As a member of the Elite Operations Division in the video game "True Crime: Streets of LA," the character Nick Kang must find his way to a truck heist at the flagship Puma sportswear store. Lucky for him, he has a Motorola handset with built-in global positioning system technology.
In the online game Everquest II, players don't need to leave their fantasy world to satisfy hunger pangs. They can click an icon and have food delivered from the nearest Pizza Hut - within 30 minutes.
The product placement - benign, interactive and sometimes aggressive - belongs to a growing push by advertisers to reach big-spending males from 18 to 34 who log long hours playing video games.
Analysts say in-game advertising could generate as much as $1 billion in new revenue for the fast-growing industry by the end of the decade because it almost assures advertisers quality time with an audience they crave: Young men.
Research by Nielsen Entertainment has found that prime-time television is losing younger male viewers, while Sony Computer Entertainment America notes that several million people are glued to their PlayStation 2 consoles playing online games during prime-time TV viewing hours.
The strategy of insinuating ads into video games was a hot topic at this week's E3 video games trade show, where Sony, Nintendo and Microsoft unveiled their next-generation game consoles.
"Game publishers have to recognize that there are millions, if not billions, of dollars in advertising money coming their way in the next few years," said Justin Townsend, chief executive of IGA Partners Europe, an agency that places in-game ads for clients.
The increased spending is another sign of the booming popularity of video games. In 2004, $7.3 billion worth of video and PC games were sold in the United States. By comparison, the domestic movie industry saw ticket sales of $9.4 billion.
On the first day it hit stores last November, the hugely popular game "Halo 2" generated $125 million in sales, while the Pixar animated film "The Incredibles" reeled in $70 million in ticket sales over the same weekend.
Until very recently, advertisers weren't rushing to place products in video games. They spent only $34 million in 2004 on in-game ads - a far cry from the billions spent on television advertising.
But that amount is expected to explode to $562 million by 2009, according to The Yankee Group research firm. Including "advergames" - games built solely to promote a product - game advertising will approach $1 billion by the end of the decade, the firm predicts.
Advertisers were wary in the past, partially because there wasn't a way to measure the effectiveness of the ads. Now, Nielsen Entertainment, which measures TV ratings for advertisers, is testing a system to gauge the impact of in-game ads.
"We kind of have a pretty good idea of how people are watching TV," said Michael Dowling, a Nielsen executive. "With a video game, because of its nonlinear nature, we have no idea how people are navigating their way through the game."
Nielsen already has paper diaries in the homes of some gamers to document their game-playing. Now, in conjunction with Activision and Jeep, Nielsen has embedded an electronic marker in each Jeep image included in "Tony Hawk's Underground 2."
Each time a Jeep vehicle is used or appears on the game screen, the electronic tag sends a signal over the Internet to Nielsen, which tracks the hits.
Much of the advertising in the works for games mirrors reality. A virtual recreation of Times Square, for instance, would include billboards for products. A NASCAR game might include actual car models decorated with real ads.
And games can do what no other medium can - force players to interact with an ad.
In "Underground 2," players have to perform tricky skateboard stunts involving a Jeep. In the Ubisoft game "Tom Clancy's Splinter Cell," players must use a Sony Ericsson cell phone to deal with some challenges.
The interaction is likely to produce stronger product recognition and sales than traditional ads, said Jeff Bell, vice president of marketing communications at Daimler Chrysler, the maker of Jeeps.
"We have plenty of chances to put 30-second advertisements on television and not know whether people really watch them or not," Bell said during an E3 workshop.
Some companies have found another way to reach young male gamers - market their own games.
Chrysler said the simple sports and puzzle games it has distributed in magazines, CDs and Web sites have led to sales. The games require players to register and provide data that can then be matched to subsequent purchases.
Of 3.5 million people who registered and downloaded games in the past 18 months, 10,000 eventually bought Chrysler vehicles, Bell said.
"That was a wake-up call for us," he said.
The tactics have emerged as the industry wrestles with increasing costs. Developing a top-level video game with sophisticated graphics can now cost as much as $15 million - a price tag that could triple in the next few years to keep up with the capabilities of the latest consoles.
Game makers are balking but say they will likely have to raise prices to cover some increasing costs. The hikes are risky because many customers are teenagers who can't afford steep increases.
That has made revenue from in-game advertising even more important.
"It's not a 'nice to have,' it's a must have," said Yankee analyst Mike Goodman.
Gary Gentile, Seattle Post-Intelligencer. May 22, 2005
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