Microsoft’s partnership with Machinima to pay YouTube users to promote the Xbox One has generated controversy, and raised some questions this week. While the practice isn’t unusual itself, leaked documents appeared to show that YouTube stars were being asked to stay quiet about deals to promote and mention the Xbox One in videos. Machinima and Microsoft are now acknowledging the controversy, and spokespeople for both companies sent the following joint statement to The Verge:

"This partnership between Machinima and Microsoft was a typical marketing partnership to promote Xbox One in December. 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."

While it’s clear Microsoft is involved in the promotion, Machinima appears to be shouldering the blame and denying that the confidentiality clause covers the existence of the promotion itself. There’s good reason for Machinima to deny the confidentiality rules: FTC guidelines state promotions must be disclosed "clearly and conspicuously" by bloggers who are paid to endorse products.

The source of the full legal agreement has also posted details of similar promotional campaigns that existed last year. While the Xbox One promotion appears to contain no instructions to disclose the advertisements in videos, campaigns for E3, PAX, and Comic-Con all include notices to disclose the advertising campaign. We’ve reached out to Machinima and Microsoft to clarify whether any similar wording was sent out to YouTube users involved in the Xbox One promotion, and we’ll update you accordingly.

Update: Machinima sent a second statement to The Wall Street Journal further explaining the situation, stating that it usually requires channel partners to make clear they're involved in a promotion and apologizing for the controversy:

"That didn’t happen here and we’re evaluating why," the statement said. "All participants are being asked today to include our standard language going-forward. We apologize for the error and any confusion."

Update 2: Microsoft tells us that it is halting the program, and trying to bring existing videos in line with the FTC's requirements. "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," writes a spokesperson.