WebTV Settles FTC Charges

WebTV Networks, Inc., (WNI) a marketer of Internet access devices, has agreed to settle Federal Trade Commission charges that advertising for the WebTV system was deceptive, in violation of federal law. The settlement will bar WNI from making deceptive advertising claims about the performance capabilities of the WebTV system, require clear and conspicuous disclosure of long distance telephone toll charges that some consumers may incur while using WebTV, and require reimbursement to certain former WebTV Internet service subscribers for long distance charges they incurred in the past. It also calls for a consumer education campaign -- to be carried out in major magazines, in retail stores and on the World Wide Web -- to inform consumers about how to determine the advantages and disadvantages of using Internet access devices as compared to computers.

WNI, a subsidiary of Microsoft Corp., is based in Mountain View, California. It advertises and promotes the WebTV system, consisting of a TV set-top box and an Internet service which, together, allow users to connect to the Internet through a television set -- without a computer. It licenses its technology to Sony, Philips Electronics and Mitsubishi, which manufacture the boxes, called "WebTV Receivers." WNI sells the Internet service, called the "WebTV Network," for a flat monthly fee.

"It's safe to say that most consumers want to know what a product can or can't do before they buy it," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "It's also safe to say that not all Internet access products are created equal. Web TV's consumer education campaign will give consumers the information they need to make an appropriate purchasing decision."

According to the FTC's complaint, advertisements for the WebTV system claimed that it provided access to all of the Internet's entertainment and information and that it was equivalent to a computer with respect to its ability to access Internet content. For example, WebTV ads included statements such as "Complete . . . Internet access" and "WebTV brings all the incredible entertainment and information of the Internet right to your TV." The company also advertised that it would provide upgrades to the WebTV system to keep users current with the latest Internet technology.

The FTC complaint alleges that these advertising claims are deceptive. In fact, WebTV system users are unable to access all of the content on the Internet. Some of the content that is unavailable to WebTV users includes files created using popular data formats or programming languages, such as "late-breaking" or archived news stories provided by Web sites in certain "streaming video" formats, and games or chat rooms in the "Java" programming language. Furthermore, WebTV users cannot download, store, or run software available on the Internet. In certain cases, they also may not be able to display Web pages, open e-mail attachments, or play music files online. The FTC further alleges that WNI's upgrades to the WebTV system have not kept users current with the latest Internet technology, by failing to provide certain commonly used Internet technologies for audio, video, interactivity and multimedia.

The FTC complaint also alleges that ads for the WebTV system failed to adequately disclose that a significant percentage of consumers would incur long distance telephone charges while they were connected to the Internet when using the WebTV system. The agency alleges that the failure to adequately disclose that fact is deceptive.

The proposed settlement will bar misrepresentations about the performance capability of Internet access devices and Internet services. Future claims about the cost of any Internet access product or service must be accompanied by a clear and conspicuous disclosure about possible long distance telephone toll charges. Similar disclosures must also be included on the log-on screen that appears before the product connects to a long distance number, as well as in any introductory kit provided to new subscribers. Certain consumers who canceled their WebTV Internet service within 90 days of subscription and identified long distance charges as a reason for canceling will be reimbursed by the company. Under the settlement, WNI also will establish a toll-free customer service telephone number to handle inquiries about long distance charges. It will also inform advertising agencies, retailers, and manufacturers for WebTV to cease disseminating advertising and promotional materials that contain claims prohibited by the settlement, and make clear and conspicuous disclosures concerning long distance charges.

Finally, WNI will initiate a two-part consumer education campaign that will include advertisements in Good Housekeeping, Modern Maturity and Newsweek magazines and a consumer brochure titled "Getting Online: Using Internet Access Products" that will be made available at retail locations that sell WebTV and on WNI's own Web site. The consumer education ad and brochure explain that, in many cases, Internet access devices are easier to use and less expensive to purchase than many personal computers, and provide other unique benefits. There may be tradeoffs, however, between Internet access devices and personal computers in their ability to provide access to material on the Internet. It is important to compare the capabilities of Internet access devices to each other and to personal computers. Consumers are encouraged to find out what "access" means before they buy. Limitations vary, depending on the device and, in some cases, the service it uses to connect to the Internet. The settlement also includes record keeping provisions to allow the agency to monitor compliance.

The Commission vote to accept the proposed settlement was 5-0. An announcement regarding the proposed consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment for 30 days, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.

NOTE: Consent agreements are for settlement purposes only and do not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.

Copies of the complaint, the proposed consent order, the analysis of the proposed consent order to aid public comment, and the FTC's consumer education brochure, "Using Internet Access Products" are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies worldwide.

Media Contact:

Claudia Bourne Farrell

Office of Public Affairs

202-326-2181  

Staff Contact:

Joel Winston or Dean Forbes

Bureau of Consumer Protection

202-326-3153 or 202-326-2831

(FTC File No. 972 3162)