The Federal Trade Commission is no fan of companies parading paid sponsorships as organic endorsements, as gaming video network Machinima recently discovered.
The company has settled charges by the FTC that it paid YouTube “influencers” — people with substantial fan bases — to post videos promoting Microsoft’s (MSFT) Xbox One gaming console and several games without disclosing they were paid endorsements, according to a statement on Wednesday.
Machinima owns and operates multiple YouTube video channels that employ personalities who star in scripted and unscripted content about video games. In 2013, Microsoft hired Starcom MediaVest Group to run an advertising campaign for its new console, the Xbox One, and three games. Machinima was hired by the agency to produce videos promoting the console and games, guaranteeing they would be viewed at least 19 million times. According to the FTC, Machinima didn’t make it clear that they were paid endorsements and misled viewers.
This wasn’t Machinima’s only trouble in 2013. Some of its content creators complained that its “life-long” contracts were predatory, and it got into hot water for working with “reply girls” who win clicks by posting seductive videos online. The company eventually renegotiated its contracts and ended its deal with a prominent reply girl.
As part of the settlement agreement, Machinima is prohibited from taking part in marketing campaigns without clearly labeling paid endorsements. The company is also barred from compensating any influencers who don’t disclose they’re being paid for promoting a brand, and to follow up after 90 days of any campaign to make sure they do disclose the information.
Last month, mega-celebrity Kim Kardashian also got into trouble for her own endorsement of a morning sickness medication. The FDA complained to the drug maker of Kardashian’s failure to mention any health risk in an Instagram photo. Her tweets about the same product also failed to mention her business relationship with the company, potentially violating the same policy as Machinima.