Q&A With Michael Dowling
General Manager of Nielsen Interactive Entertainment
Table of Contents

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Question: Can you tell us about Nielsen Interactive Entertainment? What services do you provide, and what do you measure?

Dowling: Nielsen Interactive Entertainment is a unit of Nielsen Entertainment. It’s the area of Nielsen Entertainment that focuses on the interactive entertainment industry. Having covered and considered every other category of entertainment consumption: from books, to music, to movies and video used in the home, we figured we should be filling out a key component of entertainment consumption in peoples’ leisure time activities.

What we do is we provide both consulting and measurement services to video game publishers and retailers. The consulting is both strategic and tactical. The tactical consulting is where we provide services on a title-by-title basis. The strategic consulting would be much more broadly looking at opportunities down the line, how the industry is evolving and where the opportunities would be to be leveraged in mobile, wireless and so on. Measurement would be retail measurements, where we are working aggressively toward launching a retail measurement product to measure unit sales, retail units and dollar sales at retail. In measuring in-game activity, we can measure in-game advertisement opportunities for advertisers, as well as publishers, who are looking to generate incremental dollars through advertising in games.

Question: Can you provide an overview of how big is the video game industry, how many dollars are in it and what its growth potential?

Dowling: The video game business has grown at a compound of an annual growth rate in double digits since 1995. So essentially since 1995, the entire business has more than doubled. In the business today, including hardware and software, it’s tracking around a little over 10 billion-dollars in sales in the United States, and it’s about a 25 billion-dollar business globally. Just the software portion in sales alone in the United States is at 7.4 billion dollars, and 248 million units of video game software were sold in 2004. It’s a pretty sizeable business and it’s a business that is growing.

We are seeing expanding demographics of gamers. It’s not just a 15-year-old boy sitting at home playing a video game system. Mainly males between the ages of 18 and 34 have dominated it, but we are seeing a lot younger people come into playing games. They are starting earlier in life and they’re continuing later into life. We are also seeing females begin to play games more and more, particularly online games. We are seeing a tremendous growth in that arena for game play.

Question: There are many types of gaming. There are the console video games, PC games, online, mobile or advergaming. Can you put those different types of video games in perspective? Is console larger in terms of market share or mine share or is online larger?

Dowling: Yes, it’s a good distinction to make. The way we look at it is that there are two broad markets. One is the retail or shrink-wrapped product. That is the product that you’d buy at retail. It’s a physical product, and you’d pay anywhere from $20.00 to $50.00 to $60.00. The average retail price is about $40.00 for that. You bring it home and put it in your inner PC, your console or your handheld. There’s a growing group of handheld devices that are on the market now. And you play a game. Those are disk-based games.

The other market is what we consider the online gaming market that is typically dominated by more of a casual gamer. These are the games you download onto your computer. With the next generation of consoles, we’ll see that the capabilities to download games into those systems will be available to consumers. But at this point, consoles won’t allow that.

The bulk of the revenue being generated that I mentioned earlier for 10 billion dollars is being generated on the consoles and PC and through that retail product. It’s really dominated largely by the consoles. The PC based portion of that business has been in decline over the last couple of years in favor of an expanding install base of video game consoles. The most common known video game consoles on the marketplace are the PlayStation 2 by Sony, the Microsoft Xbox and the GameCube by Nintendo. Each of them with the exception of the Microsoft had some pre-cursors, so there was Nintendo 64, the NES System, PlayStation 1 and so on. There are some legacy systems that are out on the market place that are still being supported from a software perspective and are still getting played. But the bulk of the play is occurring on the consoles.

PC gamers tend to be a slightly more hard-core gamer, a little bit older and more male. PS2 is typically a more main stream gamer, although you do have a good mixture of hardcore and casual on it. Xbox is typically a little bit older and more male, paralleling the PC audience. Nintendo users are typically either very young and the games are more orientated towards younger gamers. Or Nintendo has been around for a long time, so there is a group of enthusiast gamers that still remain loyal to that brand. That is really the retail side of it.

