In Game Advertising: Will it Take-Off?
By Paul Flanagan
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If you are a video game player, have you noticed the profusion of advertisements in your games recently: pitch-perimeter advertising in football games; billboards on racing games; street advertising on modern day sneak-and-shoot-em-ups; product placements; and music sound tracks on snow boarding titles? It is an increasingly prevalent phenomenon driven by the demographics of the videogame industry and you can expect to see more of it and in different guises.
Only quite recently have brands and advertising agencies made the observation that the video gaming industry is targeting not just teenagers, but the 18 to 34 year old demographic which they are finding increasingly difficult to target by other means. The reasons for this are well known: media fragmentation, difficulties in aggregating reach, and shift in media usage.
The attraction of the video gaming industry is that it has a broad demographic footprint, where the average gamer is 29 years old, the main target market is 18-34 year old and gamers have an above average income and education. Furthermore, games are highly immersive and engaging with a high "eyeball hour" quotient relative to conventional television, making them a good advertising platform.
And you have to realize that this is a big business. The video gaming market generates $20 billion in software sales annually, consisting of 550 million units, across console, PCs and handhelds. The current generation of home units, PlayStation 2, Xbox and Nintendo Gamecube, have already sold 150 million units with more to come.
The ads at the moment are mainly billboards, just like you see on the sides of motorways. The in-game advertising market is estimated by the Yankee group of being worth $120 million in 2004, a drop in the ocean compared to the, for example, $12 billion spend in the US on TV advertising in the same year.
What is predicted to help drive the market to a much higher level is dynamic in-game advertising, where the billboard or Coke machine or TV monitor in game presents exactly the same copy that you are see in the real world e.g. the poster of new film you see in the London tube will be the same in the virtual world as in the real world. This puts in-game advertising on a par with other media options and allows tight campaign integration.
There are three companies which are driving this innovation: In Game Advertising based in Europe, Massive based in the US and Double Fusion which has just switched its HQ from Israel to the US West Coast. They can deliver aggregated, targeted audiences on a real-time basis to potential advertisers.
Justin Townsend, of In Game Advertising, speaking at the recent Advertising in Games Forum held in London, stated that their reach by year end will be five million gamers and over thirty million by the end of 2006. This is similar reach to a television network.
Steve Schlenker, Managing Partner of DN Capital, a venture capital firm which has backed In Game Advertising, observed at the Forum that only half a dozen games feature dynamic ads at the moment, but that thirty will be in operation by year end. He predicts that static/preconfigured ads will be overtaken by dynamic advertisements in two to three years.
The longer term question is who is going to reap the benefits of this new advertising medium: the VC backed aggregators, the video game publishers, the format holders; the video game developers, the advertising agencies or the gamer?
The aggregators like IGA, Massive and Double Fusion should make the early running as they develop the industry and build their networks. What they have to defend against is margin erosion. If they can do this then they may well be acquisition targets by advertising agencies or the likes of Clearchannel, who will make the jump into the virtual world.
For game developers it is not obvious that they will jump at the opportunity. They have to do the work, they see little from it and it impinges on their creative input. The key, as always, will be whether the developers have leverage and control to gain a share of the pie.
The main console format holders, Sony, Microsoft and Nintendo, are providing the real estate along which these ads are being displayed and are likely to take a toll.
Publishers are ultimately in the strongest position because they own the IP and the majority of the market is likely to continue to be boxed games. On-line games are likely to remain a small percentage of the market. FMCG's will queue to get their ads into the blockbuster Electronic Arts games like Madden football or FIFA which dominate the industry, selling millions of copies.
Brandon Berger, Senior Strategist for Digital Innovation at Ogilvy, predicted at the Forum that for the advertising agencies video games will become just one more option in the marketing mix. They will explain to their client the available options, be that print, TV, iTV, web or gaming and suggest the best mix for the highest ROI.
In the end it will come down to whether gamers want it and respond to it. Initial responses are that it increases realism and people aren't too bothered about it if it is done well. But people tolerate advertising when there is an economic benefit e.g. when TV is free. There may be a backlash unless gamers get a discount on the purchase or running price of a game.