US: Video Games Add Advertisements

In video game vernacular, which of these commands seems out of place: throw punch, slay dragon or view Sprite billboard?

It's a trick question; they all belong.

At least they do to Mitchell Davis, who says he believes that
advertisements and product placements will soon become as integral to
video games as story lines and action.

Until now, ads have appeared occasionally and haphazardly in video
games. But Mr. Davis, chief executive of Massive, a new advertising
agency with headquarters in New York, hopes to bring a more aggressive
marketing approach to interactive media - he wants to put up billboards
and make product placements for mainstream advertisers in the
cyberworlds of sports, shooting and strategy games.

For now, the Massive ads will appear only in games played on
personal computers connected to the Internet. But eventually Massive's
technology will work in games played on consoles like the Sony
PlayStation 2 and the Xbox, if they have an Internet connection. The
Internet link allows Massive's software to modify the ads as players
progress through a game.

"As you move through levels and zones you'll see fresh advertising,"
said Mr. Davis, 43. "You might see an ad for Mötley Crüe one minute and
for T-Mobile the next."

Mr. Davis, a former executive at Britannica.com, has signed deals
with 10 major game publishers, including Take-Two Interactive and Vivendi Universal
Games, which together will include Massive's software in 40 games by
the end of this year . He has also signed agreements with advertisers
like Dunkin' Donuts, Intel, Paramount Pictures, Coca-Cola, Honda and Universal Music Group to place their ads with the game publishers.

Industry analysts and executives said that Mr. Davis was not the
first entrepreneur trying to jump-start the video game advertising
business, but that he was probably the farthest along in building an
advertising agency around the idea.

There are, however, plenty of skeptics. Some game players worry that
such ads will be distracting, while some game developers are concerned
about having to modify their designs to satisfy advertisers.

"I don't want to pick up a sword and have it read Nike
on the side," said Jeff Evertt, a video game player and programmer. But
less intrusive product ads would not necessarily bother him, he said.
Brian Fisher, another gamer and programmer, agreed.

"If the character drinks a Pepsi to get health points, it doesn't bug me," Mr. Fisher said.

Both Mr. Fisher and Mr. Evertt, who work at different video game
studios, said they would be concerned if advertisers tried to dictate
how and when the ads appeared.

"I don't want to have to go to Nike and get approval," said Mr. Evertt, speaking hypothetically.

Electronic Arts, the world's largest independent game publisher, has
not signed a deal with Massive because its executives said the Massive
technology had not been proved. They are also wary of possibly
compromising the quality of their games for ad revenues that are still
quite small.

"We're skeptical the promise meets the resource commitment," said
Julie Shumaker, director of in-game advertising for Electronic Arts.
The company currently sells ads in a variety of ways in games that are
not played online. For example, some sports games have billboards for
Burger King.

So far, those ad revenues have been limited. Electronic Arts, which
had $4 billion in sales last year, for example, took in only about $10
million in revenue from placing commercial images.

That may change as game publishers seek new sources of revenue to
offset the growing cost of producing games, which can reach $10 million
to $20 million, excluding marketing expenses. At the same time,
advertisers are looking for new ways to reach 18- to 34-year-old males,
a sought-after audience that is increasingly abandoning television (and
TV commercials) and spending more time playing video games.

The confluence of these trends is likely to make product placement in games more appealing.

"This is the next big way publishers are talking about growing their
revenue," said Evan Wilson, an industry analyst with Pacific Crest
Securities. Mr. Wilson added that the use of commercials was "almost
inevitable in mass-market games."

A big challenge has been convincing advertisers that they can
measure the effectiveness of their in-game advertising. To address this
problem, Mr. Davis signed a deal in December with Nielsen, the company
that tracks TV viewership, to use Massive's software to measure whether
video game players are viewing the in-game commercial messages.

The software allows game publishers set aside locations inside a
game to post ads. In one popular action game called Splinter Cell, for
example, boxes on cargo ships are stamped with the names of
advertisers.

The technology makes it possible to track how often a player comes
across those boxes inside the game and reports back to the company over
the Internet.

"Measurement is the key part of the proposition," Mr. Davis said. "Advertisers are looking for accountability."

Mr. Davis also said that ads could actually make a scene in a game
feel more real. Not all game publishers and industry analysts agree,
particularly if the ads interfere with the action.

Ms. Shumaker, from Electronic Arts, said full creative control was
crucial for game developers. She added that if Massive proved its
advertising approach to be profitable, Electronic Arts might well get
more aggressive in its ad placements, though it would not hire an
outside ad agency.

Smaller publishers, however, do not have the resources to go it
alone, said Monika Madrid, who oversees product placement at Ubisoft,
the publisher that makes Splinter Cell. She said Ubisoft had been very
happy with its relationship with Massive.

Massive says it will pay a portion of the money it earns from
advertisers to the game publishers. Mr. Davis said the publishers could
eventually get ad revenue of $1 to $2 on each game sold. Ms. Madrid,
however, said it was far too soon to know whether the partnership would
lead to significant revenues.

• 188 Consumerism & Commercialism