To say that Microsoft’s Xbox One has been an enormous success is a bit of an understatement. By January 2019, the video game console had sold more than 41 million units, and at a little more than $200 a pop, that’s a lot of dough and a clear sign of its popularity.
But for all of the Xbox One’s success, in 2015, a marketing campaign for the console encountered a roadblock when it ran up against the regulations of the Federal Trade Commission (FTC). Videos endorsing the Xbox One that influencers posted on YouTube were at the heart of the complaint when the FTC charged California-based Machinima, Inc. with engaging in deceptive advertising.
The FTC charged that when Machinima, an online entertainment network, paid influencers to post YouTube videos as part of an Xbox One marketing campaign, the company failed to require the influencers to disclose that they were compensated for what appeared to be independent, objective reviews of the product.
As part of the marketing campaign, a group of influencers received access to the Xbox One console and video games before they were released so each of them could create and upload two endorsement videos. The FTC charged that two of the influencers received $15,000 and $30,000 for producing and uploading two videos that together received close to one million views. During another phase of the campaign, Machinima promised to pay other influencers $1 for every 1,000 views of their videos, up to $25,000.
As a consumer protection agency, the FTC works to prevent consumers from being misled by deceptive advertising practices. So, if well-known gamers sing the praises of a console like Xbox One, consumers need to know if they’ve been paid to do so.
The idea is that being paid to review a product by the company that makes it or a member of its social media network might affect how honest or impartial an endorser is about the product and the experience. The endorser has essentially created a paid ad, not an independent review.
Settling the Charges
Machinima agreed to settle the FTC charges by ensuring that its influencers clearly disclose when they’ve been paid for their endorsements. The company, considered the advertiser, agreed to disclose any material connection it might have with endorsers. A material connection is a relationship, such as a family tie, payment for posts or other business ties that an endorser, such as an influencer has with an advertiser.
Although Starcom MediaVest Group, Microsoft’s ad agency managed the Xbox One marketing campaign, the FTC sent a letter to the two companies that closed its investigation into them. The Commission explained that both Starcom and Microsoft were responsible for ensuring that the influencers disclose their material connections to the companies.
However, the FTC concluded that the incidents seemed to be isolated and that the companies had procedures and policies in place to prevent such failures to disclose. Furthermore, when Microsoft and Starcom discovered that Machinima was paying the endorsers without meeting the disclosure requirements, the companies promptly required Machinima to correct the failures.
The FTC prohibited Machinima from characterizing endorsers in influencer campaigns as independent reviewers of the service or product being promoted. The Commission also ordered that Machinima clearly and prominently disclose any material connection that might exist between the advertiser and the endorser of the advertiser’s product.
The FTC order also specified that Machinima was to notify influencers if they failed to include adequate disclosures in their endorsements and to withhold payment from them until they complied with disclosure requirements. Machinima was also to continue to monitor any relevant video uploads accessible to the public from the influencer.
Fortunately for influencers, brands and marketers who want to make sure they’re complying with disclosure requirements, the FTC guidelines for disclosing material connections aren’t difficult to find or understand. Taking the attitude that most other brands and influencers don’t appear to be complying, so it’s fine to ignore the rules isn’t a wise move. Although monitoring social media marketing compliance is an enormous undertaking for the FTC, the Commission’s recent actions to ensure compliance by major brands including Lord & Taylor and Warner Bros. show it’s serious about enforcing the laws.
The Commission recently issued updated guidelines about how the rules for online endorsements play out for influencer marketing and social media. The guidelines include common questions and answers that address the key points of disclosure in plain language.
The guides cover a lot of ground, including topics like how disclosure requirements affect social media contests, endorsements on social networking sites, product placements, online review programs, network or affiliate marketing, employee endorsements and expert endorsers. They also give examples of where disclosures should and should not be placed and how they should be worded to ensure compliance.
For example, although it might be tempting to obscure disclosures at the end of a long stream of hashtags or make them viewable only by clicking a link, these sorts of practices can get advertisers in trouble with the FTC. Advertisers are advised to think of disclosure placement in the same way that they do marketing messages. The disclosure should be unavoidable for consumers—the first thing that they see.
What Advertisers Need to Know
One of the most important points for advertisers to know about the FTC guidelines is that they are ultimately responsible for the claims others make about their products or services. If an advertiser pays an influencer to post a review of their product, the advertiser must require the influencer to clearly and conspicuously disclose payment or any other material connection. The influencer must also present an honest review of the product and have actually used it.
It’s up to advertisers to make sure that they and anyone else in their social media-marketing network, including influencers, public relations firms and affiliates are up to speed on the FTC guidelines for disclosure. That means making sure reasonable training programs are in place to educate members of the network and periodically checking up on their social media posts to ensure ongoing disclosure compliance.
When the FTC thinks an advertiser is or has been violating the law, it issues an administrative complaint when it believes that going forward with one is in the public interest. Advertisers must obey the final consent orders from the FTC. If they don’t, the Commission could penalize them with hefty fines.