YOUTUBE MARKETING: LEGALITY OF SPONSORSHIP AND
ENDORSEMENTS IN ADVERTISING
Katrina Wu
a1
Abstract
YouTube endorsement marketing, sometimes referred to as native advertising, is a form of
marketing where advertisements are seamlessly incorporated into the video content unlike
traditional commercials. This paper categorizes YouTube endorsement marketing into three forms:
(1) direct sponsorship where the content creator partners with the sponsor to create videos, (2)
affiliated links where the content creator gets a commission resulting from purchases attributable
to the content creator, and (3) free product sampling where products are sent to content creators
for free to be featured in a video. Examples in each of the three forms of YouTube marketing can
be observed across virtually all genres of video, such as beauty/fashion, gaming, culinary, and
comedy. There are four major stakeholder interests at play—the YouTube content creators,
viewers, YouTube, and the companies—and a close examination upon the interplay of these
interests supports this paper’s argument that YouTube marketing is trending and effective but
urgently needs transparency. The effectiveness of YouTube marketing is demonstrated through a
hypothetical example in the paper involving a cosmetics company providing free product sampling
for a YouTube content creator. Calculations in the hypothetical example show impressive return
on investment for such marketing maneuver.
Companies and YouTube content creators are subject to disclosure requirements under
Federal law if the content is an endorsement as defined by the Federal Trade Commission
(“FTC”). This paper applies the FTC Guide to the YouTube context and identifies disclosure
practices that may be problematic under the FTC guidelines. Pervasive issues with disclosure on
YouTube include inconsistency as to how content creators disclose as well as the lack of
conspicuousness for disclosures buried in description boxes. This paper proposes that there is an
urgent need to increase transparency for YouTube endorsement marketing and that YouTube
should promote a uniform standard of disclosure. Contrary to the argument that disclosures would
undermine the effectiveness of marketing, this paper argues that proper disclosure will not only
foster viewers’ trust in content creators but will also promote consumer goodwill.
Table of Contents
I. INTRODUCTION .................................................................................................................. 2
II. CATALOG OF YOUTUBE CHANNELS: A FEW EXAMPLES IN ENDORSEMENT
MARKETING................................................................................................................................. 4
a1
J.D./M.B.A., University of San Diego; LLM in Taxation (Candidate), University of San Diego School of Law.
The author would like to thank Dr. Seth Ellis from the University of San Diego (M.B.A.) for his guidance and
feedback on this paper. The author would also like to thank the editorial board and staff at the Pacific Southwest
Academy of Legal Studies in Business (PSWALSB) for their meticulous editorial work and feedback.
2
A. Examples of Explicitly Sponsored YouTube Videos...................................................... 7
B. Examples of YouTube Videos with Affiliated Links...................................................... 9
C. Examples of Free Product Sampling............................................................................ 10
III. STAKEHOLDER ANALYSIS: BALANCING FOUR INTERESTS AT PLAY—
CONTENT CREATOR, VIEWERS, YOUTUBE, AND COMPANIES..................................... 11
A. YouTube Content Creator: Juggling Financial Interests and Viewers’ Trust ........... 11
B. Consumer/Viewers: the Appeal of YouTube................................................................ 13
C. YouTube: Juggling Financial Interest in Advertising Revenue and Relationship with
Content Creators ...................................................................................................................... 15
D. Companies: Still a Far Way from Fully Capitalizing YouTube Marketing ............... 16
IV. EFFECTIVENESS OF YOUTUBE MARKETING ......................................................... 18
A. A Hypothetical Scenario Analysis in Calculating Marketing Effectiveness—Free
Product Sampling..................................................................................................................... 20
V. LEGAL IMPLICATIONS IN YOUTUBE ENDORSEMENT MARKETING................... 24
A. Federal Trade Commission Guides (2009)................................................................... 24
1. Application of the Guide’s Facts and Circumstances Test to YouTube: YouTube
Marketing Falls inside the Guide’s Parameter ................................................................ 25
2. Clear and Conspicuous Disclosure Mandated by the Guide ................................ 27
3. The Problem: Inconsistency in Disclosure and Lack of Conspicuousness.......... 28
B. YouTube Terms of Use and Limited Guidance on Disclosure .................................... 31
VI. PROPOSAL TO INCREASE THE TRANSPARENCY IN YOUTUBE MARKETING
TO BENEFIT ALL STAKEHOLDERS....................................................................................... 33
A. For Content Creators: Placement of Disclaimers Should be Conspicuous and towards
the Top of the Description Box................................................................................................ 34
B. For YouTube: YouTube Should Adopt a Uniform Notation System for Disclosures 35
C. For Companies: Fostering Trust in Viewers Will Benefit Companies and YouTubers
36
VII. CONCLUSION.................................................................................................................. 39
I. INTRODUCTION
With the rise of YouTube since 2005, the online video hosting service was a platform and
personal stage for any ordinary individual to voice oneself. YouTube users are free to upload any
user-generated content onto the platform, including homemade comical shorts, memorable
moments in life, and rants or personal thoughts on anything imaginable. YouTube videos are a true
3
embodiment of our pride in our values involving the freedom of speech. A lot of YouTube content
creators (“YouTubers”) rose to fame with an expanding subscriber/follower base. Businesses saw
an opportunity with growing viewership and explored marketing potential with YouTubers
(sometimes known as native advertisement or stealth marketing
1
). YouTube sponsored activities
can largely be found under three forms: (1) explicit sponsorship where the sponsoring company
pays the YouTuber a flat fee, or a specified amount per number of views on a video specifically
created to market a brand or product, (2) affiliated links where purchases made through the link,
or coupon code provided by the YouTuber will help the YouTuber earn a commission on the sale,
and (3) free product sampling where companies send products to YouTubers with the hope that
they will create product reviews, advertorials,
2
and just general exposure of the product. The
marketing agenda is integrated into the content itself and because consumers/viewers generally do
not regard YouTube videos as a source of advertisement, marketing in YouTube content can be
far more effective than traditional marketing. This is because consumers generally view those
content without guarding suspicions. It should be noted that this paper does not address YouTube’s
own advertisements (called “In-Stream Ads”)
3
where ad clips can run before (pre-roll), some point
during the video (mid-roll), and after the video (post-roll). The form of marketing addressed in the
paper is one where companies bypass YouTube and contact video creators directly to feature
1
“Native advertising” is defined as a form of paid media where the ad experience follows the natural form and
function of the user experience in which it is placed. What is native advertising? SHARETHROUGH,
http://www.sharethrough.com/nativeadvertising/#definition (last visited Mar. 16, 2013). “Stealth advertising” is
defined as a way of advertising a product so that people do not realize that you are trying to make them buy
something. Stealth Marketing Definition, CAMBRIDGE DICTIONARIES ONLINE,
http://dictionary.cambridge.org/us/dictionary/business-english/stealth-marketing (last visited Feb. 18, 2015).
2
“Advertorial” is an advertisement that imitates editorial format. Advertorial Definition, MERRIAM-WEBSTER,
http://www.merriam-webster.com/dictionary/advertorial (last visited Feb. 10, 2015).
3
In Stream How Video Ads Work, GOOGLE,
https://support.google.com/displayspecs/answer/1870961870961870966244557?hl=en&ref_topic=6244532 (last
visited Dec. 19, 2014) (“YouTube In-Stream Ads can run in video players appearing on YouTube watch pages and
channel pages with featured videos…. Non-skippable ads can be a maximum of 15 seconds.”).
4
products in their videos. The commercial relationship exists solely between the YouTuber and the
sponsoring company.
This paper explores the dynamics between marketing and law for YouTube sponsorship
and endorsement. Part II catalogs some examples of the marketing practice. Part III examines the
interplay of the four stakeholder interests including YouTube content creators, viewers, YouTube,
and sponsoring companies. Part IV of the paper assumes a marketing angle, analyzing the
effectiveness of YouTube marketing using a hypothetical scenario, while Part V highlights legal
implications with this practice, namely the need to disclose endorsement and sponsorship
relationships. This paper concludes by arguing that while enormous marketing opportunities exist
on YouTube, there is an urgent need to increase transparency in this form of marketing. It is
recommended that content creators and companies self-implement better disclosures while
YouTube considers standardizing disclosure formats across all videos. Contrary to the argument
that disclosure will undermine the effectiveness of marketing, this paper argues that upfront
disclosures will not only foster consumer goodwill, but will ensure the sustainability of
endorsement marketing on YouTube.
II. CATALOG OF YOUTUBE CHANNELS: A FEW EXAMPLES IN ENDORSEMENT
MARKETING
YouTube sponsorship and endorsement can be seen across a wide variety of channels,
including, but not limited to, beauty, fashion, comedy, food, and gaming channels. This Section
documents a few examples of endorsement and sponsorship across these categories. Examples of
sponsorship activities can be largely categorized into the three forms mentioned in the introduction:
(1) explicit sponsorship; (2) affiliated links; and (3) free product sampling. This section first
5
provides an overview of how videos under the categories of beauty, comedy, food, and gaming
appear on YouTube, then proceeds to provide some examples under explicit sponsorship, affiliated
links, and free product sampling.
Beauty and Fashion
Viewership of beauty and fashion related YouTube videos have gained traction over the
past few years
4
with these YouTubers now being colloquially referred to as “beauty and fashion
gurus.”
5
One can find various types of beauty and fashion videos in the form of a tutorial for a
certain makeup look or an “outfit of the day” video. For example, YouTubers showcase the outfit
they have put together, a review of a certain product, or a “favorites” video. The YouTuber shares
his or her favorite products, or a “haul” video, showing recent purchases such as cosmetics
products, clothing and accessory items.
Comedy/Short Film
Some of the most subscribed to channels on YouTube are in the comedy genre, with more
than a dozen of channels boasting over 10 million subscriptions.
6
Comedy content on YouTube
4
E.g, Michelle Phan, YOUTUBE, https://www.youtube.com/user/MichellePhan (last visited Feb. 3, 2015) (beauty
channel with 8 million subscribers); Ingrid Nilsen, YOUTUBE, https://www.youtube.com/user/missglamorazzi (last
visited Feb. 3, 2015) (beauty and fashion channel with 3 million subscribers); Stilababe09, YOUTUBE,
https://www.youtube.com/user/StilaBabe09 (last visited Feb. 3, 2015) (fashion and beauty channel with 3 million
subscribers); Zoella, YOUTUBE, https://www.youtube.com/user/zoella280390 (last visited Feb. 3, 2015) (beauty
channel with 9 million subscribers); Bethany Mota, YOUTUBE, https://www.youtube.com/user/Macbarbie07 (last
visited Feb. 3, 2015) (fashion channel with 9 million subscribers); AndreasChoice, YOUTUBE,
https://www.youtube.com/user/AndreasChoice (last visited Feb. 4, 2015) (beauty and fashion channel with 3 million
subscribers); CutiePieMarzia, YOUTUBE, https://www.youtube.com/user/CutiePieMarzia (last visited Feb. 4, 2015)
(fashion channel with 5 million subscribers); ThatsHeart, YOUTUBE, https://www.youtube.com/user/ThatsHeart
(last visited Feb. 4, 2015) (beauty and fashion channel with 1 million subscribers); Kandee Johnson, YOUTUBE,
https://www.youtube.com/user/kandeejohnson (last visited Feb. 8, 2015) (beauty channel with 3 million
subscribers). See generally YouTube Browse Channels: Beauty and Fashion, YOUTUBE (last visited Feb. 1, 2015),
https://www.youtube.com/channels/beauty_fashion (YouTube directory listing 995 popular beauty and fashion
channels).
