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April 12, 2023

Coming Soon to a VR Headset Near You: The Future of Advertising

Coming Soon to a VR Headset Near You: The Future of Advertising

Ask anyone who has played a video game recently, and they’ll tell you: advertisements in games are becoming more prevalent. As video games have gotten a greater share of household entertainment mindshare (and budget), advertisers have found more clever ways to weave advertising into the gaming space.

When we look at how VR technology is evolving and consider how gaming is projected to be one of the primary use cases for VR, we can expect advertising to pierce the veil of the virtual world behind the head-mounted display. Will this be good or bad for VR? It’s hard to say for certain yet, but let’s explore some of the angles.

Advertising has been part of the mix since the beginning of TV, and VR will be no exception. From the earliest sponsored broadcasts and commercial breaks, our viewing has been punctuated by advertisements to such an extent that ads have become an art form – and a multi-billion-dollar industry – of their own.

As TV and video technology evolved into the internet age, streaming providers now compete in a marketplace that includes not just other streaming and cable TV providers, but games as well.

Today, many streaming providers feature ads even for customers with paid subscriptions. Free ad supported TV (FAST) channels such as Pluto from Paramount, Xumo from Comcast and Tubi from Fox, have been on the rise at the same time, indicating a willingness from consumers to let ads replace subscription charges.

In 2019, Netflix reported that it was losing more market share to the online multiplayer game Fortnite than it was to its streaming rival HBO. Advertising is big business, and ad sales help fund the production of newer and better content, so every entertainment provider that wants your attention will be offering ads to you soon, if they aren’t already.

Ads in Gaming

Video gaming companies have experimented with in-game ads over the years too, but they have to use a delicate touch: while TV viewers have long been accustomed to commercial breaks, gamers tend to revolt if an ad disrupts gameplay. When gamers have paid to play a game, they generally expect an ad-free experience.

Free games are a notable exception to this rule and are generally less susceptible to negative associations with in-game ads. This is presumably because gamers tacitly accept that if they didn’t pay to play, the occasional ad is acceptable.

As video games (and their potential advertisers) become more sophisticated, we can expect to see more ads in all our online interactions, not just the ones where we see them today. Of course, context will be critically important, especially for in-game ads.

Several game genres – especially sports, racing, and city-exploration-type games – lend themselves very well to in-game advertising that neither disrupts the experience nor seems out of place. In fact, sports games seem to have their reality enhanced by including ads: when we go to a baseball or hockey game in real life, billboards lining the outfield or perimeter of the rink are ubiquitous, so why shouldn’t a video game mirror that reality? It’s a great opportunity for advertiser and game provider alike.

On the other hand, if I’m playing a role-playing game set in Ancient Rome and I see a billboard for Toyota, I’m instantly transported out of the reality of that game’s world, and my experience suffers.

Gaming Will Help Drive VR

Because VR is so much more immersive than 2D video gaming, advertisers will no doubt be vying for attention in VR as well. It has been tried already, and the results were not positive.

Most of the consumer use cases for VR are entertainment-related, so gaming will be a major driver of VR technology adoption over time. What will it take to get VR to a critical mass? As one of the biggest companies pushing VR technology, Facebook/Meta has given us some clues.

The Growth of VR

In 2019 at Oculus Connect, Meta’s online developers conference, Meta CEO Mark Zuckerberg said, “Once we get to, and cross, this threshold [of 10 million users], we think the content and the ecosystem will just explode.”

In February 2023, The Verge reported that Meta had sold nearly 20 million Quest headsets, well above the magic number. However, challenges remain in ensuring that this growth curve continues until mainstream adoption. Meta continues to push the envelope, with the announcement of a new headset, the Quest 3 in 2024, and the October 2022 release of a new headset, the Quest Pro. Experiments in technology, pricing and customer engagement continue to test the waters on how to build products and content that appeal to a broad range of users.

The “metaverse” as I’m using it here refers not to a single online experience from any one company, but a vision of people in remote locations coming together in a virtual world that feels like the real one, to work and play.

