[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.]
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.
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
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
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.
game industry veterans are aware, the game industry is rapidly overtaking other
forms of entertainment to become a financially and culturally dominant force in
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. 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.
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.
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
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.
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.
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.
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.
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.
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.