By Steve Peterson
Video games as an advertising medium are expected to pull in $7.2 billion in advertising revenue by 2016, according to DFC Intelligence. The path to that revenue from the current $1 billion is not exactly clear, though. Does it mean that in Diablo III we’ll be fighting demons who wear armour with the Coke logo on it? While that might be a terrifying thought, it’s probably not going to happen. Games have been experimenting with advertising, but the experiments have largely been out of the traditional game market and more in mobile and social games. There are many issues to deal with before advertising becomes commonplace in the various branches of the game industry.
The danger of integrating advertising into games, or even placing ads around games, is customer backlash. If your ads annoy the customer, you could be spending your ad dollars and actually reducing sales instead of increasing them. (Perhaps Coke would want to pay to have Pepsi logos appear on the demonic armour in Diablo III in a sneaky attempt to reduce Pepsi sales? Thankfully, legal issues would probably prevent this tactic.) Publishers will have to be careful about the effects of allowing advertising into their games. Revenue is nice, but not if it makes customers in large numbers less likely to buy your products.
Pressure is building on game publishers to find new ways to be profitable, as sales of games in the traditional retail channels are in their third year of decline. This has fuelled a push into freemium games, digital distribution, subscriptions, and downloadable content (DLC) as ways to increase the profit from a game. Advertising has been underexploited, except perhaps in the smartphone industry (especially in the Android market).
Mobile Leading The Charge
One interesting example of a game with interstitial ads isWords with Friends, which has been a huge hit on smartphones. On iOS, you can get the free version with ads, or you can pay $1.99 to get an ad-free version (we’re still waiting for the previously announced ad-free Android version). Zynga acquired the game and brought it to Facebook; unlike Zynga’s other Facebook games, Words with Friends uses the ad-supported business model. Words with Friends is quite popular on Facebook, with over 2.3 million “likes”. Obviously Zynga is trying out the ad-supported model with this popular game, but it’s not clear when or if they might use this model on other games. Unfortunately, since Zynga is in their pre-IPO quiet period, they’re unable to comment right now.
While ads in social and mobile games are not uncommon, they’re still hard to find in traditional games on PCs and consoles. Consumers are already bombarded by advertising, and it’s not at all clear that they’d sit still for paying $60 for a game and then getting ads before, during, or after the game. It’s one thing to see company names on the walls in sports stadiums or logos on race cars; it’s another to try and put advertising into aDiablo III or a Battlefield 3. Now, if some publisher wanted to try releasing a game for a lower cost in return for putting up with some ads… I could see an experiment where you might have an ad-supported version for a lower price available through digital distribution. With digital distribution, you can easily change the price or the availability depending on the response and possible changes in advertisers. Perhaps an advertiser might even support a new map or scenario; a nifty new map (or set of maps) for Modern Warfarewould probably be warmly received as a free download supported by an advertiser.
Will Publishers Adapt?
Publishers need to make the connections with advertisers in order to realise this projected revenue stream from advertising. The mobile industry has a number of firms offering ads up to publishers and even smaller developers, but those firms are still new and the long-term value proposition is yet to be proven. Social games, PC games, and video games are behind the mobile industry when it comes to game advertising. We should expect to see that changing rapidly in the next few years.
There are many issues to be resolved before we see advertising represent a major source of revenue for game publishers, other than mobile publishers. (Rovio is making millions every month from ads in Angry Birds, but they are far from typical.) Publishers need to figure out the best way to integrate ads into their games. Advertisers need to be able to find appropriate games for their advertising, and they need to see solid returns from their advertising spending in games in order to spend more on in-game advertising. Publishers need some assurance that consumers won’t abandon their games when they start seeing ads. Most importantly, consumers need to be OK with the idea of ads in and around their games, or they’ll just move to some other game. The thought of a $7 billion payout is tempting, but it’s not certain at all that the industry can achieve that high score.
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