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Analyst: Why The Bullish Forecasts For In-Game Ad Spending Are Justified

imageVarious reports are forecasting that marketers will spend billions of dollars on in-game ads over the next five years — with some even saying that spending could grow by almost 30 percent to top $1 billion next year (per ClickZ). Meanwhile, the IAB is proposing new standards to help make it easier for companies to buy, sell and quantify the value of in-game ads. But with all forms of advertising taking budget cuts, is this bullishness around in-game ads justified? Yes — according to Citi Investment analyst Mark Mahaney. In a research note (pdf), Mahaney outlined two reasons why the in-game ad market is poised for success:

Better ad performance: Casual and in-game ads turn out higher engagement stats than standard banners — and they’re cheaper than search ads. A recent Kia campaign on Xbox Live, for example, netted ad click-through rates (CTRs) that were 840 percent higher than the company’s corresponding display ads — with average costs per click (CPCs) nearly 60 percent lower than search ads.

Expanding (ad-friendly) demographics: Gamers aren’t just the 18-year-old guys playing World of Warcraft or Halo. The average game player is actually 35 — and a quarter of all games are played by people over 50. Meanwhile, 40 percent of all gamers are women. And it’s this “broad demographic appeal” that appears to be increasing marketers’ appetites for in-game ads, Mahaney wrote.

Photo Credit: RebeccaPollard

3 Responses to “Analyst: Why The Bullish Forecasts For In-Game Ad Spending Are Justified”

  1. The definition is the key element here. If in -game is restricted to console games then it could happen but I'm a bit skeptical. If we're talking about including casual games, mmorpgs, etc. into the mix then I would say the number is probably low. I work in the virtual currency space and can tell you that in this sector alone it'll be well over 700mm next year on the games segment of that market. That leaves less then 300mm for display, subscriptions, etc. which it'll easily surpass.

  2. Tameka Kee

    Hey Ryan. In this case, I believe the forecasts are for in and around game ads, so the dynamic ads that IGA plugs directly into an Xbox 360 game, and the casual game bumpers, too.

  3. I see stories like this and it's a bit confusing as to what the definition of In-Game advertising is. If we're talking 300×250 bumpers in front of casual games I think you MIGHT be able to get to $1b by next year but that's not really in game advertising. The core in game ads companies such as IGA and Double Fusion aren't anywhere near these numbers combined.