IN ASSOCIATION WITH

Mobile Games Report Mobile Games Advertising Report 2018

www.pocketgamer.biz ©2018 Steel Media Ltd This report and its contents are the copyright of Steel Media Ltd and www.mintegral.com may not be distributed, copied, or reproduced without permission. Contents The mobile games advertising report 2018 by PocketGamer.biz and Mintegral From breaking industry stories and in-depth interviews with key executives to updates on industry events and detailed analysis of mobile games metrics, PocketGamer.biz is the first port of call for mobile game developers, publishers, operators, handset manufacturers, investors, and service providers. www.pocketgamer.biz

The growth of mobile advertising and games 3

Jon Jordan | Writer Joao Diniz-Sanches | Production High level trends – Zynga and Glu The rise of playable ads 19 Mobile 8 Jez Bridgeman | Creative Director Paul Edwards | Senior Designer The view from Mintegral 21

Craig Chapple | Senior Editor Why developers love rewarded video ads 10 Case Study: How Mintegral ©2018 Steel Media Ltd This report and its contents are the copyright of works with Playrix 22 Steel Media Ltd and may not be distributed, copied, or reproduced without permission. The view from PikPok 13 What’s next? 23 Funding new ways to play 14 Sources 25 All statistics in this report are for informational purposes only and are correct at time of going to press to the best of Why players love rewarded our knowledge. Steel Media can accept no responsibility for inaccuracies that occur but where mistakes are video ads 17 About Mintegral 26 discovered we will correct any oversight.

THE PAST, PRESENT AND FUTURE OF MOBILE GAME ADVERTISING – IN ASSOCIATION WITH 2 The growth of mobile advertising and games It’s a maxim of advertising that money follows eyeballs

So, given we now spend over four hours a day looking at And looking at the sector’s current growth rates our mobile screens, 1 it should be no surprise such demonstrates how quickly the situation is changing. The adoption has triggered massive disruption in the US mobile advertising market grew by 77 percent from 2015 advertising industry. to 2016, while the non-mobile sector declined eight percent In the US, which is the world’s largest advertising market, over the same period. before 2010 mobile advertising revenues weren’t large This isn’t just happening in developed markets such as enough to be recorded as part of overall digital advertising the US and UK, either. These trends are extending around spend. By 2016, however, mobile advertising was larger the world too. It’s expected the global mobile advertising than the non-mobile sector for the first time. 2 market will be larger than the non-mobile sector for the first time in 2017, and it’s also expected to break the $100 billion 3 WORLDWIDE MOBILE APP FORECAST: mark by 2018. IN-APP AD* & APP STORE SPEND ** 72.5 Another tipping point is 2017 will be the year when growth in mobile advertising boosts digital advertising 4 Thanks to its mobile spend to overtake TV as the #1 category for the first time. component, US digital 59.6 marketing is growing fast Yes, mobile advertising is big and still growing fast. 36.6 49.5 MOBILE GAMES ARE THE ‘STICKIEST’ 16% Overall CAGR 20.7 42.8 Of course, the mobile advertising sector is not monolithic, Non-Mobile 36.6 12.5 and has itself been strongly shaped by usage changes over Mobile 7.1 31.7 the past five years. 3.4 26.0 1.6 One significant trend has been the rise of time spent 23.4 22.7 21.2 0.6 within mobile apps compared to mobile web or browser 16.9 activity. The latter has been broadly static while, driven by 37.0 38.9 33.2 35.7 35.9 30.1 the transition of social networks such as Facebook and 25.4 21.2 23.4 22.7 Twitter from browser to app, as well as app-only platforms 16.9 like Instagram and Snapchat, daily time spent in-app per person almost doubled between 2012 and 2016. This has

Data source: IAB/PwC Internet Ad Revenue Report, FY 2016 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 driven explosive growth in app-oriented advertising

THE PAST, PRESENT AND FUTURE OF MOBILE GAME ADVERTISING – IN ASSOCIATION WITH 3 THE GROWTH OF MOBILE ADVERTISING AND GAMES

formats, notably video advertising. It’s estimated 94 percent AVERAGE TIME SPENT PER DAY WITH MOBILE of mobile advertising occurs in-app, 5 with mobile video INTERNET AMONG US MOBILE USERS: revenues up 50 percent in 2016 and expected to grow IN-APP VS. MOBILE WEB 6 another 32 percent in 2017. Data source: www.emarketer.com And there’s plenty of growth to come, especially for 0:50 0:51 video advertising, which is still dwarfed in terms of total 0:50 0:50 spend by full-screen interstitials (recorded as part of the 0:51 banner advertising category in the graph on the next page). 0:50 Interestingly, search remains the #1 category both in mobile and non-mobile markets, although its share of total 0:38 spending is trending down. 3:23 3:25 3:05 3:15 2:51 2:28 WORLDWIDE MOBILE APP FORECAST: 1:40 IN-APP AD & APP STORE SPEND

$350b $340.2b 2012 2013 2014 2015 2016 2017 2018

$300b 5-Yr CAGR: 20% In-App Mobile Web

$139.1b Time spent in-app grew rapidly between 2012 to 2015 $250b

$200b $183.6b ADVERTISING IN MOBILE GAMES Such high level changes are important to note, but mobile

$ Billion$ $150b $134.2b $37% Growth $82.2b games represent a specific subset of the overall mobile ecosystem, and one that’s shaped by its own trends. $100b $61.8b $201.1b For one thing, mobile games are far from the most popular category when it comes to app usage. Social $50b $101.4b $72.4b networking tops the list, followed by the likes of

Data source: App Annie productivity, shopping, and utilities. Still, with over 40 $0b 2016 2017F 2021F percent of US mobile users playing games, the global audience of gamers is now measured in the billions. 7 Mobile In-App Advertising Mobile App Store More significant, however, is the length of time people spend playing mobile games. Again, social networking In-app advertising generates more money than IAPs and this trend will continue ranks #1 in terms of total time spent in-app.

