Stock Option Advisory

FTC Crackdown on Blogs

Journalists have long been required to disclose relationships with any sponsors, as well as any endorsements or compensation they receive for their articles and reviews. The same has not been true for bloggers, until now.

When the new FTC Guides Concerning the Use of Endorsements and Testimonials in Advertising come into effect on December 1, 2009, bloggers reviewing commercial products will be held to the same standards as mass media journalists and advertisers. Any blogger who has received commercial product, including free samples, must disclose this fact.

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The FTC has also tightened advertising regulations overall. When the new regulations come into effect, the “diet” marketing strategy of using only the best result as testimonial and hedging the rest under “results not typical” will no longer be allowed. Average or typical results must be used instead.

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The same regulations will apply to blogs. Before the changes, blogs which reviewed products were mostly unregulated. After December 1, 2009, bloggers who make false or unsubstantiated claims about products will be held liable for those claims.

What’s more, the changes allow the FTC to prosecute not only the offending blogger but also the company which endorsed him, whether or not the business explicitly authorized any claims made by the blogger. Whether a blogger is in-house or independent, any claims made by that blogger which violate the new FTC regulations reflect both on the blogger and on the business, and both are liable.

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This has immediate ramifications for any business which uses blogging as part of its marketing strategy. The proposed regulations are vague, but there are ways in which a business can protect itself from blogger liability.

All bloggers who review commercial products and receive endorsements for those reviews should make full disclosure of that fact at the time of writing, preferably within the review itself. The same holds true for any material connection between the blogger and the business making the product. This applies even if the review is negative.

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A business which acts immediately to correct a mistake or false claim on a sponsored blogger’s post will probably not be held liable for that post. The longer the false claim is left up, the more likely it is that the FTC may take notice. It pays to monitor the reviews of sponsored bloggers.

A business is highly unlikely to be held liable for an offending blogger’s words if it has not endorsed those words in any way. This means that the business has no material connection with the blogger, has not sent out free product to that blogger, and has not attempted to control the blogger’s review in any way. A completely independent blogger who reviews commercial product he has bought and used himself is the safest route to go.

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Totally unrelated to the FTC or blogging, Amazon’s (AMZN) stock has been on a tear the last few months and just recently took a big spike up in price.

AMZN Chart

If you would like to own Amazon’s stock and also make some income on it, you can enter a covered call investing position. A covered call is similar to purchasing a house and leasing it out with an option to buy. A covered call investing position is currently available for Amazon for December with a potential return of 3.8%. The timeframe for potentially realizing this return is only 30 days.

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To enter the covered call investing position an investor would purchase the stocks in multiples of 100 shares for their trading portfolio and sell one call option for each 100 shares of stock purchased for their personal stock portfolio.

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[tags] bloggers, FTC, journalists, advertisers, review commercial products, endorsements, AMZN, Inc. [/tags]

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