Casual games look to ad-supported 'TV model'

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Some may recall a time not so very long ago when it didn't cost a red cent to watch television. Advertisers funded everyone's home entertainment and the only price you paid to watch your favorite sitcom was having to sit through the commercials.

It's an antiquated model as far as the TV industry is concerned -- which now imposes both advertising and cable bills on its audience -- but it seems to appeal to the casual video game business which has been less-than-successful in selling its wares.

Casual game developers even have a name for their malady -- the "99% problem" -- so-called because for every 100 people downloading a casual game, on average only one actually pays for it. The other 99 take advantage of the usual 60-minute "free trial period" and, once that ends, they move on to another freebie. In effect, the casual games industry is being supported by only 1% of its fans, a situation that has been fairly consistent over the last four years.

But Web portals that publish games and then struggle to sell them, like RealArcade and GameHouse which are both owned by Seattle-based RealNetworks, are increasingly turning to ads, rather than purchases, to monetize the popular entertainment. And, lo and behold, gamers seem to be responding positively.

According to the results of a survey of 1,500 gamers by RealNetworks, nearly 90% said they would prefer to watch video ads before and during natural breaks in casual games rather than pay to play. In addition, 34% said they would take further action and click on the in-game ads to learn more about the advertised product or service.

"Were we surprised? You better believe it," said Chris Houtzer, RealNetworks' director of New Media. "We started ad-supported gaming just 18 months or so ago as sort of an experiment. We had no idea what would happen. Soon we saw that people were playing the games much longer, the ad metrics were incredible, and the developers were starting to see more money coming in. The model continues to surpass our expectations ... and the survey results support what we've seen. In effect, gamers are saying, 'We get it. We understand. We're getting free gameplay for ads. It's a fair trade.'

RealNetworks currently has a catalog of over 500 downloadable games of which 40 or so are ad-enabled with plans to grow that number considerably throughout this year. Typically the ads are 15- or 30-second streaming commercials that play every 12-15 minutes between natural breaks in gameplay. If the gamer chooses to pay an average $19.99 to buy the game in order to own it on their hard drive, the ads are automatically disabled.

Houtzer wouldn't reveal what portion of Real's income still results from game purchases rather than in-game ads except to say that "we do still generate a large percentage from game buyers."

Survey respondents were predominantly female (81%) and in the 35-64 age range (65%), which is in line with the core casual games demographic.

"Casual games are the new daytime TV," observes Houtzer. "Just as the daytime TV audience is heavily female, the casual game audience is about 65% female, between the ages of 35 and 55, and very active online. And since those are the people who make the household purchase decisions, they are a very rich demographic for the advertisers who are typically the same ones that advertise on daytime TV -- selling everything from pizza to cars to movie tickets."

Jay Gould's goal is to assist advertisers reach that rich demographic. He is CEO of Gamer's Media, an N.Y.-based company that opened its doors in August to help agencies place ads specifically in such casual game Web portals as Big Fish Games, Gamesville and 50-plus others said to attract 20 million unique visitors per month.

"While other ad networks, like Massive, IGA, and Double Fusion, are helping brands place ads in virtual worlds and console games," explained Gould, "we're a one-stop shop for anyone who wants to advertise on the independently owned casual game sites where we offer traditional display banners, advergames, and custom sponsorships, as well as pre-roll videos that play before the games as well as in-between game levels."

While Gould says he's very pleasantly surprised by the results of the Real survey, he understands why gamers' initial resistance to being subjected to ads prior to or in the middle of casual games has waned.

"When you click on a flash game, it takes 20-30 seconds or so to load anyway," he explains. "Which means the gamer is sitting there waiting to play. If you show them advertising that's relevant to them ... and if they understand that they get to play the game for free because of the advertising ... they're willing to watch it. It's not like it's a two- or three-minute TV commercial where they have time to leave the room and get a drink or go to the bathroom. You're waiting to play the game, it's starting in less than a minute, and so you're not going anywhere."

"Relevant" is the keyword, which is why companies like SponsorSelect claim to improve gamers' receptiveness towards online ads. The platform, which has been adopted by Big Fish Games, allows gamers to choose the ad that will run prior to gameplay, presumably the one most relevant to them, instead of viewing some random commercial.

"It is one of a handful of emerging products that facilitates user interaction with the brand," observed Real's Houtzer. While Real hasn't implemented SponsorSelect, he says he is talking to the company and is considering using their product.

But not every Web portal is totally convinced that ad-sponsored gaming is the direction to go -- especially those without sizeable ad sales teams -- and they are experimenting with other business models, including microtransactions. For a small fee, gamers have a choice of various upgrades, including power-ups and items that change the look of their playable avatar.

"It's still too early to gauge whether microtransactions will be as successful as advertising is," said Houtzer, "nevertheless we are looking at microtransactions as well as a number of other models.

"Casual gaming is becoming more and more popular," he added, "and we expect to see that growth continue. The bottom line is that any place where you have people spending hours and hours of their time each week is going to present a very large opportunity for advertisers. Our challenge is to make advertisers aware of those opportunities."

Paul "The Game Master" Hyman is the former editor-in-chief of CMP Media's GamePower. He has covered the games industry for more than a dozen years. His columns for The Hollywood Reporter run exclusively on the Web site.
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