THE PAST, PRESENT AND FUTURE OF MOBILE GAME ADVERTISING – IN ASSOCIATION WITH 4 THE GROWTH OF MOBILE ADVERTISING AND GAMES

Other (Mobile) 2% Other 6%

Video (Mobile) 5.6% Search 24% VIDEO 12.6% $9.1bn

Video 7% Data source: IAB.PwC (2016)

SEARCH 48% $34.8bn US DIGITAL AD FORMATS 2016

Total Market $72.5bn

Banner (Mobile) 19.4%

BANNER Search (Mobile) 24% 31.4% $22.8bn

Banner 12% US digital ad categories by 2016 spending

THE PAST, PRESENT AND FUTURE OF MOBILE GAME ADVERTISING – IN ASSOCIATION WITH 5 THE GROWTH OF MOBILE ADVERTISING AND GAMES

APP STORE REVENUES | GAME & NON-GAME SPLIT 2015-2020 But, as a category, mobile games come in a strong second GLOBAL 2015-2020 CAGR place. Market intelligence suggests mobile games take up +18.6% $85.0b around 12 percent of total on-device time, or over 20 hours $76.2b per mobile user every month. 8 Non-Game App Revenues 24% Game App Revenues $66.2b Given this is the case, it should be no surprise to learn 22% $20b +29.5% in-app advertising generated more revenue for mobile apps $56.4b 20% than in-app purchases; a trend that is expected to $46.2b 18% accelerate over the coming years. 9 This is because the $36.0b 16% majority of in-app purchases (IAPs) are generated by mobile 15% 76% games, while the majority of revenue generated by non- 78% 80% gaming apps comes from advertising due to their larger 82% 84% $65b +16.3% audience. The aggregated total time spent in non-gaming 85% apps is much bigger than the time spent within games too, making them a natural fit for advertising. Where games really stand out from general apps, 2015 2016 2017 2018 2019 2020 however, is their ability to generate large amounts of revenue through IAPs. Thanks to their strong engagement App store revenue chart from market intelligence group Newzoo. mechanics, the ability to create tight social connections, and offer ever-changing commercially-driven entertainment, mobile games account for around 80 percent of total in-app spending. 10 This is declining relatively due to the rise of non-gaming subscription services such as Netflix and Tinder, but it was estimated in 2017 that 82 percent of app store spending was WHERE GAMES REALLY generated by games, a proportion dropping to 76 percent STAND“ OUT FROM GENERAL by 2020, although the absolute total will rise substantially. 11 In-game advertising is not irrelevant for mobile games. APPS IS THEIR ABILITY TO Their ability to generate IAP spending provides a strong GENERATE LARGE AMOUNTS foundation for in-game advertising, especially when it can be deeply linked to in-game activities. OF REVENUE THROUGH Nevertheless, it’s clear that for the most successful mobile IN-APP PURCHAES games developers and the most successful games, IAPs are, by far, their primary means of generating sales. For ” example, this is certainly the case for top grossing hardcore

THE PAST, PRESENT AND FUTURE OF MOBILE GAME ADVERTISING – IN ASSOCIATION WITH 6 THE GROWTH OF MOBILE ADVERTISING AND GAMES

games such as Clash Royale and Clash of Clans where positive shift of developer attitude towards in-game maintaining a strong user experience and keeping player advertising, however, especially from smaller developers frustrations to a minimum are core. They don’t contain any and publishers. Indeed, the revenues that can be generated in-game advertising. from rewarded video ads – which can be better integrated It’s also reflected in the publicly available financial data into the playing experience than static banner and from US mobile games companies such as Zynga and Glu interstitial ads – has made new mobile game genres, such as Mobile which respectively generate around 20 and 15 hyper casual idle games, financially viable for the first time. percent of their overall revenues from in-app advertising. In Throw in more sophisticated data tracking tools, as well both cases these proportions have been falling as the as better in-game implementation of advertising, and one companies focus on optimising their games’ IAP result is the claim that advertising as a percentage of total monetisation, which is the most direct way of significantly mobile game industry revenues is rising, from around 20 growing their overall revenues. percent to potentially be worth more than 30 percent. 12 More generally, the rise of video ads has resulted in a That stated, for many smaller developers, advertising already accounts for the majority of their revenues. 13 ADS ACCOUNT FOR 55% OF TOTAL PUBLISHER REVENUE AD REQUEST GROWTH FOR VIDEO VS. NON-VIDEO AD FORMATS (2015-2017)

Video Ads 10858

20% Ad network 31% Smaato saw video ad spending explode in 2016 Display Ads 5% mCommerce Native Ads Video Ad Formats Affiliate Non-Video Ad Formats Paid Installs

Subscriptions 1% 1% Requests Ad Indexed 1% 2% 39% 100 754 529 100 271 One developer survey found In-App Purchases Data source: Smaato 55 percent of revenues came from advertising 2015 2016 2017

THE PAST, PRESENT AND FUTURE OF MOBILE GAME ADVERTISING – IN ASSOCIATION WITH 7 High level trends – Zynga and Glu Mobile How advertising revenue (and the type of advertising) has changed with audience growth over the years

One interesting way to get an overview of how the mobile Of course, these figures are not totally transparent as it’s not advertising market is changing for game companies is to clear how their advertising strategy is changing in terms of look at those companies for whom advertising makes up a what ad formats they are running, but they do highlight significant element of their revenue. some broad trends. Two obvious examples in this context are Zynga and Glu This is particularly true for Glu Mobile, which runs Mobile because, as publicly-owned companies, they have to advertising ranging from opt-in rewarded video ads and reveal their financial numbers every three months. offer walls to compulsory playable ads in most of its games. Over the past four years, in-game advertising has generated between 15 to 20 percent of quarterly sales – around $10 AD PERCENT SHARE REVENUE 2014-2017 million per quarter – although this share has declined in 2017 thanks to the success of its game Design Home, which 30% is mainly monetised by in-app purchases. Zynga It is harder to see trends from the percentage of sales Zynga generated over the same period. This is partly because Zynga is more targeted in terms of where it runs its advertising; its largest ad-funded game is the word game 20% Words With Friends. But it is worth noting the advertising proportion of Zynga’s sales has dropped from over 30 percent in 2015 – peaking at Glu Mobile $56 million in Q4 – to around 20 percent in 2017, or around 10% $40 million a quarter now. As with Glu Mobile, this is partly because Zynga has been successful in focusing on in-app Gameloft purchase monetisation. You can see this in the Ad Percent Share Revenue graph on the left. Another mobile games company worth investigating in 2014 2015 2016 2017 this context is French outfit Gameloft, which is now part of media conglomerate Vivendi. It only introduced in-game The percentage of overall revenue generated from advertising declined for Zynga and Glu Mobile in 2016 and 2017 advertising into some of its titles in 2015, but since then has

