FTC Brings Machinima to Justice for Its Part in Paying YouTubers to Promote Xbox One

In January 2014, there were reports that Microsoft was paying YouTube video creators via Machinima - one of the site's biggest channels - to promote its current-gen console, the Xbox One. And on Thursday, the US Federal Trade Commission issued an order that forces Machinima, Inc. to "disclose when it has compensated 'influencers' to post YouTube videos or other online product endorsements as part of 'influencer campaigns'".

(Also see: FTC Chairwoman Edith Ramirez Chats About Privacy, Security and Why She's at CES)

According to FTC regulations, disobeying a final consent order carries a penalty of up to $16,000 (roughly Rs. 10.6 lakhs) per violation. The Commission's investigation into the unfair practice was announced back in September 2015, but the failure to properly connect the dots between video creators and Machinima led to a settlement. It discovered that Machinima had offered a group of "influencers" access to pre-release versions of Xbox One console and games, and asked them to give a glowing review without disclosing they were being compensated for the same. In return, they were paid $1 (Rs. 67) for every 1,000 views on their videos, up to a maximum of $25,000 (roughly Rs. 16.6 lakhs).

"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 US Bureau of Consumer Protection said in a statement in September. "That's true whether the endorsement appears in a video or any other media."

Although the FTC did send a letter to Microsoft for its part in the debacle, they didn't pursue the software giant further because the matter was being handled by Microsoft's advertising agency, Starcom MediaVest Group. Also, the Commission found out that both Microsoft and Starcom had told Machinima to ask "influencers" to provide the necessary disclosures after they realised the problem, but the gaming channel had failed to do so.

The job of the FTC is to ensure that endorsements are honest and not misleading, and hence it works to regulate any endorser that is being compensated for their "opinions" but isn't being open to its audience. In our Internet age wherein the line gets repeatedly blurred, be it Twitter, Instagram or Snapchat where such schemes widely operate, the FTC has had to issue newer guidelines to keep up with the various methods.

(Also see: CCI Rejects Complaints of Unfair Practices Against Ola, Uber)

In India, the Competition Commission of India (CCI) is in-charge of handling all such matters. The last amendment to its guidelines was done back in 2009, a time when most Internet services were on the verge of infancy. Another amendment bill was brought to the floor back in 2012, but it lapsed after the 2014 general election.