Ads in video games make millions

Mitch Davis … a six-pack and some pizza later, he's a

Mitch Davis … a six-pack and some pizza later, he's a multi-millionaire.
Photo: James Alcock

May 15, 2006

Microsoft can recognise a good idea. So it has just bought Massive. Michael Evans explains.

LAST month Mitch Davis was just another unknown Australian trying to make it in New York.

The former North Sydney Boys High student and University of New South Wales graduate had ventured to the US in the late 1990s at the height of the internet bubble to run Encyclopedia Britannica's online business.

Sitting on his couch with a six-pack of beer and a couple of pizzas playing video games in late 2002, Davis had an idea.

"I was playing Grand Theft Auto and I remember playing the game and seeing a billboard with a [fake] ad for 'GUP' instead of 'GAP' and I just thought, 'What if we changed that and made a real ad?'," Mr Davis recalled yesterday.

"I jumped on the internet to see if anybody else was doing it.

"I looked online for about half an hour, couldn't find a single company that was doing it. Nobody on the planet was doing dynamic in-game advertising and I thought, 'This is absolutely crazy'.

"My heart rate was going about 180 beats a minute and I thought, 'We've got to do this'."

Two weeks ago the world's largest software company, Microsoft, announced it had bought Davis's New York firm Massive Inc to drive advertising revenue from the booming online video gaming market in its battle with Google.

In Sydney yesterday for a brief Mother's Day visit, Davis wouldn't say how much he pocketed from the sale of Massive, reported at up to $US400 million ($516 million).

"It was a very good deal for the shareholders," he said, adding that he was the largest single shareholder.

The deal not only marks the arrival of Davis as a key player in the online gaming industry, it highlights the flow of advertising dollars away from traditional media and, in particular, how advertisers are following 18 to 34-year-old males as they spend less time watching TV and more time playing games.

From a standing start in 2002, it's estimated the market could be worth as much as $US2 billion globally by 2010.

MITCH Davis was an eight-year-old in Sydney's Longueville when he had his first business idea.

"I started my first business when I was about eight which was back in primary school," the 44-year-old recalled yesterday.

"I started a club and charged everybody 20c to be a member of it, so I was collecting everybody's play lunch money until parents started calling my parents saying, 'What's the purpose of the club?'.

"I said, 'There's no real purpose apart from collecting money'.

"It was a valuable lesson in learning that you have to give consumers a benefit."

Davis spent his early teenage years in rural Armidale on his family's 5000-acre property where he learned to "rustle sheep" but admits his "main objective [was] to get out of the place".

He moved back to Sydney and completed high school at North Sydney Boys before studying marketing at UNSW and taking graduate work at a local marketing firm.

"I always liked technology," he said, developing an interest in software while consulting for IBM, Wang and Unisys.

When the opportunity came to head Encyclopedia Britannica's online push, he went to New York.

"It was the peak of the internet [boom], very exciting, the place was just jumping, the place to be if you had any ambitions for the internet, which I did.

"They asked me to run Britannica.com," he said, with responsibility for marketing, technology, editorial and business development. "I ran that internationally, it was a fun business."

But the "seminal moment" came when Davis looked at the effect of new media on advertising.

"I commissioned some research and there was this demographic mass of game players with a mean age of 28 and it showed how much the market increased every year.

"And what I did was think, 'Gee, I'd better play some games'."

"I bought a PlayStation2, I bought an XBox, and I bought every game in the store and I took them home and bought a six-pack of beer and a couple of pizzas, closed the door and played games for an entire weekend."

DAVIS founded Massive and with fellow Australian Nicholas Longano and New Zealander Claudia Batten decided he had to convince advertisers and the publishers of video games of the benefits of in-game advertising.

He recalls how one game-publishing executive rejected Massive's idea out of hand.

"I'll never pimp out my game with advertising," he said.

They persisted and tried the same executive 12 months later.

"We've thought about it a lot and we want you to whore it out as much as you can," Davis recalls the executive saying.

Why the turnaround? Publishers were facing rising production costs and squeezed margins as retailers like Wal-Mart began to drive down the prices of video games.

"Our proposition to publishers is to add revenue and add realism," Davis said, pointing out that many games already featured fake ads for decoration.

Then Massive approached the advertisers.

"I remember the Coke guy said, 'It makes sense. We're finding it very difficult to reach 18 to 34-year-old men. They're channel surfing, flicking'."

Coca-Cola told Massive if it was going to succeed with in-game ads, it needed the audience reach of a TV network.

"We were going to be the MTV of video games," Davis said.

"We were going to have multiple publishers, multiple games and we would run it broadcast style."

They began signing up the game publishers and their big name titles like Splinter Cell and Swat 4, adding Massive's software into games.

Massive's software functions by downloading real-time advertising to be inserted into background features of the action when the user is online.

In car games, for example, it can be inserted on billboards in the background as cars whiz past.

It has also been placed in games on pizza boxes, TV screens, soft-drink cans and vending machines.

It's geographically specific, meaning it can be sold locally around the world.

Microsoft was frank explaining why it was buying Massive.

It considers the in-game advertising market "largely untapped".

Independent industry estimates put the market at about $US700 million per year by 2010.

Davis, unsurprisingly, estimates it's much more, as high as $US2 billion. He says Massive's reach is now "seven figure".

He rattles off survey data to back his argument: $US12 billion was spent on television ads for the 18-34 age group last year. But males in that group are only watching a fraction of TV compared with their game time.

"If they're only watching 27 minutes of TV a night but are playing video games two hours a night, it's logical advertisers are going to move over. At what rate and by how much is the question."

Locked in a battle with Google in the fight for the online advertising dollar, Microsoft will link Massive's software to its Xbox gaming console.

"Microsoft sees this as a new advertising category in which they can be the leader," Davis said.

Massive has signed up 38 games publishers and 68 game titles and in September it will go live with Microsoft's latest XBox Live product.

"TV took 30 years to develop, radio took forever to develop, the internet went from zero to $12 billion in 10 years, cinema advertising in the US went from zero to $700 million in about four years and we'll go from zero to $3 billion in about five.

"The reason why this industry will grow faster than the internet is twofold. Number one, the market's already out there.

"You go back to 1995-96 on the internet, people were just starting to get connected. Advertising grew as a function of the reach of the medium. As productivity increased and the number of users came on, then advertising started to grow.

"It took a long time on the internet for the big brands to come in. Procter & Gamble only recently started spending money on the internet. The car companies were late in."

Now Massive has 70 major advertisers.

"It's all the big brands. It's every Hollywood studio. It's the music companies like Universal Music. It's packaged goods companies: Unilever, Procter & Gamble. It's Chrysler, Honda, Toyota."

WHILE Davis is an engaging spokesman for the future of online advertising and talks up its prospects, he remains coy about some of Massive's particulars.

He won't divulge Massive's annual revenue from last year.

He says only that he expects about threefold annual revenue growth over the coming years.

He won't say how much Microsoft paid to buy the business. He won't divulge the size of his personal stake.

Davis admits there is competition from other fledgling in-game advertisers but dismisses them as years behind Massive.

And in-game advertising is just the beginning for Massive's software. Digital video, for example, opens up the possibility for inserting local background advertisements in films.