THE PAST, PRESENT AND FUTURE OF MOBILE GAME ADVERTISING – IN ASSOCIATION WITH 8 HIGH LEVEL TRENDS – ZYNGA AND GLU MOBILE

to $0.10 per million, which has risen steadily to almost $0.50 ADVERTISING PER MAU 2014-2017 per million in 2017. In contrast, Zynga’s rate peaked in Q4 2015 at over $0.75 per million, before declining in 2016 and 2017.

$0.75/m Nevertheless, as with Glu Mobile, the broad trend is upwards, with the rate for both companies converging around $0.50 per million, which highlights how the value of Zynga in-game advertising has risen from what was a static banner ad-dominated market in 2014 to a rewarded video ad $0.5/m market in 2017. The outlier in this situation is Gameloft, which currently operates on a much lower rate than the other two. Partly Glu Mobile this is a result of coming late to mobile game advertising, $0.25/m which means it’s had to retrofit advertising into existing games, which is always less efficient in terms of generating Gameloft revenues. More generally, Gameloft has a large number of games in the market and only has advertising running in a handful of them. 2014 2015 2016 2017 Another company that should be considered in this context is King, now part of Activision Blizzard. It pulled all

The amount of advertising seen advertising’s proportion of overall sales rise to 16 its in-game advertising in 2013 when it decided to focus on revenue generated per million monthly active players has percent. In contrast to Zynga and Glu Mobile, this trend has monetising games such as Candy Crush Saga purely with broadly increased for Zynga been emphasised as the money Gameloft generates from IAPs. However, given its large audience – around 300 million and Glu Mobile since 2014 in-app purchases has been in decline in 2017. monthly active players – it is experimenting with the Delving deeper into the numbers, it’s also possible to see reintroduction of in-game advertising. Estimates suggest it how the advertising revenue these companies generates could generate anything between $100 million to $600 has changed over the years with the size of their audience. million of revenue from in-game advertising annually. 14 This is represented by the graph you can see on this page. Again, this is a simplification of a complex situation but it’s clear that while player numbers as measured by the monthly active user metric have been in decline, Zynga and Glu Mobile have been generating more advertising revenue per MAU. For example, back in 2014, Zynga generated around $0.25 per million MAUs. Glu Mobile’s total was closer

THE PAST, PRESENT AND FUTURE OF MOBILE GAME ADVERTISING – IN ASSOCIATION WITH 9 Why developers love rewarded video ads How did we get here? The road from simple banner ads to more engaging forms of monetisation…

Although the transition was slow, the modern mobile industry took time was two-fold. Game developers had no games industry didn’t start until Apple enabled in-app experience of deeply integrating IAPs into their games, purchases in iOS 3 back in 2009. while players didn’t understand their value. 15 The reasons the transformation from a hundreds of Squaring this circle took years, but it was clear, even by millions of dollars industry to a tens of billions of dollars the start of 2010, that selling virtual goods was going to change the mobile games business, both in terms of game REVENUE SHIFT FROM ADVERTISING TO VIRTUAL GOODS SALES design and especially its financials. 16 Data source: Flurry Yet as the industry experienced its first $100-million and $10 then its first $1-billion mobile games, it became clear these

$9 large revenues were coming from a relatively small group of players. In a much-cited piece of research in 2014, it was $8 claimed half of IAP spending was generated by 0.15 percent of total players. 17 $7 More generally, it’s argued an inherent byproduct of the $6 free-to-play model is that less than five percent of players – and in most games closer to two percent – will ever buy $5 an IAP. So providing options so developers can monetise $4 the more-than-95 percent of players who won’t, or can’t, spend in-game has been a key one for the industry to solve. $3 Initial options such as simple banner ads worked in the

Average Monthly Revenue Per User Per Revenue Monthly Average $2 functional sense of serving an advert, but the low quality of the experience and very low levels of revenue generated $1 per impression meant that unless developers could offer $0 networks access to a huge number of eyeballs, it made Sep 09 Oct 09 Nov 09 Dec 09 Jan 10 Feb 10 Mar 10 Apr 10 May 10 Jun 10 Jul 10 Aug 10 Sep 10 more sense to focus on optimising a game’s IAP spending potential. The negative reaction of players to such in-game Advertising Revenue Virtual Goods Sales (In-App Purchases) The start of 2010 saw rapid advertising also often led to a reduction in retention as growth in IAP revenues intrusive advertising drove players to churn out.

THE PAST, PRESENT AND FUTURE OF MOBILE GAME ADVERTISING – IN ASSOCIATION WITH 10 WHY DEVELOPERS LOVE REWARDED VIDEO ADS

This changed as full-screen interstitials or native ads impact of the reward provided for players. This also become more widely available. Indeed, despite the rise of overcomes the issues surrounding ad-blocking technology, video ads, such formats are also growing strongly and which has had a substantial impact in terms of non- remain the largest component in terms of ad spending rewarded ad formats in developed markets. within the mobile games sector. Because free-to-play mobile games are designed to be Yet, rewarded video is growing much, much faster. endless entertainment experiences, players always have Indeed, it seems likely that not only could rewarded video goals, both short- and long-term, to complete. Paying for ads overtake interstitials in terms of total ad spend in 2017, in-app purchases is one way to speed up progression. The but rewarded ad formats might also become the majority rewards provided by watching a video ad can fit easily into component of mobile game advertising market in 2017. 18 this progression flow as well. The reason for this is not just due to ability to run high Developers can enhance such adoption by placing the quality videos over mobile networks, but the psychological trigger points to run adverts in appropriate situations such

