Interview with Darren Herman from IGA about advertising in videogames

This is an article I wrote in 2006 for Flicker Gaming. I’m posting it now because it’s no longer available anywhere else online and I need to link to it for a post I’m writing on Eat Sleep Publish. Go figure.

I’d like to say that watching the mainstream emergence of an idea I had myself two years ago is satisfying, but I’d be lying. I probably wasn’t the first or only person to think of it, but let me tell you about my idea: as I was complaining about how most MMOGs (including the yet-to-be-released World of Warcraft) had a monthly subscription fee, it occurred to me that games could adopt the same monetizing system that a lot of web sites have: free content, ad supported.

I, of course, envisioned a utopian world wherein Starbucks would pay LucasArts to build a coffee shop into their major cities, billboards would advertise real movies, and you might even see new gadgets in in-game store windows. The up side? No subscription fee. The game companies would, like network television, make plenty of money off advertisers and initial box sales to more than cover their maintenance costs.

I tossed this idea aside as the utopian vision that it seemed to be. Now, however, advertisers are beginning to take note of the significant amount of time gamers spend immersed in the worlds they find in their computers. Ad spending in games is expected to go up over 40% in 2006 alone, which is huge.

In response, companies that specialize in game advertising have begun to draw serious VC money, as people begin to realize what a huge market this is going to become. Also, some companies like the online game provider (of games you play in your web browser) Shockwave has launched an in-game ad program with clients like Intel and SBC Communications.

The new company IGA Worldwide, (IGA stands for “In Game Advertising,”) catches prospective marketers with the bold type at the top of their site:

This planet is oversaturated with traditional advertising, so we went and found you entire new worlds

Which is all well and good from the perspective of an advertiser, but to the average gamer that sounds suspiciously like “since there are so many ads in every other aspect of your life that you’ve learned to tune them out, we’re going to put ads into your fantasy worlds, too.”

In all seriousness though, the issue was never “if” there would be advertising in games, it was really only a question of “when” and “how.” So long as they are well and responsibly implemented, it will probably be less of an issue that most people think. In my mind, the introduction of widespread in-game advertising brings up two important questions:

1. Will ads be disruptive?
2. How do ads change the money dynamic?

Will ads be disruptive?

This is the question that echoes through the minds of a million gamers, although more accurately the question is probably “how much will this piss me off?”

I think it’s actually very unlikely that adding ads to in-game content, even to massive and immersive games like Doom 3, Half Life 2, or Deus Ex, is going to be very disruptive to the experience at all.

Part of solving this riddle is understanding exactly how in-game ads are going to start appearing. Darren Herman, VP of Business Development for the US branch of IGA, puts it nicely: “we are walking a fine line. If we put too many ads in, gamers will start to complain vocally, online, and in blogs…but if we don’t put in enough, then the advertiser doesn’t get their dollar value.”

IGA in particular is a company that comes from a gaming background, meaning that they understand both the development and the consumer end of the industry, and if their model becomes the industry standard, my feeling is that gamers should be OK.

“The only games we work with,” adds Herman, “are games that are conducive to advertising. For example, if you’re playing a game set in the 1400’s, fighting the Russians, or whoever, it doesn’t make sense to see an ad for the new Phillips LCD screen. It doesn’t fit in.”

Mostly, their business focuses on sports and other games set in urban-style environments, where ads won’t be conspicuously out of place.

In fact part of the beauty of the arrangement is that the real world, which so many games try so hard to accurately mimic, is already oversaturated with advertisements for real and recognizable products. Adding Coca-Cola billboards and MasterCard cash-machine stickers to a game set in any urban style setting would in many cases increase the realism and atmosphere that it is supposed to create anyway.

Herman also pointed out that there’s more to a game that just the “in-game environment”---the numerous splash screens and menu screens are also viable ad-space, and that kind of placement is fair game for whatever kind of ads. Think like the banners Blizzard posts at the top of the Battle.net server list.

The largest and most legitimate complaint about the appearance of in-game advertising is that we simply don’t need to see more ads. There are logos and slogans shoved into our brains from so many different places so often every single day of our lives that to put them in new places always makes me twitch a little bit.

Nonetheless, expect to see ads appearing in all types of games in all types of systems. “In the next generation of devices,” Herman points out, “everything is connected. What did it take, two days, for someone to discover the PSP had Wi-Fi capabilities?” IGA plans to use this constant-connectedness to help advertisers keep up-to-date ad campaigns running in appropriate places.

But overall, no, I don’t think new advertisements will be very disruptive or even, on a certain level, very noticeable.
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How do ads change the money dynamic?**

Throughout the history of advertising, the flow of money has made a certain amount of sense. An advertiser has a product or service that they would like to promote, so they contact, for a modern example, a TV network. The network company pays for the upkeep of the station and the various and numerous subdivisions that entails. They then charge the advertiser for the use of their station, granting the advertiser access to millions of eyeballs on a regular basis.

But do the network stations charge their viewers to watch the TV? Of course not. Cable companies do, but that charge is ostensibly for the cables themselves, which are expensive to lay and maintain. They charge a nominal fee, and use advertising revenues to cover their remaining costs.

So why should ad-supported games cost the consumer the same as those that are ad-free?

Up until now, buying a game has been the consumer’s way of economically saying “I like this. Thanks for making it, please make more.” But if game companies begin to receive money from advertisers for placing in-game ads, they stop being able to claim the HBO-style premium charge.

But I’m worried that nobody is going to notice this. Gamers will go on grumpily but dutifully forking over $50 or $60 dollars for games that now have an additional and significant source of revenue outside of box sales. Economics says that game companies should drop their prices.

If it were truly an open market, these adjustments would happen naturally, as game companies with extra ad dollars would drop box prices to compete with similar games while those without ads will need to keep the tab high to support the upward spiral in production cost.

But the increasing dominance of fewer, larger, players in the game publishing arena unfortunately puts us in less of a free-market situation. Couple that with exclusivity deals (think sports games – remember when ESPN released a $20 football game to compete with Madden? They can’t do that anymore because EA signed exclusivity with the NFL), and we’re looking more and more at an industry that can work keep prices high at the expense of the consumer.

Nobody really knows yet what’s going to happen, but it will be interesting to watch.