its disclosure-based rules. Much of the commission’s headlining enforcement actions this year were based on the endorsement guides and the FTC’s 2015 end-of-year gift to the industry, the enforcement policy statement on deceptively formatted advertisements.

In March, the FTC announced that Lord & Taylor agreed to settle charges related to its native-advertisement and influencer-endorsement marketing practices. The settlement resolved the FTC’s complaint, which alleged that Lord & Taylor deceptively marketed a new product line through (1) fashion influencers who failed to disclose their material connection to the brand and (2) a paid-for article on a pop-culture magazine’s website that was designed to look and feel like the magazine’s other editorial content.

Just four months later, the FTC announced a settlement with Warner Bros. Home Entertainment Inc. regarding similar deficiencies in the company’s endorser marketing practices. Warner Bros. caught the commission’s attention with its online marketing of a video game. Employed through Warner’s ad agency, several online influencers — including famed-influencer “PewDiePie” — endorsed the video game on their YouTube and social media channels. The influencers either failed to disclose their material connections with Warner to consumers or disclosed it in a manner that was not reasonably calculated for consumers to see.

The New York Attorney General also stepped into the fold with respect to policing deceptive endorsement marketing practices. Just recently, Attorney General Eric Schneiderman announced his office settled actions against two companies that paid consumers for positive reviews (i.e., endorsements) about their companies on review websites like Yelp.11 Many of these reviews came from consumers who had never used or experienced the companies’ services. Look for paid reviews to stay on regulators radar in 2017.

Bottom Line

The advertising industry pushes the envelope each year. And as each year passes, the laws governing the advertising industry appear to become more and more out of sync with how the marketing world operates. Regulators and regulations can’t keep up with technology. Trust between advertisers and the supply chain that produces their advertising continues to erode. So as disruptive as 2016 was, there is every reason to believe 2017 will be even more so.

  1. See, e.g., Moskowitz v. Fairway Group Holdings Corp., No. 3:16-cv-01831 (D. Conn. filed Nov. 7, 2016); Bodie v. Lyft, Inc., No. 3:16-cv-02558 (S.D. Cal. filed Oct. 13, 2016); Rahmany v. T-Mobile USA, Inc., No. 2:16-cv-01416 (W.D. Wash. filed Sept. 6, 2016); Farnham v. Caribou Coffee Company, No. 3:16-cv-00295 (W.D. Wisc. filed May 6, 2016); Brickman v. Facebook, Inc., No. 3:16-cv-00751 (N.D. Cal. filed Feb. 12, 2016).
  2. See, e.g., James v. JPMorgan Chase Bank, N.A., No. 8:15-cv-2424 (M.D. Fla. filed Oct. 13, 2015).
  3. See id.
  4. See, e.g., Satchell v. Sonic Notify, Inc., No. 3:16-cv-04961 (N.D. Cal. filed Aug. 8, 2016).
  5. Ristic v. Mach. Zone, Inc., No. 15-CV-8996, 2016 WL 4987943 (N.D. Ill. Sept. 19, 2016).
  6. McLeod v. Valve Corporation, No. C16-1227-JCC (W.D. Wash. Aug. 16, 2016).
  7. Attorney General Eric T. Schneiderman, A.G. Schneiderman Announces $12 Million Settlement With Draftkings And Fanduel, NYAG.gov (Oct. 25, 2016).
  8. Gravano v. Take-Two Interactive Software, Inc., 142 A.D.3d 776, 37 N.Y.S.3d 20 (1st Dept. 2016).
  9. Id. at 777.
  10. Sapna Maheshwari, Endorsed on Instagram by a Kardashian, but Is It Love or Just an Ad?, N.Y. Times (Aug. 30, 2016).
  11. Attorney General Eric T. Schneiderman, A.G. Schneiderman Announces Settlement With Medrite Urgent Care And Carmel For Paying For Positive Reviews Online, NYAG.gov (Dec. 2. 2016).