As brands look for new ways to reach engaged consumers, all trends point to strong growth ahead for in- and around-game advertising. Karen Raugust reports.
In-videogame advertising is still an emerging business model, but all signs seem to point toward fast growth in the months and years ahead. "Many publishers and advertisers are still trying to figure out where this market is going to go," says Michael Cai, director of broadband and gaming at Parks Associates. "But it makes sense. Gamers don't mind advertising if it enhances the realism of the game, publishers want the incremental revenues, and advertisers want to reclaim lost eyeballs. All the forces are working together to point to growth."
In-game ad-serving specialists, such as Massive (owned by Microsoft), Adscape Media (owned by Google), IGA Worldwide and Double Fusion; technology service providers, such as Exent Technologies; and online game publishers and distributors, such as RealNetworks and WildTangent, are among the players in the in-game advertising market.
In an April 2007 report, eMarketer estimated that worldwide spending on videogame-related advertising -- including static, dynamic and rich media in-game ads, product placement and integration, and advergaming -- will grow from $692 million in 2006 to over $1.9 billion in 2011 (a compound annual growth rate of 22.9%). eMarketer estimates U.S. spending at $346 million in 2006, with in-game advertising and advergaming each accounting for about half of that.
The Yankee Group, which pegged the value of in-game advertising at $56 million in 2005 and projects a value of $732 million by 2010 (more than a five-fold increase), estimated that approximately 200 games across all the major platforms contained in-game advertising at the end of 2006.
One indication of the potential of in-game advertising is that several large technology and media companies are entering the space. Microsoft acquired Massive Inc. in May 2006, and said it planned to offer dynamic in-game advertising across its online services, including Xbox Live, MSN Games and MSN Messenger. In March of this year, Google bought Adscape, while Double Fusion's investors include Time-Warner and Hearst.
For developers and publishers, the idea of accepting advertising is almost a no-brainer. A single game can cost as much as $25 million to produce, so generating additional revenue -- as long as it doesn't compromise the game experience--is appealing.
With the rise of TiVo, intensified media fragmentation, the movement of entertainment consumers to new media, and other trends, most advertisers believe mainstream advertising channels are becoming less effective. They're looking for new, measurable ways to reach engaged consumers.
"There's going to be this huge displacement of ad dollars," says Timothy Walsh, evp of publisher relations for IGA Worldwide. "We want to position [in-game advertising] as a real, viable alternative."
Some of the most active advertisers are those that target core gamers (generally males 18-34); leading categories include cell phones, computers and other technology and communications products; movies and entertainment; automobiles; quick service restaurants; and beverages. "In the last couple of years, most of the advertisers have been 'first-mover' brands," says Jennifer McLean, senior director of marketing and client services at Double Fusion. "As it becomes more measurable, you'll see more mainstream advertisers."
Walsh agrees. "It will broaden a lot as time goes on and more advertisers realize, 'this is a great use of our advertising dollar,'" he says.
While most advertisers are targeting core gamers (teen and young adult males), demographics are actually quite broad. All told, 41% of the U.S. population aged 12 and up consider themselves gamers, according to Interpret/Gameasure. Of those, 58% are aware of in-game ads and 37% have seen them while playing. Gamers also tend to play often. Forrester Research finds that two-thirds of online videogamers play more than once a week, as do 50% of multiplayer videogamers and 42% of advergamers.
Studies show that videogames can be an effective setting for advertising. Forrester estimates that recall rates for in-game ads are between 30% and 40%, three to four times greater than for TV ads. Meanwhile, comScore reports that 17% of heavy gamers say in-game advertising would make them consider buying the product or service advertised, while 9% of light and medium players say the same.
Gamers' enthusiasm for ads varies by demographic. For example, 29% of 18-34 males strongly agree they wouldn't mind seeing ads in games if the ads enhanced gameplay, versus 19% of women 35-54, according to Parks Associates. And players of all types are more likely to embrace ads if they get something in return. Parks finds that 38% of males 18-34 and 35% of females 35-54 "strongly agree" that they wouldn't mind seeing in-game ads if it gave them a chance to win prizes. Even more telling, 31% of gamers 13-17 "expect a discount for tolerating in-game ads," as do 58% of females 55 and over.
The Free-for-Play Model
Consumers' desire to receive some sort of value in return for viewing ads has led to a number of initiatives, especially over the last year or so, in which publishers offer ad-supported games for free. Traditionally, publishers make a game available for a free trial period, after which consumers have to pay in order to continue playing. Industry-wide, the conversion rate from free to paid is just 1% to 2%.
