NEW YORK (AdAge.com) -- There's a land grab in social gaming, but at this point, it doesn't look like there's much room for advertisers.
On Tuesday, Disney acquired top-three developer Playdom for $563 million plus $200 million in incentives. Google, meanwhile, is reportedly in talks with Playdom, Electronic Arts and Zynga in a social-gaming push. And MTV Networks this month acquired social-game developer Social Express and plans to launch games based on its TV shows later this year.
With the draw of their established storylines and characters in social games -- not to mention well-oiled marketing machines -- established media companies hope they can use casual gaming to grow and interact with their already massive audiences."When media companies integrate their brands, it's going to be easier for people to get into the games because they are familiar and that will expand the market," said Justin Smith, founder of social-game research firm Inside Network.
Despite isolated deals, the revenue engine for casual gaming isn't brand advertising but virtual goods, which is part of the category's broad appeal to media companies that would like to rely less on marketing dollars. "From a raw revenue perspective, the successful social games don't need brands, in the sense that their monetization model is directly from the player," said Kevin Slavin, co-founder and managing director of Area/Code, a game developer and agency.
That could change as the number of games proliferate and the bigger players start trying to diversify their revenue streams. "The reality is that most social games are not successful," he added. "They then need to find diversified means of revenue."
However, the leading players in the space have been circumspect about bringing in brand advertising for fear it will destroy the game experience for consumers who are forking over real-world dollars for seeds, farm animals and body armor.
"There are certain social games where it's hard to make brands work and certain brands that will work and others that won't," said Ravi Mehta, VP-product for social-game distributor Viximo. "Though, in the social-gaming industry as a whole, we are starting to get new games that are more brand friendly."
But the main hurdle to brand advertisers in getting into the gaming space is that the biggest publishers are scaling just fine without ad revenue. After just three years, Zynga is projected to bring in as much as $500 million this year almost entirely from the sale of virtual goods, according to Inside Network, and reports 240 million users playing its games, which include FarmVille, Mafia Wars and, most recently, FrontierVille. The entire social-gaming market is expected to bring in $835 million this year, up from $90 million in 2009 -- though with new buyers and growing interest, Mr. Smith is expects he'll have to revise that number upward.
Despite early interest from advertisers, Zynga has been cautious with brand programs. In May, Manny Anekal, director of brand advertising for Zynga, told Ad Age that his company has had to be selective about advertising partners, as brand integrations could potentially take away from the game.
Nevertheless, FarmVille recently launch its first branded crop, Cascadian Farm organic blueberries. In less than four days, more than 310 million blueberry crops were planted in the game and more than 1 million people have purchased it. Zynga declined to comment for this story.
Despite its established relationships with advertisers, MTV plans to tackle the business first through sales of virtual goods rather than advertising, especially since brand integrations gone wrong could potentially scare users and their micropayments away. "Like anything, if we build out a mass audience, we'll certainly work to find ways to continue to monetize and go down the advertising road," said Steve Youngwood, exec VP-digital at Nickelodeon and MTV Networks' kids and family group.
At this stage, the easiest way for brands to get into gaming is to create their own games, rather than try to shoe-horn a campaign into an existing game. But that raises the problem of scale: Without banners and buttons, each brand integration needs to be built from the ground up.
"Right now brand programs need to be handcrafted," said Area/Code's Mr. Slavin. "That's part of their value and part of their liability. ...It's not like buying a 30-second spot or banner ad. What you're doing is figuring out how best to embed yourself in a system."
To bring brands in, women's blog network Sugar has built its own social game, Retail Therapy, from scratch with a number of marquee fashion brands from the start. In the game, users design their own boutiques and stock them with clothes from brands partners Banana Republic, Barneys New York, Diane von Furstenberg, Gap, Juicy Couture, Topshop and Tory Burch.
Like the category in general, Retail Therapy is an appointment-based game: Users have to come back at certain intervals to achieve tasks and can pay real money to speed up the process. Players also pay up for virtual clothes, which cost anywhere from $1 to dress an avatar to $100 for stocking an entire store.
Brian Sugar, founder-CEO of Sugar, wouldn't share the economics of such deals, but the point is to sell virtual stuff. "The game is certainly built around players using real dollars to buy virtual Louboutins [designer shoes]," said Mr. Sugar. "But we are also actively in talks with the brands to discuss all the things they can do in the game."