5
See generally Wendy Rodewald, The 25 Best YouTube Beauty Vloggers, DAILY MAKEOVER (June 27, 2014),
http://www.dailymakeover.com/trends/makeup/beauty-vloggers-youtube (last visited Nov. 3, 2014).
6
E.g., Smosh, YOUTUBE, https://www.youtube.com/user/Smosh (last visited Feb. 8, 2015) (comedy channel
boasting 21 million subscribers); RayWilliamJohnson, YOUTUBE,
https://www.youtube.com/user/RayWilliamJohnson (last visited Feb. 8, 2015) (comedy channel boasting 10 million
6
can include: various social commentary in the form of parody and satire, observational comedy
poking fun at everyday life, musical comedy where the YouTuber incorporates humor into a song.
Food
YouTube has a corner for makeup tutorials as well as cooking tutorials.
7
Viewers can look
to the many YouTube cooking clips when aspiring for new recipes and the how-to for cooking.
Gaming
Provided that the most subscribed to channel on YouTube is a gaming channel by the name
of PewDiePie, whose channel boasts over forty-million subscribers, gaming channels on YouTube
can be prime candidates for game advertisers.
8
YouTube gaming videos are usually in the form of
a recorded screen of the YouTuber playing the game, with the YouTuber narrating and
commenting as he or she engages the game.
9
Popular YouTube game videos can appear in a
“walkthrough” format where the YouTuber shows viewers how to play a certain segment of the
subscribers); JennaMarbles, YOUTUBE, https://www.youtube.com/user/JennaMarbles (last visited Feb. 8, 2015)
(comedy channel boasting 15 million subscribers); HolaSoyGerman, YOUTUBE,
https://www.youtube.com/user/HolaSoyGerman (last visited Feb. 8, 2015) (Chilean comedy channel boasting 24
million subscribers); NigaHiga, YOUTUBE, https://www.youtube.com/user/nigahiga (last visited Feb. 8, 2015)
(comedy channel boasting 15 million subscribers).
7
E.g., LauraInTheKitchen, YOUTUBE, https://www.youtube.com/user/LauraVitalesKitchen (last visited Feb. 7,
2015) (cooking channel with 2 million subscribers); MyCupcakeAddiction, YOUTUBE,
https://www.youtube.com/user/MyCupcakeAddiction (last visited Feb. 7, 2015) (cooking channel with 2 million
subscribers); ByronTalbott, YOUTUBE, https://www.youtube.com/user/ByronTalbott (last visited Feb. 7, 2015)
(cooking channel with 900,000 subscribers).
8
E.g., PewDiePie, YOUTUBE, https://www.youtube.com/user/PewDiePie (last visited Nov. 21, 2015). E.g.,
VanossGaming, YOUTUBE, https://www.youtube.com/user/VanossGaming (last visited Feb. 8, 2015) (gaming
channel with 14 million subscribers); SkyDoesMinecraft, YOUTUBE,
https://www.youtube.com/user/SkyDoesMinecraft (last visited Feb. 8, 2015) (gaming channel with 11 million
subscribers); Vegetta777, YOUTUBE, https://www.youtube.com/user/Vegetta777 (last visited Feb. 8, 2015) (gaming
channel with 11million subscribers); SmoshGames, YOUTUBE, https://www.youtube.com/user/smoshgames (last
visited Feb. 8, 2015) (gaming channel with 6 million subscribers).
9
E.g., PewDiePie, Flappy Bird—Don’t Play This Game!, YOUTUBE (Jan. 27, 2014),
https://www.youtube.com/watch?v=lQz6xhlOt18; GameRiot, The Walking Dead Season 2 Episode 5 All Endings –
Alone, Jane, Kenny, Wellington, YOUTUBE (Aug. 27, 2014), https://www.youtube.com/watch?v=4vgvFILmhMU
7
game,
10
or in “multiplayer live” format where the YouTuber captures a game played with another
player in live time.
11
A. Examples of Explicitly Sponsored YouTube Videos
Under this category of marketing, the YouTuber partners with the sponsor to create videos
with the exclusive purpose to market a brand or product, and the sponsoring company pays the
YouTuber a flat fee, a percentage of sales resulting from the video, or a specified amount per
number of views on the video (e.g., $1.50 for every 1000 views).
12
An example involves one of the earliest and most popular YouTube makeup artist Michelle
Phan, who partnered with global cosmetics giant L’Oreal S.A. to promote Lancôme products. Phan
created a series of videos featuring Lancôme products, usually in the form of a makeup tutorial, or
some advertorial content. In one advertorial video, Clubbing Makeup Tutorial, Phan instructs
viewers how to recreate the makeup look using a range of Lancôme products from face foundation
to eyebrow pencil. This particular video has garnered over six million views since being posted in
2010.
13
In another monthly sponsored video, Phan demonstrates how to find the perfect shade of
red lipstick for different skin tones. All of the lipsticks featured in the video were part of the
10
E.g., PewDiePie, The Last of Us Gameplay Walkthrough Playthrough Let's Play (Full Game) - Part 1, YOUTUBE
(June 13, 2014), https://www.youtube.com/watch?v=0wLljngvrpw.
11
E.g., Ali-A, Let’s Go Team! Ghosts Live w/ Ali-A #1 - (Call of Duty Ghost Multiplayer Gameplay), YOUTUBE
(Nov. 6, 2013), https://www.youtube.com/watch?v=NvfXg4dPuq4; TotalBiscuit, TotalBiscuit and The Yogscast
"play" Magicka - Part 1 - You're a Wizard Simon, YOUTUBE (Feb. 18, 2011),
https://www.youtube.com/watch?v=wZHhwUK8aj8.
12
See generally Alex Halperin, The Big Haul: Teenage YouTube Superstar Bethany Mota Has More Fans than
Vogue and a Fashion Line of Her Own, BUSINESSINSIDER (Jan. 18, 2014, 8:49 AM),
http://www.businessinsider.com/haul-teenage-youtube-shopping-star-bethany-mota-2014-1#ixzz3SX9s32oOSee
(“While licensing arrangements vary in structure, Aviva Rosenthal, a partner at Los Angeles-based Act III Licensing
said one common approach would include an advance and a guaranteed payout, with the licensee collecting 10% on
the goods’ wholesale value or about 6% of retail.”).
13
Michellephan, Clubbing Makeup Tutorial, YOUTUBE (Mar. 25, 2010),
https://www.youtube.com/watch?v=Bu836l-AlAo.
8
Lancôme collection, with a direct link to Lancôme’s website provided in the description box to the
video (see Appendix One for the Lancôme—Phan series).
14
In the genre of comedy, popular comedy channel TheFineBros has partnered with cat food
brand Friskies in creating a series of comical videos featuring kittens and Friskies products. In a
video that has garnered over nine million views and counting, TheFineBros captured cats’
reactions to a laptop screen playing footages of online viral cat videos (see Appendix Two).
15
Towards the end of the video, the cat dashes off towards a plate of Friskies brand cat food and
devours the food. The description box to the video contains a link to Friskies’ YouTube channel
and other cat videos created for the series.
YouTube chef Byron Talbott, recently partnered up with natural sweetener brand Truvia
16
to market the stevia-based sugar substitute (see Appendix Three). In a video featuring his recipe
of brown butter cookies, Talbott endorses Truvia by using Truvia’s brown sugar blend as the main
ingredient in making the cookies.
17
Game producers Electronic Arts (EA) and Ubisoft have invited YouTubers to create videos
on a commission basis, whereby a YouTuber is paid a sum for every thousand views on the video.
18
It is often the case sponsored YouTube gaming videos lack a disclaimer that the video is sponsored,
calling into question the legality of such practices (discussed in Legal Implications Part V infra).
19
14
Michellephan, Perfect Red Lips, YOUTUBE (Feb. 24, 2011), https://www.youtube.com/watch?v=jd_Qgcue3lU
15
TheFineBros, Cats React to Viral Videos, YOUTUBE (Apr. 1, 2014),
https://www.youtube.com/watch?v=VSpFRcTeUQ4.
16
Owned by Cargill, Inc.
17
ByronTalbott, Brown Butter Cookies, YOUTUBE (Sept. 16, 2014),
https://www.youtube.com/watch?v=qpdNgqOhvMM.
18
Greg Finn, Are Sponsored YouTubers with Undisclosed Deals Breaking the Law?, EUROGAMER (July 17, 2014),
http://marketingland.com/sponsored-youtubers-undisclosed-deals-breaking-law-91581.
19
Simon Parkin, Blurred lines: Are YouTubers breaking the law?, EUROGEAMER (July 16, 2014), at
http://www.eurogamer.net/articles/2014-07-16-blurred-lines-are-youtubers-breaking-the-law (“Bain—better known
to his 1.7 million YouTube channel subscribers as TotalBiscuit—has been offered, from posting a product link in a
video’s description through to elaborate campaigns. Bain was asked not to disclose the nature of the proposed
sponsored content to his viewers. He refused the deal. . . . Bain believes that the majority of YouTubers and
9
B. Examples of YouTube Videos with Affiliated Links
YouTube videos with affiliated links differ from the explicitly sponsored videos in that the
YouTuber need not have partnered with the sponsor for the purpose of creating a specific video.
20
Instead, the YouTuber is part of a company’s affiliate program,
21
where purchases made through
a specific URL or coupon code is attributed to the YouTuber, and the YouTuber is compensated
with a commission on the sale. In a Holiday Gift Guide video, YouTuber Jen Chae recommends a
makeup set by Too Faced Cosmetics as a Christmas gift. In the description box to the video, Chae
lists the products mentioned in the video and provides links to those products (see Appendix Four).
The link redirects through Reward Style (a marketing company providing monetization tools for
publishers) then to Affiliate Traction (the marketing agency that handles Too Faced Cosmetics’
affiliate program), and finally arriving at Too Faced Cosmetics’ webpage where the viewer can
purchase the recommended makeup set.
22
Another way a sale can be linked to the YouTuber under
an affiliate program would be the use of a coupon code. For instance, in the same Holiday Gift
channels current fail to disclose to their viewers when the game’s publisher directly pays for content.”) (last visited
Nov. 11, 2015).
20
There are also frequently “hybrid” videos where the video is both sponsored and contains affiliated links in the
description box. E.g., Evelina Barry, How To Find A Fashion Sense, YOUTUBE (Apr. 27, 2014),
https://www.youtube.com/watch?v=RQ-r60b2xy0 (last visited Nov. 11, 2015) (featuring Warby Parker sunglasses
in video and provides an affiliated link in the description box to the merchant’s website); BubzBeauty, Cosy Winter
Makeup, YOUTUBE (Dec. 5, 2014), https://www.youtube.com/watch?v=Dhxd75CbsTg (creating a sponsored video
featuring products from BH Cosmetics and provides an affiliated link in description box as well) (last visited Nov.
11, 2015).
21
E.g., Too Faced Affiliate Program, TOO FACED COSMETICS LLC, https://toofaced.affiliatetechnology.com,
https://toofaced.affiliatetechnology.com (last visited Feb. 8, 2015) (The cosmetics company affiliate program’s
webpage); BH Cosmetics Affiliate Program, BH COSMETICS INC., http://www.bhcosmetics.com/affiliate/sign-up
(last visited Feb. 6, 2015).
