It’s one thing to create buzz about a product. But fail to disclose a material connection between an endorser and an advertiser and that buzz can wind up stinging you. That’s the message of an FTC lawsuit against Machinima, a top entertainment network on YouTube that specializes in videogame culture and generates more than 3 billion (with a b) views each month. The FTC says Machinima made undisclosed payments to influential gamers in exchange for creating videos that hyped Microsoft’s Xbox One and newly released games.
The complaint tells the story of buzz gone bad. In mid-2013, Machinima pitched Microsoft (and Microsoft’s ad agency Starcom) on ways it could help with the anticipated launch of Xbox One and three companion games. To “build early buzz,” Machinima suggested one of those “It seemed like a good idea at the time” campaigns. The company would approach big names in the gaming world – “influencers” – and “incentivize” them to upload YouTube video reviews of Xbox One. What if the influencers weren’t crazy about the products? Not to worry because Machinima also promised that the influencers wouldn’t portray Microsoft, Xbox One, or the games “in a negative manner.” In fact, if Microsoft wasn’t happy with what was being said, it could ask Machinima to take down any of the videos.
How explicit was Machinima in telling influencers what the videos should include? In a word, very. For example, Machinima told the gamers to feature a “montage of past Xbox 360 footage, talking over a game you’re playing on the Xbox 360, etc.” and “two to three talking points detailing what features you’re looking forward to in the Xbox One.” How did Machinima “incentivize” those gamers? It wasn't chump change, that's for sure. For example, one gamer got $15,000 while another pocketed $30,000.
The "incentivizing" didn’t end there. In the second phase of the campaign, Machinima recruited other gamers to make similar videos, paying them a buck for every 1,000 views, up to $25,000. Machinima was similarly exacting about the content of their reviews. Gamers had to include at least 30 seconds of gameplay within the first two minutes and a link to either the Xbox One YouTube Channel or another approved channel. Tote ‘em up and the influencers uploaded 300+ videos that generated over 30 million views.
While Machinima was mandating the p’s and q’s of what the videos had to include, the FTC says the company didn’t tell the gamers to disclose that Machinima was paying for their endorsements. The complaint alleges that Machinima falsely represented that the reviews reflected the independent opinions of impartial videogame enthusiasts when they were really part of Machinima’s global ad campaign to promote Xbox One sales. The FTC also charged that Machinima’s failure to disclose – or failure to adequately disclose – that people who posted the reviews were compensated for their endorsements was a deceptive practice.
To settle the case, Machinima has agreed to modify its practices regarding influencer campaigns. One big change: The company will clearly and prominently disclose any material connection between an endorser and an advertiser. What’s a “material connection”? The proposed order defines it as “any relationship that materially affects the weight or credibility of any endorsement and that would not be reasonably expected by consumers.”
If you use endorsements, social media, or similar content in your product launches or marketing campaigns, here are tips on backing up the buzz.
Advertisers, endorsers, and others involved in promoting products must disclose material connections. If a relationship between an advertiser and an endorser would likely affect how a consumer evaluates an endorsement, be upfront about the relationship. That’s the standard even if the endorser genuinely likes the product. An interesting sidebar to this settlement is the FTC staff’s letter to Microsoft and Starcom outlining the reasons why they weren’t named in the lawsuit. Decisions like this are very fact-specific, but the letter emphasizes the importance of robust compliance programs, staff training, and effective follow-through.
Use straightforward language to disclose a material connection. Complying with the law isn’t a matter of pointing a magic wand and incanting Disclosuris connectium materialis. An effective disclosure doesn’t have to be legal mumbo jumbo. In fact, it shouldn’t be legal mumbo jumbo. A good rule of thumb is to use the same kind of truthful, conversational tone you’d take if you were explaining the relationship to a friend.
The disclosure needs to be where consumers will see it. If the disclosure of information is necessary to prevent deception, it has to be “clear and conspicuous.” That’s FTC 101. FTC staff addressed a related point in the revised brochure for business, The FTC's Endorsement Guides: What People are Asking:
Q. If I upload a video to YouTube and that video requires a disclosure, can I just put the disclosure in the description that I upload together with the video?
A. No, because it’s easy for consumers to miss disclosures in the video description. Many people might watch the video without even seeing the description page, and those who do might not read the disclosure. The disclosure has the most chance of being effective if it is made clearly and prominently in the video itself. That’s not to say that you couldn’t have disclosures in both the video and the description.
In other words, fineprint footnotes and obscure hyperlinks won’t do the trick. Nor will it be sufficient to bury the important information on an unrelated page. (When was the last time you clicked on a link that said “Disclosure” or “About”?)
Smart advertisers monitor what endorsers are doing on their behalf. The proposed order applies just to Machinima, but businesses eager to avoid legal quicksand can take some tips from how that company will be changing its practices. For example, Machinima will have to give influencers a plain-language statement of influencers’ responsibility to clearly disclose any material connection and get a signed acknowledgement from them. In addition, before compensating an influencer, Machinima must verify that any online video endorsement includes required disclosures. And after that, Machinima has to follow up to make sure that necessary disclosures are still there.