In October, X rolled out a new ad format that appeared to serve paid-for posts without labeling them as ads. Experts speculated that the posts might violate US laws against deceptive advertising. Today, the ad industry watchdog Check My Ads filed a petition with the Federal Trade Commission, asking that the regulator investigate X’s posts, which the complaint calls “inherently deceptive.”
Sarah Kay Wiley, policy and partnerships director at Check My Ads, says that inconsistent labeling around advertisements leaves users vulnerable to scammers.
“If those ads aren't disclosed, I think you're going to see scams just rise very rapidly on the platform,” she says.
Check My Ads’ complaint alleges that even if users are able to discern that an unlabeled piece of content is an ad, it can be hard to understand why they’re being targeted or how their data is being used. “We're seeing the hyperlinks are broken when people click ‘Why am I being targeted with this ad?’ People can't even get information on that,” Wiley says.
X did not immediately respond to a request for comment.
When Elon Musk purchased X, then Twitter, in October 2022, advertising accounted for more than 90 percent of the company’s revenue. Musk subsequently laid off more than half the company’s employees, including nearly all those responsible for keeping hateful, violent, or inappropriate content off the platform. These changes left advertisers worried that their content would show up next to hateful, violent, or racist speech. Experts now expect X’s revenue to drop by 54 percent this year. Though X has claimed advertisers are returning, an October study from the watchdog group Media Matters for America found that those advertisers are spending 90 percent less than in the weeks preceding Musk’s takeover.
Wiley says that X’s new advertising format may be a liability for advertisers, who could face compliance issues themselves if their content is not properly labeled, and that X’s promotional materials for advertisers state that their posts are labeled as ads. Check My Ads included screenshots of these materials in their complaint to the FTC. That means that advertisers might believe that their ads are being properly labeled when they’re not. Further complicating matters, X has started to accept advertisements from Google Ads and InMobi, third-party ad exchanges where advertisers can purchase ads, which then appear on X’s “For You” feed. In the past, X had dealt directly with all of its advertisers.
“That opens up a whole host of compliance issues in terms of transparency,” says Wiley. “It's really hard for advertisers to trace where their ad spend is actually going.”
An FTC investigation into the company could be another blow for X, whose valuation has shrunk to less than half the $44 billion that Musk paid for the company.
The FTC has discretion over the cases that it pursues, meaning that a single complaint can be enough to prompt the regulator to open an investigation, according to Christopher Terry, associate professor of media law at the University of Minnesota.
Terry estimates that if the FTC does pursue an investigation, it could take a year or more to reach a conclusion. But if the regulator upholds the complaint, the consequences for X could be significant. The commission has the ability to fine a company up to $44,100 per violation. That could lead to “basically an unlimited number” in penalties, Terry says. “Typically, in a situation like this … what we would be very likely to see is a consent decree settling for a very large amount of money.”
A consent decree is essentially a threat of legal action from the government. Terry notes that the FTC tends to angle for bigger fines than other agencies. In 2019, Facebook settled with the FTC for $5 billion over charges that it violated its users’ privacy.
X is already subject to a 2011 consent decree, which bars the platform from “misleading consumers about the extent to which it protects the security, privacy, and confidentiality of nonpublic consumer information,” for 20 years. The FTC slapped then-Twitter with the consent decree after it was revealed that the company’s lax data protection made user data vulnerable to two separate hacks. Last year, the FTC amended the consent decree, adding on a $150 million fine for violating the earlier, 2011 one. X is currently challenging this in court.
