By Lisa Baertlein
Reuters
Thursday, August 31, 2006; 3:19 PM
LOS ANGELES (Reuters) - Electronic Arts Inc. <ERTS.O>, the world's biggest video game publisher, on Thursday said it struck deals with two in-game advertising companies, taking its first steps into the nascent online ad business.
The deals with Microsoft Corp.'s <MSFT.O> Massive Inc. and privately held IGA Worldwide Inc. come as such companies vie for pole position in the emerging market, which some forecasters expect to top $1 billion in revenue by 2010.
Online video game advertising is expected to benefit from the popularity of Microsoft's Xbox Live Web-connected game service among owners of its next-generation Xbox 360 console.
Leading console maker Sony Corp. <6758.T> has promised to offer a competing service for its PlayStation 3, which should hit store shelves in time for the holidays, further increasing advertising opportunities.
Redwood City, California-based EA said its agreement with Massive, which Microsoft bought earlier this year, will include up to four video games. The first of those will be "Need for Speed: Carbon," the latest iteration of its popular racing series due in late October.
IGA will also deliver advertising in up to three EA games, starting with "Battlefield 2142," a futuristic combat game slated for release in mid-October.
EA -- with flagship franchises including "Madden" football, "FIFA" soccer and "Sims" life-simulation games -- did not disclose financial terms of the agreements. The ads will appear in games in the United States and Europe.
"You'll see more agreements like this with other titles in the future," said Chip Lange, EA's vice president of online commerce, adding that the company plans to negotiate with all providers of online in-game advertising.
"It's too early for us to lock into a single solution," Lange told Reuters.
Lange said the young industry will likely continue to expand, with new offerings from upstarts as well as large Web ad and media companies such as Yahoo Inc. <YHOO.O> and Google Inc. <GOOG.O>, which bring in billions of dollars from online advertising revenue each year.
NEW ONLINE AD BOOM?
Some video game fans say that adding advertising to some titles, particularly sports games and those that are set in urban landscapes, adds realism. Others chafe at the idea of having ads in products that can cost up to $60.
Video game makers have placed ads in their products for years and are increasingly drawn to it because it promises to help offset rising game development costs.
Companies like Massive, IGA and Double Fusion use fast Internet connections accessed via personal computers or next-generation consoles to let game makers deliver an ever-changing array of ads on billboards, vending machines and other spaces within games.
That new type of advertising lets companies change ads within games. In the past, ads were written into the game codes and often became stale with age.
Mainstream companies such as Coca-Cola Co. <KO.N>, Honda Motor Co. Ltd. <7267.T>, Deutsche Telekom AG's <DTEGn.DE>T-Mobile and News Corp.'s <NWS.N> Fox Studios are among the companies that have signed up to get their ads in front of the sought-after young male demographic that is the bulwark of the $28.5 billion global video game industry.
"Gamers are older, more affluent and spending more money than you think," said Scott McCarthy, president of Ziff Davis Media Game Group, in San Francisco. For example, a recent survey conducted for the group showed that the average household income of U.S. console gamers tops $85,000 and that their average age is 27.
Market research firm Yankee Group has said in-game advertising is "poised for explosive growth," forecasting revenue of $730 million by 2010, compared with $55 million last year.
Massive Chief Executive Mitch Davis was much more bullish -- predicting revenue approaching $2 billion by the end of the decade.
IGA CEO Justin Townsend told Reuters he expects industry revenues to be "north of $1 billion" by 2010 as consumers migrate from television to video games. He also said the ability to deliver measurable results to advertisers will help drive that growth.
Lange said the potential exists for fast growth, but took a conservative view: "We don't see it in the near-term horizon."