Google Confirms Adscape Acquisition

As widely predicted at the beginning of the year, officials from search engine giant Google have confirmed that the company has acquired video game advertising firm Adscape. Smaller than rivals IGA Partners and Massive (the latter of which was purchased by Microsoft in May 2006), Adscape Media’s AdverPlay technology allows for two-way communication between in-game ads and the outside world. The Real World/Virtual World Gateway (RVG) technology enables two-way text and audio and video communication for making financial transactions, receiving rewards, entering sweepstakes, and other game specific interactions. A list of frequently asked questions (FAQ) on the Google website indicates that the company purchased Adscape because “in-game advertising is an area where we believe Google could add a lot of value to users, advertisers and publishers. Adscape Media's technology and talented team are a great addition to Google's current advertising solutions for advertisers and publishers.” The FAQ is explains that Adscape will continue to work with existing partners – many of which have already been informed of the acquisition. No financial details of the buyout were given, although previous unconfirmed reports had suggested a figure of $23 million. A final comment on the Google website describes the company’s hopes for the future of in-gaming advertising: “As more and more people spend time playing video games, we think we can create opportunities for advertisers to reach their target audiences while maintaining a high quality, engaging user experience.” “Over the past few years, the video game experience has become richer and more interactive. We think this rich environment is a perfect medium to deliver relevant, targeted advertising that ultimately benefits the user, the video game publisher and the advertiser”, adds the unnamed spokesperson. [UPDATE: 03/19/07, 7.02am - Analyst Colin Sebastian of Lazard Capital markets has sent out a note on the state of the in-game ad market for games, commenting specifically that the acquisition "provides further validation of in-game ad market". The remarks in full: "While Adscape is one of the smaller in-game advertising networks (published reports indicate the acquisition was in th $20-$25 million range), we expect the company’s patents and technology to allow Google to extend the reach of its Internet-based contextual ad network into casual and traditional console video games. We note that Microsoft acquired in-game advertising company Massive in May 2006, and has subsequently announced partnerships with more than 40 video game publishers and 100 top advertisers to serve ads into Xbox and Windows games. Other in-game advertising companies include Double Fusion, IGA, Exent and NeoEdge Networks. We believe the market for in-game advertising will increase significantly over the next 3-5 years, driven in part by the growth in online game networks such as Xbox Live and the PlayStation Network, along with ramping sales of next generation video game platforms (Xbox 360, PS3 and Wii). In addition, with 70% of the key 18- to 34-year-old demographic owning or playing video games, we expect advertisers to shift more spending to in-game ads from traditional media such as television and print. Specifically, we are conservatively estimating that the size of the in-game advertising market will increase to $563 million in 2010 in the United States, from roughly $140 million in 2006. Robust in-game ad market is positive for video game publishers. For video game publishers such as Electronic Arts, Activision and THQ, we believe high margin revenue streams from in-game advertising can help mitigate the high cost of game development, which can be in the $20-$25 million range for top-line next-generation console titles. For example, Electronic Arts disclosed that the 180 billboards in racing title Need for Speed generated approximately $5 million in revenues with 80%+ margins, while the company’s total advertising revenues in F3Q (December) increased 140% year-over-year to $13 million. Nielsen ratings of in-game ads could provide boost to market. We believe that the pending launch this year of Nielsen’s GamePlay Metrics could help legitimize the in-game advertising market with a broader group of advertisers. Specifically, Nielsen is planning to provide metered video game usage and demographic data by game title, genre and platform so that advertisers can measure the return on investment (ROI) of their in-game ads. At this point, we believe CPMs on ads delivered into top video games are in the $20-$30 range."]