In Game Advertising: Failure or Future? | THE NEXT LEVEL LONGFORM 02
The Challenges and Final Hope for In Game Advertising
Sitting on a recent “Madison Ave and Gaming” panel, I looked out on the audience and wondered — What are we still doing here?
Look at almost any gaming related conference and there is usually a panel discussing how and why brands should look to gaming as a viable advertising medium. I’ve been at the intersection of advertising and gaming for over a decade now and unfortunately the industry hasn’t moved much in that time.
There were the normal market estimates when In Game Advertising first started getting attention but hasn’t come close to realizing its potential.
King.com got rid of their sales team and dropped ads from their games; losing an estimated $100M/year in revenue. Valve has repeatedly said no ads on Steam.
This is not to say that companies have completely abandoned the space. EA has a dedicated Global Media Solutions team along with smaller groups at Take Two and Ubisoft. Gameloft has grown more bullish in their strategy. Zynga’s ad business grew 44% YoY and now brings in almost 1/4 of the total revenue and is the fastest growing segment of the company. RockYou has bet heavily on mobile gaming ads through it’s developer and PlayHaven acquisitions.
With a highly engaged and diverse demographic that has moved on from watching TV, In Game Advertising should have been an extremely compelling platform for brands. So what happened?
Static Advertising
The first examples of In Game Advertising were through Static or hard coded ads which were built into the game and lived on for eternity. Almost every major game publisher participated with examples ranging from Axe, AMD, and Nokia in Splinter Cell, the Verizon phone in Alan Wake, or the Old Spice Swagger stat in EA Madden.
Advergames or games that are essentially branding vehicles were also popular. Many examples exist however the loftiest strategy may have been Burger Kings’s 3 Xbox advergames which sold 2.5M copies in the first 5 weeks and was the driving force behind the chain’s +40% quarterly revenue increase.
Ad add-ons or downloadable content increasingly became a core revenue strategy for console games, brands also took advantage. An early example was the first Gears of War Map pack presented by Discovery Channel.
What Happened: The biggest challenges to Static Advertising were the extremely long development process and scalability. Working with a console publisher meant at least one year or more to work on the integration while the game was being completed. Releasing a custom advergame or DLC also led to scale challenges as the audience had to purchase or download new content.
Dynamic Advertising
A decade ago, Dynamic Advertising or the ability to change in game ads like online advertising was heralded as the start of the In Game Advertising industry.
With the ability to change messaging and targeting to content, users, day parting, and geography; Dynamic Ads was the first gaming platform for Madison Avenue. Companies like Massive Inc., Double Fusion, and IGA Worldwide raised over $120M+ in VC funding.
Further cementing the hopes for the industry were the acquisitions of Massive Inc by Microsoft and Adscape by Google.
What Happened: Three critical factors doomed Dynamic Ads. As games required real world elements for ad placements, only a small number of game genre’s worked like Sports, Racing, and Action; which in turn limited the audience size. The need to integrate two SDK’s (Xbox and PlayStation) for each new version of a game added additional difficulty for console publishers. Finally, outside of working with two different ad companies dependent on platform, the early industry standards were still too confusing for agencies and brands (foreshadowing similar issues the industry is currently dealing with around ad viewability).
Adscape was never really implemented by Google and Microsoft eventually shut down Massive Inc.
Retail Sponsorships
Everyone loves free stuff, especially Gamers. Retail Sponsorships are a triple win for the users (unique items in game), brands (increased product consumption) and publishers (revenue and marketing). Many integrations have been done to date including:
- Dr. Pepper and EA Sports
- Tostitos and Madden 16
- Edge Shave Gel and Assassin’s Creed
- Doritos has probably been doing this the longest including Madden 11 and with Mountain Dew for Halo 4 and Call of Duty: Black Ops 2.
What Happened: These ad integrations are not a failure in brand ROI and we will continue to see these deals continue as evidenced by this week’s Carl Jr.’s and Call of Duty: Black Ops 3 promotion. Ultimately two big obstacles remain. With all of the moving parts connecting an online and offline retail experience, coupled with the length of time to get a large publisher and brand working together, it’s challenging to do more than one of these promotions a year — not very scalable. Second, due to the transaction based element of the integrations, you need a high-volume vertical like Food, Beverage, and some Consumer Packaged Goods. This greatly limits these types of deals from big ad spenders like Telco, Auto, Financial Services, Insurance, etc.
Social Gaming
One of the biggest disruptions to happen in Gaming’s history, was the launch of Free-to-Play or Social Gaming. Instead of paying $60 for a console game or $5 for a mobile game, the entire game experience was Free with the option to purchase decorative items, add ons, and boosts.
Social gaming exploded with Zynga’s CityVille hitting 100M Monthly Active Users. Facebook became the #1 Gaming platform along with the rosy revenue estimates. Through either rewarded video or sponsorships, brands like McDonalds, Farmers Insurance, Best Buy and many others flocked to Social gaming.
