The advertising world is in crisis. While it may be difficult to work up genuine feelings of concern for those wonderful people who brought us disaffected cavemen, snuggly toilet paper, and cartoon-inspired digestive tracts, the fact is the miracle of TiVo, not to mention YouTube, iTunes, and MySpace, is finishing the work begun by VCRs: We can watch what we want, when we want. As a result, we no longer have to sit through commercials if we don’t want to. And, to the horror of advertisers and ad agencies, we don’t want to.
In 2004, the Entertainment Software Association (ESA) stated that 52 percent of video and computer game players said they were watching less TV and spending more time playing electronic games. The trend has continued, and even more devastating for the $400 billion advertising industry is that those opting for less-conventional entertainment are believed to be among the most influential consumers.
It’s not that people are completely abandoning television; they’re simply doing more—they’re playing games, they’re IM’ing, they’re creating digital photographs, they’re surfing the Web. They are very interactive. And young, technology-savvy people are believed to dictate major electronics purchases in the household. Sure, they determine what computer to buy, but they also have a lot of influence over other devices such as televisions and mobile phones.
The society as a whole is becoming more Web-oriented, as people turn to the Internet for their news. Also, there is growing interest in downloading movies and watching TV and movies online. In short, there is a big shift of eyeballs going on.
In this era of TiVo and downloadable television shows, advertisers have discovered a new medium in which to pitch products: video games. Here, a vendor uses a CG billboard inside a game to attract customers.
The game industry is well aware of the trend, and it’s looking to cash in. In a small timeframe, three major occurrences punctuated the importance of this new medium. In the report titled The Video Game Industry, published in 2006 by Jon Peddie Research, Ted Pollak notes that two studies—the aforementioned 2004 ESA study and another conducted by Nielsen Media Research—suggest that in-game advertising has the potential to be even more effective than more traditional types of advertising. At about the same time that ESA was scaring advertisers with its observations that gamers are watching less television, Activision hired Nielsen Media Research to measure the effectiveness of in-game advertising. Nielsen inserted an inaudible audio watermark code into the games to determine how long gamers were exposed to specific ads. They asked gamers about their awareness of advertised products before and after gameplay. Nielsen confirmed Activision’s sales pitch for in-game advertising as a persuasive medium.
In another, perhaps more ominous study, Stanford researchers found that eighth-graders nagged their parents for products advertised in games and that the impression left by in-game advertising lasts as long as 20 months after the kids have been exposed to the ad.
Currently, new companies are growing around this emerging market. The top three contenders are IGN, IGA, and Massive, and their partners are ad agencies and game publishers. In addition to handling the details of getting an ad approved, designed, and inserted into a game, they offer advertisers a network of games and publishers, as well as tracking services. And all of them promise to improve the gaming experience as well as improve the economics of game publishing.
Advertising can significantly improve the economics of game publishing. After all the costs of making and selling a game, publishers net approximately $3 to $5 per title. It’s a hit-driven business, making it difficult to fund new or experimental titles. Advertising can add another dollar or two to each game’s bottom line, enabling publishers to turn a profit even on titles that don’t reach gold status. And as more advertisers get onboard, these numbers promise to rise.
Massive was an early entrant to the in-game advertising business. The company was formed in 2005 and eventually was acquired by Microsoft. Massive’s ad-serving technology enables the company to interactively insert ads and track game play, to register “impressions.” Massive did not start out to be a Microsoft Xbox-only company. In fact, Massive had significant deals with Sony for the PlayStation platform. However, Massive perfected its technology, working with Ubisoft on Splinter Cell Rainbow 6, an Xbox title. In the beginning, says Massive’s founder and CTO David Sturman, the company never really worried about the platform as much as it did about getting the technology correct. All that changed when Microsoft acquired Massive.
Targeted ads reach gamers where they live, though the most important consideration is that the ad fits into the context of the title. Left, Massive teamed with EA to place ads into Battlefield 2142. Right is a Dairy Queen ad in MLB 2K7 from 2K Sports.
