How video game advertising plays into Take-Two's deal for Zynga

Take-Two's acquisition of Zynga could create a formidable mobile internet ad platform, according to industry experts who say the most compelling part of Zynga's video game business is its advertising. Take-Two Interactive, the game developer behind Grand Theft Auto, NBA2K and Borderlands, announced a plan yesterday to buy mobile game maker Zynga, which is best known for Words With Friends, Zynga Poker and FarmVille. The $11 billion deal is still pending approval by shareholders, and might still get nixed, but Take-Two is hoping to close it by June. Subscribe to Ad Age now for the latest industry news and analysis. The merger has the potential to unite two game developers with vastly different styles and audiences, and it comes with implications for a digital ad industry that is looking for new opportunities to reach consumers on mobile devices. Take-Two has been trying to build an ad business, while advertising is Zynga’s fastest-growing segment. Zynga’s ad revenue nearly doubled year over year to $133.6 million in the third quarter of 2021, the latest period it publicly reported. “They really are all in on advertising revenue and it’s become a great business for them,” said Michael Pachter, a video game, social media, digital media and electronics analyst at Wedbush Securities. Mobile ad inventory Take-Two’s pitch to shareholders in promoting its deal with Zynga mostly focused on uniting their intellectual property under one roof that serves console games, PC games and mobile games. Zynga has a reputation for creating and buying hit titles for mobile devices, and it has rights to develop games for the “Harry Potter” and “Star Wars” franchises. Take-Two also noted that Zynga owns a potentially lucrative advertising technology network called Chartboost, which is a supply- and demand-side ad platform. Chartboost competes with larger mobile gaming ad networks like AppLovin, IronSource, Unity and Vungle. Take-Two said in its investor presentation on Monday that it intends to “use Zynga’s scale and Chartboost ad platform to acquire new users more efficiently and optimize mobile ad inventory.” Eric Seufert, a marketing analyst at consulting firm Heracles Media, noted the value that Chartboost could provide in the transaction. “Take-Two now gets to pair its powerful IP with a constellation of impressive studios (Peak, Gram, Small Giant, etc.) and a [demand-side platform] (Chartboost),” Seufert said in a Twitter thread about the proposed acquisition. “My sense is that Take-Two wants to build a unified identity system to manage cross-device play.” Seufert said that Take-Two could be looking to develop a “content fortress,” which would be akin to the “walled garden” approach in digital media, where publishers own massive unique audiences to which they control the flow of ads and the data generated on those consumers. The walled garden approach is becoming a more important strategy as platforms like Apple restrict data collection on consumers through mobile devices and web browsers. Video game studios, like many other digital media companies, see that advertising can become lucrative new revenue streams. Retailers have made similar calculations with their shopper audiences, looking for ways to help advertisers deliver internet ads to consumers online based on their data on purchasing and browsing habits. Potential ad revenue Video game studios like Electronic Arts, Activision Blizzard and Take-Two have all been pursuing more ad revenue. Meanwhile, mobile game developers like Zynga, Glu Mobile and Candy Crush maker King Digital Entertainment have been in the business of running ads since their inception. Electronic Arts owns Glu Mobile and Activision Blizzard owns King. “Take-Two has no advertising business to speak of, whereas Zynga does,” said Brian Wieser, global president of business intelligence at GroupM. Wedbush's Pachter said that Zynga’s ad business could lead to $1 billion in revenue by 2023, after hitting about $500 million in 2021. “As a seller of ad inventory, it’s minting money,” Pachter said. There are still questions about whether Take-Two could vault into a top position in digital advertising, even with Zynga’s ad tech, according to Wieser. Advertising can be considered a disruption for players of video games, so no matter how much the mobile developers, and now console-based game studios, want to deliver ads, they could meet resistance. “Video game advertising has been something that advertisers have wanted to capitalize on for close to 20 years,” Wieser said. “And while video game advertising is a business, it’s a modestly sized one.” Don’t miss the latest news. Sign up for Ad Age newsletters here.

How video game advertising plays into Take-Two's deal for Zynga

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