VIDEO AD SPENDING GROWTH IN GAMING REWARDED VS INTERSTITIOAL SHARE OF APPS BY AD FORMAT (Q2 2017 VS. Q1 2017) TOTAL VIDEO AD SPENDING IN GAMING APPS

500 (Q2 2017 VS. Q1 2017)

64%

400 +139% 55%

300 +212% Data source: Smaato Rewarded 200 45% 36% Interstitial Indexed Spending Ad

100 Q2 2017

Interstitials are growing but 0 rewarded Q1 2017 video ads are Q1 2017 Q2 2017 Q1 2017 Q2 2017 growing fast

THE PAST, PRESENT AND FUTURE OF MOBILE GAME ADVERTISING – IN ASSOCIATION WITH 11 WHY DEVELOPERS LOVE REWARDED VIDEO ADS

A typical rewarded as a potential fail state so a player has the option to watch video ad prompt in an advert to continue their game session, or a way of Flaregames’ Zombie Gunship increasing post-session success whereby watching an ad Survival will gifts the player with more rewards. Indeed, in well designed games, introducing rewarded video ads leads to an improvement in player engagement and long term retention, according to research. It’s been demonstrated that players who watched one rewarded video ad in their first week of play had a 30-day retention rate of over 50 percent, which compares to an average of around 13 percent. 19 Also, the more rewarded video ads players watch, the higher their retention rate, with seven ads watched boosting the 30-day rate to over 70 percent. An even more surprising result is that the introduction of rewarded video ads appears able to boost in-app purchase spending. For example, South Korean developer Joycity 71.01% introduced rewarded video ads into its title Game of Dice, TAPJOY REWARDED VIDEO ADS and in addition to generating advertising revenue, saw IAP 30-DAY RETENTION revenue increase by 10 percent. 20 68.31% In this way, the best mobile games developers now find themselves in a win-win situation. They can directly The more rewarded video ads someone watches, the higher monetise a small subset of players for large amounts of 65.48% their retention rate money using IAPs, while indirectly monetising their entire audience using rewarded ads, which help to keep their 62.53% player base engaged and retained. 59.48% There is of course still a place for other forms of in-game advertising, especially in markets beyond Europe and 56.37% North America. Traditional banner and interstitial ads still work well in fast-growing and populous markets such as 53.20% Data source: Tapjoy Southeast Asia and South America where users often don’t have access to cheap data networks or credit cards. These 1 2 3 4 5 6 7 audiences are also more used to seeing non-rewarded ads, so there’s less negativity surrounding these formats than in Videos Watched In First Week developed markets.

THE PAST, PRESENT AND FUTURE OF MOBILE GAME ADVERTISING – IN ASSOCIATION WITH 12 THE VIEW FROM PIKPOK The view from PikPok Case study: How one New Zealand studio integrates video ads into the player’s in-game progression

One of the veterans of smartphone gaming, New Zealand resulted in PikPok focusing more attention on its games’ studio PikPok is a prolific developer. As well as working IAP monetisation so the proportion from each source has with publishers such as Adult Swim, it’s also released remained similar. dozens of original games in genres ranging from casual “Rewarded video revenues represent around 40-45 sport hits such as its Kick Flick series, to zombie shooters percent of our portfolio revenues from month-to-month,” he like Into The Dead 1 and 2, and idle games such as Dungeon, says, adding that, in the case of some titles, rewarded video Inc and Doomsday Clicker. can account for as much as 70% of revenue. CEO Mario Wynands says the company was also quick Recent release Into The Dead 2 is a more IAP-focused to adopt in-game advertising as a key revenue source. release. Players can spend money to buy in-game currency “Since 2011, a large portion of our revenues have been to unlock new weapons, level up existing weapons, and advertising based,” he reveals. “At that time, it was focused collect in-game items. Rewarded video ads are integrated on banner and interstitial ads, and over the years we into this flow in two ways. The simplest option is players started introducing rewarded video, firstly with mixed can watch a video to unlock a lockbox, although this is implementations having games with banners, interstitials, time-gated so it’s not overused. The other is that after and rewarded video to successfully completing a campaign mission, players can now where our new watch a video to unlock a second loot bag. games exclusively “The primary source of rewards is successfully finishing feature rewarded a run and because it’s limited by the players’ progression, it video in terms of isn’t overused,” Wynand says. If, in contrast, users were advertising.” allowed to watch an unlimited number of videos, the install The reason, rate of the apps being advertised would drop and hence the Wynands explains, is revenue per ad PikPok received would also drop. the much higher per “It’s better for players to be exposed to just a handful of user value of the ad rewarded videos a day where they might have a better format. Significantly, chance of clicking through and installing than it is for moving to a purely individual users to watch dozens or even hundreds of rewarded advertising videos a day,” Wynand says. “That’s the reason why PikPok The two ways PikPok integrates rewarded video ads in Into The Dead 2 model has also and other developers will limit rewarded videos daily.”

THE PAST, PRESENT AND FUTURE OF MOBILE GAME ADVERTISING – IN ASSOCIATION WITH 13 Funding new ways to play Casual, “idle games” represent one of the fresh genres to emerge alongside the emergence of new ad formats

One of the most exciting results of the rise of rewarded video ads has been the emergence of new types of games. The reason for this is clear. To generate revenue from IAPs, mobile games need to offer long term engagement with short term missions building to goals such as INDEXED AGAINST NATIVE ADS, HOW DID MOBILE GAMES unlocking a rare in-game item or grinding out a character’s DEVELOPERS RANK THEIR ‘MOST EFFECTIVE level cap that may take weeks or even months to complete. MONETISATION METHODS’? Typically such games also have a strong social element, although this can be as varied as competitive player-vs.- -20% +20% +40% player raids, or sharing resources with your friends. Rewarded Videos In this context, it is much more difficult to make a successful IAP-monetised game that uses simple arcade IAPs gameplay and lacks long term hooks. Yet such experiences Interstitial Video fit very well with mobile usage patterns, which revolve around frequent but short sessions as people play games in Playables bite-sized chunks throughout their day. Interstitial Display The rise of rewarded video ads has solved this issue for developers; something first highlighted by the success of Banner Display Australian indie Hipster Whale’s Crossy Road, which was released in 2014. Combining the joke about why the Pre-Roll Video chicken crossed the road, with the endless gameplay of Paid Konami classic Frogger, all wrapped in a funky pixel art style, Crossy Road is recognised as a typical easy-to-play/ Subscription hard-to-master experience. Based around beating your high score, each game

