In April, eMarketer released a 14 page report that examined video-game related advertising from a number of angles. Disclosure: I’ve read the report, but I’m going to avoid quoting from it directly (since it is a paid download). Overall they paint a rosy market picture. They cite positive comments last year from Joanne Bradford (Microsoft) and from Google on their acquisition of Adscape Media. They also claim the continued strength of the gaming market as a whole (and recently the increasing appeal to casual gamers) will also fuel advertising growth.

So let’s get to the numbers - their press release predicts that worldwide spending will rise from $692M today to $1,938M in 2011. They believe the US market contributes 50% of that figure.

Wowza! That’s a 22.9% CAGR (compound annual growth rate).

Parks Associates has more optimistic numbers. In June they released a 190 page report (I haven’t read all of this one =) that predicts market growth from $370M in US generated revenue in 2006 to $2,051M in US generated revenue in 2012.

Double wowza! That’s a 33% CAGR.

What I find most interesting here is that one of the authors of the report dismisses the idea of advertising in casual games. Speaking about the report to GamesIndustry.biz, Yuanzhe Cai says “I think the casual game genre is not very appopriate for in-game advertising.” Personally I disagree with him, so by his assessment $2B may be an underestimate.

Up next, PricewaterhouseCoopers. In their June “Global Entertainment and Media Outlook” report (which I haven’t seen), they expect a 9.1% CAGR for the games market overall, but much faster growth in in-game advertising. They expect US revenue growth from $80M in 2006 to $950M by 2011, which works out to a 51% CAGR. Triple wowza!

Finally, the Yankee Group. This month they released a report (which I haven’t seen) that predicts growth from $77M worldwide in 2006 to $971.3M in 2011. These are the most conservative numbers of the bunch, but I can only assume that’s due to the scope of the report. It’s titled “Advertising and Games: 2007 In-Game Advertising Forecast.” So I presume it doesn’t include estimates for advergaming (which others typically break out separately).

Even though these numbers seem much lower than the other reports, the growth rate is through the roof. $77M to $971.3M in 6 years represents a 52.6% CAGR. Wowzatacular!

By all accounts we have a bright future ahead of us.

Sources:

• “Video Game Advertising: Getting to the Next Level” - report by eMarketer (Apr 6 2007)
• “Electronic Gaming in the Digital Home: Game Advertising” - report by Parks Associates (Jun 29 2007)
• “Global Entertainment and Media Outlook: 2007-2001” - report by PricewaterhouseCoopers (Jun 23 2007)
• “Advertising and Games: 2007 In-Game Advertising Forecast” - report by Yankee Group (Jul 6 2007) (paid membership required)

Related:

• On the strength of the game industry: “This year, people will spend more money on games than they will on music.” - Peter Moore @ E3 2007 (skip to 14:38)
• Jun 7 - Got game - Economist.com
• Jun 18 - Beyond in-Game Ads: Nissan Takes Growing Market to Different Level - AdAge.com
• Jun 21 - Video Game Industry Growth Still Strong - HollywoodReporter.com on the report by PricewaterhouseCoopers.
• Jun 22 - Analyst: Games Industry To Reach $49 Billion by 2001 - Gamasutra.com
• Jun 28 - Parks Associates: Game Advertising to Pass $2 Billion by 2012 - GameDaily.biz
• Jun 28 - Game advertising to exceed $2 billion by 2012 - report - GamesIndustry.biz
• Jun 29 - In-game ads can be “double-edged sword”, says analyst - GamesIndustry.biz
• Jun 29 - In-Game Advertising To Top $800 Million by 2012 - Slashdot
• Jul 7 - Analyst: In-Game Ads Grow To $971 Million By 2011 - Gamasutra.com

As promised, here are my game industry predictions for 2007 … Google will show significant public interest in the gaming sector for the first time, including interest in acquisitions to bolster their Ad-sense business. The most likely target will be IGA Worldwide (to combat Microsoft’s acquisition of Massive). If unsuccessful, Google will seek to acquire one of the larger game publishers on the market to gain a foothold in the in-game advertising market. Likely targets include Electronic Arts (though it would be extremely expensive), Activision, or THQ. (Source)

I don’t think we’ll see Google get into the in-game advertising space this year, and I certainly don’t think they’ll become a publisher. It just doesn’t square with their mission and their strengths. Google’s mission is to organize the worlds information and make it universally accessible and useful. They fund this by selling advertising that’s contextually relevant to its surroundings. Ads are placed alongside a set of search results, next to an email, within a 3rd party webpage, or even in a newspaper. In each case Google uses the surrounding context to determine the interests of the viewer.

Within a videogame this doesn’t make much sense. Imagine if advertising in a game like Rainbow Six Vegas promoted various Las Vegas shows or a local Las Vegas restaurant. To make the ads relevant to the gamer, an entirely different approach needs to be taken. Ads can’t be targeted based on in-game surroundings, but rather to what the gamer is interested in outside of the game world. A more effective advertising campaign might promote a show that’s in the same city as the gamer, or perhaps a certain beverage or type of car that the gamer might find appealing.

As for becoming a publisher? Forget it. When you think of Google do you think fun? I sure don’t.

Frag on.

– Fry