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May 12, 2006
The CEO of in-game ad specialist IGA Worldwide discusses Microsoft's Massive deal.
In the video game world, it's no secret that the cost of developing next-generation titles can easily extend into the tens of millions of dollars. Exquisitely detailed in-game environments, rich soundtracks, licensing fees, and even celebrity voiceovers are just a few examples of factors pushing game budgets into the stratosphere.
Game publishers, working to produce eye-popping software and hampered by limited consumer tolerance for increased prices on their products, are looking for relief. Advertising is emerging as a big way to do just that. Potential advertisers are always eager to get their products in front of younger audiences, and gamers have, until now, largely been an untapped market.
Microsoft announced earlier this month it plans to acquire Massive, a startup whose technology makes it possible to put advertisements in video games. The company will help Microsoft deliver ads across its online services, including Xbox live and MSN games (see Microsoftﾒs Massive Purchase).
Moves like that underscore what industry analysts have known for a while: there is a lot of money to be made in the in-game advertising business. According to Yankee Group, the in-game advertising market will hit $732 million by 2010. Just last year, the market was a mere $56 million, up from $34 million in 2004.
At this week's 2006 Electronics Entertainment Expo in Los Angeles, RedHerring.com caught up with Justin Townsend, CEO of independent in-game advertising provider IGA Worldwide. We asked him about the effects of Microsoft's acquisition on the industry, how his company is doing, and the future of in-game ads.
Q: Whenever Microsoft moves, it tends to make waves. What do you think about the deal with Massive?
A: It's very positive. It validates the industry [and] makes us the largest independent in-game advertising media network out there. On the publisher side, there's a degree of resistance to what's going on.
Q: What type of resistance?
A: Everybody's uncertain about what the actual deal means to them. On the advertising side, the big brands don't want to deal with fragmented media [spending]. There's going to be certain inefficiencies with that. There are 1.8 million Xbox 360s in the U.S. That's not a lot of reach. Among those that have sports titles, is that enough reach for it to be satisfactory to a brand? Even more so in Europe, Asia, etc., … those units are broken down by country. It doesn't stack up.
Q: So what happens now?
A: We don't yet know if we're precluded from working with Xbox. There's PlayStation, PC, mobile. It's not too much of an issue for us. There are 100 million PS2s out there. If the PS3 eventually comes even close to that, it's what we call significant reach. I wouldn't underestimate our reach without the Xbox segment. We'll have a market equal to a small or midsized television network 12 months from now. The future is very rosy indeed.
Q: What's your response to people who say, "I see advertisements everywhere. On television, before movies, online… I don't want them disrupting my gaming."
A: In-game advertising is not interruptive advertising. Advertising is a commercial reality, especially for the publishing industry. Next-gen blockbuster games could cost tens of millions to develop.
Many gamers don't want to see fake ads. They're playing games that have realistic environments. The advertising is contextually relevant and it enhances the gaming experience. Gamers have to get their heads around the reality of what's happened in the publishing sector.
Q: What's the future of advertisements in the mobile space?
A: Now all you can put in a [mobile] game is a logo. With 2.5 and 3G [phones], you have better screen resolutions and more memory. We can do much higher-quality advertising, be it within games or topics containing games.
Q: Where is the industry headed?
A: A huge collaborative effort is going on now, both from hardware manufacturers, publishers, and led by IGA Worldwide… to establish a standard. Everyone realizes if you have three or four different standards it will breed confusion and dilute revenues. It wasn't the case a year ago and it is now. Companies are still coming to us and they will continue to come to us.
Q: Does Microsoft's purchase of Massive mean IGA will be the next company to get snapped up?
A: We were being courted by major media companies prior to the acquisition. That has increased probably tenfold. [Despite that fact], we're focused on increasing shareholder value and building a system based on open technology.
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