22
FrmHeadtoToe, Holiday GIFT GUIDE, for girls & guys!, YOUTUBE (Dec. 11, 2014),
https://www.youtube.com/watch?v=nFB6hV9FKLU (providing a link in the description box to the “Too Faced La
Belle Carousel, ” at http://bit.ly/1zyj62n which takes the user to a restyle link, at http://rstyle.me/n/qiiunf6ye, then,
redirects the user through an affiliate technology link at,
https://toofaced.affiliatetechnology.com/redirect.php?nt_id=2&url=https%3A%2F%2Fwww.toofaced.com%2Fp%2
Fsets%2Fla-belle-carousel%2F%3FsiteID%3DQFGLnEolOWg-
Dj0q8kwNNetOE6nio679dg%26ls_affid%3DQFGLnEolOWg&Medium=Affiliate; arriving at the final webpage on
Too Faced Cosmetics, at https://www.toofaced.com/c/sets/).
10
Guide video earlier, YouTuber Jen Chae provides a coupon code to receive a 10% discount on a
cosmetics website that is traceable to the buyer.
23
C. Examples of Free Product Sampling
Companies often send free products to YouTubers to increase brand exposure. Established
YouTube beauty channels can expect to receive free products from companies from time to time
in hopes of encouraging the YouTuber to feature such products in a video. Recently acquired by
the global cosmetics giant L’Oreal,
24
Urban Decay is a cosmetics brand that is very active in
YouTube marketing and often provide YouTubers free products to try out and review. YouTube
beauty gurus Sona Gasparian and Wayne Goss, just to name a few, are on the receiving end of
Urban Decay’s latest products (see Appendix Five). In a review video created by Gasparian, the
beauty guru shares with her viewers that she has received a set of Urban Decay Revolution Lipstick
from the company and proceeds to do a review of these lipsticks, providing an up close view of
swatches on all shades.
25
YouTube makeup artist Goss similarly shared in a video Gift Ideas—
Urban Decay the Vault! that he has received the product set from Urban Decay, then, proceeded
to show the items in the set and recommend the set as a great gift idea.
26
Product sampling is also
prevalent outside of the beauty and fashion industry. YouTube comedian Anna Akana received a
23
Id. (“COUPON CODES: Pretty and Cute, at http://www.prettyandcute.com, provides users the code
FRMHEADTOTOE, receive 5% off entire purchase.”) (last visited at Nov. 11, 2015).
24
Scheherazade Daneshkhu, L’Oréal buys Urban Decay cosmetics brand, THE FINANCIAL TIMES (Nov. 26, 2012,
10:43 AM), at http://www.ft.com/intl/cms/s/0/5427f052-37b2-11e2-8edf-00144feabdc0.html#axzz3rFv52YOr (last
visited at Nov. 11, 2015).
25
Sona Gasparian, Review/Haul: Urban Decay 2013 Holiday Collection, YOUTUBE (Sept. 9, 2013),
https://www.youtube.com/watch?v=tR1Wqh4nl_s (last visited Nov. 11, 2015).
26
Gossmakeupchat, Gift Ideas—Urban Decay the Vault, YOUTUBE (Oct. 25, 2014),
https://www.youtube.com/watch?v=UqJXsmhUdEk (last visited Nov. 11, 2015).
11
free trip sponsored by Contiki, a travel and trip planning company, with the YouTuber promoting
exposure to the company by mentioning Contiki in the video and in the description box.
27
III. STAKEHOLDER ANALYSIS: BALANCING FOUR INTERESTS AT PLAY—
CONTENT CREATOR, VIEWERS, YOUTUBE, AND COMPANIES
In the context of YouTube marketing, there are four prominent stakeholders at play: the
YouTube content creator (“YouTuber”), the consumer/viewer, YouTube, and companies seeking
to promote their products. This part of the paper analyzes how the practice of YouTube sponsorship
marketing impacts each of these stakeholders.
A. YouTube Content Creator: Juggling Financial Interests and Viewers’ Trust
At the onset of YouTube, most videos were created without a financial motive and a desire
to share moments in life with friends and family. Though different from traditional career paths,
the surge of YouTube’s revenue-sharing Partner Program
28
paved way for a new form of career.
YouTube content creators could now make videos for a living on a full-time basis. According to
the YouTube press site, there are over a million content creators in over a dozen countries earning
money from videos under the YouTube Partner Program.
29
Of these million YouTube Partners,
27
Anna Akana, How to Have a Healthy Relationship, YOUTUBE (Dec. 22, 2014),
https://www.youtube.com/watch?v=VUIbRehCVks. See also AndreasChoice, What's In My Big Bag??!, YOUTUBE
(Apr. 6, 2012), https://www.youtube.com/watch?v=r4HWobdyexw (traveling to Italy through travel planning
company Contiki while providing a link to Contiki’s website in the description box) (last visited Nov. 11, 2015).
28
The YouTube Partner Program allows creators to monetize content on YouTube through a variety of ways
including advertisements, paid subscriptions, and merchandise. YouTube content creators are referred to as
“YouTube Partners” by YouTube. What is the YouTube Partner Program?, GOOGLE,
https://support.google.com/youtube/answer/72851?hl=en (last visited Feb. 18, 2015).
29
Statistics, YOUTUBE, https://www.youtube.com/yt/press/statistics.html (last visited Feb. 17, 2015).
12
thousands are making six-figures per year.
30
Top grossing YouTube Partners report income in the
low millions annually.
31
As some YouTube channels gained popularity, advertisers found ways into the videos
through endorsements and sponsorships. Companies began to build relationships with YouTubers
to promote and market their brands. Specific terms to these agreements are often cloaked in secrecy.
There is very little open discussion of sponsorship details, possibly due to confidentiality
constraints in the agreement.
32
As mentioned, YouTubers could receive free products from companies (in hopes of a
positive review for said product) or be contacted for sponsorship opportunities (being paid for
featuring the product in a video). In certain cases, it is possible that YouTubers do not get paid
unless the viewer uses the coupon code linked by the YouTuber (affiliated marketing). This creates
the possibility that companies posit an “exploitive” relationship with YouTubers, where
YouTubers get paid close to nothing for their work, excluding free products sent to them.
Companies reaping the benefits from inexpensive and effective marketing and YouTubers not
30
Id.
31
Devan Joseph, Here's How 2 Dudes Make More Than $4 Million A Year On YouTube, BUSINESS INSIDER (Dec.
29, 2014, 12:03 PM), http://www.businessinsider.com/youtube-smosh-video-millions-2014-12 (reporting the
famous YouTube comedy channel Smosh earns $4 million yearly from creating YouTube videos); Erik Sherman,
How Web Stars Make Money—Lots of It, CBS NEWS (June 10, 2014, 12:43 PM),
http://www.cbsnews.com/news/how-web-stars-make-money-lots-of-it/ (providing ranges of income YouTube stars
make from $825,000 to $8.5 million yearly from YouTube) (last visited Nov.11, 2015).
32
Halperin, supra note 12 (“[YouTube personality Bethany Mota] and Aéropostale declined to comment on the
terms of their deal. While licensing arrangements vary in structure, Aviva Rosenthal, a partner at Los Angeles-based
Act III Licensing said one common approach would include an advance and a guaranteed payout, with the licensee
collecting 10% on the goods’ wholesale value or about 6% of retail.”); Teresa Novellino, YouTube makeup star
pencils in investment from L'Oreal, UPSTART BUSINESS JOURNAL (Aug. 16, 2013, 12: 29PM),
http://upstart.bizjournals.com/entrepreneurs/hot-shots/2013/08/16/youtube-makeup-star-launches-own-
line.html?page=all (“Terms of the arrangement were not clear, but it's a clear coup for Phan and a bold and
experimental move for L'Oreal . . . .”).
13
being compensated accordingly create an issue of fairness and balance of power.
33
The companies
triumph over the scheme as the ultimate winner.
34
There is arguably more value created for consumers from this form of marketing than
traditional commercials, e.g. better entertainment value from watching one’s favorite YouTube
personality or “educational” value from a tutorial or review of products. But, the value-added to
consumers becomes less apparent if YouTubers compromise their honest opinion in hopes of
maintaining financial relationships with advertisers and sponsors. For YouTube videos to maintain
the integrity as the go-to source for honest opinions, YouTubers need to constantly balance their
financial interests with sponsors as well as uphold their obligation to viewers in being truthful and
not feel obliged to provide positive reviews for sponsored products.
35
B. Consumer/Viewers: the Appeal of YouTube
There are various motives and reasons compelling a viewer to watch a video on YouTube.
Some viewers visit YouTube for entertainment purposes while others resort to tutorials on
YouTube to learn how to do something. It is also very frequently the case a viewer searches for a
product review on YouTube before purchasing a product.
36
While the average consumer could
prefer YouTube marketing over traditional advertisements (whether in terms of having more
33
Ari Laurel, Subversive Marketing at the YouTube Beauty Counter, BE YOUNG & SHUT UP (Mar. 6, 2014),
http://beyoungandshutup.wordpress.com/2014/03/06/subversive-marketing-at-the-youtube-beauty-counter/
(“YouTube creators are often paid in free stuff, which seems awesome if making videos is your hobby, but it’s a
cheap way for a company to make more money off you.”).
34
See infra Part IV.
35
See infra Section VI.A (proposing clear and conspicuous disclosure on a voluntary basis by the YouTuber can
help strengthen trust from subscribers).
36
Lexigenge, YouTubers: the New Form of Advertisement, LOYOLA DIGITAL ADVERTISING (Sept. 25, 2014),
http://loyoladigitaladvertising.wordpress.com/2014/09/25/youtubers-the-new-form-of-advertisement/ (“I personally
always go to YouTube first when I am looking to buy a new product whether it be makeup, skincare, etc.”); Zach
James, Forget Amazon. YouTube Is Where Shoppers Do Research More and more consumers using video to
research products, ADWEEK (Aug. 28, 2013), http://www.adweek.com/videowatch/forget-amazon-youtube-where-
shoppers-do-research-152068 (“More and more, users are flocking to YouTube over Amazon for all of their pre- and
post-purchase discussions.”).
14
entertainment value or educational value), viewers have an indisputable right to know if they are
being marketed to. Over the past few years, YouTube viewers are becoming more aware of the
presence of sponsorship looming in YouTube videos, and some point out their suspicion of a video
being sponsored in the comments section. Viewers engage in discussions with other fellow viewers
regarding whether a video is sponsored: some express displeasure with the seemingly
“commercialization” of what used to be homemade content while others express complacency
acknowledging this phenomenon as the way it is.
