Console-Based Game Advertising Is Dead, Or Is It?

Alex St. John of WildTangentAlex St. John, CEO of WildTangent, helped start the inaugural OMMA Gaming conference off with a bang. "Consoles are dead," he said, at the beginning of his keynote speech on Tuesday. "And I promise to give you the ugly facts behind why I know this to be true."

St. John used the success of WildTangent's casual games-based business to make his case. The network attracts 12.5 million unique monthly gamers in the U.S. alone, as per comScore, and 50% of its revenue stems from advertising in and around its roster of more than 500 games.

For example, Fox tapped WildTangent to develop a campaign for its 2007 fantasy film, "The Seeker." Instead of standard ad units, the company integrated ad-sponsored missions into RuneScape, a massively multiplayer online role-playing game (MMORPG) that attracts nearly 7 million monthly subscription-based and ad-supported uniques.

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WildTangent created a character called Ballyhoo that would offer players gold (the game's currency) in exchange for completing a quest such as watching the movie's trailer. "Within one week, one million players watched the trailer and got gold," St. John said. "It's a fantastic way to have ads associated with an MMO, because it identifies a point of value for the player."

And the campaign clearly represented a point of value for WildTangent--as St. John said that CPMs for such integrated units hovered at around $140 on average, and that about 70% of the company's ad revenue was derived from those kinds of deals.

As a Flash-based game, RuneScape's graphics would likely be scoffed at by game developers for next-generation consoles like PlayStation 3 or Xbox 360. But that hasn't stopped players from flocking to the game--bolstering St. John's theory that consoles face diminished usage because gamers aren't really concerned about graphics anymore.

"For years, the reason you played games on a console was for better production value," he said. "But the era of graphics is over." Even Activision Blizzard's bestseller, "World of Warcraft," attracts "1.2 billion players per year, with 7-year old graphics that look like garbage," St. John said.

Meanwhile, the cost of developing in- and around-game ads for Flash-based casual games is dwarfed by the financial investment that brands (and the in-game ad firms themselves) need to make to create and serve dynamic or static ads into next-generation console games.

St. John also said that placing ads in casual games capitalized on the addictive nature of the medium, better than the pay-before-you-play console method. "Both video and music lose their value with consumption, which is why providers typically force users to see ads before they consume them," he said. "But with gaming, it's the opposite. You let them play, then show them the ads."

St. John said that WildTangent's studies found that peak addiction typically happened at about the fifth time a person played a game, and that players would continue to view ads because they wanted to progress to higher levels of each game.

Console games, in contrast, cost game publishers so much to develop and bring to market that charging gamers upwards of $60 per title seemed like the only logical way to make a profit. "But the free audience for a game is roughly 50-100% greater than the size of the paying audience," he said. "Someone interested in 'Grand Theft Auto,' for example, might walk away when they see that it costs $60," St. John said, but if Rockstar were able to sell the game in ad-supported sessions, they might be able to double their gamer base and profits at the same time.

"I'm not saying that consoles are going to go away, or that the audience will vanish, but the majority of media dollars and growth in scale of ad revenue will happen on the casual games side," St. John said.

Naturally, others in the industry disagree--particularly in the console-based in-game advertising sector. "Comparing casual games to console games is a bit like comparing coffee from your local diner to a latte from Starbucks," said Justin Townsend, CEO of IGA Worldwide. "Casual gaming lends itself very well to click-throughs, transactions and email dialogue, because the games are cheap, free and consumers don't mind seeing or clicking on the ads. But consoles are an awareness advertising medium, and casual games do not lend themselves to display or brand advertising nearly as well."

While Townsend acknowledged that the console industry was facing a "painful transition" at the moment, with a limited number of connected consoles and ad-ready games sold, he said that the economics for dynamic, console-based in-game advertising made sense, given the fact that developers like Microsoft, Sony and even Nintendo continued to invest in (and sell) tens of millions of units worldwide.

"If you look at the billions of dollars that Sony and Microsoft have invested in the space, and the billions that they continue to invest, as well as how much the game publishing sector revolves around console sales, it's hard to imagine that everyone is going to just abandon the business model," Townsend said. "But we are following the movie industry in they way that they've begun to develop many sorts of revenues for their films." Townsend said that in-game advertising and downloadable content were among the alternative revenue streams that console game publishers were increasingly pursuing.

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