Whether it’s Yelp, Facebook, or Twitter, positive online reviews can make or break a new product or service. No one knows that better than the savvy folks over at Microsoft. So, when Microsoft released the XBoxOne back in 2013 the marketing department tried to make sure it received as many positive reviews as possible by working closely with third party content providers and various gaming review sites and publications. After all, online gaming, especially console-based gaming is very a big business and Microsoft has had its share of marketing missteps with computer gamers.
One of the companies Microsoft worked with was Machinima, Inc., a popular distributor of online videos about computer games that heavily relies on posting videos through is multi-channel presence on YouTube. Game reviewers who blog about their experience and recommendations are often referred to as “endorsers” and most serious gamers heavily rely on endorsers to play new games, post samples of their gaming experience, and make recommendations about whether or not to spend money on the games. Not surprisingly, these endorsers are extremely influential in the gaming world.
Machinima sought to exert its own influence over the endorsers by offering to pay them for positive reviews of the new XBoxOne as well as the games being released for the new console system. The problem was that there was no requirement that the endorsers disclosure to viewers that they were being paid by Machinima to endorse the new products or that there was any relationship between them and Microsoft. Ultimately, the XBoxOne was successful and both Machinima and Microsoft made lots of money. Unfortunately, the Federal Trade Commission was paying close attention to the arrangement and launched an investigation of deceptive trade practices by both companies.
Section 5 of the FTC Act prohibits unfair or deceptive acts or practices in interstate commerce. And, the FTC’s Endorsement Guidelines and implementing federal regulations clearly state that Section 5 applies to endorsements, which must reflect the honest opinions, findings, beliefs, or experiences of the endorser and must “clearly and prominently” disclose material connections between the endorser and the company, product or service that is being endorsed. Both the party doing the endorsing and the advertiser itself are subject to liability for an endorser’s false or unsubstantiated statements and failure to disclose material connections with the advertiser.
In the case of Machinima, Microsoft avoided the FTC’s wrath by taking quick, decisive action in accord with its own comprehensive advertising and endorsement policy. Machinima was not so lucky.
At the end of an extended investigation, Machinima agreed to a Consent Order that will:
(a) prohibit Machinima from misrepresenting the independence of influencers in future marketing campaigns;
(b) require Machinima to mandate the use of prominent disclosures of material connections between endorsers and advertisers and to withhold payment of any endorser who fails to make the required disclosures;
(c) require Machinima to actively monitor future marketing campaigns to ensure compliance; and
(d) require Machinima to create and maintain written records of its compliance for possible future FTC review.
Machinima avoided any monetary fines, but the Consent Order will be effective for a period of twenty years.
Why It Matters. The explosion of online content has made it easier than ever to manipulate consumers and even though the nature of marketing is to enhance a brand and to convince consumers to spend money on it, the profusion of new brands has made it harder than ever to get noticed. Likewise, the fact that virtually everyone spends considerable time online and uses online resources to inform their purchasing decisions means that the opportunity to unfairly manipulate buying decisions has grown as well.
The FTC enforcement action against Machinima merely serves as the latest example of the Commission’s increased vigilance and its focus on embedded or disguised advertising, such as the video content Machinima funded while also encouraging those posting the videos to avoid disclosing their connection to Machinima (and thereby to Microsoft). Ultimately, the FTC decided not to pursue Microsoft for any violations, but the message was clear – The FTC is watching the reviewers more closely than ever.