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Getting more advertisers in the game

In-game advertising--a marketing frontier long on the periphery of most brands' radar--is poised to take its place center stage.

As Madison Avenue increasingly abandons TV and radio, the rich graphics and Internet connectivity of today's PC games and next-generation gaming consoles are enabling advertisers to follow the 18-34 "sweet spot" target market to videogames.

In-game advertising takes many forms, most notably as product placement. Marketers can pay to have billboards with their brands on them appear as background scenescapes, logos on racetrack boards or sports stadium walls.

Situational placement is on the rise as well, such as using real vehicle models in racing game options or having characters consume specific soft drink brands. To date, these placements have been static, meaning the deal was made during the game development process with the visuals hard-coded into the final product. The technology will soon become much more dynamic -- providing the ability to replace the in-game visuals, music or other content at will through the Internet.

This will make in-game advertising a better fit for the music industry, which until now has found it difficult to promote a new album via a videogame due to time tables.

"The development cycle of a music project is different than that of games," says George White, senior VP of strategy and product development for Warner Music Group. Games can take years to develop, he says, making it virtually impossible to hard-code in visuals for an album that often doesn't have a firm release date until much later in the process.

But with dynamic advertising, ads can be swapped out at any time and replaced with newer, fresher promotions. A gamer could play the same level of a game three times in a month and see different ads each time.

In late April, Microsoft agreed to acquire the in-game advertising pioneer Massive for a reported $200 million to $400 million. Massive manages a network that facilitates this ad-swapping, and Microsoft's acquisition is considered at once a validation and a turning point for the entire industry.

According to the Yankee Group, marketers spent about $56 million on in-game advertising last year. While that's a 65 percent increase from 2004, it's only 9 percent of all Internet ad spending and nowhere near the $9 billion forecast for TV advertising this year.

Looking to 2010, the in-game advertising business is expected to grow to anywhere from $732 million, according to the Yankee Group, up to $1 billion, according to Jupiter Research.

Whereas advertising on any other medium is considered obtrusive, in-game ads can actually enhance the gaming experience. An October 2005 study conducted by Nielsen Interactive Entertainment, commissioned by in-game ad provider Double Fusion, found that 50 percent of the gamers polled said ads made for a more realistic experience. The campaigns studied generated a 60 percent increase in the awareness of new products.

In addition, marketers can now track ad impressions and click-through rates, as with online banner ads. Merge that with the online game communities like Xbox Live--which tracks which games members play and when and stores other personal data like age, gender and buddy lists--and that provides data that could prove useful to brands looking to make an impact.

For all this promise, consumer brands have so far treated in-game advertising with caution. The medium has attracted such companies as Coca-Cola, Honda, Jeep, Oakley and Fox Studios. But the fragmented gaming landscape, lack of a clear technical standard and paucity of hard data measuring its effectiveness have tempered adoption rates.

Yet the gamer community is a giant market of great potential. According to recent figures from the Entertainment Software Assn., the governing trade body for the videogame industry, 60 percent of heads of households play videogames, and 75 percent of U.S. households interact with videogames daily.

"You can reach customers now in ways you never could before," says Rich Wickham, director of the Windows gaming business for Microsoft. "Don't assume there aren't other ways to get them to spend their time and money."


Reuters, May 21, 2006

Copyright © 2006 Reuters Limited. All rights reserved.