Walsh calls the free, ad-supported model "gamecasting," because of its parallels to the free television broadcasting model. Most of IGA's games are for sale, Walsh says, noting that generally players don't mind ads if they boost the realism of the game. If they can buy actual clothing brands or drink an actual beverage brand as part of gameplay, it tends to enhance the experience. But gamecasting would open the games to all players (subject to ratings limitations), whether or not they're willing or able to pay, making the titles more attractive to advertisers. "Which is going to generate more revenues?" Walsh asks.
RealNetworks, which claims the largest casual games network on the Internet, had offered a 60-minute try-before-you-buy model, after which the player had to buy the game for $20, or subscribe to the channel where it appears. Through a partnership with Eyeblaster that launched in June 2006, it currently has 20 free, ad-enabled games (of 400 total) that consumers can play as long as they want if they agree to watch streamed video ads every 10 to 15 minutes, between levels and during natural breaks in the action. One title, ShapeShifter, saw its revenue per download increase by more than 200% after changing to the free ad-supported model. Real is working with 12 of its top developers on this initiative and expects to have 50 ad-enabled games by the end of this year.
Chris Houtzer, director of new media for the games group at RealNetworks, explains that, for advertisers considering in-game advertising, "The biggest question is, 'What does the user think?'" The reason free-to-play models are getting a positive reception from advertisers, he believes, is because they can see how consumers appreciate getting $20 worth of free play along with the ads. "There's a clear exchange of value."
In general, casual games are more likely than hardcore titles to be offered for free, but this is changing. Massive and Acclaim (which has been aggressive in offering free, ad-supported games) partnered in March 2006 to distribute a number of titles through the Massive Network. The first was BOTS, a multiplayer action game that was offered with ads but at no cost to the consumer, a rare situation for that genre at that time.
Exent has partnered with on-demand gaming services in Portugal and Norway to offer free ad-supported games, and it plans to offer similar services in North America, where the current partners for its AdMuse in-game advertising platform and EXEtender digital game distribution platform include Turner's GameTap, Verizon, Comcast and Bell Canada. The free European services have reached 8% to 10% of the broadband audience in their respective countries on a month-by-month basis, according to Yoav Tzruya, coo of Exent. "That's really attractive in terms of overall reach," he says. "Our [services] are completely subsidized by advertising. We're giving consumers the opportunity to play an average of 50 to 100 games for free."
Free ad-supported games offered through Double Fusion have included Ultimate Baseball Online, a multiplayer game for up to 18 people per field, and PowerChallenge PowerFootball, a soccer-themed massively multiplayer online game.
The Measurement Challenge
While there is increasing interest in in-game advertising, it still represents a small portion of advertisers' overall budgets. An American Advertising Federation study in November 2006 found that ad executives planned to spend only 3.6% of their emerging-media advertising budgets on videogame advertising in 2007. Researcher Marketing Sherpa was a bit more positive, estimating that 9% of emerging media budgets would be devoted to videogames this year. That is still a small percentage of total mainstream advertising budgets, of course.
One key challenge is the lack of third-party verification, similar to TV's Nielsen ratings. Most of the leading players in in-game advertising are testing initiatives with companies such as Nielsen and Interpret/Gameasure, but overall the industry has relied mostly on self-reported data. "There's no authoritative research that in-game advertising is a good marketing tool," Tzruya says.
In addition, there are no universally accepted standards for measuring impressions. Companies are working together, through the Interactive Advertising Bureau's In-Game Advertising Committee and other initiatives, to develop standards, but the wide variety of types of ad placements and the nature of in-game ads complicates the process.
Walsh explains that, at IGA Worldwide, an impression has to meet minimum requirements on three different criteria: the amount of time an ad is on the screen, the percentage of the screen the ad covers, and the angle at which the viewer sees the ad (e.g., if they're passing a billboard ad in a racing game, it has less value than a head-on sighting). These guidelines are extrapolated from research created by the outdoor advertising industry. "We're concerned about maintaining a high-value impression," Walsh says. As of March, IGA generated over 200 million impressions per week from 50 ad-enabled games in its Radial network, according to the company, with 10 million customers receiving ad content to date.
One of advertisers' key concerns with traditional media today is the lack of consumer engagement, and games can help them address this problem.
"When you're playing a game, [engaged] is all you are," McLean points out.
Walsh agrees, describing an in-game advertising impression as "lean-forward," versus the "lean-back," couch potato-style impressions associated with television.
According to figures provided by Real and EyeBlaster, the ad interaction rate on the EyeBlaster network grew to 18% in the third quarter of 2006, versus 7% in the first quarter of 2005. From June through September 2006, Real and Eyeblaster had served more than 1.5 million in-game streaming video ads to more than 500,000 unique users, with click-through rates consistently higher than 20% (compared to click-throughs of 2%-3% on traditional browser-based ads). More than 50% of ads were played to completion.
