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Emerging Issues in In-Game Advertising

February 11, 2009 Article Start Page 1 of 5 Next
 

[In-game ad deals can benefit both game developers and advertisers -- and veteran game lawyers Boyd and Lalla discuss business and contextual considerations for in-game advertising.]

Advertising in games is currently in a stage similar to internet advertising in the late 1990's --  the research and development phase. As such, many deal terms during negotiations between game companies and advertisers -- including one of the most important to all parties, price -- are in flux.[1]

Ask three different business executives in the industry the same question about negotiating in-game advertising deals, and you're likely to get three different answers.

This article pulls together some of the more uniform aspects of advertising deals in the game industry, and discusses the major issues facing both game companies and advertisers as they contemplate the pros and cons of game placements -- and negotiate in-game advertising deals as they move forward.

The State of the Market

Before we launch into a discussion of the business and legal issues that game companies and advertisers may need to know moving forward, a brief review of the current status of advertising and games may be helpful to frame the discussion.

As most game industry veterans are aware, the game industry is rapidly overtaking other forms of entertainment to become a financially and culturally dominant force in the United States and abroad.

The global games market has been booming in the last several years. According to industry analysts such as DFC Intelligence, between 2000 and 2001, the U.S. games industry grew from $6.6 billion to $9.4 billion. In 2007, that figure was up to a record-shattering $17.94 billion -- and that doesn't even include PC game sales or online revenue. Our most recent figures show that the global video game industry revenue was approximately $40 billion in 2007.

Globally, the worldwide interactive entertainment industry is on track to achieve revenues of $57 billion as early as 2009.[2] On the individual game level, we have numbers like the best-selling U.S. debut of any entertainment product ever: Last year's launch of Grand Theft Auto IV generated 500 million dollars in revenue in one week.[3]

Given the level of growth and the relative figures to other forms of entertainment, games have become increasingly attractive areas for marketing communications by advertisers. Research firm Parks Associates estimated advertising in the game industry to be $370 million in 2006, growing to $2 billion by 2012.[4]

The proposition is attractive to the game industry because it offers an additional revenue stream beyond the traditional model of revenue from retail sales, and it is also becoming more important to advertisers who are looking for new ways to reach consumers, particularly the coveted young male audience of 12-34 years old who spend more and more of their time playing games rather than watching traditional television.

Advertisers are no longer spending their advertising dollars on traditional media purchases such as television, where consumers are using their DVRs with ever more frequency. They are expanding their digital media budgets, and in many instances, this includes in-game placements.

This article focuses on the business and legal issues surrounding advertising agreements in the game industry. Specifically, we address what deal points are most negotiated, and what variations or fallback positions are possible for these negotiated points. The article examines these issues from both the advertiser's and the game company's sides of the table.

This includes the tensions between advertisers with their traditional business models and need to protect their branding and intellectual property -- and the ever-growing and developing game industry, plus the importance to game companies of flexibility in their approach to advertising.

The primary objective, in many instances, is to include seamless advertising that doesn't interrupt or otherwise interfere with the player's enjoyment. We then discuss how the parties measure success, and whether including advertising in games is always the best choice for both advertisers and game companies.

Placement

One of the most critical deal points is the placement of the advertising in the context of the flow of the game. Placement is a complex decision that involves hard thinking by both parties on which game to advertise in, the places most suitable for advertising, any exclusivity for the advertiser in the game, and the choice of whether such placement will be fixed or dynamic within the context of the game and advertising for the brand.

The game itself is the first critical choice. For instance, brands traditionally associated with sports advertising are most appropriate for sports games. Certain youth brands may aim at skateboarding, platforming, or similarly themed games. Advertisements are intended to create brand awareness for the target demographic -- but if  the audience feels the brand is out of place in the game, the advertisement may have the opposite effect.

Aside from the choice of game, there are still many more decisions to be made. Is the advertiser looking for static advertising or dynamic advertising? Static advertising is a fixed placement in the game at launch and stays in the same form after release of the game indefinitely. This type of advertising does not rely on an internet connection to broadcast the images into the game -- but it also cannot be changed after launch.

The disadvantage of dynamic advertising is that it requires an internet connection to be broadcast into the game -- but it also has some particular advantages. It is a flexible branding image where elements can be interchangeable. It also provides advertisers an easy method to measure and collect valuable advertising data on consumers -- and potentially even consumer behavior based on impressions, keywords, clickthroughs, and other kinds of information.

As discussed, it's also easier to correct potential issues for both parties in a dynamic placement. If there is a problem in a fixed placement with a branded image, or with any claims or other copy in the advertising, a recall may be the only solution to the advertiser -- and the game company will likely resist it as much as possible. As discussed later, dynamic advertising is typically cheaper, and is therefore fast becoming the common choice among many advertisers.


[1] For clarity, throughout this article, the authors deliberately use "game companies" to mean both publishers and developers and "advertisers" to refer to both advertising agencies and brand holders.

