Massive’s Failure Proof Of In-game Advertising’s Success
A short while ago, I wrote about some encouraging news in the in-game advertising market. There were some glimmers of hope while I questioned the details of the announcements. Since then, in-game ad firm IGA Worldwide received new funding and Electronic Arts launched a new integrated in-game ad dashboard. It seems that investment is happening in the in-game ad world.
Why then, is MediaWeek reporting that Massive, Microsoft’s in-game ad division, is shuttering? The apparent mixed signals in the above market news signifies a maturation of the market and not some confused state of chaos.
EA recently started using its own internal ad group with Madden NFL 11, according to MediaWeek, and has pulled most in-game advertising away from 3rd parties, pulling a sizable business in-house and away from Massive.
While Massive may be feeling the pain, this step by EA is a logical one if they are seeing the returns on their in-game advertising.
I’ll over-simplify the business to illustrate the point.
- Ad price (normalized): 100
- Fees to ad network: 40
- Fees to publisher: 50
- Fees to content creator: 10
While the fees can shift by plus or minus 5 percent, sometimes the content creator does not get a cut, or the publisher is the creator. The concept is simple: when you buy an ad through the network, everyone takes a cut, including the network. But as the ad sales grow, a $1 million in ad sales means $400K to the ad network.
The ad network does provide value, where they deliver value-added services that smaller companies cannot afford to do well, usually due to lack of resources, cash, or skills. Those service include:
- Customer service
However, once the revenue of ad sales grows large enough, the payment to the ad network can become significant. For $10 million in ads, the ad network cut may be $4 million. Is that enough revenue where your own infrastructure makes sense?
EA is a huge public company with fiduciary duty to its shareholders, an existing sales team, market relationships, and some of stickiest sports games around. When it starts to invest and build internal infrastructure for advertising, you know there’s money to be made. Massive, as a business unit may be struggling, but it may simply be a victim of the in-game ad market’s success.