What Happened: The shift to mobile. No one predicted how impactful the iPhone launch along with subsequent growth in smartphones and tablets would affect the social gaming ecosystem. Within a year after the Zynga IPO in Dec 2011, both Clash of Clans and Candy Crush launched for mobile, currently dominating the Top Grossing App charts. During it’s heyday, Gaming revenues were almost ~20% of Facebook revenues and now less than 5% and declining.
Mobile Gaming
With the huge growth in smartphones and decline of Social Gaming, large number of users moved to Mobile Gaming. Not only did Mobile become the largest gaming platform, it continued the Social Gaming trend of expanding the demographic from young males to females 30+. The proliferation of rewarded video ad units, where users watch a video for virtual currency, was perfectly suited for the medium and drove significant ARPU for developers.
The second revenue source came through Offer Walls, where a user completes an engagement (survey) or a transaction (Sign up for Netflix) for similar virtual rewards. However, this is also primarily a Performance ad unit and not Branding focused.
What Happened: The dominance of App Install ads. Watch any video within a Mobile game and 99% chance it will be ad for another Mobile game. With companies continuing to drive funding to mobile developers along with the high eCPM’s that those same mobile developers were spending on user acquisition, created a perfect storm for Direct Response ads to eclipse Brand advertising.
What Will Happen: As Mobile Gaming CPI’s continue to increase, developers have already started looking to other platforms like TV, Instagram, and Influencers to help drive downloads. Brands will start generating higher share of Mobile Gaming ad revenues as the platform becomes less ROI friendly for Mobile developers.
Zynga recently launched a new mobile ad product, Sponsored Play, launching with Clorox and Naked Juice. A solution that provides the brand integration of static advertising, the targeting capabilities, and audience scale. EA has a unique integration within Madden Mobile that highlights a brand during live NFL games or last year’s work with ampm and Need for Speed Mobile. Gift Gaming introduced a brand focused rewarded ad unit without using video.
Expect brands to start gaining larger ad revenue share in the next two years.
The Future
The future looks promising. Along with the growth of brands in mobile, these verticals look primed for growth: Live Streaming, Influencers and eSports.
For all three, advertising is driving the monetization. SuperData estimates that 81% of eSports revenue this year will be due to brands and sponsorships garnering $100M+. Until prize pools, salaries, merchandising and other options start contributing to the eSports pie; advertising will remain the dominant revenue stream.
With the convergence of the youth demographic and gaming culture, the engagement of these platforms, along with further erosion of the TV landscape; more mainstream brands will start getting involved.
Live Streaming
Through any of the Live Streaming services (Twitch, YouTube Gaming, MLG, Azubu, Hitbox), the majority of revenues are driven via Digital video and display advertising, eclipsing paid subscriptions, tipping, or merchandise sales.
In addition to traditional online advertising, engaging unique integrations are also encouraging brands to get more involved. Twitch has garnered praise for their Old Spice “Man in the Woods” Live Stream, giving away money from Mr. Robot, and exclusive clips from HBO’s Silicon Valley.
MLG partnered with Relativity Media for a 72 hour Optic Gaming marathon to support the launch of 3 Days to Kill and Scuf Gaming to support competitive Call of Duty tournaments.
eSports
In addition to the mainstream press on the growth of eSports, there have also been plenty of articles on the rise of brands entering the space. Agencies specializing in connecting brands with eSports have also been acquired like Twitch and GoodGame and WME/IMG buying Global eSports Management.
As mentioned above, eSports will continue to drive a majority of it’s revenue from advertising in the near term. A few new examples:
- Pizza Hut to sponsor Endemol’s new Legends of Gaming series
- Coke to sponsor IGN’s version of eSports SportsCenter
- IMG brokered a 6 team eSports deal for DraftKings
Outside of brands that have already invested in Gaming, expect a lot more to enter eSports in 2016.
Influencers
Sitting in the middle of both live streaming and eSports are the gaming influencers. Having established themselves through a steady stream of live or VOD gaming content or being part of an eSports team , these gaming celebrities are turning to brands not only for sponsorship revenue but help them extend their own brand.
Influencers can either work with their existing live streaming services such as Twitch and Snickers and MLG and The Expendables 3 or flourish on their own.
Felix Kjellberg or as he’s known to his 40M YouTube fans, PewDiePie, is the top gaming influencer worldwide. While focusing on his fans and staying true to his personality, PewDiePie generated $12M last year on YouTube alone. Outside of the games he’s been paid to promote, he recently launched his own mobile game which landed at #1 on the App Store Paid rankings.
I still believe that In Game Advertising is a viable advertising platform for one main reason: the opportunity for a brand to play the hero instead of the villain. Instead of interruptive display or video ad products, brands provide an additive experience and unique rewards.
Ten years from now, hope I’m not writing this again.
(Disclosure: I’ve worked at Massive Inc., Microsoft, Electronic Arts, Zynga, Kiip, and Major League Gaming)
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