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Machinima Settles FTC Charges Over ‘Deceptive’ YouTube Videos Touting Xbox

Machinima has agreed to disclose when it’s paying YouTube creators to endorse products, settling an investigation by the Federal Trade Commission about the multichannel network’s promotional videos for Microsoft’s Xbox One system and games.

Machinima and YouTube “influencers” were part of an Xbox One marketing campaign in 2013 managed by Microsoft’s advertising agency, Starcom MediaVest Group, according to the FTC. Machinima guaranteed Starcom that the influencer videos would be viewed at least 19 million times, according to the agency — however, the MCN failed to adequately disclose that the YouTubers were being paid to tout Xbox, per the FTC complaint.

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

In a statement, Machinima said, “Machinima is actively and deeply committed to ensuring transparency with all of its social-influencer campaigns. Through collaboration with the FTC, we are pleased to have firmly resolved this matter, related to an incident that occurred in 2013, prior to Machinima’s change of management in March 2014. 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.”

In March 2014 Machinima hired Chad Gutstein, formerly COO of independent cable network Ovation, to be its CEO. He joined after chairman Allen DeBevoise stepped down as CEO several months earlier.

According to the FTC, in the first 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.

Machinima paid two YouTubers $15,000 and $30,000 for producing You Tube videos that generated 250,000 and 730,000 views, respectively, the agency said. In a separate phase of the marketing program, Machinima promised to pay a larger group of influencers $1 for every thousand video views, for up to a total of $25,000. Machinima didn’t require any of the influencers to disclose that they were being paid for their endorsement.

The FTC also said it has sent a letter to Microsoft and Starcom closing its investigation into the two companies in this case. According to the agency, while Microsoft and Starcom both were responsible for the influencers’ failure to disclose their material connection to the companies, FTC staff considered the fact that these appeared to be isolated incidents that occurred in spite of policies and procedures designed to prevent such practices. The companies also quickly required Machinima to remedy the situation after they learned that Machinima was paying influencers without making the necessary disclosures.

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