Editor’s note: This article has been updated to correct a factual error. The Federal Trade Commission has not issued a new rule; rather, it has clarified how an existing regulation may be applied in a changing media landscape, where publishers are now operating their own in-house advertising studios.

Sometime this year, the Federal Trade Commission (FTC) plans to issue guidance on native advertising—advertising that mimics journalism or entertainment—but at an event last week, the FTC’s associate director of advertising practices, Mary Engle, gave an address that hinted at what that guidance may cover. Speaking at the Clean Ads I/O conference in New York June 3, Engle clarified that the laws regulating unfair and deceptive acts and practices also apply to any publisher—any broadcast, print, or digital channel—that has a hand in creating deceptive ads. This is particularly relevant given the growing number of publishers that have launched in-house studios to create native ads.

For the advertising industry, this announcement signals that transparency is no longer simply a best practice for responsible advertising; it is a requirement.

Companies involved in all facets of the advertising and media industry should take note: As native advertising booms, publishers and advertisers alike must embrace transparent native ad strategies to avoid the erosion of consumer trust—and potential regulatory action. Taking this approach isn’t just about risk management, however. Companies have the opportunity to both build trust with consumers and to create engaging, effective content.

BSR recently published a report, commissioned by Participant Media, on responsibility in advertising, in which we explored native advertising and its implications for the future of ads. In that report, “Transparency, Purpose, and the Empowered Consumer: A New Paradigm for Advertising,” we found that native advertising represents a growth opportunity for the industry, but transparent labeling and policies by brands and media companies are important in retaining consumer trust. In a survey by The Participant Index Impact Panel and Nielsen conducted on behalf of BSR, 91 percent of respondents said it was important to them that there is clear differentiation between content and advertising.

Native advertising is not new, but it has come under increasing public debate in recent years, especially as print and digital banner ads fall out of favor. According to Advertising Age, brands spent about US$3.2 billion on native advertising in 2014, which was an increase of more than 46 percent from 2013. In 2015, that will rise to a projected US$4.2 billion, with nearly two-thirds of marketers saying they will increase how much they spend on native.

Many new media companies have embraced native advertising: For instance, Buzzfeed’s Founder and CEO Jonah Peretti has publicly stated that 100 percent of the company’s revenue comes from branded content and partnerships. Buzzfeed, like other media companies, now has an in-house creative agency that develops its own ads. Traditional media outlets have also gotten on board, including The Atlantic, The Guardian, The New York Times, The New Yorker, Time, and The Wall Street Journal.

While some outlets have very strict parameters between “church and state,” others do not. For example, as Advertising Age reported back in 2013, “The New York Times is going to label the hell out of its native ads.” But at The Guardian, journalists—as well as its multimedia, digital, and marketing teams—are involved in creating native content.

Every media company appears to have a different approach to native advertising, and this has sometimes resulted in public snafus. One of the most infamous took place in 2013, when The Atlantic published a sponsored post by the Church of Scientology, which angered many readers for its disconnect from the publication’s usual messaging and ethos. This misstep was exacerbated when the company censored some of the negative comments readers posted on the site. In response, the company publicly apologized and instituted a new native-ad policy. Several other media companies, including Condé Nast, have followed suit by creating detailed in-house policies on native advertising.

As advertisers and media companies bet on a future for native advertising, there are many signs that the format appeals to consumers. A 2013 Nielsen report found that native advertising ranked as the second-most trusted advertising format, with 69 percent of respondents deeming branded websites trustworthy. And the Quartz Insights Global Executives Survey of 940 business leaders in 61 countries revealed that 86 percent of executives are interested in branded content, and that consumers are more than twice as likely to remember this kind of content compared with banner ads.

According to the International Advertising Bureau and Edelman Berland’s consumer study of 5,000 business and entertainment news consumers, consumers are highly receptive to in-feed sponsored content if it is relevant, authoritative, and trustworthy. That paper provided specific guidance to brands and publishers:

  • Brands: Match editorial style and quality; share expertise, don’t sell.
  • Publishers: Decline advertisers that don’t fit, help advertisers adopt an editorial mindset, and err on the side of transparency.

The advertising industry does not have a strong history of transparency. Rather, it is associated with hidden messages, the collection of personal data to target consumers, and doctored photos—and sometimes facts. But the FTC announcement gives companies involved in the industry a new opportunity to put transparency at the center of their ad policies. This is the first step on a path toward better, more engaging ads overall—ones that empower audiences and offer up a sense of purpose to consumers.