Those looking at in-game advertising as a means of augmenting video game development budgets, may be in for a shock. Despite the buzz surrounding this new ad medium, recent research indicates it’s not a wholly viable revenue stream right now and it’s going to take a lot of work to make it pay.

At the Game Advertising Summit in San Francisco last June, New York-based Jupiter Research revealed interest in in-game advertising is surprisingly low. Emily Riley, an advertising analyst for Jupiter, says her research shows only 8% of advertisers have used it over the last year and a mere 11% said they’d be trying it out. Currently, she says, there’s more interest being expressed in taking video and mobile ad strategies for a whirl. Riley adds a lot of the hype for in-game ads is being generated by makers of next-gen console games touting the new technologies as ripe for advertising opps.

Michael Cai, director of broadband and gamer research for Dallas, Texas-based digital media research firm Parks Associates, argues in-game advertising is being held back as a medium because it has not been approached in the same way as TV and other mainstream advertising channels have been. Cai, who also presented at the summit, has faith in in-game advertising’s potential and estimates the market will be worth US$400 million by 2009. If this projection is accurate, then one would be hard-pressed to play any video game without seeing some form of embedded advertising in just a few years from now.

The problem, Cai says, is in-game advertising is much too fragmented and has no common format. In order to place an ad in a game nowadays, advertisers usually have to work directly with game developers. Whereas with TV, for example, they can deal with the networks as aggregators. ‘Even though an advertisement might be suitable for 20 games, it only ends up being in one,’ Cai says. Talking to just one developer and publisher is time-consuming enough and the thought of dealing with several is off-putting, he says.

The solution lies with game advertising companies that can gather games into catalogues and/or networks, making it easier to place ads in multiple games.

Not surprisingly, the wheels are already in motion. Last May, Microsoft announced the acquisition of New York-based in-game advertising network Massive. Game advertising company Double Fusion has also teamed up with fellow San Francisco, California on-line portal Macrovision to offer in-game ads via the web.