Company That Paid YouTube Users To Promote Xbox One Settles Charges Of Deceptive Advertising

When Microsoft teamed up with Machinima to launch a promotion that paid affiliated YouTubers for shilling for the Xbox One console in January 2014, we questioned whether any potential negative publicity and regulatory hassle would be worth it. Turns out, we were right to think the company would face scrutiny from federal regulators, as the Federal Trade Commission says it has cleared Microsoft of wrongdoing and settled charges that Machinima pushed videos of people endorsing the video game without disclosing they had been paid.

The FTC announced today that California-Based entertainment network Machinima agreed to settle [PDF] charges that it engaged in deceptive advertising by paying “influencers” to post YouTube videos endorsing the Xbox One system and games.

According to the FTC’s original complaint [PDF], the influencers paid by Machinima failed to adequately disclose they were being compensated for their “seemingly objective options.”

“When people see a product touted online, they have a right to know whether they’re looking at an authentic opinion or a paid marketing pitch,” Jessica Rich, Director of the Bureau of Consumer Protection, said in a statement. “That’s true whether the endorsement appears in a video or any other media.”

The company and its YouTube users were part of an Xbox One marketing campaign managed by Microsoft’s advertising agency, Starcom MediaVest Group.

The first phase of the campaign included a small group of influencers who were given access to pre-release versions of the console and video games in order to in order to produce and upload two endorsement videos each.

Machinima paid two of these endorsers $15,000 and $30,000 for producing You Tube videos that garnered 250,000 and 730,000 views, respectively, according to the FTC.

In a second phase, the FTC alleges that Machinima promised to pay a larger group of influencers $1 for every 1,000 video views, up to a total of $25,000.

At no time did Machinima require any of the influencers to disclose they were being paid for their endorsement, the complaint alleges.

The campaign began to make waves in January 2014 after a report from Ars Technica pointed out that by paying the YouTubers to show off the Xbox One and limiting them to saying only nice things about the console, the campaign could be running afoul of Federal Trade Commission guidelines on endorsement.

In settling the complaint, Machinima is prohibited from misrepresenting in any influencer campaign that the endorser is an independent user of the product or service being promoted.

The company must also prominently disclose any material connection between the endorser and the advertiser. It is prohibited from compensating any influencer who has not made the required disclosures.

In addition, it requires the company to follow up within 90 days of the start of a campaign to ensure the disclosures are still being made.

On Tuesday, the FTC also said it had sent letters [PDF] to Microsoft and Starcom closing its investigation into the two companies.

According to the letter, after careful review, the agency determined not to recommend enforcement action against the companies.

“We considered several factors in reaching this decision,” the letter states. “The failures to disclose here appear to be isolated incidents that occurred in spite of, and not in the absence of, policies and procedures designed to prevent such lapses.”

Xbox One Promoter Settles FTC Charges That it Deceived Consumers With Endorsement Videos Posted by Paid ‘Influencers’ [FTC]