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'GRAND THEFT' FLAP COULD HURT ADVERGAMING BUSINESS

Some Worry Controversy May Scare New Industry's Potential Advertisers

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NEW YORK (Adage.com) -- The furor over the "adults only" rating slapped on "Grand Theft Auto: San Andreas" could scare off advertisers that were eyeing the $11.5 billion video-game industry as one of the major emerging advertising media.
While 'Grand Theft' doesn't contain any advertising, the controversy it has created with its hidden sex scenes could hinder the recruitment of in-game advertisers for other titles.

Following revelations that sex scenes were buried in PlayStation 2 versions of the game published by Take-Two Interactive Software, the Entertainment Software Ratings Board upped the Theft rating to “Adults Only 18+.” That prompted retailers including Wal-Mart, Circuit City, Best Buy and Target to remove the game from their shelves and members of the Entertainment Merchants Association to stop selling it.

Even though "Theft," the top-selling game on the market, contains no ads, the worst damage may be to the nascent $180 million field of "advergaming."

Looking to reach 'lost boys'
The controversy threatens to scare off marketers that have just started exploring, and spending small slices of budgets on ads in games in a bid to reach the “lost boys” -- men 18 to 34 who are abandoning TV for Xbox and PlayStation. While advergaming spending is currently small, Yankee Group estimates it will hit $800 million by 2009.

“The advertisers who were thinking about marketing in games and looking for all the reasons to go into the medium will be much more cautious,” said Cory Treffiletti, senior vice president and managing director for Carat Interactive, San Francisco.

“Advertisers will want more guarantees,” said Mike Vorhaus, managing director of Frank Magid & Associates. But he doesn’t think they will bail out of advergaming: “If you want to reach this demographic, you’ve got to go to video games, MTV and ESPN.”

Marketers who have placed ads in games include Cingular Wireless and Burger King, in Electronic Arts’ "Need for Speed Underground 2"; Procter & Gamble Co.’s Old Spice, in EA’s "NCAA Football 2005"; and Samsung, in Atari’s "Enter the Matrix."

Scared of controversy
While desperate for ways to capture young men’s attention, most advertisers are scared by any hint of controversy, and there’s plenty around "Theft" and similar games.

Last week, Sen. Hillary Rodham Clinton, D-N.Y., announced she would introduce legislation to shield children from “inappropriate” video games, and called on the Federal Trade Commission to investigate this particular title.

Josh Larson, director of industry products at Gamespot, an online news and information forum for video games, expects tighter government controls on the industry as a result. “The government will want to play some role in the regulation of games and that could mean stricter laws about retailers selling the game and carding of individual buyers,” he said.

Still, Dave Madden, executive vice president of sales and marketing at WildTangent, a company which pioneered advertising in online games, doesn’t agree. “This game would be controversial in any case because of the level of violence,” he said. “There’s no risk at all in advertising in a Tony Hawk or a Madden Football. It’s the same level of risk as advertising in a violent movie.”

Stickers and software patch
Take-Two has stopped manufacturing the game and will release a new version in October. It is also disseminating “Adult Only” stickers to retailers and will put out a downloadable software patch. No public relations or ad campaign is on tap, said a spokesman.

The PlayStation 2 version of "Theft" has sold 5.7 million units since it was released during the fourth quarter of 2004, making it the top-selling video game on the market, according to NPD Group. Data are not yet in for the PC and Xbox versions, released in June.

Take-Two lowered its guidance for the fiscal year ending Oct. 31 to $1.26 billion in net sales from $1.31 billion. But events probably won’t affect sales of the game, analysts said. “You sell 80% of your games in the first six weeks,” Mr. Vorhaus said. “For every game they are not selling [due to the controversy], they are selling at least one game due to press attention.”

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