The casual gaming/the PC gaming that you get online is where we are seeing a lot more females and older people playing games. In fact, if you look at gaming across the landscape, about 24 percent of gamers are over the age of 40 and largely dominate casual gaming online, puzzle games and card games and those types of games that you might find at a Microsoft, Game Zone, or Yahoo Games and so on.

Question: Nielsen Entertainment and Activision recently did a study together about video game habits and gamer demographics. Can you tell us a little bit about the key findings and were there any big surprises?

Dowling: I think the thing we all knew intuitively and we were able to quantify, (so I wouldn’t say it was a big surprise although it is a surprise for those that don’t really pay attention to the video game business), was that we are seeing television viewing decline slightly as a result of gaming. We know through our sister company Nielsen Media Research that television usage among men, particularly prime time television usage among 18- to 34-year-old males, has declined over the last several years. We were very curious to see what might be driving that. We are sure there are other factors beyond video gaming, but clearly video gaming is causing some shift in consumption and habits. What we found with our study is that 75% of 18- to 34- year-old male households will have a video game system of some sort. That is a pretty significant penetration into those households. In those households in which there that video game system, they’re slightly under indexing in terms of total television usage compared to the average 8- to 34-year-old male, which is already a group that is under indexing across total television usage, so that average television user that is two plus.

Question: Is product advertising and branded entertainment more effective in video games than on television?

Dowling: That is the one of the reasons we did the research. One was to see what was going on with television, and determine if television usage was truly being eroded at the hands of video games; there definitely seems to be some correlation there. So that was really important for us to better understand. Another thing to better understand was that this is an entertainment option and video games are an entertainment that 18- to 34-year-old males have really adopted and played games quite frequently for long durations of time. Therefore, was it an opportunity for advertisers to be exposed to them? So the study was really to quantify that there is a large number of males 18- to 34-year-old playing. And when you look at the average game that is being bought at retail or borrowed from a friend or rented, they will spend an average of three months playing that game, and over those three months, they will play that game for a total of 40 hours. That was pretty surprising to us when you look at that compared to any other entertainment option. That’s the only entertainment option where you can gain 40 hours of exposure over a three-month period. We felt that was a pretty compelling case to be made for advertisers putting themselves into video games.

Also, anecdotally, we know that in game play, if you are going to encounter a product within a game that is an opportunity to interact with that product as opposed to just passively view it. So we thought that was the unique opportunity for video game publishers to exploit, and we wanted to better understand that.

We did a subsequent study with Activision where we actually looked at the effectiveness of ads or products being placed into video games. What we found in this controlled study at a media laboratory in Las Vegas was that even low levels of integration, like placing a billboard in the game or something you would passively see within the game, were getting comparable levels or awareness and recall as television. But when you had a video game where there was a high degree of integration, meaning that in some way the user of the game had to interact with that product, whether it was picking up the Coke can that’s sitting on the table or opening a cell phone to answer a call from the game system to further yourself throughout the game, that high degree of integration was showing exceptional levels of recall and awareness and was off the charts compared to television. We thought that was a very compelling piece of research to define what this opportunity really represents.

Question: It sounds like if advertisers and brand marketers want to get their product into video games, there are two approaches. One is a branded entertainment or product integration where their product or brand is sort of part of the story line or a way that a video character can interact with it. The other option is more of a traditional product placement where the brand it not so much part of the story but it is in the background but makes the world seem more realistic.

Dowling: Yes, I think the industry is still defining what different units are going to look like. But if you look at it on the scale of from low to high integration, low integration being just a product placement and high integration being something significantly more integrated into the game play itself. So as a player you are forced to interact with that product, that is the scale and a lot of different elements that can be leveraged within that. As far as what is typically known as a commercial advertisement: a 30 second spot a 15 second spot, those kinds of advertisements will not work in this medium. It is going to have to be more about that branded entertainment option where you can work with the video game developers and the creative people involved in putting that game out there to figure out ways where you can be authentically integrated into a video game. So as a gamer, it is a realistic experience that doesn’t distract you from you game play. If anything, it enhances game play. Those are great opportunities from our perspective to provide advertisers great exposure to difficult to reach audiences.