Sturman insists that Massive could work with the other console companies because the teams would operate independently, but it’s unlikely that Sony will be enthusiastic about such an arrangement. Furthermore, industry opinion is that the acquisition of Massive by Microsoft has put a decided crimp in Sony’s plans and that the developer has been retrenching. Back in 2007, Sony announced a deal with Nielson to share information and track gameplay to develop a measurement system that would allow Sony to deliver ads customized for specific gamers at key points in the title. In October 2007, the company geared up its in-game advertising unit and hired Darlene Kindler, formerly of Nintendo and Adscape Media, to run the group.
Massive’s competitor, IGA, on the other hand, concentrates on PC gaming. IGA CEO Justin Townsend contends that Microsoft’s acquisition of Massive fragments the industry. That’s because advertisers are forced to deal separately with those working with PC games, with Microsoft, and with Sony, when what they would really like to do is create a coordinated campaign.
On the other end of the scale, Nintendo shows no interest in adulterating its big-hit Wii platform. Peer Schneider, IGN’s vice president of content development, notes that at least some hesitance on the part of the Japanese publishers—including Sony and Nintendo—is that the Japanese audience might not have as high a tolerance for ads in their games. In addition, he says, Japanese audiences especially favor fantasy games, which have little room for advertising that could break the mood.
All three companies consider themselves aggregators, and the bigger the audience they can deliver, the better. In fact, Massive describes itself using the television metaphor. Sturman says Massive works directly with game developers for certain titles. “We work with them to find the best places for ads, where an ad is going to work naturally. Then we go to advertisers and tell them we have these 50 games in our network and 1.5 million gamers,” he explains. Playing the same numbers game, IGA maintains that it, too, has about 50 titles and claims 200 million gamers. Individually, each game might not deliver that many impressions, but through the network, “we’re almost a share point,” says Sturman, who notes that the game industry can compete with cable in terms of sheer numbers.
The first advertisements in games were built into the title as part of its development. This is an approach that requires a tight relationship between the game developer and the company incorporating the advertising. Sometimes they’re the same. Alienware builds computers for gamers, so the idea of putting its computers into a game came to it naturally. Alienware has been dealing directly with game publishers to get placement. By dealing directly with the publisher, Alienware can take an active role toward how its equipment looks in a game and what kind of impression it makes.
Interestingly, the company inked a deal to put Alienware computers in Second Life, an online virtual game world. In this case, Second Life approached Alienware through a Vancouver-based company, Propstar, that’s associated with Lionsgate Studio and has relationships with Disney, Fox, Sony, MGM, Paramount, and Universal. The firm specializes in product placement for movies, and is now expanding into games and online entertainment.
The PC racing-simulation game rFactor brings a new level of audience participation to in-game advertising. Gamers can mod their own cars, and they may create their own brands. Advertisers can also sponsor cars.
However, disadvantages to the one-to-one approach of building ads into a game do exist. “Because they are hard-coded,” says Townsend, “you don’t know how a brand is going to do.” Approximately two years ago, all ads were hard-coded into games. Now, ads can be inserted when users go online. Furthermore, the messages are no longer limited to billboards; video can be inserted, as well.
On the graphics side, the ads have to fit into a particular game’s overall atmosphere. The palette has to be adjusted to fit the rest of the game, and games have to be time-specific. IGN’s Schneider, a clear advocate for the gamer, notes, “You can’t have a World War II game and a modern coke bottle on the table.” Such parameters make the process of inserting ads into games all the more challenging.
Similarly, when companies begin aggregating ads within games and serving them online, they must look and feel right. Some games have a grungy, dark palette, while others contain primary colors, for instance. Schneider notes that whoever powers the technology needs an easy lookup table to determine what ad is appropriate for which games.
