The Federal Trade Commission has settled charges with Machinima, which had been accused of deceptive advertising by paying “influencers” to post YouTube videos that endorsed Microsoft’s Xbox One video game console.
The FTC charged that the influencers failed to adequately disclose that they were being paid for seemingly objective opinions. The case is a wakeup call for the use of social media to endorse products, as many people trust online video producers and streamers similarly to how they’ve trusted traditional media.
Under the proposed settlement, Machinima is prohibited from similar deceptive conduct in the future, and the company is required to ensure its influencers clearly disclose when they have been compensated in exchange for their endorsements, the FTC said.
“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,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection, in a statement. “That’s true whether the endorsement appears in a video or any other media.”
According to the FTC’s complaint, Machinima and its influencers were part of an Xbox One marketing campaign managed by Microsoft’s advertising agency, Starcom MediaVest Group. Machinima guaranteed Starcom that the influencer videos receive at least 19 million times.
In a statement, Machinima said, “Machinima is actively and deeply committed to ensuring transparency with all of its social influencer campaigns. Through collaboration with the FTC, we are pleased to have firmly resolved this matter, related to an incident that occurred in 2013, prior to Machinima’s change of management in March 2014. We hope and expect that the agreement we have reached today will set standards and best practices for the entire industry to follow to ensure the best consumer experience possible.”
In the first phase of the marketing campaign, a small group of influencers received access to prerelease versions of the Xbox One console and video games in order to produce and upload two endorsement videos each. According to the FTC, Machinima paid two of these endorsers $15,000 and $30,000 for producing You Tube videos that garnered 250,000 views and 730,000 views, respectively.
After that, Machinima promised to pay a larger group of influencers $1 for every 1,000 video views, up to a total of $25,000. Machinima did not require any of the influencers to disclose they were being paid for their endorsement.
The order settling the FTC’s charges prohibits Machinima from misrepresenting in any influencer campaign that the endorser is an independent user of the product or service being promoted.
Among other things, it also requires the company to prominently disclose any material connection between the endorser and the advertiser, and it also prohibits Machinima 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.
FTC staff sent a letter to Microsoft and Starcom closing its investigation of the two companies in this case. According to the letter, while Microsoft and Starcom both were responsible for the influencers’ failure to disclose their material connection to the companies, commission staff considered the fact that these appeared to be isolated incidents that occurred in spite of, and not in the absence of, policies and procedures designed to prevent such lapses. The companies also quickly required Machinima to remedy the situation after they learned that Machinima was paying influencers without making the necessary disclosures.
The commission’s vote on the proposed consent order was 5-0.