The case for putting advertising in video games sells itself. Gaming demands complete attention and active engagement, is targeted at a young demographic with disposable income, and can simultaneously provide precise real-time data on the viewer’s exact exposure. The potential for growth of advertising in gaming has recently been recognised by analysts at Citibank, PriceWaterhouseCoopers and Screen Digest to account for future revenues of at least US $1 billion by 2014 – almost double the market’s estimated $600 million worth in 2009, bucking the recessionary trend that has seen global ad spending fall by at least 10% in the last year.

As Chris James of Massive Inc., a Microsoft subsidiary that handles in-game advertising (IGA) sales, says: “Gaming [advertising] is one of the outliers in the recession with video game industry sales increasing.”

Advertising in games is nothing new: every sports game since the 8-bit generation of video games consoles has, like real world professional sports, been saturated with endorsements. Traditionally, IGA takes the form of in-game billboards or hoardings, but these days it can extends to product placement and filling otherwise dead loading screens with promotional messages.

The current growth is being accelerated by the latest generation of consoles, whose pin sharp graphics and Internet connectivity can deliver tailored adverts to meet changing campaigns across global markets. These new standards also lead to ever-increasing development costs, meaning that games studios are increasingly looking to IGA as a significant source of revenue.

The threshold to accessing such funds is high though, and while the multimillion-selling FIFA football games are soaking up advertising revenue, start-ups and independent outfits hungry for funds receive little consideration.

Beatnik Games is an eight-man development team based in London, who by day code educational games for Channel 4 and by night work on their pet project Plain Sight. The development of their colourful, frenetic combat game was primarily funded by friends and family, and the team is looking at a spring launch through the online distribution system Steam (think iTunes for games). While the team considered implementing IGA, the team’s producer Robin Lacey was reluctant to take the risk: “I would never gamble the stability of my company on IGA because it is so hit or miss.”

Beatnik has been courted by smaller IGA agencies, but Lacey felt none of them could offer “a viable solution that [made] monetary sense.” While online distribution systems such as Steam and Apple’s App Store for the iPhone have successfully provided opportunities for independent developers to earn revenue from their products, a similar centralised model for IGA has yet to emerge.

The mass adoption of IGA is also subject to its reception by gamers, a demographic who are notorious for their hyper-critical nature. The self-appointed guardians of the medium gleefully point out every instance where they feel advertising oversteps their standards of acceptability. In the summer of 2009, gaming blogs and forums foamed with nerd rage at the news of an intrusive advert in the futuristic racer WipeoutHD for the Sony PS3. The promotion in question was a short spot for the American insurance company State Farm that extended the wait from pressing start to racing by all of ten seconds, just three to four times every hour played. Absurd as this may sound to the non-gamer, the transgression of delaying the action of a paid-for stirred widespread ire and condemnation from vocal Internet hordes. The backlash was so severe that the promotion was pulled within 24 hours of its launch.

Jamie Sefton, the head of Game Republic, a subsidiary of Screen Yorkshire, which supports games companies in Yorkshire and Humber, believes that for all its financial appeal, IGA can backfire on games developers and brands if they do not take the utmost care creating contextually relevant advertising.

“The issue comes for gamers when it’s an advert that jumps them out of the experience,” he says. “If you get it wrong, and have an advert that intrudes on that experience, then it can actually damage the [games] brand, as well as the advertising brand.” James of Massive Inc. also stresses this point, “… Ads need to enhance the overall game experience, never detract from gameplay, and add realism to the game.”

Yet while critics have derided the State Farm commercial in WipeoutHD, they tend to forget Wipeout’s earlier iterations on the Sony PSOne. The extensive Red Bull branding in Wipeout 2097 preceded the launch of the drink in Western markets, introducing gamers to a caffeinated beverage that successfully dovetailed with the unique futuristic vision of the game.

While Beatnik’s Lacey doubts his small team would have the man power to make IGA work, James of Massive Inc. estimates the time he needs to implement an IGA client in larger projects at approximately 20 hours. Lacey doesn’t begrudge the bigger studios, as he thinks their in-house marketing departments “handle it well,” and believes that the “over the top” IGA efforts can actually add realism, mimicking a brand obsessed world in a “less intrusive” manner.

One example of this was the use of IGA in the explosive Burnout racing series, which caught worldwide attention last year when it featured a series of ‘Vote Obama’ in-game billboards that appeared during the American election campaign. The context of a political advert in a video game broke new ground and maximised coverage, becoming a news story in its own right and defined a youthful candidate looking to profile himself against an ageing opponent. Analysts at Screen Digest point to the Obama IGA campaign as a landmark moment in the history of IGA’s growth.

“Video game advertising is moving past the ‘test budget’ phase,” says Massive Inc.’s James. “Many marketers and agencies are now incorporating video game ad campaigns in their broader marketing plans and allocating dollars earlier in the process.”

Industry wide efforts are also being made through the Interactive Advertising Bureau to establish a universal standard for quantifying IGA exposure. Modern games can precisely measure advert impressions in terms of the quality of depiction and prominence (angle, size, lighting), and in terms of user exposure (how long the message is viewable on screen, and how frequently), and then instantly feed this data back to ad buyers. The hope is that this transparent measurement will make the IGA market more attractive to a wider range of new advertisers, and provide commercial momentum.

With these impression metrics becoming more defined, companies like Massive Inc. are initiating ventures with digital research companies to measure the depth of IGA’s impact on consumers more accurately; Microsoft are currently beta testing a new game on the Xbox’s online service ‘Live’ that promises to integrate market polling data with precisely targeted IGA messages.

This market data is polled in the disguised form of a free to play online game, an adaptation of the American quiz show 1vs100. The 1vs100 game ‘screens’ at specific primetime slots, placing players (or rather their avatars) directly into the show, where they are asked to answer multiple choice questions on trivia, and compete in a national competition for Xbox ‘credits’ and occasional real-world prizes like consoles, televisions and cars. Like its TV counterpart, the online 1vs100 contains short advert breaks, a trade-off that gamers, just as viewers at home, seem willing to accept.

While the pub-quiz standard questions might feel innocuous at first though, every response is monitored by Microsoft, who use it to accumulate blocks of marketable data. If only 30% of a typical Friday night audience of 40,000 knew the exact name of the big Hollywood blockbuster due out the following week, Microsoft could easily approach the relevant parties with opportunities for IGA with a quantifiable value attached to it. Provided Microsoft is able to prove to advertising buyers there is a measurable link between fresh audiences and their adverts, and participating gamers do not revolt, the 1vs100 game will pay for its development costs several times over.

IGA remains an emerging advertising channel competing in a wider advertising market that has shrunk in the global recession, and is hyper-competitive like never before. However, Google has proven that emerging technologies that connect previously untapped online audiences with relevant, highly measurable advertising have the potential to become monumentally profitable – and few media can compete with videogames when it comes to attracting young eyeballs.

If the main players in IGA can refrain from stepping too heavily on the sensitive toes of gamers, the market has the potential to outstrip all digital advertising fields outside of search.