Data source: Adcolony Mobile Publishing Survey, Summer 2017 Affiliates session is short, ending whenever the player’s character collided with traffic or the environment. This state creates Rewarded video ads are viewed as the most effective monetisation method by developers an obvious opportunity to launch a rewarded video ad,

THE PAST, PRESENT AND FUTURE OF MOBILE GAME ADVERTISING – IN ASSOCIATION WITH 14 FUNDING NEW WAYS TO PLAY

around 70 percent of Crossy Road’s overall revenue, advertising provided additional, not primary, revenue. But the emergence of a new mobile game genre turned that equation on its head. Most simply put, idle games are hyper casual, single player experiences that more-or-less play themselves. Featuring highly repetitive tasks – that’s why they’re also referred to as “clicker” games – the point of idle games is that whenever a player logs in, they collect the resources their in-game avatars have found for them. The fun for the gamer is then deciding how to spend these resources, with typical options including levelling up gear and unlocking new characters. In design terms, then, these games are devoid of gameplay, instead focusing all their activity on providing simple but long term metagame options for players. Yet because this simplicity lacks meaningful social hooks or deep psychological engagement for players, it’s difficult for idle games to be profitably monetised with IAPs. A rewarded video ad prompt in Crossy Road Their simplicity and accessibility makes them ideal in terms of appealing to a wide audience and generating very which gains a player some in-game currency which can be high levels of short term engagement, however. In turn, this used to unlock more playable characters. makes them perfectly suited to being monetised through Significantly, Crossy Road only has one in-game currency rewarded video ads. so the value of watching adverts was clear for players; One company in the vanguard of the movement is watching an ad was the same as spending real money, Finnish studio Futureplay Games, which was set up in 2015 albeit gifting much smaller amounts of currency. In that with the express purpose of making games it labels “view- context, Crossy Road was the right game, released at just the to-play”: that is, games that rely on video ads for the majority time when rewarded video ads were gaining traction, both of their revenues. with advertisers and with players. CEO Jami Laes says the results from its first three games, The result was incredible success, with Hipster Whale Farm Away!, Build Away! and Craft Away! are even better announcing it generated more than $3 million from than hoped: “The potential of rewarded video ads has Futureplay’s debut game Farm Away! rewarded video ads in the game’s first 90 days. 21 It was an definitely surpassed our expectations and we’ve been able offers to double your in-game profits for four hours if you watch a video ad impressive performance, but given IAPs still accounted for to grow the company profitably over the past two years.”

THE PAST, PRESENT AND FUTURE OF MOBILE GAME ADVERTISING – IN ASSOCIATION WITH 15 FUNDING NEW WAYS TO PLAY

Futureplay’s games also contain IAPs but they account for around a quarter of its revenues, the rest coming from in-game ads, although Laes reveals its games are designed in such a way to encourage players to consume both. “Of course most players don’t buy IAPs, but our highest spenders are also avid viewers of our ads,” he explains. “Our way to balance IAPs and video rewards is to make them complementary, engaging with either one does not remove the benefit of engaging with the other, and they both make each other more valuable.” In this context, it’s been interesting to see how Futureplay has optimised its integration of rewarded video ads over time in its games. Farm Away! used them to discreetly, for example to double collected resources, while new game Craft Away! encourages players to consume multiple ads one-after-another to build up big combo rewards. The overall result is Futureplay generates five ad impressions per daily active player, which gives average revenue per daily active player of around $0.10 from advertising revenue. 22 This compares well with Zynga’s metric of $0.11 from all revenue sources, albeit one generated across a much larger audience.

In Futureplay’s latest game Craft Away!, players can watch seven ads in a row to generate a massive reward

THE PAST, PRESENT AND FUTURE OF MOBILE GAME ADVERTISING – IN ASSOCIATION WITH 16 Why players love rewarded video ads It’s not just developers who like rewarded video ads; increasingly gamers also prefer them

Given the increasing sophistication of analytics tools and mediation technology, plus the fact rewarded video ads can be effectively combined with an IAP-based in-game AMERICAN GAMERS economy, mobile game developers have been quick to CHOOSING BETWEEN adopt the ad format. REWARDED AND This decision would be meaningless if players didn’t NON-REWARDED choose to view them, however, so it could be argued the THE APPEAL TO GAMERS: RESPONSES WHEN VIDEO ADS prime driver of the incredible rise of rewarded video ads ASKED FOR THEIR PREFERED METHOD OF has been the enthusiasm of players to consume such ECONOMICALLY INTERACTING WITH GAMES Pre-Roll Video Ads advertising. Even as far back as 2015, user surveys showed 21% an overwhelming preference among mobile gamers for 54% rewarded video ads. When asked for their prefered method of economically interacting with games, 54 percent choose 17% 18% rewarded video ads, compared to less than 20 percent for 11% all other methods. 23 More recent studies show this trend continuing, especially if the choice is a binary one between rewarded and non-rewarded ad formats. 24

Many developers say the only complaints arising from Data source: Chartboost the introduction of rewarded video ads into their games is players saying they want to watch more videos to gain more Rewarded Interstitial Pay Up IAP in-game rewards. Indeed, with games that disable ads if a Video Ads Video Ads Front Opt-in rewarded Ads player buys an IAP, it’s common for developers to be asked 79% by players to reintroduce rewarded video ads. Rewarded video ads are players’ preferred choice in Data source: Chartboost And it’s this sort of response which highlights how terms of gaining value in mobile games

US consumers dramatically prefer opt-in valuable rewarded video ads are. Players view them rewarded ads to pre-roll video positively, almost as free money, and part of a process that makes games more enjoyable to play.

