In-Game Advertising Q&A: Justin Townsend, CEO, IGA Worldwide

With the GDC Focus On: Game Advertising Summit coming to San Francisco, CA on Friday, June 9th (organized by the CMP Game Group, as is this website), Gamasutra is running a series of exclusive Q&As with the heads of the major in-game advertising companies in the run-up to the summit, to get their thoughts on the past, present and future of in-game ads. The third in the series (following Double Fusion's Jonathan Epstein and Adscape Media's Chris Gilbert) is this Q&A with IGA Worldwide CEO and Co-Founder, Justin Townsend, discussing his company's background, current clients, his view on Microsoft's acquisition of in-game ad firm Massive Inc, and his opinions on future consolidation: GS: Can you give us a little background on IGA Worldwide? How it was started, why in-game advertising, etc. JT: Originally it started in Europe. My background is international advertising, as was the other company founders, and we were being approached by advertising clients inside the agencies that we were working for, requesting in-game advertising placements of a kind, and it wasn’t really possible back then to facilitate such deals. So we originally put together a company called IGA Partners, recognizing from day one that we would need an international presence to serve international ad campaigns. It was always our goal to expand internationally very rapidly, and we needed venture capital funding for that. So we were looking to decide what to do concerning our software development for the serving of dynamic ads, do we develop in-house, or bring the software in? So we looked around the market a bit, and we spoke to one or two players, then we came across a company called In-Game Partners based in the U.S. We originally got together to discuss forming a cooperation, but finally ended up doing a merger with this company late in 2004. We were still named IGA Partners and they had already served ads into games. At that point, we had closed our seed round of funding in late 2004 and then in January of 2005, we acquired an in-game ad agency called Hive Partners, that could take care of all the creative, strategic, and consultancy work and also do product placement, and not just dynamic ad serving. It was pretty clear to us from day one that our clients wanted to do both dynamic and static deals. Since then, we’ve established ourselves in New York, Los Angeles, London, and Berlin. We closed a Series A round of funding in February of this year for $12 million. And we now have a staff of around 35-40 people and plan to have 65, 70 by the end of this year. We will be in Japan, South Korea, and China in Q3 of this year. In Europe, we currently have a strong presence in Germany and the U.K. and plan to be in France, the Scandinavian countries, and also a region called Benelux (Belgium, the Netherlands, and Luxemburg). GS: What major milestones/deals have you signed in recent months? JT: The two most popular ones recently that we have signed up are Test Drive Unlimited, Atari’s flagship product and as you may know at E3, it won quite a few honors and accolades already, and we recently signed a multi-year, multi-title exclusive deal with the GTR series of racing games. GS: What competitive advantages do you leverage over other companies in the in-game advertising marketspace? What sets you apart? JT: Number one we have a deeper and more intimate understanding of the advertising sector of the business. I think that people look at the advertising sector from the outside and think it’s just a case of placing ads, but right down to how you speak to clients, how you hold their hands through the space, how you educate them, how you manage their campaigns going live, is key. It’s one thing to serve dynamic ads into the domestic market of the U.S., but if you want to do that in Europe it’s a whole different story. We have a very strong European presence that we differentiate on as well. If, for example, you just want to take five brands and each brand has a billboard, and you have three different versions of that billboard and they have different taglines on them, and you want to serve that into one game alone across sixteen different European territories. Then you’re looking at hundreds and hundreds, if not thousands, of unique advertising assets that need to be resized, re-edited, plugged into the system, different languages, and then executed and then signed off on both global level and local level as well. That’s something that has been key to our offering – we can do international ad campaigns for our clients very effectively. It’s something we’ve been used to doing in our past and so we feel it’s a valid differentiator for us. Ultimately, yes compared to our competition, we’re all proposing the same thing, we have a media network, we aggregate games together. Right from the very start, we feel that we have probably been emulated by other companies. We were the first company to, for example, have a strategic, creative agency within our group of companies. In some cases, not all cases, our competition will position themselves as tech companies, where they think that the technology they have is a differentiator where the actually fact for all of us is that it’s actually only an enabler. Over time, some of those differentiators have changed as we’ve been emulated, but we do feel that we are a thought leader in this space and we pride ourselves now on the consumer