In-Game Ad Business Heats Up as More Marketers Seek Placements

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LOS ANGELES -- When it comes to placing brands in video games, Massive Inc. has long been the dominant player. But with more marketers turning to in-game advertising as a way to reach young males, competition is heating up.

One company eager to challenge the leader is Double Fusion.
These Double Fusion graphics demonstrate how real-life marketers use dynamic ad insertions to create a presence throughout the digital landscape of an online game.

The in-game agency, based outside of Los Angeles, has spent the last six months landing major video-game publishers as clients and bolstering its executive roster with high-profile hires, as well as filling its coffers with new investments.

Deals with Midway and THQ

This month, Double Fusion announced a multiyear deal with Chicago-based video-game publisher Midway Games to place products in upcoming titles, starting with “Stranglehold,” produced with filmmaker John Woo. It also struck a similar pact with Los Angeles-based THQ that covers three upcoming titles, to be released in the fall, that Double Fusion will present to advertisers and their agencies.

In addition to the new clients, Double Fusion last year bolstered its executive roster, hiring Geoff Graber, the former general manager of Yahoo Games, as its CEO. It raised $10 million from Accel Partners, Jerusalem Venture Partners and JVP Studio. And it enlisted Hollywood’s United Talent Agency to represent the company. UTA’s Jonathan Epstein sits on Double Fusion’s board.

Double Fusion, which was founded in 2004 and has placed ads for companies like Procter & Gamble Co. in games, is challenging Massive at a time when an increasing number of advertisers are placing their products into games, hoping they’ll be able to reach the lucrative young demo of 18- to 34-year-olds that play them.

Dynamic ad insertions

What companies like Double Fusion do is insert what they call “dynamic” ads into games played via online connections. The ads can appear as signs, posters or billboards, or as 3-D objects and be enhanced with streaming audio and video. Because of the games’ online connection, the ads can change over time and be manipulated by the in-game ad shop, as opposed to “static” ads, which never change over the life of a game.

“This is the world’s most interactive media,” said Mr. Epstein. “Billboards have a place, but we think we can do better than that.”

As part of its deals, publishers will build Double Fusion’s ad-serving technology into games that will play on next-generation consoles such as Microsoft’s Xbox 360 and Sony’s PlayStation 3 and can connect to the Internet. Double Fusion’s in-house sales force will sell the campaigns, working with publishers’ in-house integration executives. The company does not compete with traditional advertising agencies, but presents opportunities for marketers to their ad agencies.

“We work with them to help their clients figure out the best way to market their brands to this specific audience,” Mr. Epstein said.

These Double Fusion graphics demonstrate how real-life marketers use dynamic ad insertions to create a presence throughout the digital landscape of an online game.

Rapidly growing ad market

Already, marketers like Coca-Cola, McDonald’s, Nike, Chrysler, Nokia, Motorola, Samsung and Jeep, among others, have placed their products in games, and that’s only expected to increase, energizing not only Double Fusion, but also rivals like Engage In-Game Advertising, WildTangent and dot-coms like AtomShockwave, to create the placements for those companies.

Game makers are only welcoming the deals. They view product integrations as a way to create a new source of revenue and offset rising development and production costs. Nielsen Entertainment estimates that advertisers spent $75 million last year on in-game ads, a number that could rise to $1 billion by 2010. Publisher Activision said it collected $2 million from DaimlerChrysler, Nokia and Motorola to appear in the company’s “American Wasteland” skateboarding game, which cost $20 million to develop. And Massive claims to be able to offer $1 to $2 in incremental revenue for every connected customer of a video game that uses the Massive advertising network.

In announcing its deal with Double Fusion, Midway said it had recruited former Atari marketing exec Sarah McIlroy as its director of in-game advertising and promotions to take advantage of the influx of dollars from advertisers. Other publishers like Electronic Arts and Activision have long had their own in-house team of integrators.

'Exceptionally strong communications channel'

“In-game advertising opens up new revenue opportunities for the company, and helps us deliver an exceptionally strong communications channel to our brand and marketing partners,” said Kelly Flock, executive VP of worldwide publishing, THQ.

In addition to added revenue, publishers have also said that ads can create added realism that enhances game play. It’s a statement Double Fusion backed up last year in a study it released together with Nielsen Interactive Entertainment that said 50% of participants who played the PC game “Metro3D” found that in-game ads make the experience more realistic, while 21% disagreed. Similarly, 54% said in-game ads “catch your attention” while 17% said they didn’t.

It also pays off for advertisers; the study said in-game ad campaigns resulted in a 60% increase in brand awareness.

It was only a matter of time before Massive, which was founded in 2002, faced more competition, Mr. Epstein said. “Massive was in the market before others. They got a lot of the initial noise. They did nice work of evangelizing the market and opportunity inside of games,” he said. “But there’s room for multiple players. Publishers want to see how it’s going to go. This is a tremendous market right now in terms of the audience that’s offered to marketers.”

Massive still dominates

But for now, Massive still dominates the space. It has deals with publishers like Atari, Eidos, Ubisoft, Konami, Vivendi Universal Games, as well as THQ. Marketers it has worked with include Coca-Cola, Honda, Nokia, Panasonic, and entertainment entities like Paramount, Warner Bros. and Universal Music.

Whereas traditional advertising agencies rely on their creative ideas to land and keep clients, in-game ad shops depend on their technology that places marketers into properties as a way to court publishers and advertisers.

Naturally, Double Fusion is touting its technology as the reason for its recent successes.

“It’s not all about the money,” Mr. Epstein said. “Publishers look at the technology. They want to see how easy it will be to integrate into their games, what types of ads it will support. They look at the encryption, how much memory and bandwidth the solution consumes. Those are all huge issues for developers.” For both the game makers and marketers, how the titles are sold and brands are represented through the in-game network is also important.

Massive improvements

But Massive has been making improvements to its own in-game ad network. Late last year, the company unveiled a third version of its platform that streamlines its ad integration process, allowing game makers to better incorporate Massive ads into their designs, and make it more functional for next-generation consoles.

“With this new release, we have improved upon the success of our initial implementation with a new object-oriented architecture that substantially eases the integration process for next-gen developers,” said David Sturman, Massive’s VP of technology.

All companies like Massive and Double Fusion have to come up with now is a standard pricing model for advertisers to buy their way into games.
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