Antitrust Law Daily Wrap Up, ADVERTISING NEWS: Xbox One promoter settles charges of failing to disclose paid influencers, (Sep 2, 2015)

By Michael Menzhuber, J.D., LL.M.

Machinima, Inc., a California-based online entertainment network, has agreed to settle FTC charges that it engaged in deceptive advertising by failing to require disclosures that the “influencers” who posted YouTube videos endorsing Microsoft’s Xbox One system and several games were being paid for their seemingly objective opinions. Under the proposed consent order, Machinima is prohibited from similar deceptive conduct in the future and is required to ensure its influencers clearly disclose when they have been compensated in exchange for their endorsements (In the Matter of Machinima, Inc., FTC File No. 1423090).

According to the FTC’s complaint, Machinima guaranteed Starcom MediaVest Group, the Microsoft advertising agency who was managing the Xbox One marketing campaign, that the influencer videos would be viewed at least 19 million times. In the initial phase of the marketing campaign, a small group of influencers were given access to pre-release versions of the Xbox One console and video games in order to produce and upload two endorsement videos each. Two of these endorsers, according to the FTC, were paid $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, a larger group of influencers was promised $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 proposed FTC consent order would: (1) prohibit Machinima from misrepresenting in any influencer campaign that the endorser is an independent user of the product or service being promoted; (2) prohibit Machinima from compensating any influencer who has not made the required disclosures; (3) require Machinima to prominently disclose any material connection between the endorser and the advertiser; and (4) request Machinima to follow up within 90 days of the start of a campaign to ensure the disclosures are still being made.

Investigations of Microsoft, Starcom. FTC staff also sent a letter to Microsoft and Starcom closing its investigation into the two companies in this case. According to the letter, both Microsoft and Starcom were responsible for the influencers’ failure to disclose their material connection to the companies. However, the FTC staff took into consideration that: (1) 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; and (2) the companies quickly required Machinima to remedy the situation after they learned that Machinima was paying influencers without making the necessary disclosures.

Companies: Machinima, Inc.; Starcom MediaVest Group

News: Advertising ConsumerProtection FederalTradeCommissionNews