Correction: The Federal Trade Commission had charged that Machinima had practiced deceptive advertising as part of a formal investigation; it did not formally sue.
The Federal Trade Commission last week scheduled a vote to approve a settlement reached with YouTube multichannel network Machinima Inc. that would bring to an end its deceptive advertising charge against the company.
The FTC alleged Machinima paid its network of video-gaming personalities to post positive reviews of Microsoft Corp.’s Xbox One game console and several unreleased games for the platform in 2013 without disclosing the compensation to viewers.
The company was alleged to have guaranteed Microsoft it would deliver 19 million video views and compensated its creators when their videos hit certain view-count benchmarks. It paid $30,000 to one endorser whose videos brought in 730,000 views, according to the suit.
As part of the pending settlement, the West Hollywood MCN neither admitted or denied any wrongdoing and paid no fines. The company has agreed to submit to a 20-year FTC monitoring period, during which it will have to strictly abide by federal endorsement standards and produce internal documents showing that its YouTube personalities and advertising customers have been informed of their disclosure responsibilities.
Microsoft and the marketing agency running its Xbox One campaign, Starcom MediaVest Group, were not defendants in the charge, though the FTC said they bore some responsibility for the incident.
For its part, Machinima blamed the incident on prior management. The company underwent a couple of rounds of layoffs in 2013, culminating in the resignation of its co-founder and former Chief Executive Allen DeBevoise, who said at the time that the company needed more “professional management.”
“Machinima is actively and deeply committed to ensuring transparency with all of its social influencer campaigns,” a company spokesman said in a statement. “We hope and expect that the agreement we have reached today will set standards and best practices for the entire industry to follow to ensure the best consumer experience possible.”
Machinima, founded in 2000, has raised nearly $92 million in venture capital, most recently pulling in $24 million in a Series D round in February. That round, led by Warner Bros., included an investment from DeBevoise, according to Crunchbase.
Richard McKewen, an FTC attorney who worked on the case, applauded the settlement.
“The ultimate result here is very good for consumers because it will make sure that Machinima will stop deceptive conduct in the future,” he said. “If the connection between the endorser and advertiser isn’t obvious to the consumer, then you have to disclose it.”