SAN FRANCISCO Microsoft Corp. (MSFT.O) said on Wednesday it will pipe advertisements into a slate of popular sports video games from Electronic Arts Inc. ERTS.O, including its best-selling "Madden" football franchise.
The deal, which also covers EA's "NASCAR," "Tiger Woods" golf, "NHL" hockey and upcoming "Skate" skateboarding games, is a significant win for Microsoft as it tries to build an early lead over rivals such as Google Inc. (GOOG.O) in putting ads into video games.
"The real issue here is that we're making a network play. If I just had 'Madden,' while great, it would be of limited value to advertisers," said Cory Van Arsdale, chief executive of Massive, a game ad company that Microsoft bought last year for $200 million.
The deal comes as Massive faces increased competition from Google, which bought game ad service Adscape for a reported $23 million in March, and from privately held companies such as Double Fusion.
"We need to build an overall network and this is a major stepping point to have us do that," Van Arsdale said in an interview with Reuters.
Massive acts as a broker between companies that want to get their ads in front of gamers, and game publishers eager to tap new sources of revenue to offset higher development costs for flashy new titles that can cost $20 million or more to make.
Financial details of the deal were not disclosed. In-game advertising was worth just $50 million in 2005, but that is expected by many analysts and industry executives to balloon to $1 billion over the next few years.
The $30 billion global video game industry is also one of the fastest-growing entertainment sectors, thanks to new home and handheld gaming machines and a rush among publishers to win over nontraditional buyers like women and seniors.
The ads Massive delivers are dynamic, meaning they can be tailored by advertisers to target specific groups or areas. Unlike static ads that are a permanent part of a game, they can be altered quickly to pitch new products.
The deal is also the latest indication of increasingly cozy ties between Microsoft, the world's biggest software company and EA, the No. 1 independent video game publisher.
Last week, Microsoft said its gaming chief, Peter Moore, will leave to become head of EA Sports. Moore's replacement at Microsoft will be Dan Mattrick, a former EA executive who has been a high-level adviser for months.
The arrangement only covers versions of those games for personal computers and Microsoft's Xbox 360, two platforms that have a high proportion of users connected to the Internet.
Nintendo Co. Ltd.'s 7974.OS Wii console and Sony Corp.'s (6758.T) PlayStation 3 also have online services but they are not yet as developed as Xbox Live, which Microsoft has made into a cornerstone of its gaming strategy.
"We would love to do Nintendo and PlayStation, but they control the platform, they control the ecosystem and they have to decide what to allow or not. It's not something that's in our control," Van Arsdale said.