The Game's the Thing at MTV Networks

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They voted on the top five—including a messy garage—and the winning photos were converted into digital jigsaw puzzles, which happen to be a favorite among women gamers.

MTVN has been putting product placements in its TV shows for years. Now it's doing the same thing online. Consider Virtual Laguna Beach, a world based on the hit MTV show about wealthy teenagers. Here visitors can compete in paintball and other contests. Winners earn points that can be used to buy garments, virtual or real, from Pepsi Style, the soda maker's line of youth apparel. Oh, yes, and when PepsiCo (PEP) introduces new graphics on its cans in the real world, MTVN updates them on its virtual soda machines. If your avatar recycles a can after 10 sips, you get a free garment for your avatar or a 10% discount at the real Pepsi Style store online.

What started as a "test" for Pepsi two years ago is a growing part of its ad strategy, says John Vail, director of interactive marketing for Pepsi-Cola North America. "We can count on that audience being baked-in," says Vail. "If they are engaged with us in the virtual world, we know they will be engaged with our products in the real world." Pepsi has a similar recycling incentive program for its MP3 song giveaway, launched during the Super Bowl with spokesman Justin Timberlake.

Advertising is the main act, and that's not likely to change, but MTVN also hopes to sell tons of virtual and nonvirtual stuff in its online worlds. It recently cut a deal with Nexon of South Korea, a leader in digital money transactions, to help create this business. Last fall, Neopets began offering a gift card (for sale in the real world) that kids can use to buy any of 200 toys and accessories for their virtual pets.

Does MTVN have the goods to make a go of gaming? It faces the classic problem of the Digital Age: how to best monetize its Web properties—read: stick ads everywhere—without alienating its audience. Plus, MTVN will have to find ways of nurturing the creative spark at the game companies it has bought. As David Cole, an analyst with video game consultancy DFC Intelligence, says: "The weight of a media giant may force a young industry to dance to an old tune."

Lowry is a senior writer for BusinessWeek in New York.