Fair Game by Chris Trayhorn, Publisher of mThink Blue Book, July 1, 2006 In-game advertising offers geotargeting of a captive and highly lucrative audience. National advertisers looking to reach mass audiences have had few choices online. The highly fragmented Web lacks properties that can match the millions of viewers who routinely view network TV. However, online gaming (not to be confused with online gambling) sites are now accruing the millions of eyeballs that advertisers such as Ford, Procter & Gamble and Coca-Cola salivate over. Game publishers can offer interactivity and target marketing that is not possible through broadcast channels, and advertisers are now redirecting portions of their ad spends from broadcast to video games. In-game advertising provides access to a rapidly growing audience of gamers of all ages that spend the equivalent of two workdays per week (often in three- to five-hour bursts) dealing, driving and detonating through consoles, PCs and Internet-only games. During December 2005, more than 27 million people visited game site MiniClip.com, which features casual games (trivia, cards), shooters and role-playing games, according to comScore Media Metrix. Unlike content or search sites where visitors routinely look at a few pages before moving on, game sites often retain a visitor for as long as it takes to watch a miniseries, enabling advertisers to repeatedly pitch their brands to consumers. According to Nielsen//NetRatings, people playing games on the Electronic Arts site spent more than four hours and ten minutes per session on average during February 2006. In 2005, the ratings service gave further legitimacy to video game advertising by beginning to measure its audience reach. Delivering a Focused Audience Ads delivered to video games (via PCs or connected consoles such as the Xbox) will have greater retention because unlike TV viewers, game players tend not to multitask, according to Nicholas Longano, president of new media at online gaming company Massive, Inc. Players who are being chased through the galaxy by aliens or are racing their fellow avatars to capture booty aren’t likely to be simultaneously talking on their cell phones or surfing the Web. Unlike television ads that viewers with digital video recorders are increasingly skipping over, gaming ads are always seen, according to Longano. “Advertising in video games is TiVo-proof,” he says. Longano says the ads that are displayed on Massive’s network of 137 games are guaranteed to be onscreen for a minimum of 10 seconds. The company’s network features ads from “65 blue chip” advertisers, he says, and features games from Acclaim Entertainment, Ubisoft, and Vivendi Universal Games. In May, Microsoft acquired Massive, and said that it would integrate Massive’s technology into its adCenter advertising platform. Advertisers go where the people are, and the masses playing games online are an attractive audience to pitch. While the dominant demographic of gamers is the desirable 18- to 34-year-old male audience, the wide variety of games are attracting a diverse membership, according to Alexis Madrigal, a research analyst with DFC Intelligence. Action games tend to attract younger male players while casual playing of puzzle, card and word games have made females over 30 the fastest-growing segment of the online gaming world. Casual game sites are also increasing the titles aimed at mature adults and children. Game enthusiasts are also more likely to interact with what they see online than the average Web surfer, according to Alex Kakoyiannis, managing partner of consulting firm Navigame. “Gamers are a participatory group … the whole game experience is based on interaction and participation, [so they exhibit a] different behavior.” Revenue from advertisements delivered online to video games is expected to rise from $192 million in 2005 to $248 million this year, according to Madrigal, who says ads in offline games were not included in his calculations. The majority of ad dollars are spent on casual games and PC-based titles played online, according to Madrigal, as the more sophisticated console games have yet to fully exploit connected game play. Ads at Every Turn Unlike commercial television that displays ads after several minutes of programming, game sites can almost continually interject ads before, during and after gaming. In-game ads are woven within the game to appear natural to the environment, showing up on virtual billboards, posters and video screens on the online world. Navigame’s Kakoyiannis says the ads have to be contextually relevant to the game and the audience. “You shouldn’t see a product targeted to women in a shooter,” he says. For example, Tycoon City from Atari features an ad for Toys”R”Us in downtown Manhattan, where the company has a real-life presence. Similarly, Take-Two Interactive Software’s Major League Baseball 2K6 will feature rotating ads behind the backstop and on the facades, just as they appear in the real ballparks. Jonathan Epstein, a member of the board of directors of Double Fusion, which develops technologies for online advertisers, says in-game ads are tracked to verify their delivery. Data is collected to show how many times and for how long within a game session an impression (for example an ad in the form of a virtual billboard) is served. Epstein says it’s also important that the ad-serving system prevents competing products (such as Coke and Pepsi) from being advertised within close proximity or time frame within a game. The typical CPM for in-game ads is between $20 and $25 for one-dimensional ads, and from $40 to $50 for three-dimensional ads, according to Epstein. In-game advertising does not disrupt game play and limits interactivity to before and after a game, says Epstein, who has collaborated with publishers including Midway Games and Crave Entertainment. For example, clickable video ads called “level-stitials” can run after a level of a game is completed, or static ads can be placed on exit screens or leaderboards at the conclusion of a game, he says. The various formats and locations for displaying ads provide vast inventories. With an average of 20 to 30 ads displayed per game-hour, according to Epstein, games that average 90 million hours of game play per month could potentially display 2 billion ads per month. Most game companies have their own formats for ads, but there is an interest in developing sizes compatible with the standards set by the Interactive Advertising