Brands, ads, and video games

Rising user acquisition costs reshape the brand-game relationship

Oct 17, 2024

The SuperJoost Playlist is a weekly take on gaming, tech, and entertainment by business professor and author, Joost van Dreunen.

Watching the next generation grow up and take gradual ownership of the world around them is both exciting and humbling. How they make sense of things is often mystifying to me. There’s a depth of understanding in how terse they choose to interact.

A few weeks ago, in upstate New York, I struck up a conversation with our friend’s 14-year-old. We had just built a campfire and we were watching the flames grow.

I asked her: “How’s school?”

“Fine,” she said. “Busy.”

“I imagine high school is challenging. Do you have any favorite topics? ”

“Math and basketball. English less so.”

“Really?” I asked. “I remember you always reading. I figured you for a bookworm.”

“No.”

“I used to be terrible at any exact sciences like math or chemistry. Languages allow for wiggle room when you’re writing or translating. It’s why I ended up taking five languages back in high school.”

“Oh. Is that why you talk so much?”

On to this week’s update.

BIG READ: Brands, ads, and video games

Last week I attended several advertising and brand-related conferences in New York. I was invited to moderate one panel at Advertising Week with Discord, Electronic Arts, T&Pm (a subsidiary of WPP), and sit in on another at the 2024 IAB Gaming Summit together with Spatial and Twitch.

For context, I’ve previously written about and analyzed the relationship between ads and games. As the industry turns to developing innovative ways to distribute and monetize content in response to broader macroeconomic changes, game makers are quickly adopting indirect revenue. In fact, an important part of my new venture’s thesis is that games present a novel relationship model between brands and audiences. That entails different industries working more closely together in a way that they haven’t before. Similar to how Hollywood has grown to embrace game-based film productions over the past decade, brands from a range of different categories (e.g., media, tech, toys, beauty, retail, and apparel) are making increasingly larger investments in gaming.

Here are a few observations.

To start, my main objective was anthropological. Observing the crowd, you instantly understand why more work is required to bring gaming and brands together. Different from the cargo shorts-wearing dev crowd that mobbed Unreal Fest in Seattle a week earlier, people in media and advertising are coiffed and primped. Instead of hoodies and ubiquitous fleece vests, the ad crowd sports sleeveless jumpsuits and dress shirts. Demographically these two industries are almost opposites. In a sense, they are the popular kids who are now learning about the subculture that games represent. Understanding each other will take some time.

It’s nevertheless obvious that brands are catching up to the idea that interactive entertainment offers a far more engaging and immersive experience than conventional media. While traditional media like movies and TV still have their place, they're losing ground with younger audiences. Ask any 11-year-old about their media consumption habits, and you'll likely find they've moved away from radio, broadcast television, and magazines. The social media that have taken their place are dominant, for now. But they, too, are starting to show their age and losing their appeal to the next generation of consumers.

Well-known games attract large audiences, forcing brands to follow. By comparison, titles like Roblox, Minecraft, and Fortnite each attract more monthly users than the New York City subway system.

Such a demographic shift in how especially young audiences consume media and entertainment presents a novel strategic challenge for brands. Early adopters among brands have booked notable successes. Firms like e.l.f. Beauty, a beauty brand that caters to younger audiences, successfully pivoted to immersive experiences. Instead of relying on mobile app downloads, it developed a Roblox experience that dramatically outperformed its traditional strategy, allowing it to grow while large incumbents like L'Oreal struggled to do so.

These developments have led to ad agencies establishing collaborations with gaming companies to expand their capability to their brand clients. According to Andrew Meaden, global head of investment at GroupM, a subsidiary of UK-based advertising and marketing services WPP that generated $19 billion in 2023, Roblox redefines “the way young people interact with the world and discover new products and ideas."

Challenges remain, however. There’s brand safety, of course. And, considering Roblox’s Hindenburger moment last week, that’s entirely justified. It is also where non-endemic brands may provide the necessary validation to differentiate. Consumers, and specifically parents, should be able to trust that global brands ensure the safety of the play experience. It’s precisely the kind of thing that signals quality to audiences.

A challenge on the brand side is one of mental inertia. Adapting new channels and novel cultural expressions doesn’t always rhyme well with how large industries like advertising operate. But the biggest hurdle, it seems, is the courage to commit. Rather than formulating a planned and long-term strategy, most agencies and brands continue to rely on third-party developers to develop one-off campaigns. It mitigates risk, certainly, but making a single push into gaming by, for instance, rolling out a single Roblox activation without following up or giving people a reason to stick around is a quick way to fail. It in part explains why third-party service providers that develop branded experiences in online worlds are showing a contraction.

But what’s driving the current momentum is something different altogether. Beyond brands having to reach new audiences with different preferences, game companies are now open to reciprocating. The rising costs in user acquisition for mobile games, for instance, have convinced developers to diversify their revenue streams. According to an upcoming analysis by ALDORA, the number of monthly impressions across mobile apps has quadrupled over the past twelve months to an estimated 164 billion. It is largely the result of studios embracing indirect revenue streams to offset the growing costs of doing business in a cut-throat marketplace.

Ultimately, both game makers and advertisers recognize that interactive entertainment presents the next cultural frontier, allowing people to play, explore, share, and connect around values and ideas relevant to them. This will naturally include the intangible world of branding. How they play their part, however, will determine their future.

NEWS

Web3 shooter is having a moment

After five years of development, developer Gunzilla released its Off the Grid in early access across PC and consoles earlier this month. The studio had raised $90 million and, based on initial reactions, has raised the bar for blockchain gaming. The game itself plays like a blend between Apex Legends and Call of Duty Warzone. I particularly like the ability to swap out limbs to customize abilities on the fly. Increasingly the major differentiator for shooter titles seems to be its meta: the ability to strategize and adjust your approach as a single play session progresses. Going beyond the traditional twitch-and-click experience of shooters, integrating the next level of strategic decision-making in a high-pressure action-based environment is compelling.

As for its Web3 aspect, I’m not just clear on what the added value is here. But, hey, if those crypto-dollars are subsidizing an innovative new title, who cares where the money’s from?

PLAY/PASS

Play. Perhaps in response to the recent lashing out to League of Legends on account of subcontractor Formosa’s unethical behavior, SAG-AFTRA and a consortium of game industry employers have agreed to resume talks. The group includes Activision, Disney, EA, Insomniac, Take 2, and WB games, among others, and carries a positive signal toward a much-needed resolution. Previously, I predicted the issue would likely be resolved before the end of 2024.

Pass. Layoffs continue as Bandai Namco cut 200 jobs, and Riot Games eliminates 32 League of Legends positions.

NEXT UP

Big shoutout to everyone who submitted questions last week, allowing me to sound even smarter than usual in my conversations with the new PlayStation CEOs. I’ll follow up with my impressions from when I spent with them here in New York.

And speaking of New York, I have a few extra seats available for the Xbox fireside at NYU Stern. Ping me directly. First come, first serve