Diagnosing the Disconnect: Ad Spending on Gaming Lags Despite Scale & Interest

What we learned from the inaugural IAB Gaming & Immersive Media Leadership Summit

Credit: @IAB Twitter

18 months ago, when the Lab wrote about the state of advertising in gaming based on what we saw at the last IAB event we attended, we led with the question “why now?” The answers to that same question provided at the inaugural IAB Gaming & Immersive Media Leadership Summit this week are more compelling than ever: Throughout the event, we heard numerous stats being cited to support the mass scale of gaming, such as:

1. 64% of Americans play games with the average gamer playing 10,000 hours before turning 21.
2. 64% of Americans play games with the average gamer playing 10,000 hours before turning 21.
3. You can reach any audience; women make up nearly half of the 212 million U.S. gamers and 27% are over the age 45.
4. Mobile devices are no longer the “second screen.” Showrunners are told to dumb down scripted shows to avoid losing a multi-tasking audience. (Mobile games are the most common form of gaming.)
5. Hardware is evolving to become more powerful and less cumbersome to wear.

Zoe Soon, VP, Experience Center for IAB, once again summarized the bullish perspective succinctly: “Gaming and immersive media is the next big advertising opportunity,” with gaming “the entryway to immersive experiences.”

Stephanie Llamas, Chief Data Storyteller for VoxPop Insights, affirmed that marketers theoretically agree: 81% of marketers want to spend more on gaming.

However, that desire has not converted to commitment. About 5% of media budgets are currently allocated to gaming, according to Llamas. The attendees, which was made up of executives from across the marketing spectrum, posited that the true number is closer to 2–3% of media budgets if you remove performance marketing from other games advertising to gamers.

Diagnosing The Disconnect

The questions posed to presenters and raised during breakout sessions indicate that agencies, publishers, and marketers have frustration, concerns, anxieties and confusion about advertising in gaming, for good reasons.

Gaming stakeholders on the seller side face an uphill battle, often starting with budgets. Presenters stated (and attendees confirmed) that gaming, especially anything immersive, tends to fall into an “innovation” budget, if it gets a budget at all.

Stakeholders on the buyer side are presented with a set of facts that can feel overwhelming. Gaming remains fragmented with over 170 games that boast 10 million or more users. There’s ad-supported mobile games, mobile games with in-app purchases, and premium mobile games. Consoles have multiple business models with cloud gaming, subscriptions, and individual game sales. Some of those games are on PC/Mac. There’s UGC-powered games and maps. Not to mention the various MMO games with metaverse ambitions.

As Randy Shaffer, Senior Sales Director, Xbox at Yahoo put it: “The question I hear is ‘how do we get in the verses? Meta’s verse? The Metaverse? The verse, verse?’”

Then there’s the vast culture and discourse around gaming such as streamers on Twitch, news and analysis on gaming publications such as IGN, trillions of annual gaming video views on TikTok, and group chats of gaming communities on Discord.

Agencies and clients are presented with seemingly never ending “ways-in.” There’s digital assets, IP partnerships, opt-in mobile ad units, interstitials, “intrinsic” in-game ads, sponsorships, etc. They are also told that the boomer grandparent who plays Solitaire, the late-Millennial dad who plays Wordle, and the nine-year-old who hangs out on Roblox are all the same “gamer.”

As a result, there is a disconnect between the reality of gaming as a mature, key media channel and the lack of advertising spending in this channel.

Barriers to Buying

Cynicism was evident as marketers posited versions of “does compelling data even matter?” during breakout discussions. Attendees reported favorable performance and impact results in A/B tests that were ignored. (One credible attendee described a 6x performance boost, but the Lab can confirm neither veracity nor details.)

So what are some of the barriers to spending more in gaming?

According to Samantha Lim (SVP, Gaming Strategy and Innovation for Publicis Media) and Kieley Taylor (Global Head of Partnerships for GroupM) there are a few consistent, often related concerns:

1. Education: People’s imaginations are constrained by what they know. If they can’t grasp it quickly, then they can’t articulate the value proposition to the CMO and CEO. Education bandwidth right now is consumed by generative artificial intelligence, and previously by the likes of crypto, web3, and the metaverse (the fully immersive one no one uses).
2. Brand Safety: Mature companies are often risk-averse. They are wary of ads showing up in front of inappropriate content or showing up in a Reddit thread getting thrashed by gamers.
3. Lead Times: Some gaming integrations can take up to a year or more to get into the market, which deters marketers looking for faster turnaround and more immediate results.
4. Perception: Some marketers still believe gaming is niche and lacks sufficient scale. (One day there will be a gaming conference in which the stereotype of the “guy in his mom’s basement” is not mentioned. Wednesday was not that day.)
5. Understanding the competition: Those pitching advertising in gaming often fail to understand who they are competing with for media dollars, and, therefore do not present the value proposition in a familiar way to their audience.

Building Utility-Driven Immersive Brand Experiences

Conspicuously absent from the presentations was hard data suggesting that immersive 3D experiences should be a staple of any brand’s marketing strategy. But that is not to say there weren’t advocates.

Neil Redding (Founder & CEO, Redding Futures) predicted that the tipping point for immersive experiences such as AR and spatial computing would come when there are enough important things done daily.

Utility, not entertainment or gaming, was echoed by other thought leaders as the most likely way immersive technologies could become mainstream. Snap Inc’s Resh Sidhu, the Global Director Arcadia Creative Studio, pointed to their partnership with Live Nation to build an AR compass using real-time GPS tracking for live events. Sidhu pointed out that mobile AR is no longer nascent: 250 million Snap users worldwide use AR daily.

Indeed, a focus on adding value to your customers, not measurable ROI, was a consensus north star for brands experimenting with 3D immersive experiences at the moment.

Solutions to the Gaming Spend Problem

How can marketers get gaming out of the innovation budget and into the media budget? Some ideas based on the thought leadership and breakout sessions include:

1. Simplify sales pitches. Break every possible gaming opportunity into two buckets: scalable media and custom integrations. (Do not include custom offerings in introductory “101” style pitches.)
2. Connect taxonomy to familiar media types. For example, refer to “gaming interstitials” as “video ads” and “intrinsic ads” as “digital out of home.” Use the same KPIs to make media offerings “apples to apples.” (Attendees noted that standardized nomenclature is already happening in Europe, and this same standardization ought to be applied to how ad units are technically classified.)
3. Stop bundling gaming. A presentation on rewarded mobile ads does not need to include references to branded maps in Roblox. A presentation about console gamers does not need to mention immersive experiences.
4. Audits: Third party measurement, case studies, and performance, and impact tests can improve transparency and trust.

There is no silver bullet, and these ideas do not address all concerns discussed on Wednesday, such as measurement and brand safety. However, these steps could address some of the barriers articulated by thought leaders and attendees.

Final Thoughts

Brands are understandably excited about the next big thing, which means a lot of attention is on generative AI. But reflecting on what I saw and heard at this IAB summit event, it seems apparent that gaming remains a potential marketing inefficiency that brands can capitalize on by redirecting their media budgets.

Not everything in gaming is a bargain. Some performance mobile ads have high CPMs because gaming ads drive downloads effectively for other apps and games. Brands do not necessarily need to build a branded Roblox experience or invest in an in-game integration with a six month lead time to reach their audience via gaming. The Lab is always here to help if you are interested in finding efficient opportunities in gaming that can drive scale and better ROI.