video games

Beyond the billboard: advertising inside games surges online

September 2008

The industry is fond of saying that gaming is the fastest growing entertainment or screen medium, but the truth is that games only takes bronze in this hard-fought race. In silver position is television, refreshed by the opening up of massive new global markets, but bolting away from the pack is online advertising, which is not only strides ahead and stealing share from offline advertising, it’s indirectly powering the growth of television and increasingly games as well.

Games advertising is a tale of 2 cities, hardcore and casual. At the turn of the last console generation, specialist games advertising companies finally persuaded media buyers to port some of their offline campaigns to console and PC games. But once they had cottoned onto the opportunities of targeting the otherwise hard-to-reach demographic that plays FIFA and Gran Turismo, the big franchises were quickly tied up, the virtual billboards sold for years in advance. Viability meant titles of sufficient scale with gameplay into which advertising could be inserted without annoying gamers. Soon the number of viable new clients reduced to a trickle, so the ad companies turned to dynamically served ads. But console manufacturers have failed to play ball (Nintendo), been slow to move (Sony) or enforced their own solution (Microsoft), all of which has stifled the market. At some point, desperation and hype took over, with some outrageous claims by in-game advertising companies, but the truth is that this hard-core in-game advertising market is worth a few hundred million dollars at most, is firmly lashed to the console cycle, and is not growing fast. For most studios today, advertising revenues represent a sideshow to the main event.

Quietly humming away in the background is the other form of games advertising largely ignored by the mainstream – advertising-supported casual gaming. This grew fast in the late 90s boom years, then plunged with the dot-com crash, but grew back to become much stronger than before. At first, the low ad values drove down production values for games to the point where they became throwaway experiences lasting a few minutes. To make that work from a revenue point of view required volume – hundreds of games constantly refreshed. Cannier companies raised quality levels slightly, paying bottom dollar (with no upside) for marginally more sophisticated games from 1-3 man teams in cheaper development territories like Eastern Europe, India and the Far East. With vast portfolios of games came growing daily audiences, and with them requests from other online games sites for distribution deals. Free sites became the play-makers for online games companies with higher barriers to entry or more complex commercial models, such as subscription. A few sites, such as Wild Tangent, became so sophisticated at selling advertising that they started to represent their competitors.

The games advertising industry’s holy grail has always been to use ads to subsidise premium quality games to the point where they can be given away for free without loss. Basic casual games have been 100% subsidised by ads for over a decade and some games – advergames – are even developed specifically for advertisers to give away. However, subsidising premium games is a different matter, requiring a leap in advertising revenues towards richer, more televisual advertising experiences. The major breakthrough in the last year has been that premium downloadable games that usually retail for $20 can now be entirely subsidised by advertising. Indeed, as games ad specialist NeoEdge has proven, they can sit happily alongside their retail siblings without damaging the retail revenue stream but promise to make more for the developer over a longer shelf life. This has been achieved by a combination of better ad sales teams, more sophisticated player profiling and ad-serving technology (that allows dynamically served interstitial ad breaks during the game), the ever growing volume of players but most importantly the fact that the biggest consumer advertisers, fast moving consumer goods manufacturers, have finally realised who is actually playing these games: bored housewives.

It’s easy to look unfavourably on these simple games with comparatively basic gameplay and tiny production values. But this market is stable, completely non-cyclical, and over the next 5 years will grow twice as fast as console gaming. It’s already overtaken the saturated traditional in-game advertising market (whose leaders have largely been slow to enter the casual market) and shows no signs of slowing down. Today companies like Spill Group, Miniclip and Mochi Media have hundreds (if not thousands) of games, cater for millions of visitors each month, and support increasingly complex user and commercial propositions. Some are turning over several million pounds each month with small teams which can lead to profit margins far in excess of traditional publishing margins. And their valuations, well, I’ll save you a mild coronary episode… Not bad for so-called throwaway games experiences.

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