Friday, January 20, 2006
ADV: A New Reality in Video Games
In video game vernacular, which of these commands seems out of place: throw punch, slay dragon or view Sprite billboard?
It's a trick question; they all belong.
At least they do to Mitchell Davis, who says he believes that advertisements and product placements will soon become as integral to video games as story lines and action.
Until now, ads have appeared occasionally and haphazardly in video games. But Mr. Davis, chief executive of Massive, a new advertising agency with headquarters in New York, hopes to bring a more aggressive marketing approach to interactive media - he wants to put up billboards and make product placements for mainstream advertisers in the cyberworlds of sports, shooting and strategy games.
For now, the Massive ads will appear only in games played on personal computers connected to the Internet. But eventually Massive's technology will work in games played on consoles like the Sony PlayStation 2 and the Xbox, if they have an Internet connection. The Internet link allows Massive's software to modify the ads as players progress through a game.
"As you move through levels and zones you'll see fresh advertising," said Mr. Davis, 43. "You might see an ad for Mötley Crüe one minute and for T-Mobile the next."
Mr. Davis, a former executive at Britannica.com, has signed deals with 10 major game publishers, including Take-Two Interactive and Vivendi Universal Games, which together will include Massive's software in 40 games by the end of this year . He has also signed agreements with advertisers like Dunkin' Donuts, Intel, Paramount Pictures, Coca-Cola, Honda and Universal Music Group to place their ads with the game publishers.
Industry analysts and executives said that Mr. Davis was not the first entrepreneur trying to jump-start the video game advertising business, but that he was probably the farthest along in building an advertising agency around the idea.
There are, however, plenty of skeptics. Some game players worry that such ads will be distracting, while some game developers are concerned about having to modify their designs to satisfy advertisers.
"I don't want to pick up a sword and have it read Nike on the side," said Jeff Evertt, a video game player and programmer. But less intrusive product ads would not necessarily bother him, he said. Brian Fisher, another gamer and programmer, agreed.
"If the character drinks a Pepsi to get health points, it doesn't bug me," Mr. Fisher said.
Both Mr. Fisher and Mr. Evertt, who work at different video game studios, said they would be concerned if advertisers tried to dictate how and when the ads appeared.
"I don't want to have to go to Nike and get approval," said Mr. Evertt, speaking hypothetically.
Electronic Arts, the world's largest independent game publisher, has not signed a deal with Massive because its executives said the Massive technology had not been proved. They are also wary of possibly compromising the quality of their games for ad revenues that are still quite small.
"We're skeptical the promise meets the resource commitment," said Julie Shumaker, director of in-game advertising for Electronic Arts. The company currently sells ads in a variety of ways in games that are not played online. For example, some sports games have billboards for Burger King.
So far, those ad revenues have been limited. Electronic Arts, which had $4 billion in sales last year, for example, took in only about $10 million in revenue from placing commercial images.
That may change as game publishers seek new sources of revenue to offset the growing cost of producing games, which can reach $10 million to $20 million, excluding marketing expenses. At the same time, advertisers are looking for new ways to reach 18- to 34-year-old males, a sought-after audience that is increasingly abandoning television (and TV commercials) and spending more time playing video games.
The confluence of these trends is likely to make product placement in games more appealing.
"This is the next big way publishers are talking about growing their revenue," said Evan Wilson, an industry analyst with Pacific Crest Securities. Mr. Wilson added that the use of commercials was "almost inevitable in mass-market games."
A big challenge has been convincing advertisers that they can measure the effectiveness of their in-game advertising. To address this problem, Mr. Davis signed a deal in December with Nielsen, the company that tracks TV viewership, to use Massive's software to measure whether video game players are viewing the in-game commercial messages.
The software allows game publishers set aside locations inside a game to post ads. In one popular action game called Splinter Cell, for example, boxes on cargo ships are stamped with the names of advertisers.
The technology makes it possible to track how often a player comes across those boxes inside the game and reports back to the company over the Internet.
"Measurement is the key part of the proposition," Mr. Davis said. "Advertisers are looking for accountability."
Mr. Davis also said that ads could actually make a scene in a game feel more real. Not all game publishers and industry analysts agree, particularly if the ads interfere with the action.
Ms. Shumaker, from Electronic Arts, said full creative control was crucial for game developers. She added that if Massive proved its advertising approach to be profitable, Electronic Arts might well get more aggressive in its ad placements, though it would not hire an outside ad agency.
Smaller publishers, however, do not have the resources to go it alone, said Monika Madrid, who oversees product placement at Ubisoft, the publisher that makes Splinter Cell. She said Ubisoft had been very happy with its relationship with Massive.
Massive says it will pay a portion of the money it earns from advertisers to the game publishers. Mr. Davis said the publishers could eventually get ad revenue of $1 to $2 on each game sold. Ms. Madrid, however, said it was far too soon to know whether the partnership would lead to significant revenues.
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