- Mike Shields is the former advertising editor for Business Insider and now CEO of Shields Strategic Consulting.
- Shields says tech companies’ developments in video game platforms, such as Facebook’s recent announcement of a cloud gaming product, could push them to tap into in-game advertisements.
- Whether gamers and gaming companies will go for ads is yet to be determined, but there’s room for opportunity.
- John Frelinghuysen, a managing director and partner at L.E.K. Consulting, says an “integrated ad model” in new services for new players could be the ticket, rather than pushing ads into existing games.
- A lot is unknown, but Shields predicts that brands would jump at the chance to delve into the video game world when TV ratings are slipping.
- Visit Business Insider’s homepage for more stories.
Advertisers have long wanted to crack the premium video game market.
But when it comes to shoving ads in front of gamers while they’re actually playing games, brands have been uber cautious, opting to instead hanging around the fringes of the gaming world, aside from an occasional high-touch custom integration.
So what happens when the three biggest digital ad companies on the planet start entering the gaming market?
If you only marginally pay attention to the video game industry, you probably know that game play has exploded in 2020 thanks to the pandemic (and it was already huge). “Fortnite” is a way of life for millions. “Animal Crossing” has become therapy for many.
Plus, the gaming universe is poised to become that much more supercharged when two highly anticipated new consoles hit the shelves in November: the PlayStation 5 and Xbox Series X.
But rather quietly, Google rolled out a subscription-based video game platform called Stadia last year. Just a few weeks ago, Amazon announced plans to roll out a cloud gaming platform called Luna.
None of these titans have said that they plan to use these platforms to bring in-game advertising to the market in a big way. Yet given that Facebook and Google are almost purely ad-driven businesses, and Amazon’s ad business has surpassed $10 billion annually in recent years (and it feels like the company’s hardly been trying), it stands to reason that these tech firms might be the ones to usher advertising into video games in a meaningful way.
There could be billions to be made in video game ads
Back in September, a Morgan Stanley report asked the question: “Could Console Advertising Be the Next Multi-Billion Dollar Ad Market?” In that investment bank’s estimation, there’s a $2 billion ad market waiting to be unlocked if video game publishers are interested.
However, Morgan Stanley argues that the easiest way for that to happen is to insert opt-in, reward-based ads into games like “Call of Duty” and “Madden” football.
Of course, there are numerous reasons why this won’t happen any time soon. As mentioned, gaming companies are making a killing this year. Why do they want to mess around with their latest versions of their A-list titles when gamers have been paying upwards of $60 for these titles for decades, and they very much expect them to be ad-free?
Indeed, publishers have long been wary of shoving too many ads into their premium gaming titles, for a number of reasons. The recent bad publicity generated by fan backlash to ads in a UFC title surely doesn’t help.
So they will naturally be careful.
“This is a huge cultural shift,” said John Frelinghuysen, a managing director and partner at L.E.K. Consulting.
However, as Frelinghuysen noted, given how well the gaming business is performing this year, gaming publishers are going to be facing pressure next year to top their 2020 numbers — which may make them more amenable to tapping into advertising revenue.
Plus the fact that the “gamer” market is expanding could create an opening for advertising.
“Publishers need to be really careful and thoughtful about which segments they target,” he said. Meaning that if gaming companies look to incorporate more ad-supported models, they may want to focus on specific audiences beyond the hardcore gamer, such as younger gamers or newer, less frequent players.
Advertisers have to proceed with caution, though
The way Frelinghuysen sees it, there a few ways that gaming companies could carefully adopt more ad models:
- Roll out new free-to-play games (a la “Fortnite”) with ads baked into the experience from the start.
- Explore subscription services with a variety of tiers, not unlike Hulu. Newer and budget-conscious gamers could be drawn to lower-priced subscription rates with ads.
- Monetize legacy titles with advertising.
“It’s hard to push ads into existing games,” Frelinghuysen said. “It would be much easier to have an integrated ad model in a new service for new players.”
Each of these new models could theoretically work quite well for Google and Amazon. The question is, what’s their gaming plan? How big are their gaming ambitions? Are they going to focus on libraries, new games, exclusive licence fare?
It’s hard to tell right now.
Thus far, Stadia has not been well received, and it’s not clear just how serious Google is about it. But analyst Rich Greenfield has hinted that Stadia could benefit from Google’s aggressive push to own the OTT living room via a revamped Chromecast device/operating system.
Amazon’s Luma has yet to launch. But did you know that Amazon has been trying to build its own gaming IP, and struggled mightily? There’s a great read on this saga in Wired. Even with all the cash in the world on hand, you can’t just decide one day, “Hey, let’s launch the next ‘Fortnite.'”
However, Amazon does have the live streaming platform Twitch, which would be a natural audience funnel for Luma and a vibrant ad platform to connect to the service. You could say the same about YouTube for Stadia.
In the meantime, Facebook’s cloud platform could be the easiest way for brands to push into gaming quickly, since the social network is aiming for more casual games — not unlike the very ad-friendly mobile gaming market.
But that doesn’t feel as revolutionary as bringing ads into top flight games, especially at a time when marketers desperately need ways to crack this huge audience.
The biggest open question is, are gamers going to bother with cloud gaming when traditional console gaming, as well as cross-platform titles like “Fortnite,” are thriving? So far, it’s been slow going — and if you don’t have players, you don’t have an ad market.
Introducing advertising to cloud services could open them to a much wider audience. Or, as some would argue, could completely turn off gamers.
“Most revenue and the vast majority of growth in gaming is coming from the mobile casual space, which is ad-supported, and that’s where Facebook and Apple and Google are the strongest,” said Matthew Ball, a venture partner at Makers Fund. “Putting ads in PC/console-grade games isn’t going to drive users to play these games more, or get new platforms to play them.”
Of course, another huge question is, how much do the big gaming companies want to play ball with these dominant tech companies and inadvertently help them build cloud gaming platforms? Or do game publishers focus on their own DTC services, like EA is? Or maybe game companies could all work together to build their own ad-supported cloud platform (again like Hulu)?
There are a lot of unknowns.
“Unlike mobile, PC/console games usually have ads placed by publishers, not platforms or third parties,” Ball added. “It’s hard to see a publisher let Amazon or Google manage dynamic ad insertion into ‘Call of Duty’ anytime soon.”
However this plays out, there’s one thing I have no doubt about — given how fast linear TV is slipping, brands would leap at the chance to find those “lost TV ratings” by finding their way into the booming video game world.
They just need someone willing to play.