Online Gaming Special Report

There were not enough seats at the Metropolitan Pavilion in New York, so attendees stood in bunches to the side of the stage. The microphones weren't working so well, the room was hot, and lunch was being readied in an adjoining room. But the crowd of advertisers, media planners and publishers at the Advertising in Games Forum last month wasn't the least bit distracted. They were totally engrossed by the blustery Australian speaking on stage. "There is a disproportionate amount of money spent on broadcast television compared to the reach and frequency it delivers," said Mitch Davis, CEO of Massive Inc., one of the first in-game video advertising networks. [Videogames] are a far more interesting, exciting and interactive medium." Judging from the sheer volume of the audience at last month's conference, the first of its kind, interest in gaming as a new medium for advertisers in soaring. Besides the New York conference, several investment banking firms, including Harris Nesbitt, have hosted recent forums on the subject, and observers are adjusting their spending projections for the growing medium.And this week, for the first time, several advertising- related panels will be held during the videogame industry's mega event, the Electronic Entertainment Expo, better known as E, in Los Angeles.Whether serious dollars are actually pouring into the medium is a point of debate, but industry experts say it is just a matter of time before the money is more quantifiable.Gaming is still an untapped medium for advertisers, given its size. There are about 112 million people age 13 or older in the United States participating in some form of electronic gaming, according to the Yankee Group. By the end of 2008, the number will grow to 148 million. Gaming, as defined by Yankee, takes place on four platforms: consoles (like Sony's PlayStation 2), PCs, handhelds (like Nintendo's Gameboy) and mobile devices (like cell phones).According to a report from the Yankee Group, while the industry saw $80 million in spending in 2003, ad dollars are projected to exceed $870 million by 2009. That projection exceeds a forecast last year from Deloitte Corporate Finance, which predicted less than $300 million in spending by 2007.Massive's Davis is even more bullish, predicting a $1.4 billion marketplace in the United States alone in five years. Each projection represents just a small chunk of the overall advertising pie, but the expected growth will rival the Internet's heady early days.But while the online space took its time in proving itself to advertisers, there's little doubt that if done the right way, videogames have vast potential as an effective medium.For starters, games offer an engaged user base in an increasingly low-attention-span world—just try taking a break while playing popular shoot-em-up Halo 2. The videogame medium "does a lot of things that other media do, but better," says Brandon Berger, senior strategist, digital innovation at OgilvyInteractive. "It offers full, immersive storytelling, like TV. And there is no peripheral, outside experience.""It's not like you are adjacent to content—you are in it," adds Sam Huxley, the former chief strategy officer at Bounce Interactive Gaming, a division of Young & Rubican who now works as an independent consultant.While many of these things have been true from the time people first hooked up Pong to their TV sets, several factors have come together to ratchet up advertiser interest in gaming. A major one is the core gamer demo: men 18-34. Older adults and women are also playing videogames, but advertisers are most attracted to videogames because of their appeal to young men, particularly in the wake of the 2003-04 TV season, which saw a major drop in ratings among this group. As advertisers seek this elusive demo, gaming seems to be a good place to look. The games themselves are becoming more costly to develop; some budgets are closer to those of a movie, say, in the neighborhood of $25 million, and ads are a way to offset some of those costs.The other major development that has generated excitement this year is the concept of dynamic in-game ads—ads that appear in games live during game play.Of course, advertisers have long integrated their products into games to varying degrees, whether it be signage in sports games or games built around Chrysler cars. But now, the industry is focused on the possibility of live, in-game ads, delivered to gamers who are playing while connected to the Internet. Unlike ads that have been permanently integrated into games, dynamic ads can be changed frequently and easily, allowing for short lead times and campaign flighting.While Massive, which officially launched its in-game ad network this March, has led the charge behind an enviable public relations campaign, several new players have jumped into the space in the past few months, hoping to get a piece of the action. WildTangent, which often develops online games centered around marketers' brands, has partnered with 24/7 Real Media to begin serving live ads within its games.Gamer/youth brand IGN, which publishes a large gamer-focused Web site as well as various e-commerce channels, has also gotten on board.Add to that list European-based IGA, which purports to deliver both extensive static and dynamic ad packages for advertisers. It is launching Radial, a live, in-game network.And yet another vendor, DoubleFusion, has already launched an attempt at a rich-media-based gaming ad network, which would include roughly 20 different ad units, many featuring video and/or interactive components. up the market to a much wider array of advertisers, say experts. "Up until now, you have had 20 worldwide brands playing in this market," says Guy Bendov, co-founder, executive vp business development at DoubleFusion. "You have to be [a globally recognized brand such as] Nike, Adidas or McDonald's [to participate]. To really make that pie bigger, [dynamic] is the only way to go." Up to this point, ads placed within games could not have a timely message; they were basically brand-awareness campaigns, perfect for an international brand. With dynamic in-game ads, brands can place ads in games without having to craft a message that will hold up for the entire life