Paid endorsements get Xbox One marketer in trouble with FTC

Online entertainment network Machinima paid video endorsers, but didn't disclose it, the agency says

Payments of up to US$30,000 for video endorsements of the Xbox One have gotten an online entertainment network in hot water with the U.S. Federal Trade Commission because the company failed to disclose the deals.

Machinima, which helped market the Xbox One, engaged in deceptive advertising by keeping the paid endorsements of the gaming console under wraps, the FTC said Wednesday.

Machinima, a so-called next-generation video entertainment network for the gamer lifestyle, paid two Xbox One endorsers a total of US$45,000 for producing YouTube videos, and promised to pay a larger group of so-called online influencers $1 for every 1,000 page views, up to $25,000, the FTC said.

The company didn't require the influencers to disclose the payments, the agency said.

The failure to disclose payments for what the FTC called "seemingly objective opinions" violated the FTC Act, which bars deceptive advertising, the agency said. The agency's endorsement guides, updated in 2009 to cover online endorsements, require disclosure of paid endorsements.

Related: How to engage in influencer marketing: The opportunity and the controversy

In a proposed settlement with the FTC, announced Wednesday, Machinima would be prohibited from engaging in similar marketing campaigns and would be required to clearly disclose paid endorsements.

"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," Jessica Rich, director of the FTC's Bureau of Consumer Protection, said in a statement.

Machinima noted that the FTC's complaint stems from company activity in 2013, before a change in management in March 2014.

"Machinima is actively and deeply committed to ensuring transparency with all of its social influencer campaigns," the company said in a statement. "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."

Machinima and its online influencers were part of an Xbox One marketing campaign, managed by Starcom MediaVest Group, the ad agency hired by Xbox maker Microsoft, the FTC said in a press release. Machinima guaranteed Starcom that the influencer videos would be viewed more than 19 million times.

A small group of influencers were given access to pre-release versions of the console before its launch in late 2013, the agency said. Two paid endorsers, one receiving $15,000 and the second receiving $30,000, produced YouTube videos that garnered nearly 1 million page views combined.

The FTC has closed its investigation into Microsoft and Starcom, it said. While both companies shared responsibility for the failure to disclose endorsements, the commission's staff considered the payments to be "isolated incidents" that happened in spite of, not in the absence of, policies designed to prevent them, the agency said.

Both companies also moved quickly to end the Machinima payments, the FTC said.

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