Types of Ads
There are two major types of advertising in the in-game arena -- dynamic and static or hard-coded. Dynamic ads are inserted into cells placed in an online-connected game, with different advertisers rotating through over time. Static ads are hard-coded into the game and remain there throughout the life of the title, whether the gamer is playing online or offline. These are often placements where a particular product is incorporated into the gameplay.
In a dynamic system, exposure is greater in terms of the total number of eyeballs, and advertisers do not need to be involved in advance, which is a benefit to certain marketers that need flexibility, such as film studios. They simply supply a Windows Media, Quicktime, Flash or other ad format, as they would for any Internet ad. The ad is then served in the appropriate place in the game over a certain period of time; ads typically are purchased across the entire network, sometimes within certain demographic or time-of-day parameters (e.g., after school only). "We emulate the TV ad-buying model," Walsh explains.
With integrated or hard-coded ads, the advertiser needs to be involved ahead of time, during game development. The advertiser and its agency provide the digital assets to be used (typically created in a standard 3D animation package) and the developer integrates them into the game. For example, it might build a storefront for an advertiser or have a vehicle identifiable as a certain model.
The in-game ads themselves can take many forms, including videos between levels or while the game is loading up, videos featured within the game (such as on a TV screen or stadium video screen during gameplay), audio clips, 2D billboards or bus stop signs, logos on pizza boxes or other elements, 3D objects, sponsorship of entire levels of games, and so on. It is also possible to create an ad where a gamer can click on a logo and purchase the product portrayed, or receive a coupon or a prize. (Since developers and publishers would rather not have the player leave the game environment, couponing or prizing are likely to be more common than a link-to-purchase mechanism.)
Ads can appear in virtually all game formats -- console and PC, casual and hardcore, massively multiplayer -- although the type and number of ads per game change depending on the genre. There are more opportunities for ad placements within real-world or sports game environments, for example, than in sci-fi or fantasy titles, where a poster for a current-day product would look out of place.
The placement and type of ads also can vary depending on whether the consumer is playing for free or for pay. In a pay-per-download or subscription-based game, developers and ad networks are careful to ensure placements that add realism to enhance play. For free, ad-supported titles, on the other hand, where the consumer has agreed to watch ads in exchange for free play, there is more flexibility for video clips between levels or other more intrusive alternatives, as long as gameplay is not disrupted.
Each ad-serving network has a slightly different strategy, and advertisers are still experimenting with the most effective way to take advantage of the in-game space. Currently, dynamic programs seem to be generating the most attention, but experts believe advertisers will look to all kinds of in-game advertising to get the most bang for their buck. "It won't be entirely dynamic, because that deep alignment with consumers [from an integrated campaign] is very valuable," McLean says.
RealNetworks decided to offer video ads between levels, because that was the format Internet advertisers were used to, making it easy for them to compare effectiveness with other types of campaigns, according to Houtzer. "All the metrics look positive," he comments. Ten to 15 ads, each 15 to 20 seconds, are in rotation each week on the network.
McLean of Double Fusion says the free PowerChallenge PowerFootball game features a multifaceted partnership with adidas that includes everything from signage in the game to tournament sponsorships. Consumers' interaction with the brand even affects gameplay. Players choose between two styles of adidas shoe; one style causes them to play with more precision and the other with a more flashy, powerful game. These attributes are aligned with adidas' brand positioning for the two styles.
Exent, which is licensed to imbed advertising in 140 games from 10 publishers, rolled out a campaign in France in April, for Ubisoft's Rayman, that includes in-game advertising as well as a treasure hunt where users collect four hints, put them together to create a phrase, and then submit that phrase to a website where they become eligible for a prize.
Research has shown that different consumers prefer different types of ads. For example, 49% of males 18-34 prefer product placements, 22% pre-roll ads and 18% in-game bulletin boards, according to Parks Associates. On the other hand, 42% of females 35-54 prefer pre-roll ads, 36% product placements and 13% between-level ads. Those desires mirror industry trends, where hardcore games appealing to the former group are more likely to include product placements, while casual games appealing to the latter are more apt to feature pre-roll and between-level ads.
While in-game ad-serving networks dominate the market today, some researchers predict software publishers and developers like Sony and Electronic Arts will start bringing ad-serving in-house; some already retain a certain amount of in-game inventory for in-house sales. Whatever happens, everyone involved expects to see significant growth in this market in the next five years, as measurement tools get better and advertisers realize the power of in-game advertising to effectively target consumers.
Karen Raugust is a Minneapolis-based freelance business writer specializing in animation, publishing, licensing and art. She is the author of The Licensing Business Handbook (EPM Communications).