• by Shankar Gupta , February 1, 2008

It says something about the medium's growth that in-game advertising was a topic for discussion at the World Economic Forum in Davos, Switzerland. But unfortunately for in-game ad proponents, the talk was mostly negative: industry notables like Howard Stringer, chief executive of Sony, and Bobby Kotick, chief executive of Activision Blizzard, said that the money isn't quite there yet. ""The [supposed] solution to everything at the moment in the digital space is ad-supported. While advertisers are happy to talk that up, there is a limit to the amount of money available," Stringer told the Financial Times. And Kotick, whose company manages the most widely-subscribed MMO on the market, said ""It's early days. I wouldn't go in that direction myself."

One of the issues Stringer cited, aside from the paucity of the current revenue stream offered by in-game advertising, was the current attitude towards advertising as a whole: "Young people don't like advertising very much," he said.

Which is, of course, true -- and has been true for quite some time now. "Young people," and people in general, are doing their best to avoid ads on every screen in their households to the best of their ability, whether it's by subscribing to TiVo, installing ad blockers on their computers, or torrenting commercial-free, pirated television.

But there are some instances where people willingly accept being advertised to, and that's when a portion of the proceeds go to them -- a tactic that the game industry's already working on. Electronic Arts, for example, is developing a free version of "Battlefield 1942" called "Battlefield Heroes," which will be ad-supported.

Another, more moderate strategy is to use the revenue ads provide as a subsidy to drive sales. When a gamer considers what titles to buy and which to pass over or merely to rent, the price point of the average latest-generation title looms large; $60 is a lot to spend for a game unless you can be certain that it will provide a compelling experience. But if the same $60 title could be bought for $40 plus ads on startup and load screens, it suddenly looks a lot more attractive. Not every game can be "Halo 3" or "Call of Duty 4," and in-game ads could provide a sales boost to B- and C-list titles by lowering their price points.

The casual game market is already embracing this model. Popcap, for example, offers ad-supported versions of its games to allow players to get hooked before they have to make the decision to purchase -- they use their ad model to drive conversions more salable than impressions or clicks. Publishers that are interested in making money from in-game ads need to understand that incorporating ads imposes a cost on their consumers, and that cost must be accompanied by a concurrent benefit.