Watch CBSN Live

​How do you know if a celebrity was paid for that Instagram?

Latest MoneyWatch headlines

If a celebrity poses for an Instagram photo with a sports drink, how do you know if she really loves it or just loves the money she's earning from it?

It's not always clear, which can lead followers of so-called "influencers" -- people who aren't always celebrities but who have large social media followings -- to believe they are seeing a personal endorsement for a product. In many cases, influencers are paid or receive some sort of compensation for the product, but they don't always disclose that to their followers.

Instagram will start to open up feeds to ads

Now, the Federal Trade Commission tells Bloomberg News it's going to crack down on the practice by informing influencers and celebrities they need to be crystal clear on whether they are getting paid. Relying on a hashtag like #ad or #sponsored, which is often used to signal they've received payment in exchange for the post, may not be enough.

This isn't a new problem, given that the FTC has chased Internet celebrities and the companies that back them for years, asking them to be more transparent about their relationships.

Take the case of internet star PewDiePie, a Swedish YouTube star who makes millions annually through a share of advertising revenue from YouTube as well as paid promotions. PewDiePie was linked to an FTC case that was settled last month, when the government agency charged Warner Bros. Home Entertainment with failing to clearly disclose it was paying PewDiePie and other influencers for promoting its game "Middle Earth: Shadow of Mordor."

"Consumers have the right to know if reviewers are providing their own opinions or paid sales pitches," Jessica Rich, director of the FTC's Bureau of Consumer Protection, said in a statement about the settlement. "Companies like Warner Brothers need to be straight with consumers in their online ad campaigns."

In the case of "Middle Earth," Warner Bros. paid each internet star anywhere from hundreds of dollars to $10,000 or more to mention the game. The company also told the social-media stars how to promote it, such as instructing them to talk about the game positively but to skip any mention of glitches or bugs.

With the FTC vowing to crack down, it's likely that more such cases will come to light, given the growth of paid endorsements through social media. There's a reason why marketers are turning to internet stars like PewDiePie to promote their products: Young consumers -- millennials and younger -- are not only spending more time consuming online media online, but also trust the influencers almost as much as their own friends.

Instagram goes after Snapchat with new feature

One study published earlier this year found that four of 10 respondents purchased an item after an influencer used it on a social-media site like Twitter, Instagram or YouTube. The number of social media users who buy products based on friends' recommendations, versus influencers' posts or videos, was almost even at 56 percent to 49 percent, respectively.

That explains why sponsored posts or videos are on the rise, with one firm finding that Instagram published more than 300,000 sponsored posts in July, more than double from a year earlier.

But there may be many more ads that aren't clearly signaled as such, which may mislead consumers about the relationship between their idols and the products they're pictured with.

"We've been interested in deceptive endorsements for decades and this is a new way in which they are appearing," Michael Ostheimer, a deputy in the FTC's Ad Practices Division, told Bloomberg. "We believe consumers put stock in endorsements and we want to make sure they are not being deceived."

View CBS News In