THE PAST, PRESENT AND FUTURE OF MOBILE GAME ADVERTISING – IN ASSOCIATION WITH 17 WHY PLAYERS LOVE REWARDED VIDEO ADS

It is important to recognise it’s not just the “financial” reward provided that makes rewarded video ad so popular amongst players. More important is that they give players control over if and when they want to watch a video. Even if rewarded video ads are well integrated into the flow of a game, there will be times when a player just wants to continue on with their experience, not waste time – as little as 15 seconds – watching an ad. Because rewarded video ads are opt-in, players have this control. Equally, there is simplicity in the value exchange. Players understand they are swapping a short period of time for an in-game reward. Interestingly, this reward can be explicitly stated before the ads is viewed or, more often, can merely provide an opportunity to win a random item that is only revealed post-ad. As with the psychology of lotteries, the latter case typically feels more valuable, even if there’s a high chance that the revealed random item is actually of low value. A typical rewarded video ad prompt for a random reward, from Nekki’s Shadow Fight 3 Indeed, such is their perceived value, research has shown Data source: Jun Group Value Exchange there’s only a marginal decline in someone watching a Audience Behavioural Staudy – July 13, 2017 US DIGITAL VIDEO 15 Seconds rewarded video ad right through to the end if the video 25 AD BENCHMARKS: 95.2% length is doubled from 15 to 30 seconds. VIDEO COMPILATION 93.1% RATE (VCR), BY 30 Seconds GENDER AND VIDEO 93.7% AD LENGTH 92.1% Female Male

Note: represents activity on the Jun Group platform, broader industry metrics may vary

Completion rates scarcely change whether a rewarded video is 15 or 30 seconds long

THE PAST, PRESENT AND FUTURE OF MOBILE GAME ADVERTISING – IN ASSOCIATION WITH 18 The rise of playable ads Beyond rewarded video: interactive demos are increasingly replacing traditional ads in mobile games

But despite adoption from mainstreams players ranging from Chartboost to Ironsource, their potential is not yet realised, although many still have high hopes for the format. Claims ranging from “300 percent better conversion than video ads”, to a “27 percent increase in Day-7 retention” are just some of the metrics that highlight their potency. 26 27 More generally, CrossInstall claims a 30 percent conversion rate in terms of driving an install once someone has played through such an advert. Yet there are issues with the format that currently limit its widespread adoption, both in terms of its focus as an ad unit and its acceptance by mobile gamers. Perhaps the core limitation is technical; playable ads can only offer very simple gameplay. This is fine for genres such as match-3 puzzlers or hidden object games, but for more complex experiences there is often a disconnect between the gameplay offered in an interactive ad and the gameplay in the actual game. This can confuse users. A simple playable ad from Ironsource for a match-3 puzzle game For example, US core mobile game developer MZ has been a big user of CrossInstall’s technology to advertise its The trajectory of the advertising business for mobile 4X strategy games such as Final Fantasy XV. But while the games over the next 12 months is clear. Rewarded video playable ads employ simple tower defence gameplay, MZ’s ads will continue to grow outright as well as taking market games don’t include this. (That stated, the video footage in share from existing mobile ad formats. There is one format some rewarded video campaigns is also different to that in that could buck this trend, however. the actual game, with MZ, again, being a prime example.) Pioneered by adtech companies such as CrossInstall, For this reason, some interactive ad providers now talk mNectar and Agawi (acquired by Google in 2015), about offering a “mini-game experience” of the advertised interactive or playable ads have been around since 2012. product to mitigate this disconnect.

THE PAST, PRESENT AND FUTURE OF MOBILE GAME ADVERTISING – IN ASSOCIATION WITH 19 THE RISE OF PLAYABLE ADS

A screenshot of MZ’s Game of War WHEN COMPLETING REWARDED ADS, WHAT compared to a screenshot of the playable TYPE OF ACTION DO YOU PREFER THE MOST? ad version of Game of War

Playable ads are much less popular than Playable Ads rewarded video ads 9% Fill Out a Survey 8% Install an App 10%

Request a Quote Watch a Video 4%

63% 3% Get a Another barrier to widespread adoption is a lack of Coupon 1% 1.5% clarity about how the format is deployed. Most networks treat interactive ads as just another video ad format so Subscribe Enter a users don’t know beforehand if they are triggering a to a service Contest playable ad or a video, and this is even if they get the option. For, as well as being offered as an opt-in rewarded format, interactive ads are also used in a non-rewarded automatically triggered mode. This lack of transparency can also confuse users as well as making it much harder to generate robust metrics about user behaviour. This is one of the reasons that in all surveys to-date, playable ads trail video ads in terms of user acceptance, even if both are rewarded actions. The result is that while interactive ads can attract high quality users, and offer developers high value inventory, and hence have a role to play in the balance of available formats, 28 more work needs to done if they are to match the flexibility, scale or user acceptance of video ads.

THE PAST, PRESENT AND FUTURE OF MOBILE GAME ADVERTISING – IN ASSOCIATION WITH 20 The view from Mintegral The China-based company focuses on mobile video and interactive ads

Positioned as an AI-driven programmatic and interactive high as 95 percent in regions such as the US and tier one advertising platform with the core concept of Chinese cities. “Programmatic, AI, Interactive”, Mintegral focuses on the A company spokesperson says: “60 percent of APAC and radiates out to the globe. It provides user developers using Mintegral are mobile games developers, acquisition and monetisation solutions to worldwide and they are all using rewarded video ads, which are our brands and mobile developers to reach their best performing format with an average conversion rate of marketing goals. 22 percent.” Mintegral’s key product is its native, video and interactive Small wonder then that Mintegral has seen 250 percent ad platform, which launched in September 2016 and has growth in rewarded video ad campaign spending over the past 12 months. It expects such trends to continue into 2018, as brand and ecommerce clients start to use rewarded video ads too, and the fast-growing Chinese mobile games MINTEGRAL HAS SEEN market gets more sophisticated in terms of running user “ 250 PERCENT GROWTH acquisition campaigns. As for the future, Mintegral set up a Creative Lab and is IN REWARDED VIDEO AD already working with developers to create interactive or playable ads, which offer the opportunity for even higher CAMPAIGN SPENDING OVER conversion rates. Further out, but equally exciting, is the THE PAST 12 MONTHS potential for VR and AR technology to unlock new forms of mobile advertising. experienced 200 percent year-on-year growth in terms” of client numbers. Over the past two years, Mintegral has seen rapid transition to video ads, with around 70 percent of campaigns now using video ads, a number that can be as

