The average American watches around 14 hours of online video per month. But how much do we know about who's paying for all of it?
The Federal Trade Commission on Wednesday announced it will settle with Machinima, an entertainment company that produces content for gamers, for not being clear about how some of its videos were being funded. According to the FTC complaint, Machinima did not properly disclose that some videos were paid for by Starcom MediaVest Group, an ad agency hired by Microsoft to promote the Xbox One. The agency said that a "small group of influencers" were paid thousands of dollars to create endorsement videos for the console and video games, but were not told to disclose where that money came from.
“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,” said Jessica Rich, the FTC's Director of the Bureau of Consumer Protection, in the release. “That’s true whether the endorsement appears in a video or any other media.”
Under the settlement, Machinima promise to disclose how videos are being funded. The firm did not have to pay a fine.
"Machinima is actively and deeply committed to ensuring transparency with all of its social influencer campaigns," the company said in a statement. The company also noted that the videos in question were posted in 2013 -- prior to a major management shakeup at Machinima. "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," the statement said.
Microsoft and the advertising agency Starcom were also held accountable for their actions and received letters from the FTC. But the agency ultimately felt that the practice was more the exception than the rule for these companies. And, the FTC said, Microsoft and Starcom both made efforts to stop the bad practices.
"The companies also quickly required Machinima to remedy the situation after they learned that Machinima was paying influencers without making the necessary disclosures," the FTC release said.
The Federal Trade Commission released updated rules regarding product endorsements in 2013, in part to address concerns that consumers weren't getting clear information about whether some online ads were paid endorsements or independent opinion. That's been a particular problem on social media networks, where character limits and short attention spans leave little room for fine print.
The guidelines clearly state, however, that disclosures must be "clear and conspicuous," regardless of medium.
Last year, regulators settled with Sony and an advertising company it hired to promote the handheld Vita console, saying that the agency asked employees to talk up the product on their personal Twitter accounts without disclosing their connection to the ad agency. The complaint also said that the claims made were overstated.
The FTC also went after advertisers in 2010 for posting fake reviews on iTunes games. But this is the first time the agency has cracked down on video endorsements.
The move stands out as the importance of video, particularly in the gaming world, continues to rise. Video advertising can be expensive to produce, but often is easier to target than television ads and earns advertisers more money than other online ads. Video itself has also emerged as a fast-growing medium on social networks. Facebook and Twitter have focused considerable effort on making video a more shareable medium, particularly by way of Instagram and Vine.
The success of Twitch, now owned by Amazon, has proven the appeal of gaming videos in particular. YouTube also recently launched a gaming-specific platform to gather the millions of hours of game-related content into one hub. Machinima itself has built a small empire, and raised millions in funding.
As with other video stars, however, many of the people who make their living crafting game-related videos rely heavily on sponsorships and advertising to pay the bills. Wednesday's announcement makes clear, however, that those relationships must be fully disclosed to viewers.