Online entertainment network Machinima Inc. has agreed to settle charges brought forth by the United States government’s Federal Trade Commission, the FTC announced today.
The FTC’s formal complaint against Machinima alleged the entertainment network had deceived its audience with videos online about the Xbox One game console that were paid for by Microsoft’s advertising agency Starcom MediaVest Group. The coverage provided by the videos in question, which were released around the November 2013 launch of the game console, were purported to be honest and objective, but it was not disclosed that Machinima was paying “influencers” – people with a relatively large audience on YouTube – “for their seemingly objective opinions.”
As part of 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,” a press release from the FTC reads.
“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 director of the Bureau of Consumer Protection Jessica Rich. “That’s true whether the endorsement appears in a video or any other media.”
In the first part of a multiphase marketing campaign, Machinima provided influencers with pre-release Xbox Ones for them to create two endorsement videos each. Two of those influencers were paid $15,000 and $30,000, respectively. In another phase, Machinima paid influencers $1 for every 1,000 views on their videos, up to a total of $25,000.
The root of the problem stemming from this multiphase marketing campaign is that at no point did Machinima require these influencers to disclose that they were being paid by Machinima to create these videos.
Machinima will now be required to monitor any endorsement campaigns it takes part in, ensuring that videos that are being created and posted online through paid endorsements are disclosed as such. Machinima is also now required to follow up within 90 days of a campaign’s start date to make sure its influencers are disclosing endorsements.
In a closing letter to Microsoft and Starcom, the FTC said, “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 full complaint made by the FTC against Machinima can be read here [PDF].
