YouTube Network "Deceived Customers" With Paid-For Xbox One Videos

[UPDATE] Microsoft has now released a statement on the FTC's investigation.

"We are pleased that the FTC recognized Microsoft has vigorous compliance processes and procedures for sponsored campaigns," a representative said in a statement.

The original story is below.

The United States government has determined that some Xbox One video materials from around the time of the system's launch in November 2013 qualified as "deceptive marketing." The Federal Trade Commission (FTC) announced on Wednesday that popular YouTube network Machinima--which claims to have more than 400 million unique subscribers--has agreed to settle charges related to publishing positive videos about the Xbox One without disclosing it had been paid tens of thousands of dollars to do so. Microsoft, meanwhile, is mostly absolved of wrongdoing.

According to the FTC, Machinima paid YouTubers--called "influencers"--to post videos that spoke positively about the Xbox One and some of its games. This is not necessarily a problem, but the FTC alleges that the YouTubers "failed to adequately disclose" that they were being paid for what were presented as objective videos. A pair of YouTubers were paid $45,000 between them to publish two video reviews each, both of which beamed positive messages about Xbox One without stating that they were paid endorsements.

"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," FTC Bureau of Consumer Protection director Jessica Rich said in a news release. "That's true whether the endorsement appears in a video or any other media."

The FTC's complaint also outlines another phase of the paid-for Xbox One campaign. "In a separate phase of the marketing program, Machinima promised to pay a larger group of influencers $1 for every 1,000 video views, up to a total of $25,000," it said. "Machinima did not require any of the influencers to disclose they were being paid for their endorsement."

As part of the settlement, Machinima is required to ensure the people it pays to make videos "clearly disclose when they have been compensated in exchange for their endorsements." This applies to all future Xbox-related materials and everything else.

But does Microsoft bear any responsibility in this case? In short, not really.

"While Microsoft and Starcom both were responsible for the influencers' failure to disclose their material connection to the companies, [FTC Commission] staff considered the fact that these appeared to be isolated incidents that occurred in spite of, and not in the absence of, policies and procedures designed to prevent such lapses," the FTC said. "The companies also quickly required Machinima to remedy the situation after they learned that Machinima was paying influencers without making the necessary disclosures."

We have followed up with Microsoft to see if the company has any further comment to provide. You can read the FTC's full complaint against Machinima here [PDF].

Earlier this year, the UK's Advertising Standards Authority said it has yet to receive one official complaint, despite widespread debate over clandestine paid game promotions on video websites such as Twitch and YouTube.