While it remains to be seen exactly how VR ecosystem developers such as Meta will succeed in creating mainstream adoption and customer engagement over the long haul, the company has stayed bullish on VR technology and it stands to reason that they, along with console gaming juggernauts like Microsoft and Sony (who have each already established noteworthy market share in VR), will be among the biggest proponents of delivering VR into living rooms everywhere.

There’s a virtuous cycle here that explains how these technologies grow in popularity and usefulness. This kind of a cycle is common in emerging technologies, and it’s a self-perpetuating sequence where, as the base of users grows, the diversification of experiences and content attracts more creators and encourages further proliferation.

The Pros and Cons of VR Advertising

There are several reasons to be optimistic about ads in your VR experience. First of all, cognitive load reduction with 3D is a key consideration. One way to understand the concept of cognitive load is that it refers to the amount of mental effort required to learn a new task or new information.

It has been well documented that the cognitive load when observing the world in 3D is lower than when you observe it in 2D. Walmart and other companies are using VR technology in employee training programs, because it allows them to train more safely and learn more quickly. With this in mind, it’s clear that a product placed in a 3D world requires less mental energy to process than the same product placed in a 2D world. Not only that, but 3D objects are more memorable and more interactive than 2D ones.

This relates to the second positive aspect of VR for advertising: exploration. Users will be able to explore 3D virtual worlds in a freer, more self-paced manner than they typically can in 2D environments (which generally rely on controlled storytelling by the game director).

A user may interact with a 3D virtual product placed by an advertiser in a meaningful and memorable way that’s not possible with 2D. 3D worlds give users the ability to balance a game’s storyline with some level of self-paced exploration. These immersive experiences give users new degrees of freedom that weren’t possible before.

One last benefit worth mentioning is the convergence of CGI in film and TV with the gaming world. The VFX and gaming/VR industries already use the same computing and rendering toolsets when creating their content. Well-known gaming engines like Unity and Unreal Engine are also being used to create content for film and TV.

This creates potential for efficiency and crossover, since assets (a CGI-based dinosaur, for instance) will only need to be created once to be used in a film, a TV show and a video game based on the same story. Similarly, ads and product placements will be easier to generate across platforms, which creates obvious efficiencies and helps advertisers ensure brand consistency.

In much the same way advertisers today compete in a real-time bidding (RTB) process to win a chance to present ads in a 2D “flat” space to a consumer using an AdTech platform, in the future we envision that advertisers will compete for 3D space in VR or AR experiences. The parameters for conducting a real-time auction for 3D product placement may be very different than those used in 2D ad placement. 3D models, depending on their level-of-detail (known as LoD), may require significant memory, and rendering them may require significant compute power.

Thus, we anticipate that the target device for displaying a product ad in VR or AR may need to send its current available memory and computing power (or current utilization) as part of the supply-side parameters to an ad exchange. This may filter out ads that will not be able to render correctly on a device. Bidding for ads in VR or AR may also introduce other dimensions – for example, the floor price of an ad that contains hidden models to create possibilities of user interaction with a product may be set differently than one that does not have built-in interaction.

On the downside, too much advertising in an immersive environment carries the risk of feeling intrusive. Historically, we’ve had the ability to run to the kitchen during a commercial break or to fast forward our DVR through commercials. If users can’t avoid ads when they want to, their experience (and the usability of the VR system itself) will suffer. Solutions will need to address this reality.

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Dhananjay Lal

Senior Director Advanced R&D, Media IP at Adeia

Dhananjay (DJ) is responsible for roadmap definition, strategy and R&D activities in Adeia’s Media CTO office. Prior to Adeia, DJ was Senior Director for Emerging Technologies and Platforms at Charter Communication, where he built an R&D team focused on network-powered Gaming, AR/VR, holographic / light field communication and ML/AI applied to Quality-of-Experience delivery on the network. He has held positions across research, product engineering and product management across various organizations like Time Warner Cable, Eaton, Emerson and Bosch. He also served as Board Member and Network Architecture Workgroup Chair at the Immersive Digital Experiences Alliance (IDEA) and has 16 issued U.S. patents. DJ has a BE in Electronics and Communication Engineering from Indian Institute of Technology, a Ph.D. in Computer Science from University of Cincinnati and an MBA in general management from Carnegie Mellon University.