reach that we have, the game titles that we’re signing, and the clients that we have served such as T-Mobile, Fox Studios, Orange, Ben Sherman and so on. We are probably now the leading independent advertising company in this space. GS: How much advertising is too much? How do you draw that line and ensure that consumers are comfortable with the way ads are served to them? JT: What you don’t do is that you don’t wallpaper a game with ads. There is a point from an advertising science perspective, where when you’ve seen an ad too many times or you’ve seen too many ads, what’s called the advertising effect starts to wear off. Number one, there is a healthy amount of ads that you can put into a game so that isn’t too cluttered. Secondly, there is what’s called a frequency cap on how many times you show any one billboard or any one mega poster or any one video stream, and we set those frequency caps according to how that works in real world advertising. GS: What are some of the hurdles that you expect in-game advertising to face in the near future? JT: There are a number of gateways that the space has to go through before we can even really begin to call it a mature industry. There needs to be definition as to how you define CPM – cost per thousand ads delivered. All of us, ourselves and our competition, have three core criteria to define a CPM – the first criteria is the size of the ad on screen, the second criteria is the time you’re exposed to the ad, and the third, is the angle from which you view the ad. The criteria, of course, changes across different ad formats – be it billboard or mega poster or video stream or radio spot, and also changes according to genre as well – whether it’s a sport game, a racing game, a flying game, or a community-based game. There is very much a need across the industry to define exactly what the standards are for CPM. Once you have that CPM, then you have a currency that’s set, that advertisers can buy into. The other gateway is establishing what the effectiveness of in-game advertising is compared to other mediums. Right now we’re seeing, from the research we’re doing and previous research, that brand recall or product recall – that is how well you recall an ad after seeing it – [for in-game advertising] is high as 70% or 60% in three months after being exposed to it. These are results that are just unheard of in other advertising mediums. Then again, the last real major piece of research around that was probably Nielsen and Activision some 12 or 18 months ago, and there needs to be a consistent amount of research done, which we’re also working on. That can be put out there in the marketplace and distributed to the various media agents, ad agencies, and ad clients, so they can get some comfort about the ad effectiveness, and they can then see what advertising in games means to their brand matrix and their media matrix, and how it impacts their advertising to consumers. When all that comes into place, both the standards and the effectiveness, then you will start to see a higher influx of advertising dollars coming into the space. That’s when brands have a high deal of comfort around spending more money. We predicted that in 2005, we would see limited brands spending test budgets in the five-figure range. In 2006, you’d see more innovative brands spending six-figure deals and in some cases, seven figure deals. And what we are now seeing is that we are now planning international advertising campaigns in the high six-figure range and the lower seven-figure range as well. So the industry is evolving, and we’re getting through those gateways. Another key thing is that networks such as ours need to hit at least a minimum amount of consumer reach. There’s no point in trying to serve ads to two million people - that’s not enough consumer reach for a brand to be interested. It needs to be in excess of 30 to 35 million consumers minimum for [in-game advertising] to be considered a valid medium with ad clients then spending reasonable amounts of budget. We anticipate based on the titles we’re signing now and ones that we’re negotiating, that we’ll have a consumer reach equivalent to a mid-sized TV network within about 12 months from now. GS: What do you think are areas of games that are, as yet, untapped by in-game advertising, if any? JT: I’d say that it’s still largely untapped. What we’re seeing right now is that game publishers want to test the market first and get it right before they release more inventory. From a genre perspective, you’re seeing a pretty healthy mix of genres coming out. One area that hasn’t been tapped yet is fantasy games, and it wouldn’t be tapped because you cannot place ads in a contextual environment within the genre – the last thing that you want is say, a Coke ad on the side of a castle, it completely destroys the gaming experience and is not contextually relevant. We try to position ourselves as stewards of the brand intellectual property and stewards of the game intellectual property. What you might end up seeing, to monetize fantasy games, is ads outside of the game for example you can put TV spots in the installation process or in a pause screen or a login screen, but you would not want to put any kind of ad inside of a fantasy game. GS: How does Microsoft’s acquisition of Massive Inc. affect you? JT: First of all, it’s very positive because we see that the industry is starting to mature slowly already and this movement by