37
YouTube sponsored videos differ from traditional above-the-line commercials where the
spokesperson in the advertisements appears more distant than the YouTuber who is just an
“average Joe” or “plain Jane” next door. The average consumer may find YouTube celebrities
more relatable and genuine, giving YouTube videos a modest and down-to-earth sentiment, which
is a very valuable marketing asset. Viewers of a YouTube channel have a relationship with their
favorite YouTube personality, possibly interacting with the YouTuber via the comment section
and more. Here, the elements of trust and friendliness at play arguably puts consumer/viewers in
a more vulnerable position. If a YouTuber gives his or her stamp of approval on a certain product,
viewers can be very trusting of that opinion, much like the effect from social media marketing
(word-of-mouth recommendations from friends and family). The element of trust is evidenced in
37
Moe Moee, Comment to November Favs 2014, BubzBeauty, YOUTUBE (Dec. 8, 2014),
https://www.youtube.com/watch?v=Ypg1Fn3L4Q0 (“Is this video sponsored? It seems like it is.”); Yuki Vin,
Comment to November Favs 2014, BubzBeauty, YOUTUBE (Dec. 8, 2014) (“[F]or your information, Bubz is very
popular & a lot of companies send her their products to try. But Bubz only show here that she really likes.”);
Katchya8, Comment to November Favs 2014, BubzBeauty, YOUTUBE (Dec. 8, 2014) (“Why are subscribers acting
so butt-hurt over the sponsoring of videos lately. She blatantly tells you which things she didn’t purchase herself.”);
Doingitforjohnny, Who are some YouTube beauty gurus who you loved but now think aren't so great?, REDDIT (May
26, 2014),
http://www.reddit.com/r/MakeupAddiction/comments/26jdix/who_are_some_youtube_beauty_gurus_who_you_lov
ed/ (“I’m pretty sure [Michelle Phan would] be number one on this list. I used to really like her, and then it got to
commercial and gimmick-y.”).
15
the comment sections of videos where consumers frequently state they have purchased a product
based on the YouTuber’s recommendation.
38
The comments section also provides a convenient
forum where users can interact with each other or with the YouTuber regarding specific products,
such as getting answers on product-related questions.
39
C. YouTube: Juggling Financial Interest in Advertising Revenue and Relationship with
Content Creators
Advertising revenue is the bread and butter for YouTube, and the key to attracting
advertisers is having good content that appeals to viewers. Content creators are therefore the
singular most important contributor to YouTube’s business model, supported by the fact that out
of YouTube’s $3.5 billion in revenue in 2013, YouTube paid out $2 billion to YouTube Partners,
leaving the content host YouTube with a net profit of $1.5 billion.
40
While it is difficult to conceive
that YouTube would be jubilant about sponsorship marketing that occurs between the companies
and YouTubers (recall that companies are bypassing YouTube to work directly with YouTubers),
38
E.g., Jessee Blair-French, Comment to November Favs 2014, BubzBeauty, YOUTUBE (Dec. 8, 2014),
https://www.youtube.com/watch?v=Ypg1Fn3L4Q0 (“Waiting for the [recommended] cleansing oil to come in travel
size so I can try it. As always, great favorites, bubz! We can always trust your recommendations!”); Mari Karot,
Comment to November Favs 2014, BubzBeauty, YOUTUBE (Dec. 8, 2014),
https://www.youtube.com/watch?v=Ypg1Fn3L4Q0 (“Hi Bubz! I just ordered the Too-Faced Everything Nice
Palette. It’s the first time I’m buying one.”); Mandy Mackintosh, Comment to The TRUTH about Sponsored Videos,
Affiliate Links and Being a Beauty Guru, JenLuv’s, YOUTUBE (June 21, 2014),
https://www.youtube.com/watch?v=xvVRHVg0HDw (“I’ll be honest, since I started watching YouTube beauty
videos, I’ve bought quite a few products based on what people say and think.”); Alice Bolin, My Imaginary Friends:
The Beauty YouTuber Economy, THE HAIRPIN (June 25, 2015), http://thehairpin.com/2014/06/my-imaginary-
friends-the-beauty-youtuber-economy (“This is why I am endlessly and insidiously more motivated to buy BB
creams and gel eyeliners that vloggers recommend than ones magazines do. Despite how calculated beauty
YouTubers likeability is, I can’t help it—I like them.”) (last visited Nov. 10, 2015).
39
E.g., XxcrazypuppyxX, Comment to MAY BEAUTY FAVES Part 1 (Korean Makeup: BB Cushions, Powders,
Skincare), MeejMuse, YOUTUBE (May 30, 2014), https://www.youtube.com/watch?v=ia3wd6E2cYc (Can I still use
a BB Cushion if I have enlarged pores? The pores on my nose and parts of my cheeks are really enlarged so
whenever I try using BB Cream it shows straight away…I have dry sensitive skin as well so which BB Cushion
would be more suitable for me?”); Lisa Cole, Comment to November Favourites | Zoella, Zoella, YOUTUBE (Dec.
10, 2013), https://www.youtube.com/watch?v=Ekw8L7rRNQ8 (“What's the shade of [the] Rimmel concealer?”).
40
Jay Yarow, YouTube's Revenue Revealed, And It's Much Worse Than Expected, BUSINESS INSIDER (July 7, 2014),
http://www.businessinsider.com/youtubes-2013-revenue-2014-7 (Google does not release revenue information for
YouTube, numbers are based on estimates) (last visited Nov. 10, 2015).
16
YouTube does not prohibit this type of marketing relationship.
41
It is not entirely clear what
YouTube’s position is in terms of sponsorship activities, but YouTube seems to cherish its
relationship with its partner content creators, as they are the livelihood that brings in advertisement
revenue for YouTube.
Though somewhat in a conflicting position, as YouTube loses out on potential
advertisement revenue as companies bypass YouTube for ads, YouTube allows for this
sidestepping as long as it does not compete with YouTube’s own advertisements (in the form of
inStream advertisements that play pre-roll, mid-roll, or end-roll). This is evidenced under
YouTube’s product placement policy that forbids YouTube content creators from including
sponsored messages where YouTube offers a comparable ad format.
42
YouTube seems to have
reconciled the legitimacy of paid product placement because those do not compete directly with
YouTube’s own advertisements in format (sponsored YouTubers often present paid product
placement as some form of advertorial, whereas YouTube’s pre-roll burns resemble traditional
commercials).
D. Companies: Still a Far Way from Fully Capitalizing YouTube Marketing
It is projected that advertising will continue to move toward mobile advertising and digital
media as print media declines.
43
Social networking company LinkedIn predicts that native
advertisement will continue to trend and that 2015 will be “all about native advertising”.
44
With
the advent of digital media and diversification of cable channels, advertisers face increasing
41
See infra Section V.B.
42
Paid Product Placement, YOUTUBE, https://support.google.com/youtube/answer/154235?hl=en (last visited Dec.
19, 2014).
43
Sarah Turk, IBISWORLD INDUSTRY REPORT: ADVERTISING AGENCIES IN THE US, at 9 (IBISWorld 2014) (on file
with author).
44
Sallie Krawcheck, The Big Idea 2015: Inclusive Capitalism = A More Prosperous Capitalism, LINKEDIN (Dec.
16, 2014), https://www.linkedin.com/pulse/big-idea-2015-inclusive-more-sallie. See supra note 1 for definition of
native advertisement.
17
difficulty to market towards desired demographics as target audiences become more fragmented
(evidenced by the growth of number of cable channels as well as the availability of various digital
content).
45
With the hurdle of increasing target customer fragmentation, companies find
themselves needing to infiltrate a multitude of media channels.
According to Silicon Valley venture capitalist Mary Meeker, YouTube is “one of the most
used media assets in the world” and yet it remains “one of the most undermonetized media assets
in the world.”
46
A prominent marketing research firm estimates that YouTube has brought in $1.13
billion in advertising revenue in 2014, only a small fraction of the global TV advertising market
of $200 billion.
47
The New York Times observes this phenomenon, reporting that while viewers
may be migrating online from traditional television, the advertising dollars have yet to follow.
48
YouTube channels have captured Millennials (people born from the early 1980s through
the early 2000s) and the teen demographic, evidenced by a research showing that these groups
prefer YouTube personalities over Hollywood celebrities
49
as well as YouTube’s viewer
demographics (56% of viewers are between ages 18-44).
50
Some point out that big companies and
advertisers may be neglecting “millions of millennial wallets”.
51
45
Id.
46
Jonathan Mahler, YouTube’s Chief, Hitting a New ‘Play’ Button, N.Y. TIMES (Dec. 20, 2014),
http://www.nytimes.com/2014/12/21/business/youtubes-chief-hitting-a-new-play-button.html?_r=0.
47
Id. (“The marketing research company eMarketer estimates that YouTube will log about $1.13 billion in ad
revenue in 2014, a small fraction of the $200 billion global TV advertising market. CBS, for instance, brought in
nearly $9 billion last year.”).
48
Id.
49
Susan Ault, Survey: YouTube Stars More Popular Than Mainstream Celebs Among U.S. Teens, VARIETY (Aug. 5,
2014), http://variety.com/2014/digital/news/survey-youtube-stars-more-popular-than-mainstream-celebs-among-u-s-
teens-1201275245/.
50
MICHAEL MILLER, YOUTUBE FOR BUSINESS: ONLINE VIDEO MARKETING FOR ANY BUSINESS 8 (2d ed. 2011). The
distribution of YouTube viewers’ age groups: ages 2-18 (23%), ages 18-34 (37%), ages 35-44 (19%), ages 45-54
(13%), and ages 55+ (8%).
51
Stephanie Chan, Teens Love YouTube Superstars, But Advertisers Aren't Biting—Yet, READWRITE (Aug. 7, 2014),
http://readwrite.com/2014/08/07/youtube-advertisers-marketing-campaign.
18
Marketing expenditures in large companies support the notion that companies may not be
fully optimizing their advertising budgets. Cosmetics giant L’Oreal S.A. reportedly spent $1.57
billion in advertising expenditure in 2013 in the U.S., with major categories of spending being
magazines (54.8%), cable TV (13.4%), network TV (12.9%) with only about 1.4% in internet
display and 0.8% in internet search advertisements.
52
Advertisement schemes like product samples,
social media, and special marketing events are not even measured in the company’s advertising
expenditure. These advertisement figures demonstrate ample room for growth and development in
digital advertising including YouTube sponsorships.
Companies began to realize the potential in this avenue of marketing as some of these
YouTube channels garnered subscriptions in the millions and counting. Engaging in marketing
through YouTube channels allows companies to select the desired target segments based on the
YouTuber’s particular audience. For example, if a cosmetics company wishes to target a segment
consisting of image-conscious females between the ages of eighteen and thirty in North America,
the company could collaborate with a YouTuber whose viewership consists of such demographic.
Because of this possibility to target desired segments with heightened precision, YouTube
marketing can be much more effective than traditional above-the-line marketing (see Part IV infra
in calculating the return on investment for YouTube marketing).
IV. EFFECTIVENESS OF YOUTUBE MARKETING
To briefly reiterate the three forms of YouTube marketing addressed in this paper: (1) a
video can be explicitly sponsored where the YouTuber is compensated for making the video, (2)
a video can contain affiliated links where purchases made through the link will help the YouTuber
earn a commission on sale, or (3) the YouTuber can receive free products from companies with or
52
REDBOOKS, L’OREAL S.A. ANNUAL MEASURED U.S. MEDIA SPEND (2014) (on file with author).
19
without guidelines from the company for potential review. This Part of the paper analyzes the
effectiveness of YouTube marketing practices, focusing on the last maneuver of free product
sampling.
Costs for digital advertisement are usually expressed as cost per impression (“CPM”) or
cost per click, where the first denotes the advertising costs for each time the ad is shown and the
latter denotes the cost for every time an actual “click” on the ad occurs.
53
Common Key
Performance Indicators (“KPIs”), for measuring effectiveness of digital marketing, are click-
through rate (defined as the ratio of times advertisement shown to times people actually clicking
the ad)
54
and conversion rate (defined as the percentage who perform the desired action of making
a purchase after clicking on the ad link).
