June 24, 2005

Internet marketers and advertisers are finding games constitute a valuable advertising medium for getting their marketing message across a broad public. As a whole, revenues from "advergaming" and in-game advertising are expected to increase sharply in 2006 and 2007.

By 2010, 54 million households in the US will own at least one video game console, and most will have a portable system and non-portable one, according to a new report by Kagan Research.

The report also finds that US video game sales totaled almost $10 billion in 2004, and will rise to $16 billion by 2007, an increase of 61%. Software sales totaled $6.3 billion in 2004, Kagan estimates, and will rise to $8.0 billion in 2008.

With that big a market, it's natural that advertisers want to find a way to reach game players.

But there are no "commercial breaks" during game playing, so it is difficult. The two primary solutions are "advergaming," games designed around a product and made to promote it, and in-game advertising, in which products are placed in games much as they are in movies — in the background, in the hands of game characters, or elsewhere.

Yankee Group projects that In-game advertising will total $562.5 million by 2009, up from $34 million in 2004, while advergames will account for $312.2 million in ad revenues in 2009, compared to $83.6 million in 2004.

Interestingly, advergames accounted for more ad revenue than in-game ads in 2003 and 2004, and will do so in 2005, but through the rest of the decade, in-game ads are expected to be the dominant form of game-related advertising.

The estimates are a considerable step up from Yankee Group's prediction last year, which had in-game advertising and advergaming totaling just $260 million by 2008 (compared to well over $700 million in the latest release).

As the Yankee Group points out, using video games as an advertising platform has quite a few advantages.

For one, the core group of video game players, men ages 18 to 35, represents a valued target market.

Additionally, game players seem to recall ads in games better than they do in other mediums, and many game players spend more time playing than they do watching TV or listening to the radio. Finally, advertising allows game companies to offset development costs.

Source: eMarketer