Question: As a brand marketer if I wanted to work with one of these video games, what is the general process for engagement? Do I contact the publisher? Would I work with someone from your company to help facilitate the process? How would I get started?

Dowling: That’s a good question. Again, this is very early in the development of this industry. It’s a burgeoning industry and we still have a lot further to go to mature and to develop the standard units and the standard metrics, which is what we are working on. Right now, how it’s typically done is that the publishers are out talking to the advertisers and trying to sell the idea of a particular game or a package of games to an advertiser to get some sort of funding. What you have to understand is that this has been going on for quite some time not necessarily in the selling for advertising revenue, but more as a means to provide greater authenticity and realism into a video game, so that the video game publishers had to go get the approval of Ford to put into the game a Ford vehicle or to Chrysler to put in a jeep. What’s interesting is that’s a switch. It used to be the video game publishers having to pay for that type of exposure and putting that product into the game and now those advertising are paying to put their products into the games.

So the way the system currently works is the publisher goes out and talks to the advertisers, but the advertisers have become so interested in this that they’re now directing their advertising agencies to take a look at this and better understand the opportunity of, what are we getting? What is it result in? What is the effectiveness of this compared to other media types? What is the total exposure I am going to receive? Who will be receiving it over what a length of time? So they are beginning to get more engaged now, but it’s still early.

Question: For all the brands and advertisers that are just starting to develop their strategy for entering this obviously very dynamic and evolving video game arena, what advice would you give them?

Dowling: If a brand advertiser has a product they need to get in the video game industry, my suggestion for them is to work with the publishers and the developers as early as possible. Get in very early, because there is a misconception that developers are totally against brands being integrated in games. What we find is that once developers understand that they can partner with these brands and help them create really compelling creative within a video game, it becomes really exciting for them. Once they know that the particular brand actually wants to partner with them and not work against them, that’s when we see great things happen. So I would recommend that they get in as early as possible so that they can be part of that creative process and feel comfortable about it.

I would also recommend that they educate themselves more about this opportunity. There is not a lot of information out there right now, but those pushing for more information are actually creating greater opportunities for more information to be delivered about the size of this opportunity and the effectiveness of this opportunity and so on. So I would definitely recommend they get in early and that they push hard for standards and really compelling data to be delivered on this opportunity.

Question: What are some of the best examples of branded entertainment or product integration campaigns that you have seen in video games? What do you think were the most memorable and have hopefully lead to some good ROI?

Dowling: I think one good example is what Honda has done with Electronic Arts’ SXS series. It’s a snowboard series of theirs and they have been able to integrate Honda throughout that game in a way that gave Honda great exposure.

I think that Activision did a really neat job with a number of their different partners. One example would be in the True Crime Streets of L.A. where the character in that game has different options to use different types of Puma outfits. Gamers like to personalize their experience, so you as a gamer can choose different options of clothing that’s all Puma. They also have integrated Jeep effectively into their Tony Hawk’s products. Those are some very good examples of how it’s done.

When it’s done most successfully is when it’s done seamlessly into the game experience. It doesn’t distract the gamer at all. It makes the game play more realistic. What we find with gamers is that they are OK with products or advertisements being in the games. They almost prefer that real products be in games than generic products, because it makes the game play more realistic. But you have to do it in a way that is authentic. So far the products that have been integrated into games have enhanced their experience and haven’t been too obnoxious.

Question: Are there any examples of brand entertainment or product placement that hasn’t worked out? Where a product placement wasn’t a good fit?

Dowling: Fortunately, we haven’t seen that yet, but it’s still very early. Again, most games do not have advertisements in them. So we are not at that stage. There was 1300 video games that were released last year that at least sold one unit and I think less than 20% of them had some form of product integrated into the game or some sort of advertisement. So fortunately up until this point, the developers, who were so sensitive to the gamer community because they are gamers themselves, largely did the integrations and have integrated things very effectively. So I haven’t seen it yet, but I anticipate we will see it in the near future as it has become something that is more motivated by profit on the part of publishers and other interested parties. I won’t be surprised to see it in the future.