55
For video advertising, instead of using click-through
rate as a measure of effectiveness, a “view-through” rate is used, counting the number of times a
video was viewed completely.
56
Sales resulting from advertisement are easier to track for digital and social media marketing
than traditional marketing such as TV or radio commercials. In the case of affiliated marketing for
instance, sales attributable to the marketing investment can be tracked via the link provided in the
YouTube video’s description box or the use of a coupon code.
As is the case for every marketing campaign, it is important for companies to track the
efficiency and return from those campaigns. Similarly, companies engaging in YouTube marketing
53
Cost Per Impression, INVESTOPEDIA, http://www.investopedia.com/terms/c/cpm.asp (last visited Dec. 18, 2014).
Cost Per Click, INVESTOPEDIA, http://www.investopedia.com/terms/c/cpc.asp (last visited Dec. 18, 2014).
54
Click Through Rate (CTR), GOOGLE, ADWORDS, https://support.google.com/adwords/answer/2615875?hl=en
(“A ratio showing how often people who see your ad end up clicking it.”) (last visited Dec. 18, 2014).
55
Conversion Rate Definition, MARKETINGTERMS.COM,
http://www.marketingterms.com/dictionary/conversion_rate/ (last visited Feb. 18, 2015).
56
Video ad metrics, GOOGLE, DOUBLE CLICK, GOOGLE,
https://support.google.com/dfp_premium/answer/1217514?hl=en (last visited Dec. 19, 2014). It is also possible to
track the number of views at “quartiles”, e.g., number of times video played to 25%, 50%, 75%, and 100% of its
length.
20
can easily incorporate metrics such as marketing return on investment (“ROI”) to measure the
effectiveness of YouTube marketing. A marketing ROI can be encapsulated in an equation as such:
Marketing ROI =
(Gross Profit – Marketing Investment)
Marketing Investment
To rearrange the equation another way, the effectiveness of a marketing campaign can be measured
by the incremental revenue from the marketing campaign divided by the cost.
57
Marketing Revenue to Cost Ratio=
Incremental Revenue
Cost
In order to arrive at the incremental revenue resulting from a digital marketing campaign, the
company would need to know the conversion rate, defined as the percentage of site visitors
becoming a paying customer.
58
Conversion rates can be measured without much difficulty in the
context of YouTube videos: the sponsoring company can track the number of visitors coming from
the link provided in the YouTube description box, and the number of subsequent converts (viewers
who click on the link and subsequently purchase the merchandise).
A. A Hypothetical Scenario Analysis in Calculating Marketing Effectiveness—Free
Product Sampling
The following scenario analysis takes on a hypothetical situation to demonstrate the
computation of marketing ROI: a YouTuber specializing in the beauty category is sent a set of
lipsticks from the cosmetics brand Urban Decay, containing the brand’s latest collection of
lipsticks including 22 shades. Each lipstick retails for $22 on the Urban Decay website, the set of
lipsticks retails for $484 ($22 x 22 lipsticks). The scenario assumes that the YouTube beauty guru
57
Victor Ho, One Simple Metric You Need to Determine Marketing ROI, INC.COM (Apr. 25, 2013),
http://www.inc.com/victor-ho/one-simple-metric-you-need-to-determine-marketing-roi.html.
58
See Supra note 55.
21
is requested by Urban Decay to film a review of the lipsticks, without specific guidelines as to the
content of the review. The YouTuber is asked to provide a link to Urban Decay’s website selling
the lipstick, with redirect technology that can track clicks and resulting purchases.
59
For the purposes of this calculation, five inputs are needed: (1) number of total viewers on
a video, (2) percentage of total viewers who clicked on the link to Urban Decay’s website in the
description box, (3) the percentage of viewers who ultimately made a purchase out of those who
clicked the link (conversion rate), (4) the profit margin of products sold, and (5) the cost of
marketing, which in this case would be the cost of the lipstick set sent out to the beauty guru for
free.
For input (1), the calculations include three scenarios with 6 million, 1 million, and 300,000
views on a particular video. These numbers are entirely within reasonable assumption because, as
documented in Part II supra, Michelle Phan’s Lancôme-sponsored video that boasts over six
million views is just one of many videos with such a viewership figure.
60
Input (2) is not a publicly
known figure as YouTubers tend to shy away from disclosing such figures openly (YouTube
content creators have access to analytics data as to how many clicks on a link in the description
box occurred
61
). The calculations here therefore assume five different scenarios using 1%, 2%, 3%,
4%, and 5% of viewers clicking on the sponsored link provided in the description box. For input
59
Supra notes 21–23.
60
E.g., BethanyMota, Morning Routine: Fall Edition, YOUTUBE (Sept. 8, 2013),
https://www.youtube.com/watch?v=koMbIaJ8Tmo (18 million views as of Feb. 2015); CutiePieMarzia, My Shoe
Collection!, YOUTUBE (July 7, 2012), https://www.youtube.com/watch?v=J1hv-D64NxU (1.7 million views as of
Feb. 2015); ItsJudyTime, Selena Gomez Love You Like A Love Song Official Music Video inspired Hair & Makeup
Tutorial, YOUTUBE (July 4, 2011), https://www.youtube.com/watch?v=Y3z2sCWvx0c (18 million views as of Feb.
2015); KandeeJohnson, Glitterati Lip Tattoo & Lip Word Tattoo | Kandee Johnson, YOUTUBE (Dec. 3, 2011),
https://www.youtube.com/watch?v=S4cBipeLMiw (18 million views as of Feb. 2015); AndreasChoice, Easy DIY
Halloween Costumes Ideas! | AndreasChoice, YOUTUBE (Oct. 14, 2013),
https://www.youtube.com/watch?v=gl6jrDtnU6M (3.4 million views as of Feb. 2015).
61
YouTube Analytics, YOUTUBE, https://www.youtube.com/yt/playbook/yt-analytics.html (last visited Jan. 5, 2015).
22
(3), known as the conversion rate, the calculations herein borrows the figure from a research study
on conversion rates for Google AdWords across different industries.
62
According to the research,
the average conversion rate on Google AdWords for the beauty and fitness industry is 4.56%,
meaning out of every hundred clicks on an ad, approximately 4.56 clicks resulted in purchases.
63
For input (4), the calculations assume a 50% markup for cosmetics retailer (which is on the
conservative side according to various sources), so that each converted customer purchases one
Urban Decay lipstick at a profit of $11 ($22 x 50% profit margin).
64
Input (5) is the cost of
advertisement, which is the cost of lipstick, equaling the assumed 50% markup in input (4)
multiplied by the retail price of each lipstick ($22 x 50%=$11, $11 x 22 lipstick in a set=$242).
See spreadsheet below with the corresponding numbered inputs described in this paragraph.
To calculate the marketing ROI, the incremental revenue from the video is divided by the
cost of the campaign. Applying the five inputs, the marketing ROI in the example is the product
of inputs (1), (2), (3), and (4) divided by input (5).
Marketing Revenue to Cost Ratio=
Incremental Revenue (Input1*Input2*Input3*Input4)
Cost (Input5)
=
Input1(number of views) x Input2 (% clicked on link) x
Input3 (conversion rate) x Input4 (profit margin)
Input5 (cost of product)
62
Google AdWords, GOOGLE, www.adwords.google.com (last visited Jan. 5, 2015). Google AdWords is an online
ad placement service offered by Google to place ads above, below, or on the side of Google search results.
63
Larry Kim, What’s a Good Conversion Rate on Google AdWords? Average Conversion Rates by Industry,
BUSINESS 2 COMMUNITY (Nov. 4, 2012), http://www.business2community.com/online-marketing/whats-a-good-
conversion-rate-on-google-adwords-average-conversion-rates-by-industry-0318438.
64
See Kentin Waits, Cheat Sheet: Retail Markup on Common Items, WISEBREAD (Dec. 9, 2011),
http://www.wisebread.com/cheat-sheet-retail-markup-on-common-items (Citing to Euromonitor that the average
markup for cosmetics is 78%); Tamara Monosoff, Demystifying Profit Margins and Markups, ENTREPRENEUR (Nov.
27, 2006), http://www.entrepreneur.com/article/170964 (“It’s not uncommon for a retailer to expect a minimum
gross margin of 50 percent. This is often referred to as a ‘keystone’ markup.”).
23
Exhibit A. Scenario analysis yielding high marketing ROIs
As shown in the calculations,
65
even with the most conservative assumption of 1% for input
(2) (that a mere 1% of viewers proceed to click on the link provided by the YouTuber), sponsoring
companies still enjoy marketing ROIs as high as 124, 21, and 6 for each of the assumed 6 million,
1 million, and 300,000 viewers on a video. These marketing ROI figures are unprecedented and
represent a supremely lucrative choice for marketers. These figures are comparable to effective
email marketing, reportedly having a marketing ROI of about 4300% (or 43 times) because email
marketing is virtually costless to execute.
66
However, YouTube and email marketing are not
substitutes, and businesses should consider implementing both campaigns where applicable.
65
Note that the calculation herein will be on the conservative side because the equation merely captures the sales
directly resulting from the advertisement; the equation does not account for subsequent repeat business by the same
customer (e.g., a customer purchased product X from brand Y by clicking on the YouTube sponsored link, but
returns to purchase product Z from the same brand after a positive experience from product X). The conversion rate
in the calculations only pick up on those who purchase through the link provided in the YouTube description box. It
is possible for some viewers to visit the website directly without going through the link provided, and thus not
captured by the statistics.
66
Brian Clark, Email Marketing: How to Push Send and Grow Your Business, COPYBLOGGER,
http://www.copyblogger.com/email-marketing/ (citing Direct Marketing Association that the marketing ROI for
email campaigns) (last visited Feb. 18, 2015).
(1) Video Views
(2) % Click on
Link
(3) % Make Purchase
(converstion rate)
# of Transaction
(1)*(2)*(3)
(4) Profit Margin
($22*50%)
Total Incremental
Profit
(1)*(2)*(3)*(4)
(5) Cost of
Advertising (cost of
product at $11*22)
Marketing ROI
[(1)*(2)*(3)*(4)]/
(5)
6,000,000 5% 4.56% 13,680 11.00 150,480 242 622
6,000,000 4% 4.56% 10,944 11.00 120,384 242 497
6,000,000 3% 4.56% 8,208 11.00 90,288 242 373
6,000,000 2% 4.56% 5,472 11.00 60,192 242 249
6,000,000 1% 4.56% 2,736 11.00 30,096 242 124
(1) Video Views
(2) % Click on
Link
(3) % Make Purchase
(converstion rate)
# of Transaction
(1)*(2)*(3)
(4) Profit Margin
($22*50%)
Total Incremental
Profit
(1)*(2)*(3)*(4)
(5) Cost of
Advertising (cost of
product at $11)
Marketing ROI
[(1)*(2)*(3)*(4)]/
(5)
1,000,000 5% 4.56% 2,280 11.00 25,080 242 104
1,000,000 4% 4.56% 1,824 11.00 20,064 242 83
1,000,000 3% 4.56% 1,368 11.00 15,048 242 62
1,000,000 2% 4.56% 912 11.00 10,032 242 41
1,000,000 1% 4.56% 456 11.00 5,016 242 21
(1) Video Views
(2) % Click on
Link
(3) % Make Purchase
(converstion rate)
# of Transaction
(1)*(2)*(3)
(4) Profit Margin
($22*50%)
Total Incremental
Profit
(1)*(2)*(3)*(4)
(5) Cost of
Advertising (cost of
product at $11)
Marketing ROI
[(1)*(2)*(3)*(4)]/
(5)
300,000 5% 4.56% 684 11.00 7,524 242 31
300,000 4% 4.56% 547 11.00 6,019 242 25
300,000 3% 4.56% 410 11.00 4,514 242 19
300,000 2% 4.56% 274 11.00 3,010 242 12
300,000 1% 4.56% 137 11.00 1,505 242 6
24
YouTube marketing has qualities absent in email marketing, such as the ability to engage the
audience and not having a spam-like stigma, as in the case of email marketing.
