Forecast: Game-Based Advertising to Hit $2 Billion by 2012

Advertising in games is poised to grow from $370 million last year to more than $2 billion by 2012, according to a new forecast from Parks Associates.

In the report, “Electronic Gaming in the Digital Home: Game Advertising,” the research and analyst firm estimates the channel will realize a compound annual growth rate of 33 percent, a much peppier trajectory than is laid out for most other digital media. A possible exception is mobile, which will realize 100 percent growth in 2007 after an 80 percent increase last year, according to a Jack Myers Media Business Report forecast.

Michael Cai, director of broadband and gaming for Parks Associates and the report’s lead analyst, noted the U.S. ad expenditure per gamer household was below 50 cents in 2006, compared with $37 for broadcast TV.

“The potential is definitely there,” said Cai. “If the industry does the right thing, if they collaborate with each other instead of throwing dirt on each other, we definitely have a good story to tell.”

Many firms with a stake in game-based marketing have tended to trash talk and undercut one another’s businesses. Cai declined to name names, but before it was sold to Microsoft, Massive Inc., was often accused by some agencies and competing in-game ad networks of engaging in hard sell tactics and grossly overpaying for in-game ad contracts with the goal of increasing its audience reach and valuation in the M&A market. Whether those accusations inculpated Massive or the individuals who uttered them, the bad blood was there.

The largest share of game-based advertising, according to the forecast, is attributable to display ads and advergames on Web-based gaming portals. Those areas, together with the smaller segments of virtual worlds marketing and sponsored game tournaments and gaming sessions, accounted for $315 million of the $370 million in ad spending on games in 2006. Dynamic and static in-game ad placements brought in only $55 million by comparison, but Parks Associates expects their share to grow considerably over the coming six years to $805 million or around 40 percent. As that happens, dynamic in-game ad serving in PC, console, mobile and casual games will grow from 27 percent of the in-game market to 84 percent in 2012.

Cai said virtual worlds deployments are surprisingly virile. He estimates marketers spent $15 million on virtual worlds marketing projects last year, a figure that doesn’t include branded virtual worlds efforts like MTV Networks’ Virtual Laguna Beach. He’s also impressed with the number of marketing firms that have appeared strictly to serve this new market. Cai counted five agencies that are “well established” in the space, including Electric Sheep, Millions of Us and River Runs Red.

To compile the report Parks Associates conducted interviews with 25 companies in the in-game ad space and merged the resulting data with industry forecasts and the research firm’s own consumer survey data. Parks Associates covers digital products and services, including digital home, broadband and mobile.