Advertising Trumps Retail for Casual Games

Web-based game publishers are finding higher revenue potential with an ad-supported model over an e-commerce one. Game developers are beginning to build games with advertising opportunities in mind.

“On a revenue basis, probably about 60 to 65 percent is advertising,” said Dave Williams, SVP and GM of MTV’s Shockwave and AddictingGames properties, about the Shockwave.com site. “Well north of 90 percent of users are participating in free, ad-supported content, a much bigger audience of players.”

Shockwave.com boasts a broad demographic, contrary to the belief casual game sites are mainly visited by women over 30. “Casual games skew just a little bit more female than male, but it depends on the content,” said Ezra Kucharz, EVP of North American online operations and global online platforms at Oberon, in a recent interview with ClickZ News. “Everybody plays casual games, it’s a mindset and not a specific demographic.”

Oberon recently announced a deal with MySpace to create a games portal to serve the social networking site.

In an in-game advertising-focused session at ad:tech last week, Williams said, “We earn more money from sponsorships from in-game advertising than selling games on our site.” He was referring to Shockwave.com, which serves a mix of ad-supported and paid games, while the AddictingGames.com caters to teens and is entirely ad supported.

Other casual game publishers have experienced the same or similar trends. WildTangent, which claims 10 million monthly unique users, says the split between ad-supported and retail revenues is closer to fifty-fifty. “We generate 50 percent of the revenue from 98 percent playing games for free, and 50 percent of revenue from one or two percent of our audience paying for games,” said Alex St. John, CEO and co-founder of WildTangent.

Advertising is a way to monetize the gamers who aren’t willing to pay for a game. Out of 100 people that will download a game, on average only one person will buy the game. That translates to an average of 20 cents per download.” Eyeblaster VP of Products Ran Cohen told ClickZ News. “When you give the game for free, all of them are generating revenue.”

With ad-supported game play, as opposed to the traditional model of try-and-buy, consumers continue to play and generate more impressions. On average, Cohen said gamers will play for an hour a day for a period of about a week after downloading a game. He added with Eyeblaster’s partnership serving ads on RealNetworks’ game sites, the publisher has seen a revenue lift of 300 percent.

“Advertisers are willing to pay more for� a session than a consumer,” said St. John. “The key observation is advertising is a more profitable way to monetize any kind of game play.”

At Shockwave.com, the shift to a predominantly ad-supported model happened in the past two or three years. “Paid games were a bigger part of the revenue. What’s happened since then is the advertiser market has accelerated,” said Williams.

The success of advertising on Web-based game sites has begun to influence the game development process. “We see games being built specifically with advertising in mind,” said Williams.

Advertising has shaped the model for game design. “In the past the goal was to generate a conversion from a trial-to-buy,” said Cohen. “Now we see games developed with a specific brand in mind.”

The shift is also changing the way developers are compensated for their games. Eyeblaster and WildTangent are among the many casual game sites offering a share of ad revenues to developers.

Cohen said the casual game market is crowded with new developers and new games entering the space. “In the past when a studio released a hit game, sometimes it could sustain them for a year,” he said. “The game developer can not expect that one hit will take them through a whole year anymore. Advertising is becoming more and more important and is changing the shape of the industry.”

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