67
V. LEGAL IMPLICATIONS IN YOUTUBE ENDORSEMENT MARKETING
A. Federal Trade Commission Guides (2009)
Given that YouTube itself is just about a decade old, native advertising on YouTube is also
relatively new and under development. The Federal Trade Commission (“FTC”) published Guides
Concerning the Use of Endorsement and Testimonials in Advertising (“Guide”) in 2009 in
response to the proliferation of marketing in new media, addressing the application of Section 5
of the Federal Trade Commission Act (15 U.S.C. § 45) to the use of endorsements and testimonials
in advertising.
68
Specifically, the Guide defines “endorsements” and imposes disclosure
requirements and legal responsibility on companies and content creators under the usual
advertising laws.
69
The Guide defines “endorsement” as “any advertising message… that
consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party
other than the sponsoring advertiser.”
70
While the FTC does not believe all consumer-generated
media that “discuss product attributes or consumer experiences should be deemed as
‘endorsements’,” the Guide provides for an objective facts and circumstances test to determine
whether a statement is an endorsement. The test calls for a consideration of whether the speaker is
compensated by the advertisers, whether the product or service was provided for free by the
advertisers, terms of any agreement, the length of the relationship between the advertiser and
67
See generally Julia Forneris, The Disadvantages of Email Marketing, HOUSTON CHRONICAL,
http://smallbusiness.chron.com/disadvantages-email-marketing-3472.html (last visited Feb. 18, 2015).
68
16 C.F.R. § 255 (2009).
69
F.T.C., .COM DISCLOSURES: HOW TO MAKE EFFECTIVE DISCLOSURES IN DIGITAL ADVERTISING (2013).
70
16 C.F.R. § 255.0 (b) (“including verbal statements, demonstrations, or depictions of the name, signature, likeness
or other identifying personal characteristics of an individual or the name or seal of an organization.”).
25
speaker, the previous receipt of products or services from the same or similar advertisers, the
likelihood of future receipt of any such products or services, the value of the items received, and
the degree of advertiser’s control over the statement.
71
The Guide also cautions that an advertiser’s
lack of control over specific statements would not automatically disqualify the statement from
being deemed an “endorsement” within the meaning of the Guide.
72
It should be duly noted that
the FTC Guides are merely an “administrative interpretation of laws administered by the
Commission,”
73
and therefore do not have the force of law.
74
The FTC may bring enforcement
actions, however, upon practices allegedly in violation of the FTC Act.
75
1. Application of the Guide’s Facts and Circumstances Test to YouTube: YouTube
Marketing Falls inside the Guide’s Parameter
According to the Guide, the threshold issue is whether the content creator’s statement
would qualify as an “endorsement” as defined by the Guide. If the statement falls under the scope
of the Guide, a disclosure will be required whereas if the statement falls outside of the Guide, no
disclosure need be made.
76
The first two categories of YouTube marketing addressed in this
paper—explicit sponsorship and affiliated links—are clearly under the scope of the Guide because
71
F.T.C., Guides Concerning the Use of Endorsements and Testimonials in Advertising, 74 Fed. Reg. 53124, 53126
(Oct. 15, 2009) (amending 16 C.F.R. § 255), available at
https://www.ftc.gov/sites/default/files/documents/federal_register_notices/guides-concerning-use-endorsements-
and-testimonials-advertising-16-cfr-part-255/091015guidesconcerningtestimonials.pdf.
72
Id.
73
F.T.C. Federal Register Rules and Regulations, 16 C.F.R. § 1.5 (2008).
74
F.T.C., Guides Concerning the Use of Endorsements and Testimonials in Advertising, 16 C.F.R. § 255.0 (“The
Guides provide the basis for voluntary compliance with the law by advertisers and endorsers”); F.T.C., .COM
DISCLOSURES: HOW TO MAKE EFFECTIVE DISCLOSURES IN DIGITAL ADVERTISING (March 2013).
75
See Division of Advertising Practices, F.T.C., https://www.ftc.gov/about-ftc/bureaus-offices/bureau-consumer-
protection/our-divisions/division-advertising-practices (last visited Nov. 21, 2015).
76
F.T.C., Guides Concerning the Use of Endorsements and Testimonials in Advertising, 74 Fed. Reg. 53124, 53126
(Oct. 15, 2009); Comment (“Does Receipt of a Product, Without Monetary Compensation, Constitute a Material
Connection That Must Be Disclosed? . . . The threshold question is whether the speaker’s statement qualifies as an
‘endorsement’ under the Guides. If not, no disclosure need be made.”).
26
the relationship would likely “materially affect the weight or credibility of the endorsements”,
77
but the last category where YouTubers receive free products, with or without guidelines for review,
may be less clear and would need to be determined on a case by case basis.
In the series of examples provided in the Guide, a specific example involving a blogger
receiving free merchandise speaks directly to the paper’s third category of free product sampling.
According to the FTC, if a blogger receives merchandise from a marketer with a request to review
it, with no compensation paid other than the value of the product itself, whether the situation would
be deemed an endorsement depends on the value of the product, whether the blogger routinely
receives such requests, and if the blogger received products from the company under the premise
that the blogger is known to have wide readership within a particular demographic group that is
the company’s target market, the blogger’s statements would likely be deemed “endorsements”.
78
Applying this example to YouTube, whether a YouTube video would be deemed an endorsement,
thus falling under the mandate of disclosure, would depend on whether the YouTuber maintains a
consistent relationship with such companies and what the motives are for the company in selecting
a particular YouTuber. Almost indisputably, companies reach out to specific YouTubers because
of the YouTuber’s specific target audience. For instance, cosmetics companies reach out to beauty
gurus on YouTube for the very purpose of reaching a desired target demographic and game
producers do the same with YouTube gaming channels. With this pretext, most of the YouTube
77
F.T.C., Disclosure of Material Connections, 16 C.F.R. § 255.5 (Jan. 1, 2012). Example 4 involves an ad featuring
a physician who speaks for an anti-snoring product and since consumers are unlikely to expect the physician to be
receiving a percentage of gross product sales and that these facts would likely materially affect the credibility that
consumers attach to the endorsement, the advertisement should clearly and conspicuously disclose the connection
between the company and the physician. Guides Concerning the Use of Endorsements and Testimonials in
Advertising, 74 Fed. Reg. at 53142 n.85 (“If the blogger is actually paid by the advertiser or a third party acting on
its behalf, disclosure certainly will be warranted.”).
78
F.T.C., Guides Concerning the Use of Endorsements and Testimonials in Advertising, 74 Fed. Reg. 53124, 53126
(Oct. 15, 2009).
27
videos in the third category would then fall under the deemed endorsement definition of the Guide,
thus requiring clear and unambiguous disclosure of such relationships to viewers.
2. Clear and Conspicuous Disclosure Mandated by the Guide
If a statement falls within the parameter of the Guide in the preceding paragraphs, a
disclosure is mandated. Applying the clear and conspicuous disclosure requirement mandated by
the Guide, YouTubers must disclose if there is a relationship with the seller of the advertised
product that may not be readily apparent or reasonably expected by the viewers.
79
In making a
clear and conspicuous disclosure, advertisers and YouTubers need to assume the perspective of a
reasonable consumer, bearing in mind that consumers usually do not read the entire website or
screen.
80
The disclosure should be communicated effectively with an effort in drawing attention
to the disclosure.
81
The FTC staff guidance, intended to aid compliance with the Guide’s disclosure
requirements, enumerates factors in considering whether a disclosure is clear and conspicuous: the
proximity of the disclosure to the advertising statement, the prominence of the disclosure, whether
the disclosure is unavoidable, whether other parts of the ad distract the attention from the disclosure,
whether a disclosure needs to be repeated at different places on the website, and whether the
language of the disclosure is understandable to the intended audience.
82
Specifically, the FTC
warns against designs where “scrolling” is needed to get to a disclosure because having to scroll
increases the risk that consumers will miss a disclosure.
83
When scrolling is absolutely necessary,
79
FTC Disclosure of Material Connections, 16 C.F.R. § 255.5 (Jan. 1, 2012).
80
F.T.C., supra note 69, at 6.
81
Id.
82
F.T.C., supra note 69, at i-ii.
83
Id. at 6 (“Advertisers should keep in mind that having to scroll increases the risk that consumers will miss a
disclosure.”); Id. at ii (“Preferably, design advertisements so that ‘scrolling’ is not necessary in order to find a
disclosure.”).
28
the advertiser should use text or visual cues to encourage consumers to scroll and reach the
disclosure.
84
The FTC staff guidance further elaborates that the mere presence of scroll bar along
the edges of a screen are not a sufficiently effective visual cue as to encourage the consumer to
scroll and reach the disclosure.
85
Repetition may also be appropriate where consumers are likely
to miss a disclosure as the case may be on lengthywebsites.
86
The FTC staff guidance on disclosure
cautions that websites may display differently depending on the program and devices used, so
advertisers should make effort in ensuring the disclosure displays clearly and conspicuously across
all mediums.
87
3. The Problem: Inconsistency in Disclosure and Lack of Conspicuousness
The preceding paragraphs establish that videos under the first two categories (sponsored
and affiliated links) and most videos under the third category (free product sampling) fall under
the mandate of the Guide, therefore disclosure of such relationships are legally necessary.
88
Applying the factors from the FTC staff guidance,
89
two prominent issues with disclosures on
YouTube are inconsistent formats and inconspicuous placement.
For many sponsored videos, the disclosures often appear at the very bottom of the
description box, which requires a user to actively click on a “show more” button and sometimes
84
Id. at ii.
85
Id. at 9 (“Although the scroll bars may indicate to some consumers that they have not reached the bottom or sides
of a page, many consumers may not look at the scroll bar and some consumers access the Internet with devices that
don’t display a scroll bar.”).
86
Id. at 19 (“Advertisers should consider whether consumers who see only a portion of their ad are likely to be
misled because they will either miss a necessary disclosure or not understand its relationship to the claim it
modifies.”).
87
F.T.C., supra note 69, at 17 n.28; see also supra note 69, at ii (“Take account of the various devices and platforms
consumers may use to view advertising and any corresponding disclosure.”).
88
See supra Section V.A.1.
89
See supra text accompanying note 82.
29
scroll down through a long field of text before finally reaching the disclosure (see Appendix Six).
This renders the disclosure neither unavoidable nor proximately close to the claim in the video.
The FTC warns that the presence of scroll bar alone is not sufficiently effective of a visual cue to
encourage viewers to reach the disclosure.
90
The FTC also iterates the need to consider the
disclosure across different mediums, such as displaying on web browsers, smartphones, and
tablets.
91
While YouTube in personal computer web browsers display a “show more” button for
users to expand the description box, YouTube on smartphone devices display a down arrow next
to the video title for expanding the view (see Appendix Seven for display on android phones and
iPhones).
