Casual Biz Models No. 2 – Advertising

In a nutshell
Consumers play casual games for free in a Web-browser or via a download, with advertising displayed around the game-in-progress, and/or before the game begins and during breaks in play.

Pioneers
Web portals have been running banner ads alongside browser-based games since both emerged in the late 1990s. Significant early movers included MPlayer, ClassicGames.com (acquired in 1997 to form the basis of Yahoo Games) and Pogo.com (acquired in 2001 by Electronic Arts). Also notable among many innovators are MiniClip, which promoted itself through viral game marketing and is still huge today, and Kongregate, touted as the YouTube of video games, which launched in late 2006 with a promise to share ad revenues with the creators of its user-generated games.

In detail
There are three main ways of making money via advertising with casual games: banners, ad breaks, and advergaming, which we consider a business model in its own right (and will be profiled soon).

The banner method is simplicity itself. Ads are run alongside the browser-based games of Internet game portals such as Kongregate or AddictingGames, just as with other online advertising. One difference to note is whereas consumers clicking through media websites will load plenty of new pages in which to show ads (termed ‘impressions’), games can run in a window indefinitely, which affects how consumer exposure should be measured and priced.

Alternatively, short ads can be embedded to run before a game starts, between levels, and/or at other intervals during play. This is more analogous to how video clips are being monetized on the Web, and traditional TV advertising.

Discussing advertising revenues achieved is always difficult, since advertisers and publishers are loath to reveal the rates they pay. As a result, estimates vary widely. For instance, Alex St. John of Wild Tangent told investment bankers last year that his company makes $0.15 per play of a game, which would imply a very high CPM (cost per thousand impressions) figure of $150; others suggest around $1 CPM from Flash game portals. Meanwhile, quoted estimates for CPM rates for embedded video ads in premium casual games run from $10-30.

Ads are usually sold in conjunction with a specialist ad network or agency such as Mochi Media, which takes a cut of revenue. Google – which dominates online advertising due to its easy-to-implement AdSense system – is also making waves, by last year buying the game advert specialist AdScape. Another new contender also includes GameJacket.

The sector is certainly on the advertising industry’s radar, thanks to the huge numbers of people now passing through the biggest casual games portals. Casual gaming’s profile has also been aided by acquisitions such as MTV/Viacom’s purchase of Shockwave and AddictingGames.com, and abetted by frustration at the industry’s inability to convert more than around one per cent of Try Before You Buy downloads into sales.

Interestingly, even as more download-focussed casual games companies look to advertising, executives at ad-funded Kongregate have argued that browser-game developers will need to start directly charging for higher-end games in order to generate more significant revenues.

Advantages

• No purchase necessary to monetize the 99 per cent of Try Before You Buy sessions that don’t end in a sale.

• Can generate revenues from the younger demographic that can’t be billed online.

• Can sell ads around associated community features, just like any other Web-based site.

• Can augment other business models and so drive supplemental revenues.

• Embedded ads that are tracked can potentially generate revenues from pirated games. Also useful for Flash games that spread virally over websites or across social media. (Facebook app Scrabulous is rumoured to generate $25,000 per month from ads).

• Ads can enable upselling via other business models, in that gamers will pay to remove the ads either by purchasing a downloaded, ad-free version, or by paying for a monthly or yearly ad-free subscription, such as with EA’s Club Pogo.

• Ad-funding could well be an inevitable. Mainstream consumers have already rejected most other online paid-for-content business models. The early success of Try Before You Buy games may have been down to a lack of competition, or the absence of specialist ad networks offering an alternative revenue stream.

Disadvantages

• There’s an inherent conflict between delivering a captivating game and distracting gamers with advertising.

• Revenues are unpredictable and can be low, especially for Flash games.

• Content creators believe they lose out compared to other methods.

• Low barriers to entry of advertising-supported game portals have led to a huge profusion of me-too sites, which risks confusing consumers and reducing quality.

• Games are competing with other online media for a share of the overall advertising spend.

• Vulnerable to economic slowdowns that reduce advertising.

Future developments

Companies such as Atari legend Nolan Bushnell’s NeoEdge are looking to ape the TV model of providing advertising at convenient breaks in the gameplay by wrapping their ad delivery system around existing casual games. It’s argued this is better for consumers, who aren’t distracted during play, and better for advertisers, who can be more confident ads will be seen. One company, SponsorSelect, even enables the gamer to choose the ad viewed.

Some portals agree. In March 2008, a Real Networks survey of 1,500 gamers found 90 per cent would rather watch ads than pay for games. As a result the company is accelerating the ongoing rollout of ads across its downloadable game portfolio.

The bottom line

Advertising-supported play is already a near billion-dollar industry, but given the hours casual gamers spend playing free trials and the low number who ever actually buy a downloadable game, there seems plenty of potential for further growth. With advertising an accepted part of media consumption, online and offline, the biggest threat isn’t from disgruntled consumers but from cash-strapped advertisers pulling their spending if there’s a serious economic slowdown.