Q&A: Double Fusion's Epstein On The Game Ad LandscapeQ&A: Double Fusion's Epstein On The Game Ad Landscape

Following a number of recent exclusive deals with publishers such as K2, Aspyr and Take Two, in-game ad firm Double Fusion has announced a multi-title deal with major publisher THQ which grants the company in-game ad rights for "a number of THQ's highly anticipated titles", including titles based on the Juiced, MX vs ATV and Stuntman franchises. To find out more about the THQ deal, we spoke with Double Fusion CEO and president Jonathan Epstein, whom we also quizzed on the nature of the 3D advertisements the companies offer as a new way for players to interact with advertisements, the impact of Google's recent entry into the in-game ad market, consumer backlash and adoption of ads themselves, and the viability of Home as a new ad platform. So, tell us about Double Fusion's new agreement with THQ -- what does it mean for your company? We view this as obviously an important partnership for our company. This is a renewal deal, so it reflects THQ's satisfaction with our work to date, and the way we've been generating revenues for them. It's our first major renewal. The market goes through these deals in one year cycles, and we've been sort of active for about that long, and it gives us very, very substantial advertising inventory both for integrated product placement, and, pending Sony -- because that's the authorization that we all need to wait for -- will provide us with a very substantial amount of inventory on the PS3 platform, joining the ranks of what we believe to be the largest network of next-generation titles that will be available, again, pending Sony's announcement, which I need to be careful always mentioning in that context. What exactly is your relationship with Sony there, what approval do you need to get from Sony? As part of this deal, we will serve dynamic ads on the PS3 versions of the titles that were listed – some of them were, and some of them weren't spelled out – but in order to do that, just like anyone that would have rights to Sony, nothing happens without Sony blessing it, and so were Sony not to do so, we would not sell dynamic ads in these games. If Sony were to do so – and we're very excited about the potential of working on the platform – then we're very well positioned. What sort of exclusivity is implied in the deal, is this specifically simply for the next volumes in those franchises? I unfortunately can't tell you the number of titles, but it's more than what was listed – it's not for me to announce new titles or new franchises for THQ, so I need to let them do that. We have the exclusive integrated product placement rights for all these titles across all platforms that they are shipped on, and, pending Sony's approval, we have the exclusive rights to sell dynamic advertising on the PS3 SKUs of the titles that are involved. Can you talk about the nature of the ads, are we looking mostly at billboard-type advertising? I know Double Fusion has said it prides itself on going beyond simply billboards into richer ad media. The deal contemplates that there will be of course billboards, but also video ads and, where appropriate, the use of 3D product placements, but fundamentally those decisions are made at a game-by-game level, as we go and work with the studios to see what works and what doesn't. A video ad that's out of place isn't a good video ad for anybody, game publisher or developer, but a video ad in the right place makes more money for the publisher, works for users, and is great for advertisers. We take it game-by-game. Can you explain exactly what 3D ads are? Is it as simple as seeing can of soda on a table? The market is just getting used to 3D -- this is a new format for advertising. I think what dynamic 3D ads allow us to do is combine the benefits of product placement and the use of a product in the game, whether it's by you or another major character, and the ability to dynamically change out that product. The first major example of that -- and it's starting to run now, it hasn't launched yet -- is with one of the large automotive brands. We will use the technology to serve specific 3D models of specific car models into games and track –- which you could have done in a fixed manner before -- but now we're able to track the specific interaction that the user has with that object: proximity, average size, time on screen, number of sessions, those types of things. 3D objects allow us to add measurement to the previously unmeasurable area of product placement. Having a beverage can without context that changes to another beverage can, that's less how we see it used. For the classic cell phone integration, because of the use of 'communicators' in games, there's typically great opportunities for wireless providers. What 3D object serving allows them to do is to change their front-line mobile phone model every two months just like it does in the stores. Looking more generally at the in-game ad industry, how does Google's recent acquisition of Adscape affect the market landscape? We haven't really seen any impact yet. We see it as another sign that this is going to be a big market, when you've got players like Microsoft and Google making stakes. Google bought a company which had not served ads in any commercial titles and not shipped in any commercial titles, and they paid a low price, so we view it as exploratory. This is several orders of magnitude less than what they paid for YouTube, so we view it as Google keeping a stake in the ground. It doesn't mean they won't play in our space, but the level of their commitment remains to be seen. From everything we know, and I think people like Massive know, with games being a new medium, it really does require a sales force that's specialized in nature, is able to sell the values and benefits of an entertainment environment, and an emotional connection to a brand, and we find that to be very different from selling internet ads in general, let alone performance-based internet advertising. We believe that it's great to have them in the market, that our focus on building the best and most specialized sales team will continue to bear us in great stead in our work with publishers. I think publishers want to work with companies where they feel where the partnership is balanced, and what publishers are aware of is my whole business, and our whole success as a company, is dependent on me serving them well both on the sales side and the service and technology side. That isn't necessarily something they feel with a big conglomerate. So is that Double Fusion's advantage