Not Just for Fun
Videogames Become
A Powerful Medium for Advertising

By Kevin J. Delaney
Staff Reporter of The Wall Street Journal

For years, videogames have been stealing away consumers who might otherwise have been watching television or reading a magazine. Now they're beginning to attract business from some of the U.S.'s biggest advertisers, part of a broader assault by new media and technology on the traditional ad industry.

Levi Strauss and Procter & Gamble have paid to appear in the "Nascar 2005: Chase for the Cup" game, which is generating over $1 million in ad revenue for its maker, Electronic Arts. A successful player earns the right to drive a car emblazoned with the Levi Strauss Signature logo. A pit crew composed of characters animated to look like P&G's Mr. Clean changes tires between laps.

The U.S. Army is spending several million dollars a year on videogames, including producing the "America's Army" PC game, available free online and from recruiters on a CD-ROM. Players go through a virtual boot camp complete with a barking drill instructor before undertaking simulated missions. "We want to put this where kids are spending their time," says Col. Casey Wardynski, project director for the game.

Last year, executives at DaimlerChrysler's Jeep division commissioned a videogame that allowed players to drive an extra-rugged Wrangler Rubicon up steep inclines and across rivers. The game-"Jeep 4x4: Trail of Life"-was relatively inexpensive to produce and the company gave it away online. Within six months, 250,000 consumers had downloaded it and handed over their names and e-mail addresses to Jeep. Nearly 40% of them said they were considering buying one of its vehicles. Jeep says it sold hundreds of the limited-edition, $29,000 vehicles to people who played the game.

Videogames are so effective as advertising, "it's shocking," says Joel Schlader, Chrysler Group's senior specialist for interactive marketing and games.

A Philosophical Shift

Advertising in videogames is still a tiny fraction of the overall ad market, and videogame manufacturers will be dwarfed for a long time by large publishers and television networks. In addition, game makers worry that there's a limit to how many ads they can cram into a game before they offend players.

But the industry is benefiting from a philosophical shift on the part of major marketers. With many ad budgets still constrained, companies are more willing than ever to experiment with new ways to reach consumers that go beyond a static page in a magazine or a 30-second TV spot.

Volvo was so taken with how its S40 model appeared in Microsoft's "RalliSport Challenge 2," that it turned video footage of the game into a TV commercial.

The simplest ads in games are billboards, such as those for 7-Up that appear alongside a snowboarding trail in Electronic Arts' popular "SSX 3" game. Other methods require game players to engage with the products, something not possible on a TV spot. To get ahead in "Tom Clancy's Splinter Cell Pandora Tomorrow," published by Ubisoft Entertainment, players have to use versions of cellphones made by Sony Ericsson Mobile Communications. In one case, they need an image captured by the company's T637 camera phone to help identify a terrorist opponent.

Other companies, like Chrysler, have embraced a strategy known as adver-gaming, commissioning PC and online games that center around their brands. The companies give away the games on CD-ROMs or over the Web. Some consumers who ignore TV commercials, it turns out, will eagerly play with a commercial dressed up as a game.

People who play games are particularly attractive to advertisers because they spend longer, more intense periods of time with the product than they do with TV. It takes about 40 hours of playing to complete some popular adventure games. Because ads are built into the games, consumers can't dodge them by using a digital video recorder or slipping off to the bathroom.

Americans on average spent 64 hours playing videogames in 2002, almost double five years earlier, according to one estimate. That's more than the time spent watching DVDs and VHS tapes. Today, 42 million U.S. households own a videogame console, according to research firm DFC Intelligence in San Diego, and Sony says about 60% of owners of PlayStation 2 consoles in the U.S. are 18 years old or older. Women are increasingly playing games, too.

Helping to stimulate interest, advertising agencies are setting up specialized videogame divisions. The Starcom agency last year became the first major ad company to launch a division that helps clients get their products into videogames. Young & Rubicam announced similar plans this year.

Bad Timing

For years, game makers had to pay to use consumer brands in games, or they simply gave away ads in return for promotion. Now that game publishers are demanding payment, their business is starting to look like print publishing, where companies count on revenue from advertising as well as product sales. Electronic Arts' staff of eight in-game ad salespeople was expecting to generate $7 million of in-game advertising revenue this year, a 60% increase from 2003, helped by a recent five-game deal with P&G.

The rise of videogame ads couldn't come at a worse time for traditional media businesses. The print ad market hasn't recovered from the recession, and the TV industry is fighting to counter evidence that viewers are defecting to videogames. A controversial study published last year by Nielsen Media Research concluded that young men watched 7% less prime-time TV than a year earlier. A separate Nielsen Entertainment study found that 18-to-34-year-old male videogame players watch slightly less TV than those who don't play videogames.

For Ford Motor's Volvo brand, reaching the young, affluent videogame audience is key, says Phil Bienert, a Volvo e-business manager. By contrast, "you look at the TV ratings and you start to say, 'Gee, is this the best place to get bang for my buck?'" he says.

Volvo was so taken with how its S40 model appeared in Microsoft's "RalliSport Challenge 2," that it turned video footage of the game into a TV commercial.

TV executives have challenged the viewership studies and note that TV still commands the lion's share of most Americans' entertainment time. Consider that Activision, one of the largest game developers, took in just $1 million in ad-related revenue last year, less than some companies pay for a single TV spot. Some game makers also concede that there are limits to the frequency and types of advertising players are willing to tolerate, especially when they're already paying as much as $50 for titles at retail.

"The idea that people are going to take money they put into network TV and put it in videogames doesn't make sense," says Alan Wurtzel, head of research at NBC. "Can they do the same kind of job a network TV commercial can do? I don't see it."

How do you perceive advertising in videogames? Do you think it affects the playing experience? Write to us.