Microsoft really accelerates that maturity. It sends a very, very positive signal to advertisers and other players in the market. However, it still remains to be seen since, as yet, it has yet to be said officially by Microsoft if the deal with Massive is exclusive – will Microsoft exclude other in-game ad companies from serving ads into the Xbox 360? If they do make it exclusive, then there’s going to be a whole load of issues, to put it lightly, on the advertising front as well as the publishing front. Let me talk about publishing for a moment. Obviously, you’ve always had this legacy between publishers and Microsoft. Up until now, the only real way that any game publisher has had to monetize their intellectual property is sell their games at retail. So, along comes this great new revenue stream called in-game advertising, and if Microsoft were to make it exclusive to Massive for the Xbox 360, then you would see a scenario most likely where Microsoft could be dictating revenue shares to the publishers. That would cause a lot of issues as you can probably imagine. On the advertising side, we suspect the issues could be even bigger, insofar as you’ve got what’s called a fragmented media spend should Microsoft go exclusive with Massive. You’ve got a fragmented media spend, because an advertiser and their agency would have to go to one company to serve ads for the 360 version of the game, another company to serve ads into the PC version, and another company, potentially to serve ads into the PS3 version, and maybe another company to serve ads into the mobile version of the game. That is a horrendous nightmare that results in awful pricing issues – let’s say there are four different networks each representing a different SKU of the game, all at different prices, all trying to speak to the same advertising clients, stepping on each other’s toes, you’ve got all the inefficiencies of how you manage that. So it causes that problem. Number two, if you look at how TV networks work, you’re always going to have a number of TV networks. And it’s in the advertiser and media agencies’ interests to maintain it that way because they can leverage the volume of their media spend and play different networks against each other to get the best possible price. If you only had one company in the space, say Massive and the Xbox 360, then the advertisers and their agencies wouldn’t be able to do that. So you combine the two issues together and believe me, from what we’re hearing at least, on the publishing front, we’re experiencing what I would call quiet outrage. And on the advertising front are the very, very upset advertising and media agencies – I don’t mean small boutique agencies, I’m talking about big holding companies and big ad and media agencies. And then you’ve got independent companies like ours, so I would imagine that if Microsoft did go exclusive with Massive, they would have shots fired at them from all directions. And then, you’ve got further questions such as when you’re serving ads into the 360, inside the Live network, there’s a carriage fee that everybody has to pay to Microsoft for serving ads – Will that carriage fee for Massive be waived? Will it be charged to other companies, thus giving Microsoft an unfair price advantage? So there’s all sorts of inherent issues in this. But what I’m saying to you right now is we don’t know either way. I’m just offering these scenarios of what could happen if it is exclusive. What’s ultimately best for the ad client, is that it’s not exclusive, and companies such as ours can serve ads into the Xbox 360. GS: Which titles do you expect to have the largest reach over the next 12 months, in terms of major deals you've signed? JT: While there are certain deals I can’t talk about yet, expect the GTR franchise from SimBin to be AAA and also expect with the honors and accolades so far, for TDU from Atari to be AAA as well. But at the end of the day, it’s not about single titles having lots of reach, because you can have some AAA titles that sell maybe a million plus units but have very few advertising opportunities in them. You can often have a B title that has more advertising opportunities in it but it’s not a single title outright that attractive to an advertiser, it’s the fact that we can combine them together into an aggregated network and therefore deliver the consumer reach. For example, a brand can come to us and say 6 months from now, in calendar weeks 35 to 45, we’re doing a real world ad campaign, we’re doing TV, print, radio, and the Internet and we want to put our campaign across all of your baseball titles or all of your sports titles or any other genre. It doesn’t really matter what the title is or how many units are sold, because what we’re selling is ultimately consumer reach and obviously to a certain consumer demographic as well. GS: How do you see in-game advertising shaking out in terms of consolidation or expansion? Will there be more companies in the market? Less? Or the same? JT: It’s already reached such a degree of maturity already, it would be very hard for other companies to enter this space now. We have relationships with publishers that go back over 18 months to 2 years. We have a tried and tested technology that publishers tell us is the best technology out there – they’re familiar with it, they’re intimate with it. There’s a limited amount of inventory, of titles available so you’re only ever going to see three or four