By Sarah E. Needleman
Four years after it stopped putting ads in its mobile videogames
because it suspected they were too disruptive, King Digital is
testing them again in a new format, a move Wall Street analysts
think could generate $1 billion in revenue for the company by
2019.
King Digital earlier this year began tests of ads from Nestlé
SA, Visa Inc. and others in a handful of mobile games including
"Candy Crush Soda." The reversal, which the game developer set in
motion soon after Activision Blizzard Inc. acquired it in 2016,
reflects new thinking about ads in the mobile-game industry.
Rather than treat ads as a necessary evil, a mandatory toll
booth players have to pass through, developers increasingly are
embedding them into games as an optional experience that players
can choose in exchange for rewards.
The shift in strategy has lifted the gates on a torrent of
mobile-game ad revenue. This year, mobile games are on track to
generate $39.8 billion in ad revenue world-wide, up almost 90% from
$21.1 billion in 2015, according to App Annie Inc., an app data and
analytics firm. It projects the number will climb to $49 billion in
2018.
Game makers hope "rewarded ads" will extend the boom in
mobile-game advertising and help them continue diversifying beyond
players' in-app purchases. These purchases generate considerable
revenue for game makers but are dependent on a minority of
dedicated players who are big spenders on virtual goods.
Rewarded ads are an alternative for them. Players who engage
receive in-game perks such as extra lives or virtual currency. A
recent promotion from Electronic Arts Inc.'s "FIFA Mobile," for
example, gave players the option to acquire free virtual characters
and other items if they shared an ad from Coca-Cola Co. through the
soccer game's messaging system.
Dozens of brands including Ford Motor Co. and McDonald's Corp.
advertise in EA's mobile games, up from just a handful five years
ago, said Dave Madden, head of global brand partnerships. The
company doesn't report ad revenue but it "is definitely a growth
area," he said.
Mobile games are especially attractive to brands "because
they're highly engaging," said Tom Goodwin, head of innovation at
ad agency Zenith USA, a unit of Publicis Groupe SA. People are
spending more time on mobile devices, and brands need ways to reach
them, he said.
In the first half of 2017, 78% of the top 50 grossing games on
Apple Inc.'s and Alphabet Inc.'s U.S. app stores featured ads, up
from 45% a year earlier and 29% in 2015, according to analytics
firm Apptopia Inc.
Still, even today players dislike many of the ad formats in
games. Video, for example, is potentially more engaging than
traditional banner ads, but it is also riskier. During a 15- or 30
-second video, players have ample opportunity to close the app and
open another.
Parallel Space Inc. chose not to include any ads in "Hades'
Star," a game about space exploration released in July -- the
Canadian startup's first. "Ads are very disruptive," said company
founder Andreas Papathanasis, a former game developer with
Supercell Oy, of Helsinki. "If you want a long-term relationship
with players, ads don't make any sense."
That is why rewarded ads are changing so many developers' minds.
Some 62% of developers said player retention increased or
stabilized after they introduced video ads with rewards, according
to a 2016 study from Unity Technologies Inc., whose game-creation
software includes tools for advertising.
Jamie Lynn, a 21-year-old Florida college student, says she
spends about 15 minutes a day playing games like King's "Candy
Crush Saga" and Supercell's "Hay Day" and tolerates ads that offer
rewards. "They make me feel as though my time is more worthwhile,"
she said.
When Chris Akhavan arrived in 2013 at Glu Mobile Inc., publisher
of games such as " Kim Kardashian: Hollywood," the chief revenue
officer discovered a lot of resistance to ads at Glu Mobile. That
has changed. In the second quarter, Glu had $12.4 million in
quarterly ad revenue, up from $2.4 million in the same quarter of
2013.
The secret to making ads work, he said, is to be strategic about
when they run and who sees them. Glu often serves ads after a level
of play has been completed, because there is a natural pause then,
Mr. Akhavan said, and it serves them more frequently to players who
don't make in-app purchases.
Analysts routinely press King on when it will move from testing
to rolling out ads to all games for its 314 million monthly active
users. They cite Zynga Inc., which last year generated about $194
million from ads with roughly a fifth as many users as King has
today.
Evan Wingren, an analyst at KeyBanc Capital Markets Inc., said,
"People from the investment community are looking at that, saying
if Zynga does it, why can't King?"
(END) Dow Jones Newswires
August 20, 2017 09:14 ET (13:14 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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