Report: Advertisers Will Triple Spending On Video Game Ads By 2008

New figures from the Yankee Group claim the U.S. video games industry reaches more than 108 million gamers 13 years of age and older, who will have spent $7.4 billion by the end of the year. Advertisers have long wanted to penetrate the gaming market, but haven't yet been able to in any meaningful way. Despite the video games industry's size, advertisers only spent a meager $79 million on placing ads in games last year--a number the market research firm anticipates will grow to $260 million by 2008, according to the Yankee Group report.

Michael Goodman, senior analyst for the Yankee Group and author of the report "Marketers Look to Video Games to Drive Their Message Home," said that ad dollars have become "a very necessary revenue source" for game publishers as the cost of development for new games continues to rise.

Goodman pointed out that most games currently cost between $5 million and $15 million to produce, but that costs will increase as technology improves. Meanwhile, Goodman said that only 10 percent to 20 percent of games break even. "It's a hit-or-miss market," he said, adding that consumers will not be willing to spend more than the $50-per-game they are used to paying, so game developers will need to learn how to monetize their available inventory.

The trick now is getting advertisers to commit. Goodman said the chief obstacles to advertiser adoption of the nascent medium include an impression measurement system and pricing guidelines. Also, the lead times for producing a console game are sometimes 6 months to a year--longer than advertisers are used to, said Goodman.

Not surprisingly, VNU unit Nielsen Entertainment is trying to come up with a standard measurement system. With heavy funding and participation from Activision, a major game developer, Nielsen is currently panel-testing ad interaction and recall in video games. The test measures how long and how often players are exposed to various products through an inaudible audio code that is triggered whenever a game player interacts with a brand.

Michael Dowling, general manager of Nielsen Interactive Entertainment, a division of Nielsen Entertainment, called the audio code test "a milestone in our efforts to create measurement tools for advertisers." He said that one of the major goals is to produce a standard metric for what exactly constitutes an impression, because there are myriad variations in integrating advertisements and products into games.

Dowling stressed the importance of creating a metric based on reach and frequency that is comparable to what advertisers are used to buying in television and other media. He said that while reach is readily measurable based on game sales, advertisers will be keen to know that targeted reach and frequency will be measured.

Dowling said there has been "very, very high interest" from both traditional and interactive side departments at the major ad agencies. If anything, the "call has been to move more quickly than we are," he said. The Chrysler Group is the first company to participate in the audio test, which will take place daily from late 2004 through 2005.

The Yankee Group's Goodman said the difference between Nielsen and Massive Inc.--a new real-time ad server network for Internet-enabled software applications--is that Nielsen data relies heavily on survey-based ad recall, whereas Massive's built-in technology provides instantaneous reporting and tracking information for advertisers.

Patrick Quinn, president of market research firm PQ Media, said the Nielsen initiative is "a good start," but they will need to convince advertisers that they know how to quantify the extent to which players interacted with the in-game ads.

Ironically, by the time Nielsen/Activision comes up with a standard measurement system, the industry might no longer need one, because Internet-enabled games might predominate by then. The next generation of consoles--likely to arrive in 2006--will probably come with Internet functionality. And as Julie Schumaker, director of in-game ad sales for Electronic Arts, told MEDIA magazine in August: "the networked console completely changes the landscape of gaming and media."

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