Native advertising can be a murky -- and if not done right,
illegal -- business. Just ask Microsoft.
Microsoft recently signed a sponsored content deal with YouTube
network Machinima to promote the Xbox One gaming console. As part
of the deal, Machinima recruited some YouTube creators to post
videos positively promoting Microsoft's product in exchange for ad
One problem: a number of the sponsored videos didn't disclose
that they were sponsored, as
first reported by tech news site Ars Technica. That could draw
scrutiny from an already hawkish Federal Trade Commission, which
issued rules on the matter in 2009.
The incident is more a fumble than foul play, though that may
not matter to regulators. Unlike similar campaigns in the past,
Machinima's contract with creators for Microsoft's campaign didn't
require participating creators to disclose to viewers that their
videos were sponsored, according to a person familiar with the
campaign. And Microsoft didn't make sure such disclosures were
"Microsoft was not aware of the terms and requirements that
Machinima has in place with its content providers as part of this
promotion, and Microsoft didn't provide feedback on any of the
videos. Machinima is no longer posting additional Xbox One content
as part of this media buy, and is requiring the customary language
to be added to the videos that were part of this program indicating
they were part of a paid advertising campaign," the two companies
said in a joint statement provided to Ad Age.
Running sponsored content without a disclosure would run afoul
FTC's endorsement disclosure guidelines. FTC spokesperson Peter
Kaplan declined to comment on any particular company or campaign,
including whether such an incident was under investigation.
The FTC's disclosure guidelines read: "When there exists a
connection between the endorser and the seller of the advertised
product that might materially affect the weight or credibility of
the endorsement (i.e., the connection is not reasonably expected by
the audience), such connection must be fully disclosed."
The FTC has been insistent that companies "need to clearly and
conspicuously disclose" any instances in which content is
sponsored, said Gonzalo Mon, partner at law firm Kelley Drye's
Washington, D.C. office.
A person close to Machinima said an advertiser like Microsoft
would not be expected to know details of the campaign like
disclosure arrangements. Typically for this kind of deal,
Machinima's sales team hammers out high-level terms with an
advertiser like how many views they want of the sponsored content
and at what price per view (in this case, creators were paid $3 for
every thousand views). Then another team inside Machinima that
handles its relationships with creators puts together the
contracts, including details like disclosure terms. If an
advertiser wants to know those details, they can ask; otherwise
they are oblivious.
A Microsoft spokesperson declined to comment on whether the
company asked Machinima for details on the campaign agreements with
creators. That could become an important detail if the FTC were to
pursue an investigation into the campaign.
Mr. Mon cited a
2011 FTC investigation intoHyundai that could serve as
precedent for how the regulatory body might address Microsoft's
campaign. In that investigation of bloggers paid to promote a
Hyundai Super Bowl ad, the FTC found that Hyundai was unaware of
the incentives and had a policy in place that would have barred the
"If [the FTC] were to start an investigation and find that
Microsoft had the right policy in place and once [Microsoft] found
out that it hadn't been followed, they took steps to quickly
rectify that, the FTC shouldn't pursue anything further because
Microsoft will likely have done exactly what the FTC wanted," Mr.
On Wednesday Machinima began notifying participating creators
that it would be adding disclosure statements to the sponsored
videos and expects all videos to carry the disclosure in the next
two to three days, according to a person close to the campaign. If
a creator contested the addition, their video will be removed.
However the disclosure's location may not appease regulators.
Instead of flagging the disclaimer within the video player where it
would be more likely seen, those notices will appear in the videos'
descriptions that appear underneath the player and can be easily
overlooked (check out this
example from the campaign). For example, if a video is embedded
on a site outside of YouTube, the notice would only be viewed by
clicking a button in the top-right corner of the video player.
The level of disclosure may become a sticking point for the FTC
as it gets more aggressive about delineating content and
advertising. Last year the commission introduced new guidelines
stipulating that search engines need to more clearly label the ads
adjoined to search results. And the FTC has been examining the rise
of so-called "native" ads, i.e. ads designed to appear like
non-advertising content such as news articles.
"The more of these [native advertising] examples that are out
there, the more the FTC is going to think this is a priority and
possibly want to regulate it," Mr. Mon said.
Tim Peterson covers digital media for Advertising Age out of the publication's Los Angeles bureau. He previously reported on social media and ad tech for Adweek and worked as a reporter handling the digital marketing beat at Direct Marketing News.