Why brands now want to play

Yet, until recently, the games industry was almost a brand-free zone. Opportunities for advertisers have only really opened up in the past couple of years.

Justin Townsend, chief executive of in-game advertising specialist IGA Worldwide, explains that game development is more expensive than it used to be, meaning game publishers are turning to advertising to fund it.

"A successful game sells more than 500,000 units at retail and while it used to cost up to $10m (£5m) to develop that, now it costs up to $30m (£15.5m) because of the increased processing power and consumer expectations," he says.

"Consumers want a more photo-realistic game and there has been no increase (in price) at retail, so publishers need to seek new revenue."

The rise in broadband penetration means more consumers are playing games online through their PCs, or through next-generation video game consoles such as Microsoft's Xbox 360, Nintendo's Wii and Sony's PlayStation 3.

Previously, in-game advertising was static: it had to be hard-coded into the game during the development phase and usually took the form of product placement.

But online connectivity has opened up the ability for dynamic advertising, where advertisers buy impressions and their ads are delivered in real time into pre-formatted advertising slots - billboards in a city-based game or trackside ads in a racing game, for example.

The other driver for in-game advertising comes from the client side, as another solution to the problem of media fragmentation and ad avoidance. Jean-Paul Edwards, head of media futures at Manning Gottlieb OMD, says: "In a world where reach is not scarce but attention is, gaming is ideal."

Games are played by large numbers of young men who are hard to reach through traditional channels, he says, and the fact that it is an immersive activity adds appeal for advertisers.

"In a multimedia world you are buying opportunities to see, but you don't know if the consumers do see. With gaming, you know you have someone's attention - if you don't, they will 'die' or 'crash'," Edwards says.

In-game advertising has gained momentum in the past 12 to 18 months and some big names in the media and technology worlds are taking note. WPP last year made a 3.4% investment in in-game advertising company Wild Tangent. On the technology side, Microsoft acquired in-game advertising company Massive last May, bolstering its presence in the burgeoning games sector.

Microsoft also owns the Xbox console and a games development company, Microsoft Game Studio, and the deal gave Massive a stranglehold on advertising within Xbox games.

Google is reportedly interested in in-game specialist, Adscape Media, for $23m (£11.9m), although no deal has yet been done.

Other players in the sector include IGA Worldwide and Double Fusion, which remain independent companies - so far anyway.

Another advantage of online connectivity is that it makes in-game advertising very accountable. Ads can be served depending on geographic location and, whenever the consoles are connected to the internet, the systems feed information back to the ad networks on what ads have been viewed, for how long and from what angle, and can also download new ads.

Rik Moore, account manager at Zed Media, says gamers can easily rack up several hours, adding up to significant exposure for any brands embedded within the game.

"Since Battlefield 2142 was released in October 2006, more than 1,500 years of cumulative game-play has been amassed," Moore says.

Daniel Mohacek, product strategy director at The Technology Works, says there is a temptation to treat in-game advertising as a direct response medium because it is bought the same way as a banner ad.

But, he believes: "It is in fact very much ambient and, in many games, much more akin to an 'outdoor' campaign."

"Advertisers need to exercise a lot of restraint when advertising in-game and be aware that, as with any media, there are pitfalls. A badly implemented campaign can be very intrusive," he warns.

While brands on billboards and trackside panels can make the gaming experience more realistic, games with a contemporary setting are actually quite few. The bulk of the market is rustic fantasy or far-future games and it could be hugely damaging for a brand to advertise in these environments; a billboard for Coca-Cola appearing on the wall of a medieval castle is not going to win any fans.

At about £35 for a new release, the cost of buying a video game is relatively high and gamers naturally resent anything that detracts from the in-game experience.

But, while Damian Blackden, director of strategic marketing technologies for Universal McCann, advises caution in some contexts, he says there are other ways to engage with players.

"The rules of engagement are actually pretty simple in this field," he says. "Anything that enhances the game-play is good - so a brand can be integrated into a game if it makes the experience more real, or a brand can enhance the player's ability via a branded power top-up, piece of equipment or even by making an additional level available."

As far back as 2005, Red Bull had product placement in Worms 3D; the worms gulped down the energy drink to increase strength and stamina.

The advertiser's goal is also crucial. The dynamic form is best for brand-building and driving awareness, while the static form is better for driving a long-term positive association with a brand.

Adidas recently ran a campaign through Double Fusion in Power Challenge Power Football, with the intention of driving an association between football and Adidas shoes.

Players could choose between the TunitF50 shoe or the Predator shoe, both in three colour versions, or the game's generic non-branded pair of shoes.

The choice of shoe affected the player's strengths - the Predator confered precision and accuracy, while the TunfitF50 provided greater speed and power.

The campaign, which launched in February, also included stadium signage, game load interstitial and around-game media.

It's this sort of advertising closely integrated with the real world that IGA's Townsend says works best. His company ran a campaign for fashion brand Ben Sherman to promote its clothing range to men aged 18 to 32.

The brand was embedded in the online racing game Test Drive Unlimited, set on the Hawaiian island of Oahu, and its appearance and social positioning forms a core part of game play.

Ben Sherman had billboards throughout the virtual island and also created the interior of its flagship store in various locations, where players could kit themselves out with the spring/summer 2006 collection.

Gamers could win in-game points or real-world prizes for buying virtual clothes, with the same clothes available in the real world.

