The Federal Trade Commission concluded Machinima, a hub for video game culture, failed to disclose that some of its Xbox-related content was sponsored.
Machinima, known for viral videos produced from video games, guaranteed Starcom MediaVest Group, one of Microsoft's advertising partners, that its flock of YouTube influencers could attract 19 million views.
Machinima paid its influencers to produce and upload videos endorsing the pre-alpha version of the Xbox One and its games, according to the FTC. Near the start of an Xbox campaign that began in late 2013, Machinima paid two of its YouTube personalities $15,000 for a video that attracted 250,000 views and $30,000 for want that drew 730,000 visitors.
Later on, Machinima promised its influencers $1 for every 1,000 views, and up to $25,000. Machinima also never required that its influencers disclose that videos were sponsored, stated the FTC.
"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," said Jessica Rich, director of the FTC's Bureau of Consumer Protection. "That's true whether the endorsement appears in a video or any other media."
Machinima has agreed to the FTC's proposed settlement, in which the video gaming hub will avoid fines for now at least. The terms of the settlement requires that Machinima avoid engaging in similarly deceptive practices and make it disclosure of sponsorship mandatory for its influencers.
The FTC took a long hard look at Microsoft and Starcom, but decided a warning was all that was warranted for them as well. The commission also concluded that Microsoft had a "robust compliance program in place."
"Since the Xbox One campaign, Microsoft and Starcom have adopted additional safeguards regarding sponsored endorsements, and they have committed to, among other steps, specifically requiring their employees to monitor influencer campaigns conducted by subcontractors in the future," stated [pdf] the FTC.
On top of that, Microsoft and Starcom moved quickly in requiring that Machinima add disclosure to the sponsored content.
The FTC says it conclusion isn't complete absolution for Microsoft and Starcom. It warns that it could take further action if it's in the best interest of the public.
Last year, Sony's marketing of the PS Vita came under FTC scrutiny. Sony was accused of falsely portraying the PS Vita's ability to remotely launch PS3 games and to resume games from the console on the portable.