[2] http://blogs.pcworld.com/gameon/archives/007189.html

[3] http://en.wikipedia.org/wiki/Grand_Theft_Auto_IV

[4] http://www.clickz.com/showPage.html?page=3626301


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Comments


Francisco Diaz-Mitoma
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Great article. Although not literally in-game, I think that massive automated tournaments are a viable solution to the problems mentioned in this article. The inherent nature of tournaments, allows players to kongregate around a brand while enabling a sponsor to view their tournament campaign analytics. The meta-game aspect of tournaments, also allows sponsors to advertise where their brands don't 'fit' due to the space and time of the game's story.



Disclosure: I work for a company that has been building the infrastructure for these tournament campaigns in closed beta.

Lo Pan
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I welcome ads in games, just reduce the cost of the retail game by $10...deal!

Peter Stirling
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Interesting article.



"In-game ad deals can benefit both game developers and advertisers"

So gamers get no benefit, we're clearly respecting our demographic by moving in this direction. ;)



"a major advertiser in the soft drink category like Pepsi would also want to ensure it shuts out brands in related categories such as juices, sports and energy drinks"

'Soft drink' is any drink which is not alcoholic so Pepsi would be well within their rights to want to ensure that. I know it's just semantics, but these things are most important when trying to "narrow the category".



It might be worth mentioning the possibility of free commercial games; like free-to-air commercial television. MMOs are the highly addictive and are the perfect place to advertise. If the advertising dollars were sufficient to maintain the servers, then it's possible to have a non-subscription MMO.

Caleb Garner
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yea it's an interesting concept that most certainly will only become more common. I remember awhile back that anarchy online had some ads in one of the cities i was in.



unfortunately for AAA titles is mearly using this as profits and not for offsetting expenses. None of the major publishers are likely to be willing to reduce price point, they are simply going to reduce their own risk by using more sponsorship dollars and less publisher dollars to see the game go live...



That would be my fear.. but i say fear as a consumer. as a developer it kinda just makes sense. but man i'm telling you it's going to probably piss some people off in time..



think about DVDs. anymore even purchased DVDs have trailers and sometimes outright ads for products. It's become the norm. Games have been doing it for awhile already, we just don't mind them so much because they are game related like..



like the NVIDIA "the way it's meant to be played" logo crap.. they paid for that or offered some kick back / incentive to the developers for putting it there.



Eventually it's just going to be Dr. Pepper or some other AVI shoved at the front each time you want to play the game



I'm not saying its a horrible thing, I've worked with a sponsor before. However this arrangement was for a free flash game. It was how we made money making the game.



I see no problem with that as long as it doesn't interfere with the gameplay. putting ads at the begining and in a game is fine if the game is free... much like TV and Radio... nothing shocking there...



but when you pay for a product and have to watch commercials, that's where it gets iffy in my opinion



Peter, i agree, the MMO environment (note that anarchy online has been doing it for years now) is a great space for free to play.



it's interesting to think that if WoW tried to start today in the current climate, i seriously doubt it would succeed or at least to the degree of success it has seen with the per month model... but now it has a following and people are invested in it... so they deal with the monthly fee.

Lo Pan
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Wonder if customers will have to 'pay' not to see advertisements (like with premium cable). Sounds like players get shafted either way...

Caleb Garner
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yea that's a good point.. like apple doing the DRM free and charging more.. instead of charging less for for DRM music.. the use the DRM free movement as an opportunity to up the cost.. rather than retroactively upgrading existing libraries.. you have to pay more money to liberate your music..

Caleb Garner
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the other thing that would be interesting is that if publisher do push for this and come to rely on it as a significant source of revenue if it doesn't influence what kind of games get published... if certain genres can't offer the same advertising revenue other genres can...

Evan Combs
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It all depends on how the advertisements are incorporated, and how many advertisements there are. I have no problem if at start-up when the game is loading if they have a logo with a phrase on it, as long as those kind of advertisements don't last longer than it takes to start the game up. Once in game is where things really become iffy. If they are done properly I don't have a problem with it, but if they aren't well incorporated they start to detract from the game. As well at a certain point the game needs to be free or drastically reduced in price.



Of course the games that could benefit from it that most are sports games because in real life ads are all over the place in stadiums, and they don't need to be subtle about it. A game like GTA or even Mirror's Edge could also get away with having more obvious ads because they take place in cities where ads are common place on billboards, posters, etc. A game like Halo or Prince of Persia it is more difficult, and I would prefer if they stayed away from actual in-game advertising. In the end it all comes down to how it is incorporated into the game.

Dave Endresak
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Good article with some hard data, although I question some of the choices of sources that are used for reference.



Here's a useful tip that companies can easily use and that various Japanese adventure game companies have been using for years: advertise your own products. In other words, let's say your character is walking down the street. Posters in shops, billboards, and even video or audio announcements can advertise other products that the company owns, thus generating interest and additional sales from people who may not have heard of the other product(s) or perhaps simply never got around to checking it/them out. It's a great, indirect way of generating additional revenue from existing properties, at least if it is done well. Depending on context, it can even be done effectively in obviously fictional settings such as fantasy RPGs or sci-fi stories; it just takes carefully writing and planning.

Shawn Yates
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Advertising in console games at least from my prior experience at a games studio was very unwieldy and poorly run. I think eventually there will be a point in time when there is a smoother interaction between developers and advertising but I don't see that coming for console games (yet). I think console game companies need to give in-game advertising more thought than it as a mere cost off setter.


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