OCT. 5, 2011 • DFC Intelligence recently released its first in a series of reports: on video game advertising. Unlike other media with similar usage patterns, for various reasons, the video game industry has never been heavily supported by advertising.  This is expected to gradually change over time and thus DFC has started to look closely at how games are likely to work as vehicles for advertising.

The video game industry generated over $67 billion in consumer spending in 2011 and DFC forecasts that figure to grow to over $81 billion by 2016. As more and more consumers spend more and more of their leisure time playing games, video games become an important business not just for publishers and retailers but also for advertisers. The numbers are staggering.  Globally it is estimated well over half a billion people play some form of video game, regardless of platform.  A popular Facebook game like Zynga’s CityVille can attract over 100 million users in a month.  Popular PC games like the Call of Duty titles and World of Warcraft have been among the highest revenue generating products ever.

It is also clear that video games have evolved beyond the adoration of adolescent males into a mainstream entertainment medium that reaches every segment of the population. Despite this, advertisers continue to under utilize video games as an advertising vehicle.

As advertisers began to increase their spend in 2010, video game advertising revenues increased nearly 24%. In 2010, advertisers spent over $1 billion using video games to advertise their products and service in North America. This includes in-game advertising (where an ad is embedded in the actual game), around-game advertising (e.g., traditional display or digital video units shown in conjunction with a game), and advergames. By 2014, DFC Intelligence expects advertising in and around video games in North America to nearly double to over $2 billion with steady growth going forward.  On a global basis, advertising in video games is expected to reach $7.2 billion by 2016, up from only $3.1 billion in 2010.

Nevertheless, it is clear that as an advertising medium, video games are underutilized.  The amount of advertising revenue flowing into video games pales compared to other media when compared on the amount of leisure time games account for.  Much of this was due to the static nature of video games where the game is developed over years and released on a unchangeable physical medium such as a CD.  This was not conducive to delivering an advertising message.

This is rapidly changing as games go online and become a dynamic medium.  It is now possible to place advertising around games and change that advertising on a regular basis.  The biggest growth area is delivering advertising around games, not simply placing a static brand message inside a game.  Another big growth area is advergames, or games specifically created to deliver an advertising message.

The key factors driving growth in advertising in video games include:

The number of connected consoles continues to grow. Connectivity is a critical precursor for dynamic ad insertion into console games. Sony’s PlayStation Network now has approximately 77 million registered users while Microsoft has about 30 million Xbox Live subscribers to the PlayStation Network.

DFC Intelligence forecasts that the PC will remain the primary platform for online games, at least during the forecast period. However, the rapid increase in the number of console gamers should make these platforms the fastest growing segment of the market.

The total overall number of online gamers worldwide is expected to increase 65% from 2008 to 2016 to 592 million (Source: DFC Intelligence Online Game Market Forecasts).

Broadband is a significant driver of video game consumption. As of year-end 2010, there were 78.0 million North American broadband households. By year-end 2016, DFC Intelligence expects this to grow to 192 million.  On a global basis, DFC Intelligence forecasts that the number of broadband households will reach 442 million by 2016 (Source: DFC Intelligence Online Game Market Forecasts).

Smartphone owners are more likely to use their phones to play games than non-smartphone owners are; and the market for smartphones is exploding. As of year-end 2010, there were approximately 300 million smartphone users worldwide. By year-end 2016, DFC Intelligence expects this to grow to 1.12 billion.

Casual games are piggybacking on the growth of social networks that are experiencing meteoric growth. By year-end 2011, Facebook expects to have 630 million users globally, with 25% to 30% of them residing in the United States.

Video games are becoming part of brands media mix. As a result, client churn is reduced, average spend per campaign is increasing and new brands are utilizing video games as advertising vehicles.

Video games generally offer marketers several advertising opportunities. There are five main areas to for advertising in games: 1) casual online game sites, 2) game information sites; 3) advergames and corporate sponsorship; 4) product placement in offline games and 5) in-game advertising in high-end games.

Even as more companies realize how games can be used as an effective advertising vehicle, DFC forecasts relatively slow growth in advertising for games. That means other entertainment media will still receive a larger share of advertising dollars for some time to come. In-game advertising is not proving to be a major growth area.  This leaves around game advertising and advergames as the areas where DFC forecasts the most growth in the next few years.  As more games are offered for free or for a very low cost they are able to attract a much larger audience than even the best-selling retail games.  As this audience grows it only makes sense that smart companies will figure out how to monetize them more fully by selling advertising space.