Microsoft kills stealth Xbox marketing campaign: Was the FTC on its tail?

Only hours after Microsoft defended a stealth marketing campaign in which it secretly paid for Xbox endorsements on YouTube, the company killed the operation. Did Microsoft do it of its own volition, or was the Federal Trade Commission on its tail?

In the secret deal with Machinima video games network, Microsoft paid people to post YouTube videos of games being played on the Xbox, as long as they did "not say anything negative or disparaging about Machinima, Xbox One, or any of its games." Posters were paid $3 per thousand video views above Machinima's normal payments. Here are two other guidelines for payment, according to the agreement:

3. "You must feature at least thirty seconds (:30) of gameplay/footage of any Xbox One game within the first 2 minutes of Campaign Video

4. "You must verbally mention that you are playing the game shown on the Xbox One console."

The deal had to be kept secret as well, according to the agreement:

"You agree to keep confidential at all times all matters relating to this Agreement, including, without limitation, the Promotional Requirements, and the CPM Compensation, listed above."

The agreement seems to violate FTC guidelines that were written so that people know when endorsements are being paid for. The FTC guidelines say that:

"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...such connection must be fully disclosed."

Yesterday Microsoft pooh-poohed any hint that there was anything wrong with the secret campaign, telling ars technica in part:

"This partnership between Machinima and Microsoft was a typical marketing partnership..."

But then hours later, Microsoft backed off, claiming that it didn't know about the marketing campaign, and killing it. The company told GeekWire:

"Microsoft was not aware of individual contracts Machinima had with their content providers as part of this promotion and we didn’t provide feedback on any of the videos. We have asked Machinima to not post any additional Xbox One content as part of this media buy and we have asked them to add disclaimers to the videos that were part of this program indicating they were part of paid advertising."

That's the exact opposite of what the company first said. First it claimed that the partnership was a "typical" one, but then later said it "was not aware of individual contracts Machinima had with their content providers as part of this promotion." How could it say the partnership was a typical one if it wasn't aware of the contracts?

By having Machinima add disclaimers to the videos saying they are part of paid advertising, Microsoft is complying with FTC guidelines, the very guidelines it initially said it hadn't violated.

So what happened? The FTC may well have been on Microsoft's tail, asking for materials related to the campaign. And if not, you can be sure that Microsoft's lawyers were on the company's tail, because the partnership seemed a clear violation of FTC guidelines.

No matter what happened, though, Microsoft didn't cover itself in roses with this one. Its initial response to the revelation was flat-out wrong, even if it did eventually do the right thing by pulling the campaign and offering full disclosure.

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