Faced with an increasingly fractured media marketplace, marketers eager to get their brands some face-time with kids are finding that advertising in video games is an increasingly attractive message dissemination option these days. And why not? On average, kids spend between 40 and 50 hours playing one title, which means they’re interacting with the brands repeatedly, says David Anderson, director of licensing and business development for Santa Monica, California-based video game company Activision.

Though gaming’s total product placement revenue represents a miniscule amount compared to the US$10 billion the industry saw in software and hardware sales last year, it’s a segment poised to enjoy a growth spurt over the next couple of years. Cambridge, Massachusetts-based market research firm Forrester Research estimates that revenues for this segment will grow to US$700 million by 2005, up from its current plateau, which industry sources peg at US$100 million. The rosy forecast is partially based on a watershed deal that Electronic Arts signed with Intel and McDonald’s last September. The chip-maker and the QSR king forked out US$1 million each to have their brands featured in EA’s top-selling PC title The Sims Online, a multi-player game in which players manage the everyday lives of virtual people.

The fact that such high-profile brands plugged so much money into in-game advertising ‘legitimized the idea of paid product placement on a large scale,’ says Michael Oxman, president of Jam International Partners, a New York-based firm that specializes in securing product placement deals on behalf of game developers and publishers including Ubi Soft and Eidos Interactive. ‘A lot of the deals that have been signed up to this point have been for barter or a one-time nominal cash payment,’ he says. ‘That’s no longer the business model under which product placement is going to work. The space within games as an entertainment medium is just too valuable.’

Jam recently negotiated product placement deals on behalf of its clients for six titles (none of which Oxman could discuss due to pre-existing non-disclosure agreements) that will debut this month at E3 in L.A. Advertiser placement fees (ranging from US$75,000 to US$700,000) are assessed based on criteria such as the game’s market equity, estimated sales, territories of distribution and brand prominence within the title. It calculates the cost per thousand impressions by multiplying the title’s projected sales by a set pass-along rate (2.5) and the average number of game play hours (20). Jam divides that figure by 1,000 and divides the placement fee by that number. When all the numbers are crunched, Oxman says the cost per thousand impressions works out to between US$1.50 and US$5. ‘It’s relatively low when you compare it to a 30-second network TV commercial, which ranges from US$20 to US$24,’ he says.

Activision’s Anderson recognizes that many advertisers view in-game advertising as a straight media buy, but collecting more simoleans is not the reason why the company enters into such deals. ‘The main benefit we garner is on the promotional side,’ he says, adding that the ideal in-game agreement sees Activision and its advertiser partner use their respective channels to raise maximum awareness for each other’s brands. Within its 2002 title Street Hoops, for example, Activision featured beverage brand Sprite on billboards and vending machines. In return, Sprite cross-promoted Street Hoops via on-pack ads and in-store point-of-purchase materials in southeastern U.S. markets. The initiative generated 80 million impressions for Street Hoops, which was the 143rd best-selling title of the year, according to NPDFunworld.

This year, Activision will put out two kids titles featuring product placements. Disney’s Extreme Skate Adventure (see next page) will house 15 brands, including a major QSR chain, a beverage company and various apparel brands. Generally, it’s easier for Activision to incorporate brands into titles with real-world rather than fantasy settings: With its top-selling Tony Hawk games, depicting Tony wearing fake branded skate gear would’ve seemed unnatural, says Anderson, and Activision’s focus group testing has borne this out. ‘Kids said that the presence of real brands enhanced the experience,’ says Anderson, ‘so long as it made sense within the context of the game play.’

Activision is able to bring brands on as late as four months prior to a title’s retail release, but Anderson says the earlier they start talking with partners, the better. ‘It makes things easier on the integration side – we can go deeper the further out we are in the production cycle.’

Like Anderson, Laura Naviaux, product manager at Calabasas, California-based gameco THQ, says in-game ads are moving away from simple signage in favor of demonstrating the functionality of the featured product. In Dark Summit, a story-driven snowboarding game released last year, players talk to each other and pick up clues about the mystery of the mountain they board on by activating their characters’ Nokia cell phones. When a player uses their phone, the game plays Nokia’s distinctive ring tone. Since real snowboarders communicate on the slopes with cell phones, using Nokia in this manner made sense, says Naviaux.

This year, THQ will release four kids titles containing product placements, doubling last year’s tally. Among the 2003 releases is the latest iteration of Splashdown: Rides Gone Wild, an adventure game in which players navigate courses that resemble well-known theme parks and thrill rides. Along with the return of jet-ski manufacturer Sea-Doo (whose brand appears on the watercraft characters use in the game) as a partner, THQ is also in final negotiations with Dairy Queen. However, since it’s rather late in the production process (Splashdown is due out in July or August), THQ will likely provide some billboard exposure for DQ or possibly include a special store in the ‘Polar Plunge’ level of the game.

As part of the deal, Dairy Queen will use Splashdown in TV spots promoting a new cotton candy flavor for its Blizzard sundaes. The tween-targeted spots were created by New York-based agency GWhiz and will begin airing next month. Additionally, THQ is hoping to secure a presence for Splashdown in DQ stores this summer.

Although in-game advertising is gaining ground with some kids marketers, not all companies have acknowledged the benefits of using this medium. ‘There are a lot of big brands that are intrigued by it, but are sticking to their old guns of TV and film until they know how effective it is,’ says Jam’s Oxman. Hoping to allay these reservations, Jam recently partnered with the University of Wisconsin on a new study that aims to measure the strength of in-game advertising, the findings of which will be published in 2004.

Given that kids rank among the most avid consumers of video games, it’s only a matter of time before the majority of companies hoping to reach this age bracket get religion, says Activision’s Anderson. ‘It’s another way for brands to communicate with this elusive demographic. Kids are playing a lot of video games, which means they’re not interacting with other media. And they can choose to opt out of the brand message that they might be getting from TV or in a magazine, whereas here you have a more captive audience.’