Players of American Wasteland, pro skateboarder Tony Hawk's latest video game, can't help but see that the undisputed king of the ramps is a Jeep (DCX) fan. As gamers joystick their way around a digital likeness of Los Angeles, from Venice Beach to the Staples Center, they are bound to run across, or into, Jeep Wranglers, Grand Cherokees, and Liberties.
Of course, the vehicles and the Jeep billboards aren't there by happenstance: They're paid for. Plenty of advertisers, most prominently Coca-Cola (KO), McDonald's (MCD), and Nike (NKE), have been putting their products in video games for several years now. But marketers and gamemakers successfully pushed Nielsen Entertainment last year to start measuring the impact of in-game product placement, where there had been none before. This in turn is drawing more ad dollars and making gamemakers as eager as TV networks, perhaps more so, to open up their stories to the highest bidders.
The video-game business, already bigger than movie-house box office, did $10 billion in sales last year. With 100 million gaming U.S. households, according to Forrester Research Inc., and folks increasingly interacting with a video screen instead of passively watching TV, no wonder Nielsen forecasts that ad spending on brand placement in games will balloon from $75 million last year to as much as $1 billion by 2010. Pumping the numbers are the launches of Xbox 360 and Sony (SNE) PlayStation 3, which connect console gaming to the Internet in a far richer way than previous versions. "This is a new world of interactivity that puts gaming on the same plane with advertisers as cable TV," says Tim Harris, who heads the gaming unit of media agency Starcom MediaVest Group.
Meanwhile, Nielsen's system is generating a lot of compelling data for marketers. In American Wasteland, from gamemaker Activision Inc., for example, Jeep learned that all players were shown the 3-D vehicles an average of 23 times in 20 minutes. And 96% of those who recalled seeing the Jeep felt the vehicles fit well in the game. Feedback even more welcome to Jeep: 51% of American Wasteland players, including some not yet driving, said they would recommend Jeep to a friend, and 65% would consider eventually buying one. "Gaming performs much better than TV" in turning brand awareness into an actual preference, says Bonita Stewart, DaimlerChrysler's (DCX) director of interactive communications.
Advertisers like the extra control game producers allow them, compared with TV placements. Ford Motor Co. (F) didn't know until episodes of Fox's 24 were in the can just how its vehicles came off looking on screen, but Chrysler and Activision executives have extensive back-and-forth discussions during the game's development. "I understand that the TV and film writers in Hollywood see it as an invasion of their space, but with gamers we are treated more like a private equity investor," says Stewart. Activision CEO Robert Kotick says the company took in $2 million in brand placement dollars from Chrysler, Nokia, and Motorola (MOT). That offset 10% of American Wasteland's $20 million development costs.
Game cartridges that are bought and rented are attractive to advertisers, but the surge in online gaming predicted to come as gamers replace old sets with Xbox 360 and PlayStation 3 has the marketers lining up. Rather than simply burning billboard ad images and inserting products into game scenes, advertisers will be able to buy flights of ads and placements that last a day, a week, or a month and help producers keep the games fresh by collaborating on sponsored Web content that ties into the story. The next Tony Hawk game, says Activision's Kotick, could involve not only brand portals that draw gamers in to connected sites but also features such as Internet "phone calls" -- by way of clicking on a branded cell phone -- with changing messages from Hawk that alter the game experience. "Staying competitive in a new era absolutely depends on ad support, and we're not interested in ads that don't make sense or [that] annoy," says Kotick.
So far, gaming companies and marketers are exhibiting good sense for what is "natural" product placement. Jeep vehicles and Nokia phones are, after all, popular with young men. And Nike recently inked its largest gaming deal ever, joining with Take-Two Interactive Software Inc. (TTWO) to put its brand into the NBA 2K Sports basketball games. Some 200 athletes in the games wear the Nikes they wear on the court. But the new version integrates the company's Web-based Nike iD shoe customization software, which enables players to design and personalize shoes worn by the digitized pros.
But as the placements proliferate, some advertisers are committing a few fouls. One recent flap involved Engage In-Game Advertising, a company that inserts ads into online games via a Net ad server. Engage modified the popular game Counter-Strike, created by Valve Corp., and dropped in ads from its client, the Subway sandwich chain, over three weeks in December. The problem: They changed the game without asking Valve for permission. Engage has drawn ire from the game creator -- and brickbats on message boards and blogs. "Advertising within video games...does have its seedier side," writes arstechnica.com, a tech enthusiast Web site, about the Engage incident.
Now that Nielsen can quantify the audience for advertisers, game producers would like to move toward a more stable system by which advertisers can buy ads, such as a cost-per-thousand formula, the same way they buy time on TV. That means stiffer competition for media already under pressure from youthful eyes deserting afterschool and prime-time TV for gaming. The cost of a 30-second spot for shows like The Simpsons and CSI can range from $250,000 to $400,000, but 18- to 34-year-old males represent only an average 37% of those audiences, while 65% of video-gamers fall into that valuable demographic. "If the goal is to reach [young] males, there is a lot of waste in buying network television," says Nielsen Entertainment Senior Vice-President Michael Dowling.
Why are consumers drifting away from TV for more gaming? Players see themselves in the games, something that's difficult with TV shows. And far from rebelling against ads in their players, gamers seem to be telling advertisers they want to see more of the brands that help define who they are. No video-game TiVo (TIVO) or ad zapper needed, at least not yet.
By David Kiley