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YouTuber network Machinima settles with feds over deceptive advertising

YouTuber network Machinima settles with feds over deceptive advertising

September 2, 2015 | By Kris Graft

September 2, 2015 | By Kris Graft
More: Business/Marketing, YouTube

YouTube powerhouse Machinima has settled charges made by the Federal Trade Commission that alleged the content creator had "deceived consumers" by not disclosing it paid "influencers" to post videos endorsing Microsoft's Xbox One, around the time of the console's late 2013 launch. The videos were posed as objective, personal opinions, the FTC charged.

The settlement is notable due to the significant influence the biggest YouTube game personalities can have on the sales of video games and other products. One positive video or even mention from a major YouTuber can result in meaningful sales for a company or individual's product.

Two of the YouTube personalities -- Adam Dahlberg and Tom Cassell -- posted videos endorsing Microsoft's Xbox One and several Xbox One titles without disclosing payment originating from a Microsoft marketing agency, Starcom MediaVest Group.

Under the proposed settlement, Machinima will be prohibited from "similar deceptive content in the future," while the company will also be required to ensure its viewers know when any video has been paid for, or "endorsed" by a third party. 

“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 Bureau of Consumer Protection. “That’s true whether the endorsement appears in a video or any other media.”

According to the initial complaint, Machinima was part of an Xbox One marketing campaign managed by Starcom. Machinima guaranteed Starcom that the influencer's videos would be viewed at least 19 million times as part of a channel spanning marketing effort. 

In the first phase of the campaign, a small group of YouTubers were given early access to an Xbox One and a select group of games in order to produce and upload two endorsement videos each. According to the FTC, Machinima paid two of these endorsers, Dahlberg and Cassell, $15,000 and $30,000 for producing YouTube videos that garnered 250,000 and 730,000 views respectively. 

In a separate phase of the marketing program, Machinima also promised to pay a larger group of YouTubers $1 for every 1,000 video views, up to a total of $25,000. Machinima did not require anyone to disclose they were being paid for their endorsement.

The order settling the FTC’s charges requires the company to prominently disclose any material connection between the endorser and the advertiser, and prohibits Machinima from compensating other YouTubers who haven't, or refuse to, make the required disclosures. Machinima will also be required to follow up within 90 days of the start of any campaign to ensure the disclosures are still being made.

Microsoft and Starcom have also been contacted by the FTC, though it seems both companies have escaped further punishment, as they asked Machinima to remedy the situation after they learned that it had been paying other YouTubers without making the necessary disclosures. FTC considers Microsoft and Starcom's role an "isolated incident."

The FTC recently updated their guidelines regarding endorsements and false advertising in online media, however, some networks seem to disregard these guidelines.

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