companies within this space and they’re already there. So if you’re going to see companies entering the space, it would be through acquisition or something similar. GS: What's the biggest misconception about in-game ads? JT: I’d like to name two or three. The first misconception is that it’s somehow related to Internet advertising. Somehow people think that because ads are served through the Internet, that this is an Internet model. It’s important to understand that in the advertising world, broadly speaking, you can break advertising down into two key areas. You’ve got what’s called "above the line" advertising, otherwise know as ATL, and that’s all about doing what’s called image transfer. What you’re trying to do there is to get a consumer to connect emotionally with a brand so that the next time they’re out there making a decision about what to buy, they choose Coke rather than Pepsi, or they choose Levi’s rather than Lucky. Now the mediums that you use for image transfer in ATL are traditionally TV, print, and radio. The CPMs can go as high as $100 plus. Now the other half of that is what’s called "below the line advertising", which is BTL. And what you’re trying to do there as a brand is to get the consumer to get into a transaction with you. So you’re looking at mediums such as the Internet where you have to click-through to make a purchase, direct marketing where you send out a bunch of flyers and people respond to it, or what’s called point-of-sale where you’re ready to buy something and the advertiser prompts you to make an additional purchase. With the Internet, we are seeing CPMs as low as $2-$5. So you’re seeing a significant gap between CPMs for ATL and BTL advertising. So what is in-game advertising? In in-game advertising - what we do is we take above the line advertising formats and we place them inside games. The only commonality that dynamic in-game advertising shares with the Internet is the fact that the ads are distributed over the Internet. Also, we’re looking to migrate television budgets away from television and into games. Because, from a media usage perspective, there are less and less people watching primetime TV, and instead they’re migrating to games. Where TV is an entertainment medium, games are also an entertainment medium. Another misconception is when people think of in-game advertising, it’s quite common that they only think of product placement as opposed to dynamic advertising. That’s more of a case of education. It’s real easy for any brand or any ad agency to see product placement in games and think it’s just like in movies or TV. When they think of dynamic in-game advertising, they’re not really sure what it is or that it even exists. But that’s changing rapidly. And if I were to think of one more, it’s the idea that which game you dynamically serve an ad into is important, or which console you serve an ad into is important. Let me tell you why they’re both, over time, probably not important. The great thing about dynamic in-game advertising is the measurement possibilities. Not only can we prove an ad was delivered, as in other mediums, but we can prove that an ad was seen. The way a game is rendered, means that when you as a gamer turn your avatar to look at an ad, we can record that and that’s what we report back. So an advertiser knows with us, they only pay for what’s seen. With all other mediums such as TV, you just don’t know that. And there’s a real famous saying in the ad world, “Half of my ad budget is effective, the question is which half?” So if you’re Proctor & Gamble spending three billion dollars per year on TV advertising, you don’t know where half of that’s gone. The whole point of in-game advertising is that, as an “above the line” medium, you can measure it and prove it. Now the reason why brands want to be inside certain games, like Madden or Need for Speed, is because you have what’s called a positive brand association - but how do you measure that? So while it’s relevant for things like product placement, it’s not really relevant for dynamic in-game advertising. What’s important with in-game advertising is, like in TV advertising, you’re selling predominatly a reach and a demographic. I can’t prove to my ad clients to any degree of accuracy that serving an ad into Madden or Need for Speed and hitting two million users is any more effective than serving into 10 different B games that have the same consumer reach. As for consoles, right now I can fully understand a brand wanting to be in the Xbox 360 or the PS3, there’s lots of hype and buzz around these new consoles. But what you’ll see after a while, is there’s no longer hype and buzz around having an Xbox 360, or a PS3. You have what’s called the cool off factor, the sex factor is no longer there. So while I understand now that brands want to be inside the Xbox 360 and want to be associated with it, again, it’s not really a very measurable or quantifiable thing. At the end of the day, when you’re playing a game, it doesn’t matter whether you’re playing it over your PC, Xbox 360, or PS3. Who says that watching an ad on an HDTV is any different from watching one on an analog TV or an LCD PC screen? Over time, does it make that ad any more effective because it’s delivered across an Xbox 360? Does it stay in your mind anymore? It doesn’t because what you’re viewing it through is the same. Those are the three or four points I would make as to what the common misconceptions are.