Month: February 2023

The cases relate to whether tech companies should be held liable for dangerous content, and both hinge on aspects of Section 230 of the Communications Decency Act, a 1996 law that provides protections for online platforms and third-party content on them. And although the focus of each is quite narrow, experts say the stakes are much higher and could have a potentially far broader impact on the future of free speech, content moderation and how platforms sell advertising.

“It could transform both the ways that ads are hosted and recommended on the algorithms and also the way non-advertising content is recommended,” said Jeffrey Rosen, CEO of the National Constitution Center, a nonpartisan nonprofit focused on constitutional education.

Numerous tech companies — including Twitter, Reddit, Craig’s List, Yelp, Meta, Microsoft and The Match Group — along with various trade groups and advocacy organizations have filed amicus briefs with the Supreme Court. Each covers a range of topics including how social platforms moderate their content, the role of advertising and the potential implications to users and companies. Others, such as the trade groups including Interactive Advertising Bureau, suggest that weakening Section 230 protections could also impact small businesses and make them susceptible to a wave of new lawsuits.

“The Google case is simply the tip of the iceberg as it relates to legal jurisdiction and legislation surrounding Section 230,” said Marc Beckman, CEO of ad agency DMA United. “The floodgates are opening.”

Some tech companies’ briefs address their ongoing efforts to mitigate harmful content. For example, Meta’s points out current efforts for removing terrorist-related accounts and posts from Facebook and Instagram — policies and actions that the company says are important for retaining both users and advertisers.

The counter-argument holds that platforms like Google’s YouTube shouldn’t be protected like traditional publishers. A briefing filed by Common Sense Media and Facebook whistleblower Frances Haugen claims that Google’s features are “particularly insidious” and could more easily allow dangerous groups to interact with people through accounts and content.

“Google knowingly provides ISIS with use of its algorithms, and other unique computer architecture, computer servers, storage, and communication equipment, to facilitate ISIS’s ability to reach and engage audiences it otherwise could not reach as effectively,” according to the briefing filed by Common Sense Media and Haugen. “Advertisers pay Google to place targeted ads on videos, and Google has approved ISIS videos for ‘monetization’ through the tech firm’s placement of ads in those specific videos.”

Google did not respond to Digiday’s requests for comment about the claims.

There’s also a danger in combining the two cases, said Erik Stallman, a former Google lawyer who is now a law professor at the University of California-Berkley. One of the things he’s most concerned about: A potentially “muddy ruling” in the Google case that chips away at Section 230 while making it unclear what a platform can or can’t do.

“The thing that’s under-appreciated is how much the recommendation algorithms are connected to also keeping certain types of harmful content either off platforms or less likely to be disseminated on those platforms,” Stallman said.

The Supreme Court’s decision could also potentially impact rules related to artificial intelligence — and in particular generative AI. On Tuesday, Justice Neil Gorsuch pointed out that search engines might be protected when it comes to content. However, beyond that is still unclear.

“I mean, artificial intelligence generates poetry, it generates polemics today,” Gorsuch said during oral arguments in the Google case. ”That would be content that goes beyond picking, choosing, analyzing, or digesting content. And that is not protected.”

The full impact won’t be known until the Supreme Court issues a ruling, which is expected before July. But some observers say the impact on the ad industry might be more muted. Brian Wieser, a longtime advertising analyst, believes the decision might only marginally change where dollars flow. However, Wieser said it could make platforms that improve brand safety measures more attractive.

“If you lop off a quarter of YouTube’s inventory, I don’t think the math behind the inventory changes,” said Wieser, now running his own consultancy, Madison & Wall.

While it’s still unclear what the Supreme Court might decide, some legal experts pointed out that the justices on both sides of the political aisle seem to understand the weight of their decision.

No matter what the Supreme Court decides, others also see a need for more transparency. And rather than trying to regulate everything, some say the court might be better off focusing on more specific issues. Sahar Massachi, cofounder and executive director of tech think tank The Integrity Institute, likened attempts to regulate social media to preventing car crashes. Massachi, who spent several years as an engineer on Facebook’s civic integrity teams, said it makes more sense to first understand where the problems exist.

“You think you’re regulating cars, but what you’re actually doing is regulating roads and bridges and a transportation network,” Massachi said. “Can you talk about the differential drive shafts first? Understand what those are, and work your way upwards from there. If the problem in cars is that Ford Pintos explode, talk about designing safety first before you sink your teeth in this whole transportation network, because you’ve got to work up to it.”

Olaplex is being sued after 30 women filed a lawsuit on Feb. 9, claiming the company’s products contain allergens and irritants that have resulted in brittle hair and hair loss. Olaplex’s image troubles come at the heels of the company’s declining streak since going public in 2021.

