Consoles at a Crossroads

Why are advertisers still so reluctant to pursue branding opportunities within video games? The biggest reason: There's still no third-party measurement and ratings support for this $10 billion industry.

Nielsen Interactive Entertainment promised a universal games ratings system by mid-2005, but Nielsen now says the system may not be ready until mid-2007. NIE senior vice president Michael Dowling admits the delay may keep some advertisers away from video games, but he insists there's a bright future for dynamic, in-game advertising in the next generation of game consoles.

As gamers trade in their old Xboxes and PlayStations for a new breed of Internet-enabled systems, advertisers will be able to buy time-sensitive flights of ads and placements across several games through such in-game ad networks as Massive Inc., Double Fusion, and Engage In-Game Advertising.

Massive's game network, for example, includes online gaming networks as well as PC and video game publishers. Massive can tell advertisers how many people saw the ad, how many times, and when. What they can't deliver is basic demographic data. With a universal ratings system, Massive CEO Mitch Davis says dynamic advertising would give marketers "the same reach and frequency curves they get from TV broadcasts."

Nielsen's Dowling agrees that the universal ratings system is crucial to bringing the marketers on board. The main challenge involves getting developers, publishers, and networks to set aside competition and agree to standardized ad units and impression counts.

Another setback is the delay of Sony's PlayStation 3. Even if it manages to debut this spring, it will take years for the product to approach the critical mass achieved by PlayStation 2, which as of February had a 67 percent market share, with 100 million units sold worldwide.

Meanwhile, the industry is going through a cyclical slump as hardware makers phase out older systems. Last year's holiday sales were soft, and further declines followed in January and February. In fact, the video game industry as a whole reported year-over-year declines in software sales every month since August 2005, according to NPD, an industry research firm. Michael Pachter, an analyst at the investment firm Wedbush Morgan Securities, has warned that the industry could see "double-digit monthly percentage declines for software sales."

Some advertisers are pursuing placements via companies like Massive. Static ads and brand billboards are hard-coded into games as permanent placements, and must be planned up to nine months ahead of a game's launch.

Marketers spent $75 million on these kinds of ads in 2005, according to Nielsen. That figure is expected to grow to more than $1 billion by 2010 -- that is, if ratings and measurement systems are put into place.

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