• by Laurie Sullivan  @lauriesullivan, October 20, 2008

T-Mobile has inserted ads in Rockstar Games' new Midnight Club: Los Angeles is scheduled to go on sale this month. The game is made for the Microsoft Xbox 360 and Sony PlayStation 3 offers single-player and multiplayer modes. Gamers can choose from 40 different cars and motorcycles to cruse Figueroa or Sunset Boulevard.

The ads feature the T-Mobile Sidekick as the in-game, in-car communication device. Gamers can use the device to communicate with other players or get information about in-game challenges, according to Vijay Rao, VP director of open planning at media agency Optimedia.

"The advertising spend is well worth the number of times the gamer will come face to face with the brand," he said. "It is common knowledge you can't reach 18- to-34-year-olds with traditional advertising because of their inherent skepticism. If you can incorporate the brand into the game, you have a real chance in making that connection."

T-Mobile is not the only brand allocating more advertising spend on this emerging market. DoubleFusion, San Francisco; IGA Worldwide, New York; and Massive see a rapid move away from "experimental budgets" and into six- and seven-figure network buys for 2009.

"Today, the average budgets for placing ads in PlayStation 3 video games vary between $150,000/$200,000 and $400,000/$500,000 per campaign, capping out at about $1 million," said IGA CEO and cofounder Justin Townsend. "In the past two years, budgets have grown slowly from $50,000 up to $100,000."

Jonathan Epstein, CEO at rival DoubleFusion, agrees. The San Francisco-headquartered company has doubled revenue and requests for proposals in the past year, with RFP dynamic ad buys reaching between $30,000 and $300,000.

Massive, too, has begun to see more brands chasing gamers where they live, including those in politics. The Barack Obama ad that began appearing in a handful of Electronics Arts video games on the Xbox 360 console served-up by Microsoft in-game advertising subsidiary Massive read "Early Voting Has Begun," and includes the URL voteforchange.com.

The Obama ads run in billboards in stadiums and other outdoor locations. While the campaign--scheduled to run through Nov. 3--may vary per game, the ads are geographically targeted, appearing in swing states such as Colorado, Florida, Iowa, Indiana, Montana, North Carolina, New Mexico, Nevada, Ohio and Wisconsin.

J. J. Richards, GM for platform services at Microsoft Advertising, believes more brands are attracted to in-game advertising because technology companies like Massive have the means to "measure engagement by counting impressions," giving a more accurate read. In a car-racing game, for example, Massive's technology that counts impressions is triggered after the car passes a billboard ad an undisclosed number of times.

Earlier this month, Mountain View, Calif.-based Google also made a play for gamers to demonstrate the strength that in-game ads will have on advertising dollars.

Budgets rise, but the fledgling media still faces significant challenges before it can take an even bigger portion of ad spend from major brands. One issue that media buyers have called out on the table is the need for technology companies that insert ads to dig deeper for data, although executives at DoubleFusion, IGA and Massive believe their respective technologies can support metrics well beyond other media.

For a game developer, the challenges remain in designing ads into the game without affecting the play. "It's one more level of complexity in an already very complicated system," said Albert Reed, studio director at game developer Demiurge.

It's become necessary for game developers to subsidize royalties. In the past five years, console game budgets have jumped, but retail prices remain between $50 and $60. Game development costs for Xbox 360, Wii, and PS3 grew from several million a few years ago, to up to $20 million today.