THE PAST, PRESENT AND FUTURE OF MOBILE GAME ADVERTISING – IN ASSOCIATION WITH 21 CASE STUDY CASE STUDY: How Mintegral works with Playrix The studio behind hit Gardenscapes uses Mintegral technology to serve rewarded video ads

market is typically characterised by “A.B.C.” games (Action, Battle and Competition). Even before the release of Gardenscapes and Homescapes, Playrix focused on casual experiences such as Fishdom and Township, proving even genres with lower average revenue per user offer strong monetisation potential if they can attract a large playing audience. One advantage of focusing on such games is they have a wide global appeal and because they don’t contain complex plots, tend not to contain too many cultural references – and thus require less localisation. Indeed, Playrix’s games have proven to be highly popular in China, with Township boasting over one million daily active players, while Homescapes was a top 10 game in terms of downloads when it was released back in September 2017. When it comes to monetising its games’ huge audiences, Playrix uses rewarded video ads, and works closely with local partners to ensure it optimises performance.

A rewarded video ad form Following the release of its Facebook-to-mobile match-3 In China, Playrix chose to use Mintegral’s native, video Playrix’s Township served by Mintegral’s ad platform builder game Gardenscapes in 2016, Playrix has emerged and interactive ad platform to take full advantage of the as one of the most successful European games developers. market’s potential because Mintegral’s rewarded video ads This status has only been enhanced by 2017’s follow-up can be played immediately without buffering, thus helping Homescapes, which switches the action from rebuilding a Playrix’s games drive deep player engagement. garden to interior decoration. It’s already a top 10 top grossing game in key markets ranging from France and the UK, to the US and Russia. The popularity of these launches seems even more significant given the Russian game

THE PAST, PRESENT AND FUTURE OF MOBILE GAME ADVERTISING – IN ASSOCIATION WITH 22 What’s next? As in any industry, mobile advertising faces challenges and opportunities

The challenges remain as varied as systemic issues such devices on a per person basis, as well as the growing number of as the increasing complexity of attribution and ad fraud capable devices on a global basis. within the ecosystem to the potential for consumers to Within these broad changes, more money is also being quickly change their behaviour in unforeseen ways, as allocated to ad formats that are highly compatible with the way most recently seen in the rise of ad blockers. in which mobile game design is evolving. In particular, the The good news for mobile games developers who rely on explosion in rewarded video ads has provided developers with advertising revenues, however, is the opportunities outweigh a strong, new revenue stream that enhances their existing the challenges. in-app purchase monetisation. The amount of money being pumped into the sector is Evidence of this is the continuing growth of the value of each growing fast. Partly, this is a byproduct of the increasing usage of rewarded video ad impression, which is growing rapidly both on

REWARDED VIDEO: GLOBAL EFFECTIVE COST PER THOUSAND IMPRESSIONS Data source: Ironsource

iOS

Android

2016 2017 The value of reward video advertising continues to rise

THE PAST, PRESENT AND FUTURE OF MOBILE GAME ADVERTISING – IN ASSOCIATION WITH 23 WHAT’S NEXT

iOS and Android, as can be seen in the ironSource Industry eCPM Index. 31 Aside from financial benefits, rewarded video ads have also been warmly received by mobile gamers, who have responded to the level of control and simple value exchange offered with great enthusiasm. This doesn’t mean that non-rewarded advertising will become irrelevant any time soon. Banners and interstitials continue to make up an important part of the sector, while new formats such as interactive or playable ads show promise, even if widespread adoption remains limited by technical and psychology issues. And there is always something new, too. Thanks to the release of Apple’s ARKit in 2017, followed by Google’s ARCore, augmented reality adverts are now being experimented with. Given mobile devices are the only consumer hardware on which AR content can be viewed – something that has resulted in an explosion of AR games – it’s not surprising some commentators are proclaiming the start of the next big thing, for A demonstration of how an AR mobile ad could work apps and advertising. The actuality is more mundane, but the big adtech companies are already launching the first iterations of their AR products for clients, with mobile games to the fore, 32 while dedicated AR companies are also looking to drive client adoption. 33 Of course, it will take time for such an innovative technology to gain traction. It also looks likely to be one most effectively used to support specific high value campaigns rather than being a general ad format. Nevertheless, it’s clear as the mobile ecosystem transforms and grows, so will mobile advertising.