92
A down arrow is less “visually cuing” than a “show more” button, and this calls into
question whether the inclusion of disclosure in the description box is clear and conspicuous enough
for viewers to notice.
The FTC staff guidance also calls for audio disclosures when making audio claims.
93
This
calls into question whether a YouTuber should also make disclosures orally in the video itself
rather than the mere inclusion in the description box. Some YouTubers orally urge the viewers to
look at the description box for more information on products featured in the video. Albeit the
YouTubers’ intention of pointing viewers to the description box is probably to encourage viewers
to purchase the sponsored product, this communication demonstrates an effort to draw attention to
the disclosure as delineated in the FTC staff guidance.
94
However, the effectiveness of disclosure
90
See supra text accompanying note 85.
91
F.T.C., supra note 69. See supra text accompanying note 87.
92
See YouTube videos generally. E.g., TheDiamondMinecraft, Minecraft | THEME PARK TO OURSELVES |
Custom Mod Adventure, YOUTUBE (Feb. 12, 2015), https://www.youtube.com/watch?v=7iJSY_PLjMg.
93
F.T.C., supra note 69, at iii (“Use audio disclosures when making audio claims, and present them in a volume and
cadence so that consumers can hear and understand them.”).
94
See, e.g., MeejMuse, MUST-HAVE: Best Korean Makeup & Beauty Products!!, YOUTUBE (Nov. 13, 2014),
https://www.youtube.com/watch?v=13e4LdDZ-6M (prompting viewers orally to check out the description box for
more product information).
30
in the description box rather than in the video itself is undermined by evidence from the comments
section showing that a substantial amount of viewers do not open the description box to read its
contents.
95
It is common practice on YouTube for parenthetical notations after a link in the description
box to indicate links are affiliated, where the YouTuber will get a commission for sales resulting
from the link.
96
Parenthetical information following the link will most likely be clear and
conspicuous enough under the FTC guidelines, but a problem arises with the inconsistency of
notating of such affiliations. Some YouTubers have their own system of notation, for instance,
products mentioned in the video are listed in the description box with one asterisk to mean
“received for free from companies” and two asterisks denoting “affiliated relationship” (See
Appendix Eight for example).
97
Some YouTubers, rather than notating the affiliation after each
link, provide a general disclaimer at the bottom of the description box to indicate that some of the
links are affiliated.
98
Setting aside the question of whether a general disclaimer at the bottom
95
E.g., Djeserit Sojourner, Comment to Best Third Wheel in the World, WongFuProductions, YOUTUBE (June 25,
2014), https://www.youtube.com/watch?v=DNV2ttK6UxA (“What kind of phone is that?”); Scott Huang, Comment
to Best Third Wheel in the World, WongFuProductions, YOUTUBE (June 25, 2014),
https://www.youtube.com/watch?v=DNV2ttK6UxA (“What phone was Phillip using”); see generally,
WongFuProductions, Best Third Wheel in the World, YOUTUBE (June 25, 2014),
https://www.youtube.com/watch?v=DNV2ttK6UxA (noting how users are nonetheless inquiring what the phone
featured in the video was, despite the content creators having provided the phone model is a LG G3 in the
description box); ThatsHeart, What I Do for a Living?!, YOUTUBE (Nov. 3, 2014),
https://www.youtube.com/watch?v=R-6Q5i2bMfU. At the very end of the description box the content creator
prompts her viewers to comment “Beyoncé sent me!” as a practical joke to confuse those who did not read the
description box. Some confusion resulted from this in the comments section, with viewers inquiring whether the
content creator personally knows the famous singer Beyoncé, evidencing that viewers generally do not read the
contents of the description box.
96
E.g., Video Creators, How Online Community is Formed: Patrick Hanlon, YOUTUBE (Dec. 4, 2013),
https://www.youtube.com/watch?v=7_6ot6nMiA4 (providing an Amazon affiliate link in the description box to a
book with parenthetical disclosure noting “affiliate”).
97
E.g., RachelJade, YouTubers getting FREE STUFF? Behind The 'Tube, YOUTUBE (Sept. 20, 2014),
https://www.youtube.com/watch?v=FBxHmkMmbkQ.
98
E.g., ItsJudyTime, Thank You for 1 Million, YOUTUBE (May 9, 2014),
https://www.youtube.com/watch?v=JPy1bDPMRW4 (“*Amazon link(s) are affiliate links.”); FrmHeadtoToe,
January 2015 Favorites, YOUTUBE (Jan. 31, 2015), https://www.youtube.com/watch?v=JOt7NAXsWQc
31
constitutes sufficient disclosure, the inconsistencies across YouTube may be problematic in itself
to adequately warn viewers.
Videos in the free product sampling category have perhaps the most discrepancies in
disclosure. First, it is unclear whether YouTubers who receive free products even disclose such a
receipt a hundred percent of the time. As one content creator mentioned, it is entirely likely for
successful YouTubers to lose track of what was given for free and which products were purchased
with their own money, since successful YouTubers are frequently on the receiving end of free
products to try.
99
Secondly, if it is disclosed that a product was sent for free, there are various ways
YouTubers annotate such occurrences. For instance, some YouTubers annotate products received
for free with an asterisk marked after the product in the description box without orally mentioning
it in the video,
100
some mention the products were received for free in the video orally without a
written disclosure in the description box,
101
while others fastidiously notate the precise products
that were gifted to them in the description box.
102
B. YouTube Terms of Use and Limited Guidance on Disclosure
Under YouTube’s Terms of Service, a content creator may not use YouTube for
commercial purposes without YouTube’s approval. For example, such commercial uses include
(“Disclaimer: This video is not sponsored by any of the companies mentioned. Some of the links above are affiliate
links. Thanks for your love & support!”).
99
Jade, supra note 97.
100
E.g., AndreasChoice, My Current Obsessions!
♡
Makeup, Electronics, Clothing, Etc.!! | Andreaschoice,
YOUTUBE (Sept. 13, 2013), https://www.youtube.com/watch?v=L-8J7-Y8Ezo (including a written disclosure in the
description box “FTC: Nothing was paid for...everything was bought for me” without mention in the video).
101
E.g., Gasparian, supra note 25.
102
E.g., Ingrid Nilsen, July Favorites 2014, YOUTUBE (Aug. 3, 2014), https://www.youtube.com/watch?v=5o-
Sz579i8g (“Disclaimer: I purchase most of the products in my videos myself. Sometimes I'm lucky enough to have
the opportunity to try and review products sent by brands for consideration. I also have amazingly lovely friends that
may give me a gift or two from time to time. If used, these items (both gifts and products sent for review) will be
marked with a (*).”).
32
the sale of access to YouTube and the sale of advertising, sponsorships, or promotions placed on
YouTube.
103
However, YouTube’s help page expressly allows for paid product placements as long
as the content creator notifies YouTube by checking the appropriate box under the monetization
setting of the video.
104
The purpose of notification is primarily for alerting YouTube as to avoid
running ads that may conflict with the product featured in the video.
105
A paid product placement
is defined as a “piece of content that is created specifically for a sponsor and where that sponsor’s
brand, message, or product, is integrated directly into the content” on YouTube’s help page. The
help page further provides that a typical example of product placement is one where the marketer
pays the YouTube content creator to specifically mention the brand or product in what would
normally constitute the editorial part of the content.
106
Permissive use of paid product placements
is only open to YouTube Partners. YouTube forbids the use of pre-roll advertisements for a paid
product placement because it conflicts with YouTube’s own advertisers where YouTube offers a
comparable ad format.
107
YouTube has provided little guidance on disclosure, perhaps limited by geographical
concerns and difference in laws applicable to its worldwide content creators. Rather than actively
presenting disclosure rules to content creators, YouTube takes on a more passive role in providing
some guidance on disclosure for those who seek it. For instance, YouTube provides on its “help
103
Terms of Service, YOUTUBE, https://www.youtube.com/static?gl=CA&template=terms (last visited Dec. 19,
2014).
104
Paid Product Placement, YOUTUBE, https://support.google.com/youtube/answer/154235?hl=en (last visited Dec.
19, 2014).
105
Id. (“In some cases a paid product placement can create a conflict with ads that YouTube otherwise sells and
serves to partner videos. For example, if you upload a video with brand mentions and product placements for Car
Company A, then it would present a conflict to sell ad space around that video to Car Company B. To protect the
value we offer advertisers, in these situations YouTube may disable monetization and promotion on videos with
such product placements.”).
106
Paid Product Placement, YOUTUBE, https://support.google.com/youtube/answer/154235?hl=en (last visited Dec.
19, 2014).
107
Id. See also discussion supra Section III.C stakeholder analysis.
33
page” that content creators should check with their local rules to satisfy their legal and regulatory
obligations.
108
The official Google Webmasters account on YouTube also provides some
information on disclosure for those looking for it. A Google Webmasters video provides that
disclosure should be clear and conspicuous, and viewers should not have to “dig around” for the
disclosure.
109
Considering that this particular help video only has 32,000 views to date, compared
to any of the videos mentioned in this paper with views in the millions, the effect of these YouTube
and Google disclosure guidance is speculative.
VI. PROPOSAL TO INCREASE THE TRANSPARENCY IN YOUTUBE MARKETING
TO BENEFIT ALL STAKEHOLDERS
Enormous marketing opportunities exist in the relationship between YouTube content
creators and companies, and the ultimate victor and beneficiary from the scheme are the businesses.
Businesses can achieve much higher penetration rates and efficacy through YouTube, with
significantly lower advertising expenses compared to traditional above-the-line marketing.
However, the existing dynamics among YouTubers, companies, and viewers call for a balancing
of powers to protect those in a more vulnerable position, namely the consumer-viewers, but also
certain YouTube content creators. As noted in the Part V supra, the FTC Guide does not have the
force of law, but the FTC can bring an enforcement action against persons engaging in deceptive
practices in violation of Section 5 of the FTC Act (15 U.S.C. § 45).
110
So far, the FTC has yet to
108
Id. (“Do I need to notify anyone else about a paid product placement? Maybe. Different jurisdictions have
various requirements for creators and marketers involved in paid product placements and endorsements. For
example, paid product placement may not be allowed in certain types of content or may not be allowed for certain
types of products or services. . . . So, be sure to check your local rules and use our tools to help you comply with
your legal and regulatory requirements.”).
109
GoogleWebmaster, Advertorials and Native Advertising, YOUTUBE (May 29, 2013),
https://www.youtube.com/watch?v=1SmlsfSqmOw (“If you are doing disclosure, you need to make sure that it’s
clear to people. So a good rule of thumb is there should be clear and conspicuous disclosure. It shouldn’t be the case
that people have to dig around, buried in small print, or have to click and look around to find out . . . .”).
110
See supra text accompanying note 75.
34
bring an enforcement action upon marketing practices on YouTube in general. To ensure the
sustainability of YouTube marketing, it is necessary for companies and YouTubers to increase the
transparency in marketing practices to avoid inviting additional regulatory measures, heightened
scrutiny and distrust from viewers.
A. For Content Creators: Placement of Disclaimers Should be Conspicuous and towards
the Top of the Description Box
There is an urgent need to increase transparency in YouTube sponsorship marketing, where
consumers should be informed of the endorsement/sponsorship relationship between the company
and the YouTuber, if any. While some YouTubers do disclaim endorsement relationship either in
the description box or in the video itself, such disclaimers at times are not conspicuous enough.