Bureau. Product placement within games is becoming a popular method for game developers to offset some of the development cost. For example, makers of racing games will partner with an auto manufacturer to make their vehicles the default car. However, sometimes (as with the rhetorical question about the chicken and the egg), it is difficult for gamers to determine whether game development proceeds product placement, or whether the prominent display of well-known brands is the genesis of the game itself. Another example of a product being placed within games includes Ubisoft’s upcoming title CSI: 3 Dimensions of Murder, which will feature credit card company Visa’s fraud-monitoring system to track down the bad guys. “Advergaming” is the term given to games that are developed specifically to showcase a product, and where the advertiser subsidizes the development cost. Atom Entertainment created Hemi Highway to showcase the Dodge Charger, and the company recently launched the Shockwave.com Game Studios division to focus on advergame development. Advergaming finances the creation of casual arcade-style games where the graphics and story are not as sophisticated as console games, but the often-humorous game play can nonetheless become addictive. “Building a custom game is a minimum of a $200,000 investment,” Lee Uniacke, vice president of sales for Atom Entertainment, says. Atom Entertainment’s advergaming group links advertisers with game developers who create titles around a product. “It forces them to be c reative within a structure, and this enables their true creativity to come out,” says Uniacke, of the game development process. Uniacke says the amount of revenue the company is generating from advertising has tripled this year over last, thanks in part to the Shockwave In-Game Network (SIGN), which launched in November. SIGN games includes five titles such as Circuit Racer and H2Overdose that display in-game advertisements and require a minimum of a $30,000 spend from advertisers, according to Uniacke. Online gaming sites generally require users to register to play, giving publishers the ability to target ads to specific demographics. Shockwave.com’s ad-serving system can control ad campaigns so that they only appear before 13- to 21-year-old males, and the company also can geotarget campaigns to specific regions, according to Uniacke. Uniacke says advertisers can test-market campaigns online and get instant data on their effectiveness before rolling out a national campaign through broadcast. “Instead of spending four months on a campaign, you can get feedback within a day,” he says, adding that the cost is analogous to an $8 CPM. Displaying ads around the games (on login screens and on the borders of online games) can also be lucrative for publishers. For example, casual game site Pogo.com served nearly 950 million ads during February 2006, according to Nielsen//NetRatings. Gaming company WildTangent offers advertiser sponsorships of casual games such as Polar Bowler and Tornado Jockey, according to Bill Clifford, general manager of advertising platforms. Sponsors receive a 15- or 30-second pregame video advertisement, Clifford says. To get developers interested in creating games that feature advertising, WildTangent shares the ad revenue with the game’s creators, says Clifford. Typically developers would get paid when a consumer chooses to pay to download a game, but receive no compensation when gamers play the free trial version online. WildTangent’s program can increase the developer’s compensation “by 10 times over what they were receiving,” he says. Earlier this year WildTangent announced a program where gamers can earn virtual incentives by watching ads. The companies’ virtual “WildCoins” can be used to purchase additional game play time with the company’s pay-for games, or they can be redeemed within games for health points or weapons. WildTangent is extending the virtual booty offering offline, as consumers who purchase real goods from partners including Coca-Cola will receive WildCoins coupons that can be used online, according to Clifford. Ads Cut Game Costs Many online casual games and massively multiplayer online (MMO) games are financed by subscription fees, but in-gaming advertising is likely to supplement or even replace this revenue stream. Worldwide online game subscription revenue grew 43 percent to $1.84 billion in 2005 and could reach $6.8 billion by 2011; according to video-gaming market research firm DFC Intelligence. Once games reach more than a million registered users, publishers could lower the subscription fees or make the games free by attracting national advertisers. Popular MMOs Shadowbane and Anarchy Online now offer free levels of the game that are ad-supported. DFC Intelligence’s Alexis Madrigal says games such as Runescape 4, which currently has 4 million subscribers who each pay $5 a month, could increase reach and revenue if advertising were integrated. “You could squeeze $5 worth of advertising out of each user easily,” says Madrigal. However, fantasy role-playing games located in alien worlds or occurring during the days of yore aren’t natural locations for conventional ads. Madrigal also warns that publishers that display online ads through console or PC games risk alienating their audience. “If you are paying $50 for a game and then $15 a month for a subscription, the tolerance for ads is pretty low,” he says. The increase in broadband adoption and console games that can be played online will grow the virtual communities of game enthusiasts who log in for hours at a time. As long as the ads are prevented from overwhelming game play, game companies will continue to capture advertising dollars from broadcast. JOHN GARTNER is a freelance writer in Portland, Ore. He is a former editor at Wired News and CMP. His articles regularly appear on Wired.com, AlterNet.org and in MIT’s TechnologyReview.com. Filed under: Revenue Tagged under: 12 - July/August 2006, Ad networks, Advertising, Branding, Customer Experience, Features, mtadmin About the Author Chris Trayhorn, Publisher of mThink Blue Book Chris Trayhorn is the Chairman of the Performance Marketing Industry Blue Ribbon Panel and the CEO of mThink.com, a leading online and content marketing agency. He has founded four successful marketing companies in London and San Francisco in the last 15 years, and is currently the founder and publisher of Revenue+Performance magazine, the magazine of the performance marketing industry since 2002.