• by Karl Greenberg , July 9, 2007

Companies have been doing digital product placement -- exploiting the virtual ad-space in console and online games -- for several years. But the money advertisers are spending in the space is heading north rapidly, per a new study by consultancy The Yankee Group, which says new media will eclipse TV, print and other media as an ad platform if the trend continues.

According to The Yankee Group report, "Advertising and Games: 2007 In-Game Advertising Forecast," the market for in-game advertising, which was worth $77.7 million globally in 2006, is growing exponentially. By 2011, per the Boston-based company, in-game advertising spend will reach $971.3 million.

Michael Goodman, director of digital entertainment at the consultancy, says the potential for marketing opportunity in games is reflected in the broad reach of the media. "There are 140 million gamers in the U.S., and you don't get 140 million gamers unless it appeals to all walks of life," he says.

He says that the variety of brands advertising in games testifies to its reach. "You've got Coke and Pepsi, auto manufacturers, clothing companies doing it. I think the best opportunities are for those companies focused on young teens and young adults."

Goodman notes that gamer demographics and gamer expectations are determined, to some extent, by various gaming platforms. Online "casual" gaming -- which he says is more conducive to traditional intrusive advertising because the games are free to play - tends skew older, with players typically female and in their 30s and female.

By contrast, per Goodman, console gamers are younger adult males in their 20s, on average. "PC users are different from hand-held gamers, who differ demographically from console-game players," he notes. "For an auto manufacturer, the average age of console gamers is 27, which is a great age for auto manufacturers to be targeting, because if they aren't in market buying a first car, they will be."

Goodman points out that while people won't take kindly to finding ads in video games for which they paid good money, they welcome branding -- whether billboards, blimps or banners on trucks -- when it contributes to the virtual reality video games try to create.

"TV advertising is very abrupt, and it takes you out of the programming," he notes. "That may be okay for casual browser-based free games, but if you do that with a console game, consumers won't buy it. However, if marketing is done within the context of a game, it actually enhances the experience." He said signage for real brands posted on the side of a virtual stadium is not only unobtrusive but enhances the reality of world. In fact, he says, advertising for fake "Acme" brands would be more intrusive than the real thing.

"In [EA's] Madden NFL '08 [which goes on sale Aug. 14], there's a virtual Goodyear blimp flying overhead. Goodyear will no doubt pay for that, but within that scenario it supports the reality of the game because if I go to a real football stadium I would expect to see the Goodyear blimp overhead, I would expect to see advertising on the stadium, and not by 'Acme' but real brands. If I'm playing a game where I'm driving down the street I'd expect to see a Pepsi truck or a billboard on side of the road," he says.

He says research suggests virtual branding makes the same impression on consumers as the real thing. "There's a high degree of brand recall; in-game ads can be effective if done right," he says.

The group says spending on traditional advertising media grew by $3.6 billion last year, while spending on Internet advertising grew by $4.3 billion. As a result of the significant shift in advertising expenditures in new media, in-game advertising budgets and networks serving these ads are also growing. In addition, connected game devices are becoming the foundation on which providers build dynamic in-game insertion.

The study found that "dynamic" ads will supplant static ads, but fixed product placements will continue to grow through 2011; the number of games with in-game ads will double annually through 2008, with PC-based games driving the market for dynamically served ads.