of a game. Consider the movie business, for which young adults are a core target. In the past, the long shelf life of videogames made little sense as an ad medium for films that come and go in six weeks. "Traditionally, that is the reason we have not been able to [advertise in games], with the build-out schedules for games being so long," says Amy Powell, vp of interactive marketing at Paramount. The studio is now running campaigns for new releases with Massive, switching out ads as new films enter the pipeline. "The technology to swap out creative makes it work for us," she says. Dynamic in-game ads also make it a lot easier for brands to execute short-term tests before making large spending commitments. "Dynamic is pretty interesting—it lets you dip your feet in the water," says Ogilvy's Berger. Most agree that dynamic ads will also provide the industry with much-needed standards—creating the equivalent of a 30-second spot or a four-color ad page. Up until now, most in-game ad buys have been one-off, unique executions, and thus difficult to compare to other buys. Therefore, advertisers are seeking standard metrics. For example, Huxley says that right now, many in-game ad deals are done based on game-sale guarantees—which doesn't measure how often the ads are actually seen. "You need a network to do delivery guarantees," he says. "There can be games that sell pretty well, but people don't play all the way through. And there can be games that don't sell very well that have a ton of impressions." Dynamic networks promise to offer buyers more-familiar, impression-based sales models.Clearly, in-game advertising is still in its infancy, with interest perhaps outweighing the actual amount of activity. "It's definitely more in the experimentation category," says Huxley. "The amount of inventory that has opened up is still really limited. According to executives at Massive, those opportunities are gradually increasing. "The biggest hurdle is that this is something new," says Nicolas Perkin, vp of business development at Massive. "It's not something that you can rush."According to Perkin and most in the industry, education will be crucial for the in-game market to really take off."The higher-ups have to understand gamers," says Darren Herman, founder and chief commercial officer at IGA Partners. "It's not just the people that wear black and sit in the back of the classroom. It's up to us to educate the market and teach people who gamers are and [that] we can actually reach them."Mike Goodman, an analyst at Yankee Group, says that awareness and experimentation are crucial for advertiser comfort. "The acceptance level on the advertising side has to grow," he says. "Agencies have bought in—they've got to convince their clients. Of course, once a few are in, that will spur some action. "If you see more [ads in games], you'll see more dollars," said Goodman. "There is a learning curve."Part of that learning entails realizing the strengths and weaknesses of various in-game tactics. In-game ads appear to be well-suited to awareness building and for creating desirable associations for brands.But highly intrusive ads that have the potential to corrupt game play in any way are considered sacrilegious in this universe. When Paramount elected to advertise with Massive, it chose to run ads on billboards and buses that were already part of games' scenes—"like outdoor you would see driving on the streets of Los Angeles," says Paramount's Powell.Yet many advertisers enter the medium with high expectations, hoping to produce a campaign that puts their product front and center in a huge hit title."Most advertisers I've talked to are looking at really deep integration deals," says Huxley, referring to product-placement buys that allow game characters to actually interact with their brands, like driving a Ford car or using a Nokia phone. While having a character in Tom Clancey's Splinter Cell: Chaos Theory use a Sony Ericcson cell phone is quite powerful, "the number of titles where it makes sense to do that are pretty limited—probably less than 20," says Huxley. "Timing that with a marketer's schedule is very difficult."Dynamic is an intriguing alternative, but "people are trying to feel out the potential," he says.Most agree that achieving a critical mass for dynamic ads will also open the eyes of skeptical, game-avoidant CMOs. Currently, the connected game-playing universe is still limited, mostly to hardcore PC gamers and the roughly one and a half million Xbox Live users. There are 27 million PlayStation 2 and 12 million Xbox consoles in the U.S., but most are unconnected. Marketers would surely love to be able to reach that group."There absolutely needs to be increased penetration in consoles," says Goodman. "If you only have a million consoles to send ads to, that's not a great market."Huxley predicts that critical mass—with consoles at the 15- to 20-million mark—is at least a year away, if not two. Microsoft's Xbox 360 could be the catalyst for this growth. The new console, previewed last week on MTV and due out some time this year, has drawn intense speculation by enthusiasts on gamer Web sites. Gamer blogs are filled with rumors talking about how the new Xbox will offer increased multiplayer functionality along with more advanced, multimedia options. It's those added features that will boost the number of ad opportunities.Besides consumer penetration, those in the gaming space would like to see the universe of ad-supported titles expand. "Massive definitely has a head start, but until somebody signs up EA," all bets are off, says Huxley. EA Sports produces some of the industry's most popular games, including the majority of professional sports-related titles like the mega-selling "John Madden Football."Huxley says that because of its size, the relationships with the leagues, and the number of hours these games get played (up to 100 hours for a title like John Madden), any move EA makes can shape the industry. The same can be said for Microsoft's Halo 2, which recorded $125 million in sales on its first date of release."Advertisers are getting excited about being associated with a Madden," says Dario Raciti, associate director, head of gaming at OMD. "Or when a Halo 2 comes out and in the first day does $125 million—that is a huge fan following. They want to tap into that."But even without those big-name games, Massive is already taking on dollars from blue-chip advertisers like Coca-Cola, Honda, Intel, Nestle, Paramount Pictures and T-Mobile.And they have signed up 10 game publishers, including prominent names like Ubisoft and Activision. Massive says by the end of this year, they will be able to serve ads to more than 4 million gamers—though their footprint is mostly limited to the PC gamer world; console games are coming much more slowly.which has garnered so much attention of late, does have its detractors. New competitors are starting to talk down their dynamic ad model. The most common gripe is that Massive's ads, mostly two-dimensional, background images, don't have a lot of impact. For example, in a racing game, the company will exhibit billboard ads in cityscapes. In the popular Splinter Cell, a Sprite soda machine appears in a subway tunnel. "To just do dynamic [ads] is not enough, says IGA's Herman. "If advertisers want to do billboards, they can go outside and do outdoor." He says that advertisers are going to want unique presentations if they are going to pay big money.Raciti calls the current dynamic ads "a useful tool" and just one part of an overall ad mix. "Until [dynamic ads are] more than just static images in billboards, it's not the solution for in-game placement."Raciti also points out technological hurdles that Massive and others may face with certain publishers when integrating its ad-serving software into publishers' games. "It's not just 'plug and play,' from what I've heard," he says. Massive's Perkin has heard the critics, but he urges patience. The ads that are being run today, he says, will eventually evolve into more complex, interactive units, with motion and sound, but the market is not ready for that yet. "Let's focus on what's accepted right now," he says.In some ways, it's 1997 all over again. "Everybody is trying to do the same thing," says Raciti. "It's like the early days of online, with all sorts of copycat products."But, just like in the early days of online, competition will spur creativity. The Yankee Group's Goodman is bullish on the potential of plans by IGN and WildTangent to serve live ads, calling them significant. "They can extend a buy to online [ad placements]," he says. "That is pretty formidable competition."If more advertisers can be coaxed into advertising in games through their existing online advertising campaigns, that could potentially bolster spending in the medium. Yet with all this jockeying for position in a nascent medium, many question whether the in-game advertising market will eventually be dominated by a handful of the most powerful publishers or hardware vendors. Industry experts have speculated that giants like EA and Microsoft could end up developing their own dynamic-ad platforms, potentially wiping out upstarts like Massive.But regardless of who ends up delivering the lion's share of in-game ads, or what format ends up being most popular, there seems to be little doubt that the space will flourish in the next few years. Conceding that there will be missteps along the way, DoubleFusion's Bendov says, "In the next year to 18 months, we will all see what works better, and what is less effective."Adds Paramount's Powell, "When you look at the growth numbers for gamers, and the effect gaming is having on media consumption, it's an incredibly smart direction for all advertisers." Michael Shields is a senior reporter covering interactive media for Mediaweek.A glossary of termsAdvergamingWhile definitions vary, this typically refers to games that have been entirely designed around a particular brand's product. For example, Chrysler has built driving games which allow users to virtually test new product launches.Console gaming Consoles are gaming systems that users hook up to their TV to play games. Think PlayStation 2 or Xbox. Or Atari in the 1980s.ConnectedRefers to games that are played while users are connected to the Internet. Common to PC games, increasingly console games are being played while connected, spurred by the release of Xbox Live two years ago. Games that are online allow for multiplayer gaming; gamers can play with friends and strangers across the country.Dynamic adsThese are ads that are served to games "live" during game play. Since dynamic ads are not initially part of the game development process, they can be changed frequently. Currently, dynamic ads consist of billboards, signage and the like.The gaming universeThere are about 112 million people age 13 or older in the U.S. participating in some from of electronic gaming, according to the Yankee Group. By the end of 2008, this number will grow to 148 million. Gaming takes place on four platforms. See Console gaming, PC gaming, Handhelds, and Mobile.Handhelds These are portable devices designed specifically for gaming. Nintendo's kids-aimed Game Boy has been the most popular entry, though Sony's recently released PSP is set to revolutionized the industry, given its high quality graphics and sophisticated screens.In-game advertisingThis term refers to any ad placements that appear within a video game during play. Usually categorized one of four ways. (See Static ads, Advergaming, Dynamic ads, Product placement).Mobile These are games featured on cell phones, Blackberries and the like. Traditionally, these have been less sophisticated, though that is changing.PC Gaming PC games are designed specifically to be played on personal computers. Typically more time-consuming and intricate, these games are generally played by a more "hard core" gamer. Increasingly, PC games are being played online.Product placementSimilar to product placement in TV shows, this refers to a tactic where advertisers make their product a part of the game. For example, in a shooter/war game, a player must utilize a particular brand's cell phone to gain points and/or lives.Static ads These are ads which have been permanently integrated into a game. Usually, marketers elect to place these ads 8 to 12 months before an individual game is released. For example, a sports game may feature in-stadium signs from various marketers.

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