Companies Try to Sell Videogaming as the Next Big Advertising Channel

Roblox said it has strict guidelines for promotions and ads on its platform. But the dispute highlights the growing pains of videogames as an advertising medium.

Investors are funneling money into companies looking to turn videogames into a marketing platform that can compete with television commercials and online ads. Venture-capital firms Elefund and DIP Capital, as well as companies such as Comcast Corp.’s NBCUniversal and consumer electronics firm HTC Corp. , are investing in technology that allows advertisers to insert their brands directly into the gameplay of popular titles.

Stalwart advertising agency holding companies including Publicis Groupe SA and Dentsu Group, meanwhile, last year introduced specialist gaming divisions to help marketers figure out exactly where they can fit into the videogame landscape.

But proponents of in-game advertising still need to clear significant hurdles, including murkiness around when an ad is viewable to players, how ads are appropriately marked in a medium where they can blend with gameplay and media buyers’ preconceptions about who plays games in the first place.

“There’s still this mental image we have of gamers as boys in basements that’s so pervasive,” said Jonathan Stringfield, vice president of global business marketing, measurement and insights at Activision Blizzard Media, the ad division of videogame giant Activision Blizzard Inc.

The frustration was reiterated earlier this month when almost 700 advertising executives convened in Midtown Manhattan to watch a series of presentations from companies selling in-game advertising space.

The Interactive Advertising Bureau’s inaugural PlayFronts event, whose name riffs on the TV industry’s annual upfronts advertising market, featured countless variations on the same message: Lots of people play videogames, and marketers are missing out if they aren’t buying ads inside them.

A new space for ads

More than 80% of U.S. gamers are over 18 years old, and 55% are over the age of 35, according to audience research firm Nielsen. Advertiser interest has increased as the number of people world-wide who play videogames at least once every six months grew to 2.96 billion in 2021 from 2.03 billion in 2015, according to gaming analytics firm Newzoo.

Advertisers can purchase playable ads and interstitials that pop up between levels of games directly from publishers such as Activision Blizzard’s King, the maker of “Candy Crush Saga,” and “Words With Friends” owner Zynga Inc. They can also buy ads that let players unlock small in-game boosts, gifts or other extra content in exchange for watching, or create entire branded games of their own.

Advertisers can also buy virtual inventory such as a billboard in a cityscape through PlayFronts presenters including Bidstack Group PLC; the venture-backed WAM Group Ltd., which trades as Admix; and Anzu Virtual Reality Ltd., which last month closed a $20 million funding round backed by companies including HTC and advertising holding company WPP PLC. Another Anzu investor, NBCUniversal, is already using the in-game advertising technology as part of its sales pitch to advertisers.

But advertisers still are not flocking to gaming in droves. Research company Insider Intelligence estimates in-game mobile advertising revenues increased 34% to $5.49 billion in 2021. By contrast, U.S. advertisers spent $52.2 billion on automated online video ad buys in 2021, up 48.3% from the year prior.

Bumps in the virtual road

Some advertisers also consider the videogaming sector risky for their brands, given the violent nature of some games and the unpredictability of some live, multiplayer environments, particularly those targeted at children, said Kieley Taylor, global head of partnerships at GroupM, a media investment company owned by WPP.

There are more technical obstacles, too.

The number of ads publishers can fit inside a game without disrupting the player experience is still fairly low compared with the inventory on a scrolling website, for instance, and it costs more for the ads themselves to be tailored for in-game insertion, although the practice is getting easier, media executives said. It is also more difficult for advertisers to measure how many people viewed their ads than it is in other established channels such as television and streaming, for instance, they added.

The IAB trade group plans to update its measurement guidelines for in-game ads to quash some of that hesitancy. The industry definition of what counts as an impression of an ad inside a videogame is based on guidelines it established in 2009. Those guidelines are now outdated in the face of technical developments in the videogame and ad-tech sectors, and incongruent with how advertisers measure digital advertising across other media in 2022.

The organization plans to release its first draft of the new standards later this year, said Zoe Soon, vice president of the IAB’s Experience Center, a division that helps advertisers understand emerging platforms.

Better measurement may help persuade more media buyers to try advertising in videogames, the way it helped encourage more media buyers to invest in mobile advertising a decade ago, and in online advertising before that, said GroupM’s Ms. Taylor.

“So I’m super bullish that we will get there eventually,” she said.

Write to Katie Deighton at katie.deighton@wsj.com

Corrections & Amplifications
The trade organization for the online advertising industry is the Interactive Advertising Bureau. An earlier version of this article incorrectly called it the Internet Advertising Bureau. (Corrected on April 22.)