The subsequent social media fallout prompted Olaplex CEO JuE Wong to address the allegations in a video message last week, saying the claims are “baseless” and that Olaplex is “prepared to vigorously defend” the brand. Wong added that the company has publicly released test results from independent third-party laboratories debunking claims that Olaplex products cause hair damage. 

The Olaplex case is part of a growing trend of customers taking legal action against what they allege is false advertising or misleading marketing. Other allegations are more benign, sometimes taking issue with where products are produced and how that’s reflected in marketing campaigns. This was recently the case for Barilla and Godiva, whose false “European-made” branding irritated some customers. While companies can put these legal issues behind them with settlements, they can also tarnish the reputation — and, at the very least, immediate sales — of more vulnerable brands. And social media has become the hotbed for many of these backlash campaigns to go viral.

Some of the lawsuits center around issues consumers take up with luxury or better-for-you brands when those products allegedly don’t live up to the hype, or when there is concern over serious side effects. The Olaplex lawsuit alleges negligence, false advertising and the use of lilial, a chemical compound the European Union banned in March 2022. A federal lawsuit was filed against Unilever, after one of its brands, the Laundress, recalled a large swath of products after elevated levels of bacteria called pseudomonas were detected. “Despite defendant’s widespread marketing campaign that the products are non-toxic and present better-for-you alternatives to other cleaners, the products contain highly toxic, undisclosed ingredients,” the suit said.

Food and beverage brands, in particular, have had a rough time with increasingly label-conscious customers. 

In December, Anheuser-Busch settled a class action lawsuit in which more than two dozen buyers complained that AB’s line of canned Rita drinks don’t contain actual spirits. For instance, Bud Light Lime-A-Rita mimics the look and taste of margaritas, but is made with malt liquor instead of tequila. Aside from reimbursing the plaintiffs, Anheuser-Busch will begin printing a “malt beverage” label on Rita cans. 

Fireball is currently facing a similar lawsuit, specifically regarding its mini Fireball Cinnamon bottles, which retail for about a dollar each. Per Fireball’s website, Fireball Cinnamon products are “malt-based and wine-based alcoholic beverages,” allowing them to be sold in wine and beer shops. 

But according to a class action lawsuit filed against parent company Sazerac Company in January, the mini bottles’ branding misleads customers into thinking they contain the same whiskey found in standard-sized Fireball. Many social media users poked fun at the news that people had been drinking what, allegedly, amounted to cinnamon water. 

Aron Solomon, chief legal analyst for marketing agency Esquire Digital, said that in recent years people have become more confident calling out brands, and can easily take to social media to do it publicly.

Indeed, social media helps quickly ignite a news cycle that criticizes the companies at the center of these controversies. With daily bombardment of ads, the possibilities of customers catching onto a misleading claim and going public with it is heightened.

While false advertising lawsuits have been around for decades, Solomon said customers are also increasingly more aware of brands’ slick marketing tactics. “Consumers, consumer groups and consumer advocacy organizations are holding brands to both the spirit and letter of what they claim,” Solomon explained, predicting more of these lawsuits are to come. 

In some niche cases, plaintiffs go as far as to complain about brands lying about or obscuring where their products are actually made. One recent example included two customers — who spent a combined $6 on Barilla pasta — claiming they were duped by the company’s “made in Italy” claims. The lawsuit is similar to one fought by Godiva last year, claiming the chocolate maker’s “made in Belgium” ads are deceptive given that they’re produced in Pennsylvania; A court approved a $15 million settlement in November.

The Barilla lawsuit filing claims that shoppers are likely to pay more for a European-manufactured product; The majority of the Barilla pasta sold in the U.S. today are currently made in New York and Iowa. Thus far, District Court for the Northern District of California agrees with plaintiffs that Barilla’s “Italy’s #1 pasta” tagline and the Italian flag-stamped boxes insinuate a connection to Italy. A decision on the lawsuit hasn’t been made yet. 

Given the globalization of supply chains, Solomon said the Barilla marketing allegations can be complicated to assess. “From a legal perspective there are some designations where, if brands lie about it, they can get in trouble,” he said. This is the case with products donning highly-regulated labels, such as “Swiss made” watches — a stamp protected under Swiss and international laws and treaties — or certified organic stamps on food and beverages. French-produced Champagne is one such category. Pasta production, on the other hand, doesn’t have legal label protections at the moment.

“It’s important to point out that brands always understand where the line is between exaggeration and lying,” Solomon said, given the potential of legal liability attached. “These days, it seems like they’re pushing closer to that line.”

While it’s hard to predict the long-term repercussions these accused companies will face, the immediate hit can be a public relations nightmare.

