Brand owners and their attorneys are grappling with an important question: how to disclose their connections to luminaries like PewDiePie.

If you haven't heard of PewDiePie, don't worry—he's a 26-year old Swedish college dropout who likes to sit at his computer, play video games and shoot movie clips. But he also happens to operate the most popular YouTube channel in the world. He has nearly 50 million subscribers, and his commentary wields huge influence over the success of a video game release. Marketers pay him to exercise it. Last year, PewDiePie's production company reported an operating profit of about $8.1 million.

Brands have long valued "native advertising," promotional content that is similar to the news, articles and entertainment that surrounds it. But they are increasingly spending their dollars on the particular subspecies known as influencer marketing, in which individuals—ranging from stars (LeBron James) to quasi-stars (Kim Kardashian) to everyday people (a little-known blogger)—endorse products with messages that are personal, direct and authentic. The dollars at stake are substantial. According to a recent report, the most popular influencers (three to seven million followers) command an average of $187,500 per YouTube post, $75,000 per Instagram or Snapchat post, and $30,000 per Twitter post. Even lesser influencers (between 50,000 and 500,000 followers) command average payouts of $2,500, $1,000 and $400, respectively.

The proliferation of social platforms has created many new marketing opportunities for brands. But in these formats it is often impossible to distinguish between products that influencers happen to like and those that they are paid to endorse. Today, brand owners struggle with how to harness their authenticity without deceiving customers or falling afoul of federal disclosure requirements.

The Federal Trade Commission is watching carefully. Guided by Section 5 of the FTC Act, which prohibits "unfair or deceptive acts or practices in or affecting commerce," the FTC has increasingly focused on influencer marketing. Last December, it updated its guidance with a policy statement on deceptively formatted advertisements. In its long-held view, messages not identifiable as advertising are deceptive if they mislead consumers into believing that they are independent, impartial or not from the sponsoring advertiser. It explores this principle in the context of influencer marketing...

Originally published in The Recorder on September 26th, 2016.