Sponsored YouTube videos sometimes only go as far as including a short note at the very end of
the description box (which requires the viewer to actually click and expand view of the description
in order to reach the end) stating “video sponsored by X” or “thank you X company for the
opportunity”.
111
Depending on the nature of sponsorship, videos that are full-on sponsored should
be required a more flagrant disclaimer than a short statement disguised and buried in the
description box. For videos that are predominantly sponsored in nature, a disclaimer towards the
top of the description box as well as a verbal disclosure in the video itself should be required.
Factoring in considerations for proximity and unavoidability as prescribed by the FTC guidance,
disclosures should be integrated into the video itself coupled with an additional written disclaimer
111
See Section V.A.3. E.g., Zoella, Topshop Haul & £500 Giveaway | Zoella, YOUTUBE (Feb. 3, 2013),
https://www.youtube.com/watch?v=IH8rWvom_oc (YouTuber noted at the bottom of description box “Big thank
you to Topshop for sponsoring the giveaway and enabling one of you the chance to win £500! They are a nice
bunch.”); ItsJudyTime, Effortless Mermaid Waves hair tutorial! – itsjudytime, YOUTUBE (May 13, 2014),
https://www.youtube.com/watch?v=UNYKmtHtREY (YouTuber noted “This video is sponsored by NuMe” at the
bottom of description box); EvelinaBarry, Metallic Holiday Look, YOUTUBE (Dec. 2, 2014),
https://www.youtube.com/watch?v=Rl5emID1KTk (YouTuber noted “This video was made in collaboration with
Lord & Taylor”).
35
in the description box, because a disclaimer in the description box alone is “avoidable” by viewers
and also not situated close enough to the claim in the video. Furthermore, for the affiliated links,
it is recommended that disclaimers are placed right next to the links (either in the form of an
asterisk or the words “affiliated link”) rather than a general remark at the end disclaiming some
links are affiliated. This ensures the disclosure is as close to the claim as practicable.
B. For YouTube: YouTube Should Adopt a Uniform Notation System for Disclosures
In addition to the lack of conspicuousness for disclosures, inconsistency in disclosure
format on YouTube reduces the effectiveness of disclosures.
112
To foster more transparency in the
system, this paper recommends that YouTube adopt a uniform notation system, providing a
consistent format of notating various sponsorship relationships in the description box or in the
video itself. As mentioned in Part V supra, some YouTubers have their own system of notation,
113
and while such notation systems may be helpful for viewers, the notations would be even more
beneficial if promoted as a site-wide system where all YouTube videos are annotated the same
way so viewers are more familiar with what each notation means. As YouTube currently provides
a convenient way for partners to notify YouTube that the video contains product placement by
checking a box when uploading,
114
YouTube can similarly provide a “check-the-box” feature for
content creators to annotate sponsorship relationship for viewers (see Appendix Nine for
YouTube’s notification box during upload).
Though some viewers are aware of the presence of a commercial relationship between a
YouTuber and a company in certain videos, others may not be as wary. A more conspicuous
112
See supra Section V.A.3 (discussing how inconsistent disclosure formats can result in ineffective disclosures that
ultimately do not reach viewers).
113
See supra text accompanying note 97.
114
Paid Product Placement, supra note 104. The primary purpose for such notification is for YouTube to refrain
from running its own ads that may conflict with the video’s sponsored content, not for disclosure purposes to
viewers.
36
disclaimer on the YouTubers’ end coupled with viewer awareness can prevent the consumers from
being marketed to without their knowledge.
C. For Companies: Fostering Trust in Viewers Will Benefit Companies and YouTubers
The business community frequently catapults the argument that regulation and disclosure
requirements will stifle market growth and development.
115
In addressing this argument, the FTC
repudiated by stating that there is a lack of evidence substantiating this claim.
116
The FTC defends
its position stating that the Guide merely interprets the meaning of 15 U.S.C. § 45 on unfair
competition rather than expand the scope of the statute.
117
The FTC further reasons that by
mandating disclosure, consumers may be more willing to trust and rely on those sources of
information.
118
The FTC is correct in suggesting that the maintenance of consumer trust is vital in
the upkeep of the blogosphere and the online community. Without the underlying trust, consumer
doubts and the state of wariness in viewing videos is a social cost imposed by general
nondisclosure, which puts consumers in a precarious position, having to second guess whether the
content is commercialized and whether it is trustworthy.
119
This “cautionary filter” and general
115
Guides Concerning the Use of Endorsements and Testimonials in Advertising, 74 Fed. Reg. at 53142 n.14 (“If the
Commission were to adopt guidelines addressing new media without a sufficient understanding of how such new
technologies are being harnessed or may be used in the future, the Commission might risk dissuading the
development of novel means of advertising that effectively serve the interests of consumers in ways not yet
imagined . . . . Regulating these developing media too soon may have a chilling effect on blogs and other forms of
viral marketing, as bloggers and other viral marketers will be discouraged from publishing content for fear of being
held liable for any potentially misleading claim.”).
116
Id., at 53127 (“The commenters who expressed concerns about the future of these new media if the Guides were
applied to them did not submit any evidence supporting their concerns.”).
117
Id. (“The Commission disagrees with those who suggest that including in the Guides examples based on these
new media would interfere with the vibrancy of these new forms of communications, or that the Commission
should, instead, defer to industry self-regulation. Whether or not the Guides include examples based on these new
media does not affect the potential liability of those who use these media to market their products and services. The
Guides merely elucidate the Commission’s interpretation of Section 5, but do not expand (or limit) its application to
various forms of marketing.”) (emphasis added).
118
Id. (“Moreover, to the extent that consumer’s willingness to trust social media depends on the ability of those
media to retain their credibility as reliable sources of information, application of the general principles embodied in
the Guides presumably would have a beneficial, not detrimental, effect.”) (emphasis added).
119
Ellen P. Goodman, Stealth Marketing and Editorial Integrity, 85 TEX. L. REV. 83, 87 (2006) (“Audiences that are
highly skeptical that editorial content is what it seems are not deceived. And yet, it is in producing such skepticism
37
distrust is a social cost not only hindering this form of public communication, but could also erode
consumer confidence in businesses.
120
It might be true to a certain extent that disclosing a relationship between the YouTuber and
an advertiser may slightly undermine the effectiveness of the advertisement in the short run.
However, the alternative of non-disclosure where some viewers somehow discover such
undisclosed relationships will not only hurt the credibility of the content creator, but may cause
the sponsoring brand to be stigmatized. Furthermore, the dynamics between a loyal viewer and a
YouTuber suggest that viewers often believe in the YouTubers’ integrity and would only
recommend a product which they genuinely deem worthy. Frequently, it is up to the YouTubers
to manage their personal branding and maintain subscriber relationships. To maintain credibility
in a sponsored video, some YouTubers emphasize in a disclaimer that even though the message is
sponsored, the YouTuber personally believes in the product.
121
Other YouTubers defend their
credibility on sponsored messages by interacting with users in the comments section, clarifying
that they personally vouch for the product notwithstanding the sponsored nature of the video.
122
In
conclusion, the solution to the general concern that regulation for disclosure will have a chilling
effect on the market is not to avoid disclosure altogether, but to promote “correct-pairing” and
that stealth marketing does its greatest damage. Stealth marketing harms, I argue, by degrading public discourse and
undermining the public’s trust in mediated communication.”) (emphasis added).
120
Id. (“Doubt that an editor has an authentic voice leads to an overgeneralization of distrust as audiences come to
believe that mediated speech is inauthentic or untrue even when it is not.”). See generally F.T.C., supra note 69, at
iii (“Negative consumer experiences can result in lost consumer goodwill and erode consumer confidence. Clear,
conspicuous, and meaningful disclosures benefit advertisers and consumers.”).
121
E.g., AndreasChoice, Date Night Makeup, YOUTUBE (July 18, 2013),
https://www.youtube.com/watch?v=xX21KpXW0dQ (“All smashbox products were gifted to me for free when I
shot another vid with them. Opinions are mine.”).
122
E.g., MichellePhan, Fun Holiday Gift Ideas, YOUTUBE (Dec. 20, 2014),
https://www.youtube.com/watch?v=VbviHNHXRwU (replying to a user comment expressing dissatisfaction over
the sponsored nature of the video that “this video is a gift guide, of course it’s going to feel like I’m “advertising”
but I’m not. My only sponsored partner in this video is Nintendo, but even if they didn’t partner with me, guess
what, I’d still recommend the 3DS and Super Smash. I’m sorry if this video didn’t come across as genuine to you
everything in this video . . . I truly recommend.”).
38
branding between advertisers and content creators where endorsements occur based on the
YouTuber’s genuine belief in the underlying product. If and when a YouTuber refuses endorsing
certain products, businesses have an incredible market-study opportunity where they can obtain
realistic feedback on its products. In other words, YouTubers serve as an “information facilitator”
between the producers and consumers both ways. For the consumers, since consumers self-select
YouTube channels according to their preference, resulting in YouTube channels having specific
viewer demographics, YouTubers lessen the “disconnect” and information asymmetry between a
specific product out in the vast market and its target audience. For the producers/businesses, it is
likely that they will also benefit from valuable market information as to better improve and tailor
its product to intended demographics. Overall, increasing transparency in YouTube endorsement
marketing should promote ideal results for all stakeholders in the long run.
Currently, the terms in the agreements and contracts between YouTubers and companies
are largely open to speculation.
123
Very few YouTubers actually expose and speak openly about
the terms in any sponsorship agreement. To avoid corporate exploitation of YouTubers,
agreements between YouTubers and companies could also use more transparency, where
individual YouTubers can benefit from an open forum of knowledge about market prices and
standard practice in endorsement deals. It is clear that companies are benefiting from an effective
form of marketing while significantly curbing advertising expenditure; it is only equitable for
content creators to be compensated fairly.
123
Laurel, supra note 33 (“Some YouTubers try to be transparent about this stuff, while others let that information
go by the wayside.”). See also supra note 32.
39
VII. CONCLUSION
While marketing through YouTube sponsorship and endorsement can be tremendously
effective, companies and YouTubers should exercise caution in providing clear and conspicuous
disclosures to viewers. Introducing transparency into YouTube sponsorship marketing will help
ensure the sustainability of such practice by avoiding regulatory incentive to impose additional
restrictions, as well as consumer distrust in contents generally. Transparency can be increased in
YouTube marketing if YouTubers and companies self-initiate clear and conspicuous disclosure
coupled with YouTube’s effort to standardize disclosure formats. The YouTube community as
well as any digital forum today is as vibrant as can be, with new forms of communication
constantly evolving and being developed. YouTube marketing arguably has provided value-added
for all stakeholders, but honest dealing is an important pillar to uphold the vivacity of the online
world.
40
Appendix
Appendix 1. YouTube beauty guru Michelle Phan monthly sponsored video by Lancôme
41
Appendix 2. TheFineBros collaboration with Friskies Brand cat food
Appendix 3. Byron Talbott’s collaboration with Truvia
42
Appendix 4. Affiliated link in YouTube description box
43
Appendix 5. YouTube beauty gurus receiving free products providing reviews
cts
44
Appendix 6. Users required to click on “show more” in order to reach content in
description box
Appendix 7. Visual cues to expand description box on Samsung Galaxy (android on right)
and iPhone (iOS on left)
45
Appendix 8. Notations on YouTube for various sponsorship relationships
Appendix 9. YouTube upload page allowing content creators to notify YouTube if video
contains product placements