Deborah Etienne, data analyst and researcher at Brandwatch, said that the lawsuit news also sparked debates about Olaplex products across social media, including TikTok and Instagram. But it’s worth noting that not all reactions were negative, with some people even expressing their positive experience with the hair products. 

Over the past month, there were more than 11,000 online mentions of Olaplex, with the #olaplex receiving over three million impressions. According to Brandwatch data, day-to-day conversation spiked to more than 1,500 mentions on Feb. 16 — attributed to Olaplex’s lawsuit and the resulting media coverage. The court has not set a date for the trial, but in a statement, Olaplex said it plans to fight the lawsuit in court.

“When examining the sentiment of the Olaplex online discussion, 69.51% of mentions are negative and 30.48% of mentions are positive,” she said. It’s important to note that some negative mentions were not necessarily geared toward the brand but instead toward users who were dubbed negligent in their use of Olaplex products. Some posts even argued that the Olaplex formula, originally created for professional salons, should not have been launched in a retail version. 

Even for brands with a loyal and dedicated following, a negative lawsuit can sully its reputation. 

“Apart from tarnishing a brand’s image, lawsuits can negatively affect the perception of current and prospective customers resulting in hesitant client approaches and a decreased consumer base,” Etienne said. “Resolving these issues also comes with enormous costs for organizations.” 

By the numbers: 

• Gannett’s full-year total revenue was $2.95 billion, a decrease of 7% year over year. 
• Just over a third of that nearly $3 billion came from digital revenue (meaning digital subscriptions, advertising and other online businesses), totaling just over $1 billion. This is an increase of 1.8% over last year for that business line.
• Q4’s total revenue was $730.7 million, a decrease of 11.6% year over year.
• Digital advertising revenue fell 20.5% year over year in Q4.
• Gannett crossed the threshold of 2 million digital-only subscribers in 2022, making it a third of the way to its goal of having 6 million digital-only subscribers by 2025.
• Registered users increased by 60% in 2022, from 3.7 million at the end of 2021 to 5.9 million by the end of 2022. 

Advertising takes another dive

Digital advertising revenue fell 20.8% in Q4, from $95.8 million to $75.9 million year-over-year. Much of Gannett’s decreases in revenue Q4 and full year 2022 are largely attributed to the hits to both its print and digital advertising businesses, said Doug Horne, Gannett’s CFO during the earnings call.

The company’s total third quarter revenues were down 9% year over year, followed by the 11.6% decrease in Q4, due to “a softer market where we continue to see lower monetization rates as compared to the prior year,” Horne added. These declines are expected to last through the first half of 2023, he said.

Digital subscriptions are up but growth is slowing

In the fourth quarter of 2022, Gannett added 47,000 subscribers net new digital subscribers, down from a three-quarter streak of adding 115,000 to 118,000 net new digital subscribers per quarter. The digital subscription business earned $35.5 million in Q4 2022, up 28.6% year over year, but only a 3% increase over Q3 2022’s revenue of $34.5 million and a 9% increase over Q2 2022’s revenue of $32.5 million, per its earnings report.

Despite the slowdown, the company will shift away from paid acquisitions strategies, including lowering its marketing spend, and instead will be prioritizing organic (free) acquisition strategies, such as registration walls, and retaining existing subscribers, according to the company’s CEO and chairman, Mike Reed, during the latest earnings call.

Gannett’s marquee national news publication, USA Today, launched its paywall in July 2021 and was initially meant to be a key driver of the company’s burgeoning digital subscription business. And yet, more than 90% of Gannett’s subscribers come from its portfolio of 200-plus local news outlets, Reed said.

“Local markets are expected to continue to drive most of our subscription growth,” Reed said, adding that as of now, only 3% of the collective digital readership to Gannett’s local publications are subscribed. 

In 2023, digital-only subscription revenue is expected to grow, but at a slightly lower rate compared to 2022’s trajectory, said Horne.

Registration takes the reins 

Gannett’s registration wall strategy has been successfully converting millions of non-subscribed readers into known users over the past year, putting them onto a path that makes them 45 times more likely to convert into a paid subscriber, according to Piano’s latest Subscription Benchmark Report.

In 2022, Gannett increased its total registered user base from 3.7 million to 5.9 million, a 60% increase year over year, per the earnings presentation. 

Registered readers are classified as users who have created a free account with Gannett’s publications and in exchange receive certain benefits that anonymous users don’t receive. These benefits include additional free or metered content on its sites, as well as the ability to post comments, and have unrestricted views of photo galleries, but they do not get access to content that’s been earmarked as premium, which is still meant to incentivize users to achieve the most desirable status of paid subscriber.

USA Today’s path to profitability

Since launching USA Today’s digital subscription business in July 2021, Reed said that increasing subscriber volume was prioritized over advertising monetization, causing a drop in revenue at the paper. But in 2023, a larger effort will be made to balance the revenue streams, and hopefully put USA Today back on a path to profitability.  

