Who: Federal Trade Commission; Machinima Inc; Starcom MediaVest; YouTube; CAP
Where: California, USA
When: 2 September 2015
Law stated as at: 5 October 2015
On 2 September 2015, a US video network operator, Machinima, Inc., agreed to settle a claim brought by the US Federal Trade Commission (FTC) for “deceptive” advertising practices.
The FTC’s complaint followed an investigation which found that influential vloggers had been paid up to $30,000 to upload seemingly objective YouTube videos endorsing the Xbox One console and various video games.
The campaign in question ran in 2013 under the supervision and coordination of marketing agency Starcom MediaVest, with Machinima disseminating the videos through its 400 million strong network of subscribers.
Two popular YouTube video game reviewers were provided with pre-release copies of the console, along with newly released games, and paid $15,000 and $30,000 respectively to produce endorsement videos in order to “build early buzz”. The videos appeared to represent the independent personal views of the uploaders, however the FTC discovered that Machinima had closely controlled the video content to ensure the reviews were positive.
A second phase of the campaign saw Machinima promise to pay $1 for every 1,000 views (up to a maximum of $25,000) generated by a video endorsing the console. At no stage did Machinima require the vloggers to disclose that payments were being made as compensation for creating and uploading the videos.
The FTC pointed out that viewers would not reasonably expect that payments had been made in such circumstances and had a right to know whether they were looking at an authentic opinion or a paid-for marketing pitch. The FTC found that the failure by Machinima to ensure that payments were properly disclosed amounted to deceptive advertising, in violation of FTC enforcement guidelines and relevant statute.
Terms of settlement
Machinima has agreed to settle the case with the FTC by entering into a consent order on the following terms:
- Machinima is prohibited from misrepresenting individuals who are to receive compensation for endorsing a product as independent / ordinary consumers;
- any “material connection” between a brand and an endorser must be clearly and prominently disclosed; and
- various measures will be put in place to ensure that proper disclosures are made in future.
The settlement agreement was made available for public comment for a 30 day period, which ended on 2 October 2015. The FTC will now decide whether or not to make the proposed consent order final. At the time of writing, no decision had yet been published.
Microsoft not found liable
The FTC, having first investigated the company and its ad agency, wrote to Microsoft and explained that it had decided not to take any action due to the following factors:
- evidence that Microsoft already had a number of robust compliance safeguards in place, including specific legal / marketing guidelines and relevant training for staff and agencies;
- Microsoft had installed additional safeguards regarding sponsored endorsements since the Xbox One campaign, along with commitments to closely monitor such “influencer” campaigns in the future; and
- the swiftness with which disclosure statements had been inserted into the offending videos.
Why this matters:
The Machinima case comes hot on the heels of new guidelines for UK vloggers from CAP. A central tenet of the CAP guidance is that it should be made absolutely clear when a vlog linked to a brand is, in fact, a marketing communication.
In its guidance, CAP sets out a number of scenarios (discussed by Marketinglaw last month) in which vlog content might be created in connection with a brand. The second of these scenarios is the “advertorial” video where, although the whole video is in the usual style of the vlogger, the content is editorially controlled by the brand and the vlogger has been compensated.
The Machinima case involved a network both making payments to vloggers and directing them as to content. As such, the videos would fall squarely under the advertorial heading. In order to ensure compliance with the CAP Code, advertorial vlogs of this type should be conspicuously labelled at the outset as adverts to ensure that viewers are fully aware of their status before engaging with the content.
Had this been a UK campaign, it is likely that the ASA would have taken enforcement action. In fact, last year’s adjudication in relation to the Oreo ‘Lick Race’ videos (covered by Marketinglaw here) saw the ASA rule against Mondelez UK Ltd on the basis of very similar facts.
While in the Oreo case action was taken against the product company itself rather than the advertising agency, whether or not this is the case in future is likely to depend on the level of knowledge and control that the regulator can attribute to each of the parties involved in the campaign. A brand might help its cause in this regard, as Microsoft has shown, by putting in place proper compliance safeguards and evidencing a strong track record of adherence to the guidelines.
The Machinima case provides a salutary reminder that one should aim for absolute transparency when dealing with endorsement videos in order to stay on the right side of the regulators, whether in the UK or the USA.