Microsoft has ambitions of creating a grand gaming ecosystem that connects consoles, PCs, and mobile devices together. Apart from games and content delivery, this kind of multi-level service framework could facilitate a new era of advertising for Xbox gaming in particular, and the acquisition of Activision Blizzard King could catalyze Microsoft's plans.
We've long speculated that advertisements could find their way into console gaming. Ads are an important part of gaming, and make up billions of earnings for the mobile and browser gaming market, but ads are typically have a smaller presence on console and PC gaming. The Xbox dashboard, for example, has advertisements for games and consumer products. There's also been product placement in some games like Alan Wake (Energizer batteries) and Final Fantasy XV (Cup Noodles), and Bidstack directly injects ads into games.
Overall, though, advertising doesn't yet have a large presence in dedicated gaming...at least not in the same way as mobile. There's been strong evidence that Microsoft (and Sony) may find a way to incorporate ads into games or services. In 2022, reports said that Microsoft had plans to bring in-game ads to free-to-play Xbox games.
Interestingly enough, Microsoft already owns its own advertising platform. Microsoft purchased the advertisement tech (adtech) platform Xandr from AT&T in 2021 so it could "shape the digital ad marketplace of the future."
There's also speculation that Microsoft and Sony could offer a cheaper ad-supported tier for their respective Xbox Game Pass and PlayStation Plus subscriptions, similar to those offered by content providers like Netflix, Warner Bros. Discovery, NBC, and Paramount.
The acquisition of Activision Blizzard King could speed things along. Xbox Gaming CEO Phil Spencer has aptly described the Activision Blizzard King buyout as an accelerant to Microsoft's overall gaming plans, and based on previous rumbles and the current state of the service-oriented, digital-first video games market, it seems likely that ABK's adtech prowess could help supercharge Microsoft's potential advertising plans for Xbox.
Interestingly enough, Xbox management has directly speculated on whether or not mobile-like advertising could work for consoles and/or PC.
In a recent interview with Rolling Stone, Corporate Vice President of Xbox Sarah Bond discussed potentially new business models for the core Xbox gaming platform (PC and consoles). Bond lays out a quick timeline of the evolution of games business models, saying that it was first pay-to-play, then free-to-play, and then Xbox Game Pass--the latter of which has significantly disrupted the games industry and led to the creation of a new hybrid multi-game subscription model.
"We've talked about how we're experimenting with other models, like what does it mean for advertising in games which is more prevalent in mobile - are there models of that that work well in PC and console?
"Are there other models where you might have timed slices of games and stuff like that? Providing creators with options and choice enables them to experiment and do what they like, and actually create more immersive and creative experiences without having to fit into a mold."
It's an interesting quote that seems to line up with previous rumors and Microsoft's predilection for disrupting the video games market.
For even more insight on Activision's adtech model, we can take a quick look at an informational slide deck from Activision Blizzard Media, a subsidiary that handles advertising.
"Activision Blizzard Media unlocks the gateway for brands to the #1 gaming platform in the western world," reads the official description.
AB Media gives clues on how Xbox's advertising platform may work.
This includes offering optional ads that give players rewards like in-game items or boosts, custom little mini-games, and directly integrated ads that show up in a game world.
The program works, too. AB Media has stats that show that consumers who are rewarded for an in-game item for watching ads have a greater chance of actually purchasing an advertised product.
"Results show that Rewarded Video is 2.7x more likely to increase purchase intent for brands than other video ad formats."
Activision Blizzard Media makes a big point of not forcing players to watch ads on bootup. That means gamers won't have to watch an ad before they play. There's no word on interstitial advertisements, which pause the game and force people to watch ads in order to continue, and there are reports from Candy Crush players that King has rolled out non-skippable advertisements in the game.
Remember that the above slides describe mobile gaming. We're not sure if this is how it will work on console, if ads come to consoles at all, or via Game Pass. There seems to be evidence that Sony wants to incorporate some sort of interstitial advertisement in their games, but nothing has been announced so far.
AdPushUp has a great breakdown of all the different types of advertisement methods used in mobile games.
Again, a lot of this discussion around how ads could theoretically work on Xbox and PC are entirely speculative. No one knows for sure what will happen, and what methods will actually prove satisfactory to Microsoft and consumers.
Ultimately, Microsoft has been quick to adapt itself to player feedback and has changed and evolved the Xbox platform based around players' wishes--the company even reversed its incredibly unpopular decision to raise the price of Xbox LIVE Gold.
For more information on how advertising could affect the console market, I recommend reading these articles:
- Microsoft plans to bring in-game ads to free-to-play Xbox games
- Watch-to-earn: PlayStation may reward players for watching in-game ads
- Cheaper ad-supported Xbox Game Pass, PS Plus subscriptions are likely
- Cheaper Xbox Game Pass with ads may roll out in 2023, new survey hints
- Xbox gaming ads could supercharge Microsoft's $10 billion ad business