“As a result, we expect lower subscription acquisition at USA Today, but an overall increase in revenue and profitability,” Reed said. 

Looking ahead 

In 2023, total revenue is expected to fall between $2.75 to $2.8 billion, Horne said, representing between a 5% to 6.7% decline from 2022. 

However, adjusted EBITA revenue is expected to be up between 10-15% in 2023 over 2022, as well as “significant free cash flow growth,” according to Reed, thanks in part to cost cutting efforts made in the second half of 2022 and the $147 million worth of debt that was paid down last year. Another $120 million is expected to be paid against the company’s nearly $1.3 billion total debt in 2023. 

Williams’ presence on TikTok and her innate ability to understand the platform appealed to the agency, according to Betsy Ross, OKRP’s head of client business. “We took a look at who Bernie was on the platform,” said Ross. “We had the content need to take advantage of real-time trends. Who Bernie was became the answer before we knew what the role would become.” 

Williams joined OKRP as a trendcaster last summer. (She has since been promoted to senior social strategist.) Since joining, she has used her understanding of social trends to help the agency find ways to get in on current trends for clients, and she uses insights she gained as a creator and producer to edit content in such a way that it will have a better chance to go viral. 

As TikTok continues to grow and become a staple for advertisers, some marketers and agency executives are using the platform to seek out talent, or taking a closer look at potential hires’ personal profiles. In doing so, agencies hope to find talent with a better understanding of the platform. 

“The ask from clients for TikTok content is increasing,” said Bridget Jewell, Dentsu Creative group creative director, social, adding that the agency’s team focused on TikTok content has tripled in size over the last year. The agency has started to use people’s personal TikToks as a way to source talent and “put candidates in the pipeline,” per Jewell. “It’s easy for us to understand that they can make content that will resonate,” Jewell said.

Other agencies are paying more attention to portfolios that include TikToks that exemplify what potential employees can do for their clients on the platform. Showcasing the ability to make the kind of content that would work well for clients has long been a part of advertising — extending this to TikTok is simply an evolution of this idea to fit the needs of agencies today, according to execs. 

“Someone’s ability to gain a social following is really great experience,” said Gabe Gordon, co-founder of social shop Reach Agency, adding that while the shop has hired creators in the past, that wasn’t the only reason they were hired. “It’s unique in the age we work in. Before, people couldn’t make TV advertising or banner advertising for fun. It’s a paradigm shift that people are afforded the opportunity to get needed experience and accelerate.”

While Gordon specified that Reach Agency doesn’t hire employees based on social followings, he did note that there’s been an uptick with resumes, especially creative resumes, in which people share TikTok content they’ve made. At the same time, a hire from this past summer stood out to the shop with a TikTok she made specifically to apply to Reach. “We saw her amazing ability to tell a story,” Gordon said of the TikTok. “It helped her stand out. She showed us she could do the job.”

Glenn Ginsburg, president of QYOU Media, echoed that sentiment, noting that potential employees’ personal understanding of platforms comes up in interviews and that when they showcase personal profiles “it helps them stand out.”

“When we see someone who is clearly in the mix, provides us with the understanding to tell a story in a few seconds and creator formats and creators, that makes a difference,” said Ginsberg. 

The need for the kind of expertise someone may have from their own personal profile on a platform like TikTok is likely more important for boutique agencies than holding companies, according to ad recruiter Christie Cordes, who noted that “each employee represents the agency a lot more” at boutique shops. “We’re seeing boutique agencies, younger agencies want to see that someone has mastered the platform before they hire,” Cordes said.

That’s not to say that agencies as a whole are now combing TikTok for potential hires or that a personal profile will make or break someone’s ability to be hired. Marinda Yelverton, svp of brand solutions at creator commerce company Whalar, explained that hiring talent who are also creators can be a benefit because they also offer the creator perspective. But it’s really a “benefit, not a vetting criteria” for the shop, Yelverton said.

That’s a point-of-view shared by Shuree Jones, group director of paid social and influencer at Rain the Growth Agency. “If you have a creator mindset, and you’re working in social media, it does benefit to show potential shops you can create content,” said Jones.  “It’s not necessary but it is an extra bit of help.”

Even so, that is less important to Jones than a candidate’s ability to talk about trends in the content they consume and how brands can get in on that content.

“Someone’s personal social profile is less important to me than their view as a consumer of that media,” Jones added. “Can you identify three trends on Pinterest? What are your favorite accounts to follow on Instagram? What’s your TikTok trend lately?”

Jones continued, “I want to know less about how you produce content and more about how you consume it. To me, our job is to be in the eyes of the consumer and how our brands interact with consumers.”