Machinima Settles FTC Case Over XBox Pitches

(CN) - Video gaming network Machinima will settle allegations that it paid popular YouTubers to post videos promoting Microsoft's Xbox One without disclosing that they were paid endorsements.

The Federal Trade Commission sued Machinima Inc. for engaging in a deceptive marketing campaign that included paying YouTube "influencers" - those with substantial fan bases - to post videos endorsing the Xbox One system and several games.

The influencers did not disclose on their videos that they were being paid for their seemingly objective opinions, the FTC said.

"When people see a product touted online, they have the right to know whether they are 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."

Machinima is one of the largest online video platforms in the world and operates multiple YouTube video channels that employ personalities who star in scripted and unscripted content about video games.

The company, which calls itself the "most notorious purveyor and cultivator of fandom and gamer culture," reaches more than 151 million viewers each month through its videos on YouTube, Xbox, iOS, Android and Windows.

Machinima and its influencers were allegedly part of an Xbox One marketing campaign managed by Microsoft's advertising agency, Starcom MediaVest Group. Machinima guaranteed Starcom that the influencer videos would be viewed at least 19 million times, according to the FTC.

As part of the first phase of the campaign, a small group of influencers was given access to pre-release versions of the Xbox One console and video games in order to produce and upload two endorsement videos each, the FTC said.

The commission cited two endorsers who were paid $15,000 and $30,000 for producing YouTube videos that garnered 250,000 and 730,000 views, respectively.

In a subsequent phase of the marketing program, Machinima promised to pay a larger group of influencers $1 for every 1,000 videos views up to $25,000, but did not require any of the influencers to disclose that they were being paid for their endorsement, the FTC said.

Instead, the YouTubers implied that their videos reflected their independent and impartial opinions, according to the FTC.

In total, the campaign produced videos that drew more than 30 million views between Nov. 22 and Dec. 31, 2013, the FTC said.

Under the proposed settlement, Machinima is required to ensure that its influencers clearly disclose when they have been compensated for their endorsements and to refuse payment to video makers who do not include such disclosures.

Machinima is also required to follow up within 90 days of the start of a campaign to ensure the disclosures are still being made.

The FTC also sent Microsoft and Starcom a letter finding that the companies were responsible for the influencers' failure to disclose their material connection to the companies.

However, the commission found that the events appeared to be isolated incidents that occurred despite procedures designed to prevent such lapses, and noted that the companies quickly required Machinima to remedy the situation.

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