Report: ValueClick Lead-Gen Practices Still Flawed

ValueClick hopes to settle a Federal Trade Commission probe into its lead-generation business by the end of March, but the company still doesn't appear to be following best practices, according to a new report by RBC Capital Markets.

For the report, RBC compared ValueClick's promotional sites, which entice Web users to sign up for paid services by offering "free" merchandise, to ones by Adteractive, which recently revamped its ads as part of its settlement with the FTC. "There are small but noticeable differences in disclosure and the use of the word 'free,'" RBC analyst Jordan Rohan wrote.

For example, Adteractive's FreeGiftWorld.com, which offers Sony PlayStation Players, states that the PSPs are "free with purchase," with all three of those words appearing in the same size font. But ValueClick sites like PinkPhone4Free.com still prominently describe merchandise as "free," while the disclaimers like "Participation required. See below for details," and "purchase may be required" appear in smaller print.

But ValueClick Vice President of Corporate Strategy John Ardis said the company won't necessarily agree to the same conditions that Adteractive did. "We're concerned about our relationship with the FTC ... Third parties don't enter into it," Ardis said. "I don't believe RBC Capital has been in any of the discussions we've had with the FTC, so I don't believe they're in any position to comment on whether we are or are not complying," he added.

Despite potential problems with ValueClick's ads, RBC upgraded ValueClick to "outperform," stating that the company appears poised to reach a mostly favorable agreement. "The FTC may extract a settlement from ValueClick, but we believe the fine should be somewhat minimal when compared with the company's overall resources," states the report. Rohan also predicted that any FTC injunction is likely to have a limited scope, allowing ValueClick to "ramp up its lead gen business by mid-2008."

ValueClick last spring disclosed that it was under investigation for its lead-generation business, which advertises "free" merchandise to Web users to entice them to sign up for paid services. Chief executive Tom Vadnais recently told a conference sponsored by Citigroup that the company hoped to reach a settlement with the FTC by the end of the first quarter.

That agency has been investigating several companies for their lead-generation practices. Last November, the FTC reached a deal with Adteractive--the first such deal settlement in a lead-generation matter. The agreement in that case called for Adteractive to pay a $650,000 fine. Adteractive also agreed that ads that describe "free" merchandise will also state in the same color, font and size that purchases are required to obtain the item.

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