Q&A: IGA's Townsend Claims In-Game Ad Future Bright

Even in only its third year of operation, in-game advertising network IGA Worldwide has seen a fair bit of growth. Headquartered in New York, the company now has offices in America's central corridor and on the west coast, along with a presence across the UK, Germany, and, most recently, Spain. When Gamasutra spoke to IGA Worldwide CEO Justin Townsend, he told us that the company's growing because the in-game advertising industry has grown so much so quickly. A Proven Industry "Two years ago, we were seeing ad budgets maybe 20 or 30 thousand dollars," Townsend says. "We're now seeing ad budgets of 300 to 500 thousand dollars. The markets are doing very well indeed, across the U.S. and Europe." So what's changed, in Townsend's view, to improve the climate so significantly in a relatively short time? "Advertisers won't often spend much in the way of budget until the industry is proven," he notes. "We're well on the way to proving this industry now. There are standards that are accepted by the advertising industry." He adds, "At the end of the day, revenue or advertising dollars is always a function of reach, the number of consumers you can communicate your brand message to. As we bring games into our network and increase our reach, so does the amount of ad dollars we can generate increase." Looking East As part of this continued expansion, IGA successfully courted interest from some investors in Asia with some additional Series B funding. Given that two of the investor groups involved were significant Japanese organizations, Townsend says it's evidence of the company's increasing Asian presence, also. But business models for games are somewhat different in Asia, where a prolific online games business thrives on microtransactions, so we asked Townsend how these variant formats might affect an Asian expansion. "The purpose of our ads are never to finance the games themselves," Townsend pointed out, noting that alternate formats for Asian games primarily monetize those titles, rather than simply providing avenues for advertisers. But with the rise of the free to play business model, in which ad support often plays if not a complete, at least a significant role, does Townsend see a golden opportunity? Not so, he said. "I doubt that we can contribute more than 15 or 20 percent [of revenue from ads]. The microtransactions model in Asia is huge and we do have a significant difficulty there." And, he added, there are other challenges in Asia. IGA Worldwide relies on placing real brands in realistic environments -- such as EA's Burnout Paradise, as it recently revealed. And as Townsend points out, the fantasy genre is the dominant format in Asia, much more prevalent than in the West. He explains, "What we don’t do in the West is we don’t put ads inside fantasy games, because it destroys the context of the game, and the ad is not contextually relevant. So we stick to key genres such as sports and social games. In that way, it supports the realism of the game both for the consumer as well as benefits the advertisers." So what are IGA's options in Asia? Townsend says, "Whilst the Asian games are funded by microtransactions, there are also many opportunities to do around the game and in-game ads, to some extent, with pre-roll and postroll video and different formats we can be rolling out." He continues, "I suspect the kind of revenue in Asia would be quite substantial. A lot of the focus there has been microtransactions, but there are many other ways through which to monetize games with ad formats, and the Asian companies are very open to this." The Ferrari Of In-Game Ad Networks? Of course, IGA is not the only company eyeing the lucrative ad industry around video games. Double Fusion, for example, notably has begun retrofitting back catalog titles for ads, and supports interactive ad elements. We asked Townsend directly why IGA is different. "It’s a fine line; it may be a nuance," Townsend says, "But our focus is predominantly on mainstream gaming titles, be it PC or console, whereas Double Fusion is not so mainstream. Yes, you can have all sorts of interactive ads inside what you might call B and C-type games, but it’s unlikely something like that would be in Madden NFL or a similar type game. On the surface it's not dissimilar, but I guess the difference between driving a Ferrari and driving a Ford." Addressing Publisher Concerns Both EA and Activision have adopted IGA's standards for ad formats -- but recently, Sony Group CEO Howard Stringer and Activision Blizzard CEO Bobby Kotick voiced skepticism about the long-term prospects for in-game ads. "There is a limit to the amount of money available," Stringer noted, and Kotick said that "young people don't like advertising that much... It's early days. I wouldn't go in that direction myself." Townsend insists those quotations were taken out of content. "Bobby Kotick is saying there are not enough ad dollars to completely support the production cost of any given game -- and that's completely correct. In-game ads will never make gaming free, and will never completely offset production costs. I don't disagree." However, Townsend's shooting to pitch in, at least. "We hope in game ads will go on to support up to 15-20 percent of production costs -- but nowhere near 100 percent." He stressed that the ad dollars at present are far from insubstantial, and anticipates they'll keep growing to between 1 and 2 billion dollars. Townsend promises there'll be proof soon. "I think what you will find is that in-game ads will be established as a new strategic ad channel," he began. "We're currently undertaking a very, very big research project with Nielsen and a number of other major publishers to prove the effectiveness of in-game ads. We're announcing the results shortly -- but when those results are released, this will remove any final inhibitions that publishers may have about allocating ad budgets to gaming." By The Numbers We asked Townsend to break down those numbers a little bit further, to help paint a picture of the near future, at least, of the in-game advertising industry. "On average, for every game sold, we probably generate about $1 to $1.50, or $2.00 in ad revenue for the publisher. And we expect that as the acceptance of in-game ads increases, that number will go as high as $3 or $4 dollars per unit sold." Townsend also believes the game industry has yet to really maximize all of its avenues for revenue. "If you look at the movie industry, there are all sorts of ways of monetizing it -- through DVDs, merchandise, et cetera. One of the things the game industry has suffered from is that the only way to monetize a game is at retail. With the cost of next-gen games for PS3 and Xbox 360 at retail, there is a desperate need for new revenue streams, and in-game ads are definitely one of these." A Picture Of The Future So can game consumers expect the prevalence of ads in games to increase? "Expect more than you currently see now," Townsend says. "What you won't see is -- you're used to seeing five different brands in Need For Speed. It's not like in two years you will see 30 or 40. There's always a gentle balance between advertisements and the share of voice -- which means an appropriate amount of brands in game without flooding it. So instead you'll see a wider variety of games that incorporate advertising, and the availability of ad space within games will increase as well." But aesthetic trends and top sellers within the game industry depends, most of all, on the consumer's taste. The U.S. market has already begun to show the influence of Asian business models and art styles -- what would happen if the year's top-selling console titles were fantasy games, or if the trend shifted to disfavor realism disproportionately? Townsend's not worried. "There is definitely enough inventory out there to support the very aggressive growth of the in-game ad sector over the next few years. At the moment, less than 5 or 10 percent of all valid games have been monetized -- the industry is still quite early. Two or three years ago, publishers were giving us one or two games at a time. Publishers are prepared to release 30 or 40 games. Two years ago, there was maybe less than 10 or 15 million dollars per year in advertising revenue, because we had a limited reach. But as we now bring more games in a huge way into our network, so our ability to generate multiples of revenue is increased as well." So what's IGA Worldwide looking forward to this year? Townsend is enthusiastic about the Asian market. "One of our key focuses over the next six months is Korea, Japan and China. We're rolling out the rest of our widely European operation in 6 or 7 key markets across Europe. And the U.S. is a very exciting market right now, and we'll be making some big announcements later this year." He concluded, "More and more, we're working with big media companies, trading media and movie licenses -- not just game publishers -- that we have on our roster now. They're some fairly significant media companies as well."