THE PAST, PRESENT AND FUTURE OF MOBILE GAME ADVERTISING – IN ASSOCIATION WITH 24 Sources

1 eMarketer: Average time spent per day with Mobile Internet – April 2016 17 VentureBeat: Only 0.15 percent of mobile gamers account for 50 percent of all in-game revenue https://hackernoon.com/how-much-time-do-people-spend-on-their-mobile-phones-in-2017- – February 2014 e5f90a0b10a6 https://venturebeat.com/2014/02/26/only-0-15-of-mobile-gamers-account-for-50-percent-of-all- in-game-revenue-exclusive/ 2 IAB/PwC: Internet Ad Revenue Report 2016 – April 2016 https://www.iab.com/wp-content/uploads/2016/04/IAB_Internet_Advertising_Revenue_Report_ 18 Smaato: Q2 2017 Global trends in mobile advertising – Q2 2017 FY_2016.pdf https://www.smaato.com/resources/reports/ 3 Dentsu Aegis Network: Global ad spend to hit $563.4 billion in 2017 – June 2016 19 Tapjoy: Rewarded ads increase mobile app retention by at least 4X – May 2017 http://www.dentsuaegisnetwork.com/media/dentsuaegisnetworknewsdetaila/2017/2017_06_15? https://medium.com/tapjoy/maximum-impact-report-rewarded-ads-increase-mobile-app- Global-ad-spend-to-hit-5634-billion-in-2017-with-digital-driving-growth retention-by-at-least-4x-cfc9bc3a0d83 4 Magna: 2017 was the year digital ad spending finally beat TV – December 2017 20 Inside AdMob: Winning with rewarded video: two app success stories – April 2017 https://www.smaato.com/resources/reports/ https://admob.googleblog.com/2017/04/winning-with-rewarded-video-two-app-success- stories.html 5 Smaato: Q2 2017 Global trends in mobile advertising – Q2 2017 https://www.smaato.com/resources/reports/ 21 Venturebeat: Crossy Road earns $3M in revenue from Unity’s video ads – March 2015 https://venturebeat.com/2015/03/03/crossy-road-earns-3m-in-revenue-from-unitys-video-ads/ 6 Dentsu Aegis Network: Global ad spend to hit $563.4 billion in 2017 – June 2016 http://www.dentsuaegisnetwork.com/media/dentsuaegisnetworknewsdetaila/2017/2017_06_15? 22 Libring: How Futureplay Games uses Libring to optimize its monetization model – Summer 2017 Global-ad-spend-to-hit-5634-billion-in-2017-with-digital-driving-growth https://libring.com/case-study-futureplay/ 7 Verto Analytics: How big is the mobile games market? – July 2016 23 Chartboost: In-game advertising the right way – Spring 2016 http://www.vertoanalytics.com/big-mobile-games-market/ http://response.unity3d.com/ads-survey-whitepaper-english 8 Verto Analytics: Consumer Behavior in 2018 – Oct 2017 24 Tapjoy: The Modern Mobile Gamer – July 2017 http://research.vertoanalytics.com/consumer-behavior-in-2018-trends-to-watch https://home.tapjoy.com/lp/modern-mobile-gamer/ 9 App Annie: App Annie’s global app economy forecast – August 2017 25 Jun Group: People will watch a full video ad if they get rewarded – July 2017 https://www.appannie.com/en/insights/market-data/app-advertising-spend-2021/ https://www.emarketer.com/Article/People-Will-Watch-Full-Video-Ad-They- Rewarded/1016240 10 App Annie: How gaming apps drove app revenue in 2016 – March 2017 https://www.appannie.com/en/insights/market-data/gaming-apps-maintain-revenue-stronghold/ 26 PocketGamer.biz: Chartboost sees 123% better conversion with Playable ads – February 2017 http://www.pocketgamer.biz/news/65151/chartboost-launches-interactive-playables-ad- 11 Newzoo: 2017 Global Mobile Market Report – April 2017 campaigns/ http://resources.newzoo.com/hubfs/Reports/Newzoo_Free_2017_Global_Mobile_Market_Report. pdf 27 PocketGamer.biz: Ironsource opens up entire suite to interactive ads to all clients – June 2017 http://www.pocketgamer.biz/news/66060/ironsource-interactive-ads-for-all/ 12 DeltaDNA: Giving developers & publishers power to manage the game economy – October 2017 https://deltadna.com/blog/giving-developers-publishers-power-manage-whole-game-economy/ 28 CrossInstall: Case Study Jam City – October 2016 https://blog.crossinstall.com/case-study-jam-city 13 AdColony: Mobile Publishing Survey – Summer 2017 https://www.adcolony.com/wp-content/uploads/2017/07/AdColony-Summer-2017-Mobile- 29 PocketGamer.biz: Chinese mobile ad network Mobvista buys NativeX for $25 million – February Publishing-Survey-%E2%80%94-Official.pdf 2016 http://www.pocketgamer.biz/asia/news/62815/mobvista-buys-nativex-for-25-million 14 Seeking Alpha: Why King’s New Mobile Ad Business Matters For Activision Blizzard – December 2016 30 PocketGamer.biz: Chinese mobile ad platform Mobvista continues its westward expansion https://seekingalpha.com/article/4129592-kings-new-mobile-ad-business-matters-activision- buying GameAnalytics – July 2016 blizzard http://www.pocketgamer.biz/asia/news/63539/mobvisa-buys-gameanalytics 15 PocketGamer.biz: Pangea: In-app sales from Enigmo often less than 25 daily – September 2009 31 Ironsource: Industry eCPM Index – December 2017 http://www.pocketgamer.biz/news/15660/pangea-in-app-sales-from-enigmo-often-less-than-25- https://www.ironsrc.com/ecpm-index daily/ 32 Ironsource: Ironsource launches AR ads for AAA mobile games – December 2017 16 Flurry: Revenue Shift from Advertising to Virtual Goods Sales – October 2010 http://www.prweb.com/releases/2017/09/prweb14743747.htm http://www.pocketgamer.biz/news/24300/flurry-virtual-goods-account-for-80-of-monthly- revenue-per-user-on-ios/ 33 MarTech: Blippar launches first AR digital ad unit that doesn’t need an app – May 2017 https://martechtoday.com/blippar-launches-first-ar-digital-ad-unit-doesnt-need-app-198723

THE PAST, PRESENT AND FUTURE OF MOBILE GAME ADVERTISING – IN ASSOCIATION WITH 25 Mintegral is an AI-driven, programmatic and interactive ad platform. It provides mobile user acquisition and monetisation solutions to worldwide brands and mobile developers so they can reach their marketing goals. With a particular focus on the Asia Pacific region, Mintegral offers full stack products and one-stop mobile marketing and analytics services, from supply-side to demand-side, including Advertiser Self-serve, DSP, SSP, DMP and Creative Lab.

Nowadays, Mintegral works with thousands of well-known advertisers worldwide from game, finance, ecommerce and other industries. Mintegral leverages rewarded video, native video, 3D video, playable ad and other interactive creatives to help improve engagement rate and drive higher ROI.

mintegral.com

THE PAST, PRESENT AND FUTURE OF MOBILE GAME ADVERTISING – IN ASSOCIATION WITH 26 www.PocketGamer.biz www.mintegral.com