RealNetworks to Put Streaming Ads in Free Online Games

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By Mike Musgrove
Washington Post Staff Writer
Tuesday, June 27, 2006

Internet media company RealNetworks Inc. plans to announce today that it will begin putting streaming-video ads on games featured through its popular RealArcade service.

Web users who download the service's typical puzzle or card game offerings will soon view a 10- to 15-second advertisement while downloading a game or between levels; the site gets about 750,000 downloads in a typical day.

RealNetworks is the first major online game service to feature such streaming-video ads, which will start with promotions from Honda Motor Co. and Hasbro Inc.

While much of the video game industry has been focused on action games that typically appeal to young men, the new and quickly growing "casual game" market consists mostly of female players over 30. Game industry research firm DFC Intelligence estimates that casual games will reach $281 million in sales this year and $1.15 billion by 2011.

RealNetworks chairman and chief executive Rob Glaser is slated to talk about the move at a videogame industry conference dedicated to casual games that begins in Seattle today.

Through its RealArcade software, the streaming-video company offers a selection of more than 400 games. The games are considered "casual" because they don't require hours to play and don't require a high-end computer. Popular examples include titles such as Bejeweled and Zuma. Game and tech giants Electronic Arts Inc. and Microsoft Corp. have also jumped into the casual game space in recent years.

RealArcade employs a try-before-you-buy model that has become something of a standard offering in this market; users can download a game and play it for an hour free. After that, they have to buy the game if they wish to continue.

Only a sliver -- about 2 percent of users -- buy the games after that free hour expires. For the emerging casual games industry, the unsolved trick has been to figure out how to make revenue off the other 98 percent of its audience.

RealNetworks first entered the game market five years ago with a series of action games, in the style of shooters like Quake or Doom. The service didn't have much initial success -- but when it later posted a puzzle game to its service, almost as an afterthought, it became more popular than any of the other offerings.

"Nobody really believed it would work, but it took off like crazy," Glaser said in a telephone interview last week.

For the past two years, the popularity of casual games has helped RealArcade grow at twice the rate of the rest of the company. In its most recent quarter, RealNetworks took in $18.6 million from games, or more than 20 percent of the company's total quarterly revenue. The revenue came not only from games downloaded at RealArcade, but also from games that RealNetworks has licensed to other casual game sites.

Starting this week, players who download the RealArcade games and play them for only an hour will have to view short commercials.

The company is also heavily investing in games as a future revenue generator; RealNetworks spent $36 million to acquire the casual game company GameHouse Inc. in 2004 and $15 million for a mobile-game company called Mr. GoodLiving Ltd. last year.

Michael Schutzler, senior vice president of the RealNetworks game division, says the goal is for the ads to seem "natural" and non-intrusive, "like commercials between innings of a baseball game." Typically, he said, players may not see one of the ads until they are about three levels into a game.

RealNetworks will continue to offer paid and ad-free versions of the games, he said.

Glaser said that one appealing aspect of the business for him is that it is "inherently global." Other online content, such as music videos, might be popular in one country and a flop in the next -- but a successful game tends to be a more consistent performer around the world.


© 2006 The Washington Post Company

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