FTC and Machinima: Deceptive Advertising Settlement

Who is Machinima?

Machinima is a gaming and media streaming network founded in January 2000, geared towards gamers, creators, and fans with over 12 million YouTube subscribers. The network hosted thousands of YouTube videos over many channels including Realm Games, ETC News, and Inside Gaming. Additionally, Machinima had reach through many social media platforms as well as Android and Apple’s iOS.

What was the Issue?

In September 2015, the Federal Trade Commission (FTC) charged that Machinima engaged in “deceptive advertising.” Apparently, the network paid some of its YouTube channels upwards of $30,000 to produce videos endorsing Microsoft’s Xbox One System. It was not illegal for Machinima to pay for such endorsements; however, its failure to disclose the advertisements was. Without proper disclosure, it appeared that the endorsers were offering their objective opinions on the system, while in reality they were being paid to make those representations. Further, it was discovered that Machinima may have explicitly told the video makers not to reveal that they had received payment in order to maintain the illusion of unbiased reviews.

What Does the FTC’s Order Say?

The order required Machinima to not misrepresent an “Influencer Campaign” as an endorsement made by an independent user or ordinary consumer of the product. By “Influencer Campaign” the order referred to any advertisement or promotion for which Machinima engaged an Endorser to publish an endorsement for compensation. Further, Machinima was required to clearly and prominently disclose any “material connection” between the Endorser and the advertiser of a product.

The FTC’s Endorsement Guidelines: The Legal Framework

The FTC’s authority over deceptive advertising derives from Section 5 of the FTC Act (15 U.S.C. § 45), which prohibits unfair or deceptive acts or practices in or affecting commerce. The FTC has applied Section 5 to influencer marketing through its Guides Concerning the Use of Endorsements and Testimonials in Advertising (16 C.F.R. Part 255), commonly called the Endorsement Guides.

The core principle of the Endorsement Guides is simple: if there is a material connection between an endorser and the advertiser — meaning a relationship that might affect the weight or credibility consumers give to the endorsement — that connection must be clearly and conspicuously disclosed. A material connection includes payment of any kind, free products, employment relationships, family relationships, or other connections that consumers would not otherwise expect.

What Constitutes “Clear and Conspicuous” Disclosure?

The FTC’s current guidance, updated in 2023, provides specific standards for what constitutes an adequate disclosure. A disclosure must be:

• Placed where consumers will notice it: Disclosures buried in a sea of hashtags, placed after lengthy posts, or hidden in profile bios are insufficient. For video content, a disclosure must appear at the beginning of the video, not only at the end, and must be audible if the endorsement is spoken.
• Stated in plain language: Vague or ambiguous terms like “#sp”, “#partner”, or “#collab” do not clearly communicate a paid relationship to most consumers. The FTC recommends clear language like “Paid advertisement,” “Ad,” or “Sponsored” placed prominently at the beginning of a post or video.
• Not obscured by platform features: Platform affordances like the “more” button that truncates post text, or the limited space of a video overlay, do not excuse inadequate disclosure. Endorsers are responsible for ensuring disclosures are visible before any truncation.

Who Bears Responsibility: The Advertiser, the Network, or the Influencer?

The Machinima case demonstrates that liability for inadequate endorsement disclosure can extend beyond the individual influencer to the network or agency that orchestrates the campaign. The FTC has been explicit that advertisers, agencies, and influencer networks all bear responsibility for ensuring proper disclosures. Specifically:

• Advertisers are responsible for ensuring their campaigns include adequate disclosure requirements in influencer agreements and for monitoring published content for compliance.
• Influencer networks and agencies (like Machinima) that broker relationships between brands and content creators are responsible for the disclosure practices of the content they facilitate. Instructing influencers not to disclose a paid relationship — as Machinima allegedly did — compounds liability significantly.
• Individual influencers are personally responsible for disclosures in their own content. The FTC has sent warning letters directly to celebrity influencers and content creators with large followings.

FTC Enforcement Actions Since Machinima

The Machinima case was one of the FTC’s first major enforcement actions in the influencer marketing space, and it established a template for subsequent actions. Since then, the FTC has taken enforcement action against Lord & Taylor (2016) for a paid Instagram campaign that failed to disclose compensation, against Warner Bros. Home Entertainment (2016) for a paid influencer campaign endorsing the video game Shadow of Mordor, and against a number of celebrity influencers directly. In 2022, the FTC issued revised guidance specifically addressing endorsements by social media influencers and introduced a new rule-making process that could lead to civil monetary penalties for first-time violations — a significant escalation from the consent orders that were the primary tool in earlier years.

Practical Compliance for Brands and Influencers

Influencer marketing is now a multi-billion dollar industry, and FTC enforcement risk is real for brands and creators at every level. Practical compliance steps include:

• Include a clear disclosure obligation in every influencer agreement, specifying the exact language and placement required;
• Train influencers and agency staff on FTC requirements before campaigns launch;
• Review published content before and after it goes live to confirm disclosures are present and adequate;
• Never instruct or incentivize influencers to omit or obscure disclosures; and
• Document compliance monitoring in a format that can be produced in the event of an FTC inquiry.

Contact Revision Legal’s Advertising and Internet Law Attorneys

If you are a brand, influencer network, or content creator with questions about FTC endorsement disclosure requirements, or if you have received a warning letter or inquiry from the FTC, contact Revision Legal at 855-473-8474 or complete the contact form on this page. Our attorneys advise clients on advertising compliance, draft influencer agreements, and represent clients in FTC proceedings.