IGA estimates that since the launch of Test Drive Unlimited in September, almost one million copies of the game have been sold over the counter worldwide and more than 2.5 million gamers could have interacted with the Ben Sherman brand.

Jonathan Epstein, chief executive of Double Fusion, says the new generation of consoles will increase advertising possibilities. This is already a reality for the Xbox 360 - 70% of Xbox 360 owners in the UK have plugged the console into broadband - and the launch of the PS3 in Europe this month will bring similar opportunities.

Nintendo, meanwhile, has yet to announce an advertising strategy for either its Wii console or DS handheld device.

"There are already more than 250 million PC gamers playing online games worldwide right now and with this new generation of consoles, including Wii, PS3 and Xbox 360, the percentage of consoles connected online is dramatically higher than in the previous generation," Epstein says.

"The performance of these boxes is also much higher, allowing advertisers to put their branding inside lifelike 3D environments, which improves the overall experience for all concerned."

But Manning Gottlieb OMD's Edwards says it is a mistake to use in-game advertising simply to market to young men, as the average age is closer to 33 and there are also a great number of women gamers.

While the hardcore console owners tend to be male, Edwards says that casual gaming sites such as Yahoo! Games, which offers games such as bridge and backgammon, have a "huge, loyal" audience and about seven in 10 are female.

Edwards believes mobile games could be the next big thing, although the fact that handsets are not permanently connected to the internet means it's more likely to be branded content than dynamic game ad-serving.

"There are huge opportunities for advertisers," he says. "It's a limited audience that is prepared to pay £5 on a mobile game, but the cost to produce a game is only five or six figures, so advertisers can afford to create free branded games."

With the industry predicted to be worth at least $1bn (£517m)in just a few years' time, and big players such as Microsoft and Google getting in on the act, the future is looking bright for in-game advertising.

And as mainstream advertising opportunities diminish and video games rise in popularity as a consumer pastime, it looks certain that there will only be more brand activity in this area.

TOP 10 FACTS ABOUT IN-GAME ADVERTISING

1. In Britain, 20.3 million adults - 42% of the population - own a video game console. They are likely to be male, 15 to 44, and ABC1. Women account for 47% of the market. (Source: TGI, Q1 2007)

2. 8.8 million British kids - 92% of seven to 19-year-olds - own a game console. (Source: Youth TGI, autumn 2006). Every six to 10-year-old in the country has played a video game at least once, according to BBC research.

3. The heaviest-playing 20% of console owners are 193% more likely to use the web than the average adult. They are also strong consumers of cinema, magazines and outdoor media, but less likely to watch television, listen to radio or read newspapers. (Source: TGI, Q1 2007)

4. Sony's PlayStation 2 has the biggest market share in the UK, accounting for 62% of the static console market. Microsoft's Xbox has 13%, the original PlayStation has 7% and the newer Xbox 360 has 5%. (Source: Ipsos MORI Engage, Q4 2006). The Nintendo Wii launched in the UK in December 2006 and sold 50,000 in the first 12 hours. Sony's PlayStation 3 is out in Britain this month (March).

5. Nintendo's Gameboy Advance has 19% of the UK's handheld console market, followed by the Nintendo DS at 12%, the Sony PSP at 11% and the Gameboy Micro at 5%. (Source: Ipsos MORI Engage, Q4 2006)

6. Keen video game players own a lot of technology and play on multiple platforms: 21% of Europeans own a PC, game console and mobile phone. (Source: Forrester Research)

7. The PC is the most popular format for online games, with the two main strands being casual game sites offering card games and favourites such as backgammon, and the massive multi-player games such as World of Warcraft and Second Life. Some 35% of UK internet users over 15 have played games online - more than the number who download music, watch video clips or chat. Globally, 250 million PC gamers are already online. (Source: BMRB/Double Fusion)

8. Online gaming is still niche in the console market, with 12% of static console users and 7% of handheld gamers playing online. (Source: Ipsos MORI Engage, Q4 2006). However, next-generation consoles bring greater web connectivity and therefore increased advertising opportunities. (Source: Forrester Research)

9. Buying games online is gaining popularity, with 46% of static console users and 37% of handheld users doing so. (Source: Ipsos MORI Engage, Q4 2006)

10. The global market for in-game advertising is worth $200m-$300m (£104m-£155m) in 2007, including both dynamic in-game and around-game advertising and integrated in-game product placements. This is expected to grow to $1.2 bn (£518m) by 2010. Europe accounts for about 40%. (Source: Double Fusion/Ipsos MORI/IGA Worldwide)

TOP TIPS FOR ADVERTISERS

Context is key: in-game ads should enhance the virtual world, not break the spell. A billboard ad for trainers on a castle wall will look completely out of place

It's not just for boys: the demographic is changing, opening up a wealth of new advertising opportunities. Advertisers should remember that women and older gamers are growing

Reach for the stars: in-game advertising is no longer just about static ads in one game. In-game advertising networks enable advertisers to reach the equivalent unique eyeballs as a mid-sized TV network via aggregated reach

Don't limit it to billboards: games enable advertisers to deploy a full spectrum of tactics, from TV spots to product placement

Consider integrating in-game with real-world campaigns, enabling you to get maximum bang for your buck

You can update ads on the fly: in-game ad campaigns can be dynamically updated during the campaign

The technology that enables ads to be updated also makes it possible for advertisers to geo-target campaigns. A German gamer playing a football game will see different advertising to someone in the UK

By Justin Townsend, chief executive, IGA Worldwide.