[Update] Microsoft And Machinima Respond To Concerns Over Advertising

Update: Microsoft has provided us with an additional comment regarding the sponsorship deal with Machinima. The earlier comment was made jointly, but Microsoft is now distancing itself from Machinima.

"Microsoft was not aware of individual contracts Machinima had with their content providers as part of this promotion and we didn’t provide feedback on any of the videos," a Microsoft representative told us via email. "We have asked Machinima to not post any additional Xbox One content as part of this media buy and we have asked them to add disclaimers to the videos that were part of this program indicating they were part of paid advertising.”

The move on Microsoft's part to require disclaimers is a step in the right direction. If this practice continues, other advertisers and sponsors would be wise to do the same. 

Original Story:

Yesterday, news came out about an advertising sponsorship between Microsoft and Machinima related to content focused on the Xbox One. The participation guidelines for YouTube content creators included showcasing at least 30 seconds of an Xbox One game, direct mention that the title is on Microsoft's new system, and specific tagging and annotation.

In return for this, Microsoft offered $3 for every 1,000 views up to a cap of 1.25 million. That's a maximum payout by Microsoft to Machinima of $3,750 spread among the creators of eligible videos on a first-come, first-served basis.

Reaction across social media and a number of publications cited two issues of concern. The first is that YouTube personalities were accepting money for sponsorship, a practice that seems to be common. The second is a confidentiality clause in the Machinima agreement, which appears now to have been misinterpreted as a gag order preventing participants from disclosing the existence of the deal.

In fact, the confidentiality agreement is standard not only for sponsorship, but for YouTube as a whole. It keeps confidential the value of sponsorship and advertising arrangements. The specific financials aren't a required disclosure, as the law views any money changing hands as influencing content.

The mismatch raised alarms because of Federal Trade Commission (FTC) guidelines, which are strict with regard to disclosure of advertising and sponsorships. Failure to do so could be considered  "payola" (which has plagued the radio industry), punishable with a fine and jail time. A joint comment from Microsoft and Machinima firmly deny any gag order and make clear what was so confused yesterday.

"This partnership between Machinima and Microsoft was a typical marketing partnership to promote Xbox One in December," the comment from the pair reads. "The Xbox team does not review any specific content or provide feedback on content. Any confidentiality provisions, terms or other guidelines are standard documents provided by Machinima. For clarity, confidentiality relates to the agreements themselves, not the existence of the promotion."

The onus falls to the personalities to accurately and fully disclose that their content has been sponsored (again per the FTC). This information is crucial for consumer protection, as knowing when a supposedly trusted source is speaking for themselves and when they are doing so for a paying sponsor is vital information when evaluating the trustworthiness of that source.

[Source: Ars Technica, Pastebin, Federal Trade Commission]

Our Take
Readers and viewers need to know when sponsorship is in play to make informed decisions about what media they consume and which products they purchase. Failure to disclose these arrangements impairs the trust that must exist between the originator of news and critical content and those that consume it.

It's up to the YouTube community (broadcasters and viewers) to take this event and learn from it. Personalities need to take responsibility for their content and understand the ramifications of financial incentives from corporations. Viewers need to exercise their right to demand transparency.