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Microsoft Reaps Benefits of In-Game Advertising

Chris Morris, Special to CNBC.com
Friday, 21 May 2010 | 10:25 AM ET

Four years after buying a company dedicated to in-game advertising, Microsoft is finally starting to see some real results.

Alan Wake
Courtesy of Microsoft
Alan Wake

Stalled by the recession and companies who were initially hesitant to sink part of their advertising budgets into an untested medium, in-game advertising is coming of age—and it could finally live up to its potential as a significant revenue generator.

Well-known brands are being incorporated into big games, much like they are in television series. And new research from Microsoft shows that consumers are interacting with and responding to the ads at a much higher rate than anyone imagined.

It’s coming a bit later than the company anticipated. In 2006, Microsoft paid between $200 million and $400 million for Massive, Inc., then one of the largest in-game ad companies around. The learning curve was steep, though and in-game ads never took off. Three years later approximately 28 percent of the division was laid off.

It turns out, though, that a leaner Massive is a stronger one.

“Alan Wake,” released earlier this week and one of Microsoft’s marquee titles of 2010, is loaded with brand name products, including Verizon , Ford , Duracell and Energizer . It’s the highest profile use of ads in any of Microsoft’s retail games to date. While it’s much too soon to know the impact of the placements in that game, Microsoft has seen encouraging data from previous experiments.

After debuting its Bing search engine in June 2009, Microsoft promoted the Google competitor in a series of games, including Take Two Interactive Software’s “NBA 2K10” and Activision’s “DJ Hero.”

After first exposure to the in-game ads, the percentage of gamers visiting and searching Bing increased by 108 percent, according to Microsoft. In fact, two-thirds of the gamers who visited Bing after seeing the ad were visiting for the first time.

“Gamers are a little more accustomed to seeing ads in games,” says Colin Sebastian, an analyst with Lazard Capital Markets. “If they’ve been playing virtually any online games, they’re seeing a lot of ads. As consumers, they are trained to accept advertising in interactive entertainment. And broadly speaking, online advertising is more of any everyday occurrence for people.”

The recall rate of Microsoft’s ads was a surprisingly high 71 percent, and according to the company, 60 percent of the gamers it spoke with said they had a more positive opinion of Bing after seeing the brand in a game.

Granted, those are Microsoft’s own findings and are likely going to be skewed in their favor. But a study by television ratings firm Nielsen is also lending credibility to the drawing power of advertising in the gaming world.

Nielsen conducted a pilot study with Microsoft in the early part of 2010 to look at the game playing audience and its receptiveness toward advertising. Specifically, the service looked at viewership for the Xbox Live game “1 vs. 100”—a massively multiplayer version of the TV game show, where players answered trivia questions to win real world prizes.

Some of the data just confirmed assumptions: Gaming, like TV, has a ‘prime time from 7-11, when playtime is at its peak. And 18-34 year olds made up 55 percent of the player base.

Some of the data is likely to have network executives sweating: Among Nielsen households, 20-25 percent of the trackers are using their Xbox 360 instead of watching television during prime time.

And some of the data could spark increased advertiser interest in the platform: For “1 vs. 100,” the player’s average length of time in the game was over 70 minutes. And they weren’t abandoning the game when the ads played (after every 10 questions).

Film studios are taking notice. James Cameron ran a campaign for “Avatar” on the Xbox Live dashboard prior to the release of last year’s blockbuster. And J.J. Abrams did the same with his remake of “Star Trek”. Lionsgate ,20th Century Fox and TV’s The History Channel have also advertised on the service.

The core 18-34 male audience is a big draw, but so is the ability to showcase their product to an audience that is largely hooked up to a high definition television.

“The industry didn’t very eloquently figure out how to serve ads effectively at first,” says Sebastian. “I think they’ve become more disciplined and I think there’s limited inventory because of that discipline. That’s actually a smart strategy in that it makes the ads more effective among players.”

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