Question: So we haven’t seen a Coke can appear in a Lord of The Ring’s video game yet?

Dowling: No and fortunately we haven’t seen a Wookie in the one of the Star War’s video games walking across the battlefront with a Coke can in his hand.

Question: There has been a lot of talk about in-game advertising. Massive gets mentioned a lot. Can you tell us a little about how this in-game advertising works?

Dowling: Yes, but I think that the introduction of Massive into this market place and their efforts to become more apart of this opportunity are very good signs that the industry is starting to mature. One of the things that Massive provides the industry is an alternative or more flexible opportunities for advertisements. As an advertiser right now, you have to work with a publisher early on in the development process to get yourself integrated in a way that would be appealing to you and ultimately appealing to the gamer. Those are longer lead times. What Massive offers, because they have a dynamic ad serving technology are opportunities for advertisers to trial this much more easily, because they can drop an ad in for flight of the month or so and see how it works and what kind of exposure they got. They can do some testing on the effectiveness. It gives them a greater opportunity to trial and ultimately continue to go back. It also allows advertisers the opportunity to buy differently. As opposed to buying one game or a package of games that a publisher can provide, they can now buy across the genre. They can now just buy sports or role-playing games or what have you. Again it gives the advertiser a little bit more flexibility.

The technology that Massive developed is interesting that it will provide more of that two dimensional advertising opportunity, but I know that they and others are advancing their technology so they will be able to bring into and out of the game different types of 3D elements. Right now what you would associate with a Massive ad is a billboard that changes. So one day it says Nokia and another day it might change to Motorola or McDonalds. That’s the technology that is provided now.

The way the games are developed and the way they are rendered through the engine that power them there are opportunities for new creative assets to be delivered into the game in a new 3-dimensional capacity. So you can change a car for instance from a Ford to a Chrysler from one day to the next. So there are great opportunities that they are offering the marketplace. They offer that flexibility, they offer that dynamism, if you will. I think they are good signs that the foundational infrastructure elements are being put into place now to make in-game advertising a realistic alternative medium.

Question: How is the effectiveness of these new games ads measured?

Dowling: So far it is not really being measured. We are working hard at developing a metric that would enable us to at least get a sense of the reach of video games into particular demographic groups. What is the projected audience in the demographics and so forth? That is one step that is really necessary at this point to see, that I put my ad in that game and how many people actually saw it and what do they look like. That’s one way to measure the effectiveness of this because you can compare it to other media types.

As far of measuring the effectiveness, it depends on how you look at effectiveness. A lot of people look at effectiveness in terms of driving sales. Others look at effectiveness as driving brand awareness or generating some excitement around a new particular property or brand. At this point, video games provide that great opportunity for brand exposure and brand awareness. So far there aren’t really many instruments in place to really measure that and we’ve done it in a more of a custom way than a syndicated way. You need to have some level of syndicated aid of measure to better understand on an ongoing basis to understand its effectiveness. But what we’ve done, taking snapshots in time, have shown pretty consistent findings. So we feel pretty confident it won’t need to be delivered on a weekly or monthly basis. You might only need to do effectiveness measures over each quarter. Those are some of the things we are working on right now.

Question: There has been some discussion about how the development of a video game is becoming similar to the development of a film. Can you share your thoughts on how video games and films are becoming similar?

Dowling: They are very different. There may be some similarities in the way each of the companies is looking at building properties and building franchises. They are looking to develop a property that they can exploit across multiple entertainment opportunities. So they create a movie that’s compelling as a movie and also compelling in a game or on a mobile device or what have you. They are looking to extend the life of those particular properties and brands through ancillary market exploitation.

