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The Federal Trade Commission said Time Warner Inc.'s Warner Bros. Home Entertainment didn't require users of YouTube, including the very popular channel PewDiePie, to properly highlight that they were paid to promote a Warner Bros. videogame.

The FTC said that Warner Bros. paid an advertising agency to create a so-called "YouTube influencer campaign" for its 2014 game "Middle Earth: Shadow of Mordor." Popular YouTube users agreed to create positive videos about the game—including by not showing glitches—and to promote the videos on social media in exchange for as much as tens of thousands of dollars.

Paying the YouTube users wasn't the problem. The FTC says Warner Bros. didn't go far enough in requiring the users to disclose that they were being paid.

Over the course of the campaign, the sponsored videos were watched 5.5 million times, the FTC said. One video in question, produced by YouTube Channel PewDiePie, has reached 3.7 million views as of Monday.

The nearly 7-minute gameplay video doesn't disclose that Warner Bros. paid for its creation in the video itself. In the text-box description of the video, it states that the content was sponsored by Warner Bros., but that is only if a user clicks on the "show more" button.

The FTC said that the text-box disclosures didn't go far enough and that as a result viewers were "unlikely" to realize that a video was sponsored.

"Consumers have the right to know if reviewers are providing their own opinions or paid sales pitches," Jessica Rich, Director of the FTC's Bureau of Consumer Protection said.

In a proposed settlement with Warner Bros., the studio would agree to make such disclosures in the future and to not misrepresent that sponsored content is the independent views of videogame enthusiasts.

According to YouTube's paid product placements and endorsements policy posted online, users must notify YouTube that a video is paid for but don't necessarily need to notify viewers. YouTube instructs users to comply with local laws regarding disclosures and points them to an FTC website.

YouTube is owned by Alphabet Inc.'s Google.

YouTube, Warner Bros. and PewDiePie didn't immediately respond to requests for comment.

Videos of people playing videogames and providing running commentary as they play have become extremely popular. PewDiePie, who is one of the most popular YouTube users of that type, has more than 46 million subscribers.

In 2014 Walt Disney Co. bought Online-Video Network Maker Studios—which distributes PewDiePie videos—for $500 million in cash and up to $450 million dependent on performance targets.

Meanwhile, Amazon.com Inc. in 2014 bought Twitch Interactive Inc., a popular internet video channel for broadcasting, and watching, people play videogames, for about $970 million in cash.

Write to Austen Hufford at austen.hufford@wsj.com

(END) Dow Jones Newswires

July 11, 2016 13:25 ET (17:25 GMT)

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