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In-Game Ad Spend: What's Next Level?

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NEW YORK While Massive Inc. CEO Mitch Davis delivered a massively bullish prediction last week—that advertising within video games would approach a $2 billion business by the end of the decade—some in the nascent industry have their doubts about how quickly the business will emerge.

During the keynote address delivered at the second annual Advertising in Games Forum in New York last Wednesday, Davis predicted that spending for in-game advertising would amount to between $1.6 billion and $1.8 billion in the U.S. by 2010, and that video games will garner approximately 3 percent of total media spending—or just a few percentage points less than what the Internet pulls in today.

"We've passed the tipping point ... where [in-game advertising] is less about experimenting and more about building it into business," he said.

Yet Davis' pronouncement tops the latest forecast from the Yankee Group—expected to be released today—by about $1 billion.

According to the report, in-game advertising will grow from a $55 million market in 2005 to a $730 million market in 2010.

"I'm not as optimistic as they are," said Yankee Group video game analyst Mike Goodman, referring to Massive. "There is a learning process right now. You are still seeing video game budgets coming out of advertisers' 'special' budgets. Video games are not a line item yet. You are not going to get 3 percent of all ad spending on testing budgets."

Still, there is little doubt that Massive has made major inroads in the space since launching its dynamic in-game advertising network last year—which allows advertisers to swap ads in and out of video games that are played using an Internet connection. To date, the company has run ads in 60 different game titles from 38 publishers, featuring several top-flight advertisers including New Line Cinema, Coca-Cola, Subway, Honda and Gillette.

But some observers doubt Massive's progress and proclamations. Alex Kakoyiannis, managing partner of the gaming specialty agency Navigame, expressed disappointment with the company's current ad offerings, which are typically passive virtual billboards placed in the backgrounds of games. "Advertisers care about interactivity," he said.

Jonathan Epstein, an advisory board member for potential Massive competitor Double Fusion, called the company's ad offerings "the equivalent of reading radio ads on TV."

However, Double Fusion, which will launch dynamic ads in several titles later this year, has problems of its own. Former Yahoo executive Geoff Graber, who became the company's CEO last November, recently stepped down for undisclosed reasons.

During his address, Davis did unveil several planned ad offerings that will offer more interactivity. However, Dario Raciti, associate director, digital at OMD, warned that Massive had often overpromised on what it could deliver in the past.

Beyond Massive's current offerings, Navigame's Kakoyiannis also questioned the value of its game partners: "They are not the triple A games that you read about. Coke doesn't care about 50 different football titles; they care about Madden."

Most agree that premium titles like Electronic Arts' mega-selling John Madden Football are crucial to pulling in more big-name advertisers, but thus far, the publisher has offered companies like Massive highly unfavorable deals.

Yet regardless of how fast video games become a mainstream ad medium, no one doubts their potential.

"I do believe it is going to grow significantly," said Goodman. "The industry has already gone from zero to 60 in two years."