in staying independent versus your competitors? That really relates to our relationship with publishers. I think it's not super likely that Google would ever serve ads on a Microsoft platform. I think most people in the industry view it as unlikely that Microsoft would serve ads on a Sony platform. So while the markets have to play out, our goal and our vision and our commitment to publishers is to over time be able to service them across all platforms, which is the best and most stable configuration for the ad market. It may take a few years to get there, but we think we're the best positioned to attain that cross platform status. With larger corporations buying up smaller ad companies, is there any evidence that they're able to lower their prices to be more competitive and loss-lead as a new entry into the market? Actually I'd say no, I think. First of all, everyone in the business has an interest, whether large or small, in ensuring that in-game ads are appropriately valued, so pricing is always a tactic that can be used in the sales field, but this isn't a market that's been characterized by that to date. I'd actually argue maybe the opposite, and maybe Google's a little different, but when you spend a bunch of money to buy a company, usually the question is how to make that back, so there's increased pressure on ROI, versus venture-backed companies that are built for the long-haul. I'm not saying we're more likely to cut prices, because we're not, that's not in our strategic interest. So, no, we haven't seen that happening, and there's no indication that the big guys are really motivated to do that, but ultimately if it does, I think that because of the quality of our technology, it allows us to charge higher prices anyway, if we're serving better ads, and our commitment to publishers is to maintain and grow the CPM –- cost per thousand value –- of in-game advertising by really developing ad capabilities that are unique to games. Right now, a billboard in a game is a virtual representation of a real-world object, and it has a lot of value, but it arguably doesn't fully exploit the 3D interactive nature of the gaming platform. That's why we view technology –- well, sales is definitely the most important thing that we use as our calling card -- but technology drives our ability to produce better sales results. Looking back at some of the consumer backlash that IGA took with Battlefield 2142, has that changed the way that you've approached in-game ads? No, I think that we believe it's really important that for ads to be placed in the right types of games, and if it's in-game, as opposed to around-game or sponsorship or other things that we also do, context becomes really important. That said, I think that a lot of that was really about how the information was presented to users, that was the unfortunate element. 90 percent of the studies on the market say that gamers like in-game advertising, when it's well done, so our focus is on doing it right, and we let the game companies manage their user relationships. The simple answer is no, there's been no –- well, I can't speak for IGA -- but in our case there's been no backlash. Part of that, too, had to do with a perceived privacy issue. Right, it was in the user's face, that's the problem – actually, what it said was, we're not collecting personally identifiable information, except for IP address, which I suppose in certain countries is considered to be personally identifiable. But what the IP address is used for is to make sure that you get in-game ads in your language. I don't think, in fact, that that document said anything other than what you might find in other end user license agreements, it just happened to have been printed on top of the box when you opened it up. [laughs] I think that magnified the issue. I think the bigger issue with that title is are futuristic shooters that people pay for the ideal environments for advertisers, and for some it may be, for most we think not. You know, if you're Intel, it's great. If you're selling a beverage, it may not be. How do you actually convince the consumer that in-game ads are a value-add, especially as next-gen game prices continue to increase as advertising becomes more prevalent? I think on the user question –- we let the publishers manage their relationship with the user. We provide a service to the publishers and to the ad agencies. I think the users are sort of rightfully saying 'what does this bring me?' What they don't think about -- and why should they? -- is that at this time in the market you've got rising development costs and the platform install bases haven't really been through enough annual cycles to return that increased development cost. In-game advertising is making their games possible, they're just not seeing an economic benefit directly. Now, we work with many of the biggest retail players, but we also work with some of the new-model advanced casual gaming companies, and I think what the users there understand is "you're bringing this game to me." It's a very different user context. If you look at some of the programs that will come out in the fall that we've done with THQ and others -– I can't go into too much detail -– you'll see in-game programs that provide new content, new maps, new levels, that kind of thing as a paradigm, and we think users will receive that incredibly well: "here's a level you wouldn't have otherwise had." I think the more of that that goes on, the more users will understand that this doesn't just bring me 'realism' versus a fake ad, it actually does fund additional content. Finally, I wonder if Double Fusion has taken any sort of serious look at the PlayStation 3's Home as a platform for advertising? Well, we've certainly seen the presentations on Home, and we have spoken with Sony about the opportunities, and that's sort of all I can say. What I will say is we see Home as a very important integrated part of the game advertising environment. It works tremendously well hand-in-hand with in-game ads, in that you can reach users in their emotionally engaged context during the game, and then follow-up with them with additional advertising or marketing or offers in an environment where they're more focused on more social behavior and hanging out and information. Being able to offer both those kinds of emotional and informational contexts really makes for a well-rounded marketing program. Whether we are involved in selling ads in Home, whether for Sony or for our publishers, or just work with companies that do so, I imagine the best campaigns will combine both ads in-game and though the network service.