Word of the partnership came out earlier this week via Ars Technica. According to leaked documents, well-known Machinima YouTube video creators were paid a bonus by Microsoft for highlighting the Xbox One in their video content. However, the terms of the agreement stipulated that Youtubers not disclose they were being paid to promote the console. In other words, they were getting paid to pimp the system but were told not to tell anybody -- nor say anything untoward about the Xbox One.
“You may not say anything negative or disparaging about Machinima, Xbox One or any of its Games,” reads one document.
The problem? This sort of arrangement may well fly in the face of FTC guidelines regarding how promotions and endorsements are conducted.
Microsoft and Machinima shrugged off the controversy.
"This partnership between Machinima and Microsoft was a typical marketing partnership to promote Xbox One in December," the companies initially said in a joint statement. "The Xbox team does not review any specific content or provide feedback on content. Any confidentiality provisions, terms or other guidelines are standard documents provided by Machinima. For clarity, confidentiality relates to the agreements themselves, not the existence of the promotion."
Microsoft has since tried to back away from the kerfuffle, tossing Machinima under the bus in another statement.
"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," they said. "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.”
The companies say the terms did forbid YouTube personalities from mentioning the specifics of the promotion, but they were free to mention the connection to both companies. Based on that, they say, the promotion did not violate the FTC's guideline that requires the person endorsing a product to disclose any connection to the seller.
However, Eric Schiffer, chairman of ReputationManagementConsultants.com, isn't convinced the companies are out of the woods with the FTC. And either way, he says, the companies have hurt their standing with customers.
"That is not a typical nor accepted practice today in the arena of online or digital marketing," he says. "I think they are in a state of denial. ... I think the most important thing is they need to accept responsibility and come clean and nip it in the bud by finding whatever division lead made the decision and cut ties with that person immediately. I'm sure the senior leadership of Microsoft would not have approved such a practice."
Gamers have short memories for controversy when big titles hit, though. And with the release of the massive Xbox One game Titanfall looming, even Schiffer agrees that any anger from this issue isn't like to impact sales of the title or the console.
However, he adds, it could have a ripple effect and raise questions about how the company has marketed other products.
"The most important thing any brand can do is maintain its trust with consumers," he says. "[Microsoft and Machinima] need to look in a mirror and gather the facts, then be transparent with the public. I don't think they've done that."