In-game ad firms prepare war chests

Double Fusion, one of three main in-game advertising companies, is launching a $25m (13.7m) fundraising effort as the sector reaches a critical phase.

As the next wave of consoles are launched, which are capable of more sophisticated ads within games, the main in-game ad firms are putting together war chests to help convince games publishers to sign up with them.

Double Fusion’s fundraising effort comes just weeks after rival IGA Worldwide announced a $5m (2.7m) investment from Intel Capital to complete a funding round of $17m (9.3m). Earlier this year, Microsoft bought Massive for a reported $400m (220m).

At present, the ad networks are offering advances of up to 250,000 to publishers to secure the advertising rights for a blockbuster title. Total payments can reach 1m. For publishers, buy the content at a cheaper rate than they would be able to do elsewhere. The service encourages users to sell on the files on behalf of the music or film company."

Bertelsmann tried to run legal P2P services before, when it bought Napster in 2002. That failed to live up to expectations, but the company is hoping the potential to earn fees will encourage people to overcome their reluctance to pay this is a welcome rather than vital part of their business, but that is changing.

"The publishers want this to happen and it is the publishers that drive the consoles. For the publishers this is critical," says Jonathan Epstein, chief executive of Double Fusion.

"The stage we’re in right now is a bit of a land grab," says Michael Wood, director of in-game marketing specialist Tweed London. "It’s not yet a key revenue stream, but I completely see it becoming key."

The US is leading the market, with key advertisers including Honda and Nike.

"We’re quite sure this market is going to be worth several billion dollars by 2010," says Mitch Davis, chief executive of Massive. "Budgets have increased rapidly over the past 12 months. We’re seeing solid six-figure budgets."

Epstein predicts that "most games coming for something that they could get for free elsewhere.

If it succeeds then the project will come as a welcome relief to a music industry that, although it likes to consider itself as being at the forefront of fashion, has failed to keep pace with consumers as they move online.

The figures are easy to dispute but the BPI, the record industry’s trade association, claims 1.1bn was lost in sales last year because of illegal online file sharing. The Association of Independent Music (AIM) says it would like to claw back around £500m a year. But the latest efforts of both appear destined to fail and, in the process, annoy most of those groups that the associations need to work with in the future.

On July 10, the BPI wrote to two internet service providers (ISPs), demanding they shut down the accounts of 59 people it says are illegally sharing music online. Two days later, AIM launched a plea for a new system of licensing digital music, which it calls Value Recognition Rights. This would involve ISPs or mobile firms paying a fee for each track downloaded over their networks. Both moves were immediately criticised as ill-thought out.

"How can they keep getting it so wrong again and again?" lamented one former senior executive at a major record label.

out in the second half of 2007" will have advertising. However, two key deals remain in the offing. Electronics Arts on the publisher side and Sony on the console side are both are expected to reach deals over in-game ads soon.

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