Activision CEO on the Future of In-Game Advertising

On Activision's (ATVI) Fiscal 1Q conference call,CEO Bobby Kotick discussed in-game vs. television advertising:

Ralph Schackart - William Blair
... Not to beat the in-game advertising and micro transaction too hard, but is there a way you could quantify it for us at a high level, perhaps Bobby or Mike, is this an opportunity that could be single-digit as a percentage of your revenue? Is it an opportunity that could perhaps be double-digits? Just sort of give us a sense of the order of magnitude here.

Bobby Kotick, CEO and Chairman

Here's how we start at very highest levels, Ralph, we look at the amount of hours that are consumed by consumers and let's take 18 to 35-year-old males in the U.S. in front of a video game screen. So last year that was roughly 30 billion hours. Then you compare that to television watching which was to the same demographic roughly 30 billion hours. There was $8.5 billion spent on television advertising to 18 to 34-year-old males and there was less than $50 million spent in-game advertising last year. So it's somewhere between $50 million and $8.5 billion.

You have to remember that in our medium, there are a number of products that are entirely inappropriate for any kind of advertising and when you look at way that you incorporate advertising into these products, you need to be unusually sensitive to the audience because the audience is, after all, paying for the retail product.

We've now had four separate studies that we've conducted with Nielsen towards the creation of a rate card and what we've said all along is the biggest limiter right now in establishing a rate card and generating any kind of reasonable revenues is that you don't have a big enough installed base of next-generation hardware that you can use for measurement purposes. That will not change until you have 20 or 30 million units of always-on Internet capable next-generation consoles in the installed base. So you won't start to see it have an impact on our business until, let's say, two or three years from now.

Then you look at what is that opportunity and how big could it potentially be for a company like ours? Well, we start with the notion that because it is a more targeted, more measurable media, it probably could command over time a higher CPM than you see in typical broadcast advertising. But it's going to take a lot of behavior change and a lot of effort on the part of evangelizing consumer product companies of the value of this advertising before you're going to see it really make a difference in our operating results.