At this early stage, there are no standards established for this new industry. As a result, Massive’s Sturman maintains that the companies have to set those standard for themselves. “If an advertiser doesn’t have material prepared, we modify their Internet ads,” he says. “In some cases, an ad planner is not used to thinking in terms of buying ads within games.”
On the game development side, graphics designers are now not only helping Massive find opportunities for ads, but they’re building locales into the title from the start. In fact, Sturman recalls one instance in which the ads were built into the title early in the process, and the game ended up littered with ads. “We toned it down some,” he says.
Sturman notes that Massive is working with three constituents: the publisher, the advertisers, and the gamers. Massive’s strategy is to be sure that “nothing we’re doing is at the expense of anyone else,” says Sturman.
In spite of their professed good intentions, it seems the ad agencies, aggregators, and game developers already have a lot to answer for. The GameSpot Web site named in-game advertising as one of the worst trends to appear in the world of video games, and the site closed out 2007 with a new award category: Most Despicable Use of In-game Advertising. The finalists were All-Pro Football 2K8, Guitar Hero III: Legends of Rock, Need for Speed ProStreet, Skate, and Tabula Rasa. The winner, if you’re dying to know, was Need for Speed, though the readers choice votes favored Guitar Hero III.
Beyond Traditional Games
There is a certain stereotype associated with gamers, and, yes, there is a certain truth to the characterization. They are the guys who grew up fantasizing about Jessica Rabbit and Lara Croft. But those guys who grew up counting digital sheep and dreaming of animated rabbits also grew up to be Microsoft and Sony executives, and to lead advertising agencies. In other words, perhaps there is a bit of myopia here. Maybe there’s something going on beyond the graphics in 3D games. Michael Levine certainly thinks so. Levine is building Planet Cazmo, an online community gaming site. Levine has experienced the game industry from the inside. He has worked for LucasArts and other traditional game companies before migrating to Pileated Pictures, a company that builds Flash-based interactive sites.
Levine notes that in spite of all the emphasis on the gamer guy who is 18 to 35, the demographic for gamers is broadening, and companies are having to change the ideas they formerly held about the market. Women have become more interested in PC and console gaming. And, the runaway success of the Wii is being driven by just about everyone—children, adults, seniors, men, and women. Likewise, Linden Lab has created the online world Second Life as a rich advertising vehicle.
In-game advertising is not just for adult-oriented games. Recently, kid-oriented online community gaming sites have been growing in popularity, and companies are now targeting this demographic.
Levine sees opportunity in the marriage of advertising and gaming, and for that reason he has created Planet Cazmo as a browser-based persistent world designed for teens and ’tweens that combines games and sponsorships. Levine has noticed a sharp division between the gaming community and the rest of the online world. To put it bluntly, he says the game folks don’t have a clue: “They’ve been shutting out potential customers for years.” And he has a point: Playing a high-end video game is an intense and focused process. Gamers are either playing alone, or they are locked in mortal combat online. They are not watching TV while they play, nor are they doing homework or looking at pictures. Conversely, most young users and quite a few older ones multitask their entertainment.
Sites like Club Penguin, founded by New Horizon in 2005, are offering worlds tailored to a specific demographic—in this case, kids. In fact, says Levine, much of the game industry has ignored huge portions of the online market. In terms of hard-core gaming, he says, “just look at the numbers. It’s not really a mass-market. A million players isn’t a lot compared to the movie world.”
Levine hopes to make Planet Cazmo into something like Club Penguin on steroids. The trick, he believes, is to create a site that doesn’t require a huge commitment in terms of time or money. Unlike Second Life, Planet Cazmo won’t entail a huge download, and Levine says Planet Cazmo members can visit lots of different places for free.
Levine, too, turns to television to describe the potential of interactive Web sites, and describes them as the “television stations of the future.” They’re the places where users will go to find information about, and talk about, the latest movie. Unlike TV, or even in-game advertising, Levine says, “we can get instant feedback.” Presently, Planet Cazmo is developing partnerships with major media to expand its site.
