[Update] Machinima Agrees To 20-Year FTC Oversight In Settlement Over Deceptive Practices
Following news this morning that the FTC was pursuing action against Machinima for deceptive practices related to an ad campaign for Microsoft, the company has agreed to settlement terms. The agreement includes codifying Machinima’s responsibility for influencers in its network to properly and clearly display required disclosures.
Machinima will be required to implement a process by which it reviews its partners content for appropriate disclosures. These must be present on-screen, in every social media posting, and other communication should there be any exchange of compensation for coverage.
The content network must also review every video tied to a promotion like the Microsoft campaign that touched off this news before issuing compensation. If mandatory disclosures are not present, Machinima must reject the video and inform the influencer. Those content creators will also be ineligible for future promotional opportunities until the offending video is fixed.
In addition, Machinima must perform a surprise re-review of content from its paid influencers within between 14 and 90 days of posting. If during the re-review, the YouTuber has changed the content and isn’t accurately and visibly disclosing the paid endorsement, they get a single warning. Repeat offenses will disqualify them from future earning opportunities.
The FTC has established a monitoring program, and per the terms of the agreement, Machinima must keep five years of review records. The company could be called to produce evidence of compliance at any time.
This settlement will be in effect for 20 years from the most recent complaint (meaning that the FTC could reinstate if Machinima offends again), with Machinima required to present to the FTC a plan for monitoring within three months of the settlement being ratified (which should take place in early October).
Machinima dodged a multi-million dollar bullet, and has been put on notice from the FTC. The Commission will be less likely to settle if this happens again.
Update: In addition to the complaint against Machinima, the FTC issued a letter explaining its decision not to pursue Microsoft over the campaign in question. Microsoft responded to our request for comment on this matter. "We are pleased that the FTC recognized Microsoft has vigorous compliance processes and procedures for sponsored campaigns,” a representative told us via email. We'll continue to update as this story develops.
Original Story (9/2/15, 11:46 a.m. Central):
The Federal Trade Commission has filed a complaint against video content creator network Machinima over failure to disclose endorsements. The company accepted money from Microsoft to help promote the Xbox One hardware launch and related titles prior to public launch. Machinima is accused of inducing YouTube video creators to portray the goods in a positive light without disclosing the non-neutral stance.
The FTC says that Machinima told creators that the videos must reflect positively on Microsoft. The Xbox publisher had the right to request videos be taken down if they weren’t satisfactory and owned the content as work-for-hire (as opposed to the YouTube personalities retaining control).
In short, these were paid advertisements with Microsoft the client and the five Machinima-partnered YouTubers as the advertising firm. One content creator, Tom Cassell of TheSyndicateProject, received $30,000 for two videos. Another, Adam Dahlberg of SkyVSGaming was paid $15,000 for his two submissions.
A second phase of the program opened the door to all influencers. As we reported in January 2014, Machinima required that those selected keep all aspects of the arrangement confidential. This, in turn, created a scenario in which every participant was induced to violate the disclosure rules set forward by the FTC.
Given that the appearance of neutrality was presented by Machinima partners in these videos, the FTC is pursuing action against the company. The Commission accuses the content network of deceptive advertising practices, failure to disclose compensation for endorsements, and false and misleading representation of seemingly impartial statements.
According to the FTC website, Machinima could be fined up to $11,000 for each violation. This would include the ten phase one videos created by the five content creators. It would also include the more than 300 videos uploaded during phase two. If the full weight of the penalty is levied, Machinima could owe more than $3 million.
We’ve reached out to Microsoft for comment on the matter, given that it is that company’s campaign at the heart of this complaint. We’ll update should we receive a response.
When I covered this story 20 months ago, I said that YouTube creators (and Twitch streamers) need to develop their own best practices. However, that is different than violating FTC rules for disclosure. Machinima knew what it was doing by keeping its arrangement confidential. Viewers (and readers) have every right to know whether they are hearing untainted views of enthusiast press and video personalities.
I’m glad to see the FTC taking a stand. I’m also aware that there are YouTubers doing it right, and they should not all be painted with Machinima’s brush.