As far as the development process of a video game and a movie, it’s very different. They have very different executions from a script standpoint. From that very early scripting stage. The film is linear and the video game is non-linear. So they are very different scripts being developed. Scripts for a movie can be probably 100 to 120 pages. You’ve got 500 to 1000 pages on a video game, as a result of all the different alternatives that gamer might be able explore. So it’s very different there.

It’s also very different from a production standpoint. One thing that is great about the video game industry is if you don’t like something, you can change it. It’s a process- engineer-able kind of business. You can go back to the drawing board. In a film, if you don’t like something you’d have to get all your team, actors and creative people and together go through great expense to do that. One is more of a software-oriented development and the other is more of a film process. They are very different. I think that is why Hollywood and video games have had a very difficult time coming together. I think the factors are in place for them to come together more and more, because video games have become more of a mainstream entertainment option. But as far as the development process is concerned they are very different.

Another thing the video game business has to contend with all the time is new advancement in technology. The video game industry goes through a relatively predictable 5-year hardware cycle. When new hardware is introduced, it takes the developers time to better understand that technology. They have to understand how to use its new technology; how to build engines that drive video games and how to incorporate different creative elements into it. Typically, by the fifth year, that’s when new developers are really up to speed on how to leverage that technology the most effectively and then a new batch of technology hardware comes out. Then they have to kind of re-learn that technology again. We are going through that now. The PS2 is going to give way to the PS3 next year. The Xbox is going to give way to the Xbox 360 this holiday season. They have a real difficult time among the developers to get up to speed on those technologies and get content out in time for these systems to be in the hands of consumers. When you have an 18 – 24 month development cycle, it makes it very complicated. The flip side is in the film business lighting elements may change from a technology standpoint but for the most part the technology of delivering movies hasn’t changed that drastically or doesn’t change so drastically that it requires an entire re-learning curve.

Question: What about music? Certainly music is a big part of the video gaming experience. Musicians want to get their music into video games. Also it seems that some original soundtracks from video games are now very popular and being played at concerts and things. Can you share your thoughts on music and video games?

Dowling: Yeah, I think the one time that music and video games has shown it’s become as important as it is was at the Hollywood Bowl where there was a whole evening of the Fill Harmonic playing video game music. It was a very interesting moment in time. It makes sense that video gamers are big consumers of entertainment and large consumers of music as well, and they are migrating themselves through their games. There is a huge place for music to be leveraged. Not only to provide some background noise, but also to use music in a way that film and television has used music so successfully: to invoke an emotion. Where video games is moving in the medium, it’s no longer about the graphics, although graphics are still extremely important, it’s now about how to create better story lines. It’s about how to create better and deeper characters for video gamers to follow or migrate themselves through the game.

Music is really providing a great enhancement to the over all game play experience. Also, because we are seeing a lot of the younger artists or more popular artists having grown up playing video games themselves, they want to see themselves represented in video games. A lot of the more successful musicians have actually done deals where they have put themselves in video games as a character. Maybe they can be a character in a basketball squad. So there is really a great relationship between music and video games for many reasons and it makes sense. When you look at the demographics of video gamers, musicians, and music labels and music publishers want to reach those folks, because they are the ones who are consuming media at the highest levels.

Question: When you look into your crystal ball, what new trends or innovations do you see coming down the road for video games and branded entertainment?

Dowling: Well, I think the opportunities for video games and branded entertainment are going to actually get more exciting than they are today as a result of the new technology and new hardware that is going to be released by Sony and Microsoft. Because they are going to be fully connected devices, you are going to have a lot more flexibility and greater opportunities to move things in that game environment. Because gamer demographics are becoming broader, we are seeing a lot more mainstream and casual gamers coming into the mix, which will open even greater opportunities for branded entertainment companies.

So when I look in my crystal ball, I see some really exciting developments. I also see, because of the way technology has advanced to the degree it has, we don’t know what it is capable of. We know there is unlimited creative capacity and it’s very exciting to see what the creators of video games, current and new creative that come into the marketplace. I’m really anxious to see and excited to see what they will develop. I think it is going to be very exciting.