Levine is hardly alone. MTV has bought NeoPets for $160 million, and Disney bought Club Penguin for $350 million in cash and a possible $350 million in earn-out. Ironically, Sony considered buying Club Penguin for as much as $500 million but backed away from the price. Disney also announced its own social game network for kids called DGamer, which will tap into the 40 million-strong Nintendo DS community.
At the Game Developer Conference in 2007, Sony announced its Home site for PlayStation 3 users, an online environment that will let users create their own “home” and stock it with their own furniture or perhaps Sony Vaios and TVs. The future of Home at this point is far from certain. As of this writing, it’s still in beta. But, in the same way that Alienware is taking advantage of new 3D environments like games to sell its computers, Sony is clearly planning to take advantage of its own PlayStation universe.
Computers and in-game advertising are a natural fit. There was a time when advertisers worried what would happen to their products in the game—for instance, cars that might get wrecked. That has changed now, and advertisers welcome more interaction with their brand.
The driver behind many sites, including the wildly popular YouTube, is Adobe Flash. According to Levine, Flash is quickly supplanting QuickTime and Real for online games, and one of the important reasons for Flash’s ascendance is that it easily translates to mobile platforms. Likewise, Microsoft is just gearing up to take on this market with its newly introduced Silverlight technology, which enables RIAs (rich Internet applications), and its Expression line of content creation tools. Silverlight is platform-agnostic, and the company clearly has its sights set on the mobile market as well.
According to Ad Watch columnist David Radd, who writes for GameDaily, the story for 2008 will be in-game advertising for casual games. He notes that Google bought AdScape, which caters to casual games. In addition, Real has entered the field with its Eyeblaster technology, MSN announced an Adshare program that cuts developers in for some of the revenue, and Admoda is also working this promising field.
New Era, New Model
Sturman’s comparison of Massive to a network is more than a metaphor, it’s an ambition, and one that is shared by his direct competitors at IGA and IGN, as well as the console companies, Google and Yahoo, and even start-ups like Levine’s Planet Cazmo.
Every person contacted for this story mentioned that people are watching less television in favor of games and the Web. That much is obvious, but it came as a bit of a surprise to realize that these people are so alike in their belief that they are in the process of developing a medium that will replace television.
Games are simply one vehicle. After all, if game aggregators are able to do such things as incorporate audio ads to an animated car radio, or movies into a virtual drive-in, why stop with games? Advertisers are looking for new ways to reach customers. Most recently the PC world has shown a determination to redefine the idea of entertainment networks and television. Apple’s iTunes will rent videos, Amazon Unbox is already there, and Netflix is offering free streaming movies to consumers. But, most significant, Microsoft has announced deals with the major studios to enable Xbox Live subscribers to download movies to their Xbox 360 consoles. The old networks—CBS, NBC, ABC, HBO, Showtime, Fox, and so forth—may find themselves outmaneuvered by a whole field of networks: Massive, IGN, Real, iTunes, and MSN, to name a few.
The popular online gaming site Second Life has been extremely successful in selling space to companies wanting to expose their brand to the game players.
Sites like Planet Cazmo and Second Life also can offer a new outlet to television advertisers looking for audiences in all kinds of places. They can offer a variety of worlds, or islands, or portals, where consumers will congregate.
And even the old models can work in novel ways in this new world. If it’s possible to rotate ads, to add advertisements as textures in games, why not incorporate them as interactive elements to TV shows or movies? To revisit theorist Marshall McLuhan’s concept, the media may well be the message, but the medium and the messages are changing, and those who would play this new game have to adapt.
Maybe it really is a matter of evolve or die.
Kathleen Maher is a senior analyst at Jon Peddie Research, a Tiburon, CA-based consultancy specializing in graphics and multimedia, and is also editor in chief of JPR’s “TechWatch.” She can be reached at Kathleen@jonpeddie.com.