Paid Promotion: Machinima and Xbox One campaign appears to run afoul of deceptive advertising laws

By Michael Carney , written on January 21, 2014

From The News Desk

(Updated below to include additional comments from Machinima and Microsoft.)

Microsoft and Machinima have found themselves in a brouhaha over the last few days stemming from an ill-conceived (and ill-received) brand advertising campaign. Microsoft, eager to prop up sales of its struggling Xbox One console and to inject a little cool factor along the way, teamed up with Machinima’s roster of YouTube star gamers for a bit of native advertising. Unfortunately, many consumers feel the companies ran afoul of ethical lines. Some suggest the companies may have violated a few laws. Both deny any wrongdoing.

This story began when Machinima sent a select group of its YouTube influencers an email, first leaked on NeoGaf, offering them a $3 CPM bonus (increased view based advertising rates) for participating in a promotional campaign around the new Xbox. The companies previously offered a $1 bonus under a similar promotion beginning around the Xbox One’s November launch. Under the current campaign, creators are asked to publish videos of 60 seconds or longer, containing a minimum of 30 seconds of Xbox One gameplay.

Had the request stopped there, the companies would have been in the clear. Where they may have crossed the line was in requiring that any discussion of the console be positive and that participants in the promotion refrain from disclosing it publicly.

It may be considered disingenuous for “celebrities” to endorse products they don’t actually believe in, but this is hardly unheard of. Madison Avenue was practically built on the practice. According to the Federal Trade Commission (FTC), however, it’s illegal for “experts” to lie when endorsing a product, and endorsers must disclose when they are paid.

In the email outlining the terms of the Machinima-Xbox promotion, however, the companies write:

You may not say anything negative or disparaging about Machinima, Xbox One or any of its Games in your Campaign Video.

Machinima’s affiliates must also sign and agree to the terms of a Non-disclosure Agreement. The confidentiality portion of the company email reiterates this fact and includes the line:

You agree to keep confidential at all times all matters relating to this Agreement, including, without limitation, the Promotional Requirements, and the CPM Compensation, listed above.

Unfortunately, the FTC endorsement and testimonial advertising laws would qualify such practices as deceptive advertising. Per Section 255 of the FTC’s “Guides Concerning the Use of Endorsements and Testimonials in Advertising:”

Endorsements must reflect the honest opinions, findings, beliefs, or experience of the endorser. Furthermore, an endorsement may not convey any express or implied representation that would be deceptive if made directly by the advertiser...

When there exists a connection between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement (i.e., the connection is not reasonably expected by the audience), such connection must be fully disclosed...

Where the net impression created by the endorsement is that the advertised product is superior to other products with respect to any such feature or features, then the expert must in fact have found such superiority.

Lest there be any confusion that this constitutes an endorsement and advertiser relationship, the FTC defines an endorsement as:

...any advertising message (including verbal statements, demonstrations, or depictions of the name, signature, likeness or other identifying personal characteristics of an individual or the name or seal of an organization) that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser, even if the views expressed by that party are identical to those of the sponsoring advertiser. The party whose opinions, beliefs, findings, or experience the message appears to reflect will be called the endorser and may be an individual, group, or institution.

Because the promotional content is designed to mimic what Machinima creators normally post, namely gameplay and game reviews, and not all content produced by these channels is sponsored, a disclosure would have been appropriate. Further, if Microsoft provided the game consoles and associated games to these creators free of charge, something that remains unclear, that too would have required a disclosure under federal law.

It would appear that the confidentiality and positive messaging terms in the Machinima-Xbox promotion expressly obligates YouTube endorsers to avoid making required disclosures around compensation and, potentially, to present an overly positive opinion of the reviewed product.

In a joint statement provided to PandoDaily, the companies suggest that the only non-disclosure requirement was that the affiliates not disclose the terms of their compensation, i.e. how much they were paid, rather than the existence of such a relationship. The statement reads:

This partnership between Machinima and Microsoft was a typical marketing partnership to promote Xbox One in December. 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.

It’s possible this was simply a case of tone-deaf marketing rather than malicious intent, stemming from an oversight when using the companies’ standard confidentiality documents rather than expressly writing new documents for this particular initiative. This, though, is splitting hairs. Microsoft and Machinima should have known enough to expressly require participants in this promotion to disclose the nature of the underlying relationship.

By trying to maintain excessive control over the message shared by their endorsers, both companies appear to have lost sight of their real objective, which is to build authentic and meaningful relationships with consumers. Bribery and deception is not a great place to start.

None of it excuses the company’s response, which was effectively “Nothing to see here, move along.” Both Microsoft and Machinima would have been well served to issue a mea culpa and clarifying statement. It could have been as easy as saying:

Our bad. We never intended to hide the existence of our promotional relationship with YouTube creators. We have since amended the relevant documents and communicated with our partners to reflect our stance in encouraging content creators to disclose any compensation received. Our goal from the beginning was only to help deliver the Xbox One experience to as many consumers as possible.

Rather than do this, the companies instead are thus far just hoping this will just go away.

According to my sources at Machinima, none of whom would speak on the record, the company seems as surprised by this as anyone. This type of promotion is not new, although disclosures have always been prominently featured in the past, I'm told. Why this wasn’t the case this time around remains a mystery. Regardless, I expect to see a further mea culpa in the near future.

Update (01.21.14, 1:33PM PST): A Machinima spokesperson provided the following statement after publication of this story.

We execute large network wide activations routinely and, where part of a promotional campaign, typically require channel partners to include certain language in their video content relating to the promotion.  That didn't happen here and we're evaluating why.  All participants are being asked today to include our standard language going-forward.  We apologize for the error and any confusion.
Update (1.21.14, 10:24PM PST): The Verge published a statement attributed to a Microsoft spokesperson, which reads:
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.

[Image via MajorLeagueGaming]