Since entering AIM at 6p a share last August, shares in Bidstack (LSE:BIDS) have more than doubled in price to 14.8p to give the video game advertising company a market cap of £29.1m. Aside from the large opportunity presented by the gaming industry, which continues to grow at record rates, Bidstack has been driven by several key milestones that have further enhanced its first-mover advantage.
Here, chief executive James Draper talks us through his plans to take advantage of the ‘once in a lifetime’ opportunity being presented to Bidstack and its shareholders in the video game advertising sector.
Bidstack has developed unique technology that can place adverts into natural spaces within video games across numerous platforms. This service could, for example, see it put promotional material onto anything from a virtual billboard on a building or vehicle in an open world or cityscape to a banner or flag by the side of the road in a rally game or a scrolling banner found at the edge of a pitch in a football simulator.
Unlike traditional forms of video game advertising, Bidstack’s ‘native’ approach resembles the sort of promotion that players would see in real life. This means it allows an uninterrupted gameplay experience and can even highlight the realism and authenticity of the title they are playing.
Bidstack has two principal types of customers: game developers and advertisers. Typically, the organisation begins its service by securing access to natural advertising space within a video game from the title’s publisher or developer. They then split any revenues generated from selling this space on an agreed basis. To date, these contracts have provided Bidstack with exclusive access to advertising space for around three years at a time with automatic renewal. This makes the business the game’s de facto media controller for this period, giving it an effective barrier to entry.
Bidstack’s commercial arrangement offers numerous advantages to game developers and publishers. Indeed, these parties have traditionally limited their chances of monetising their in-game advertising space by negotiating contracts before launch. Bidstack’s technology lets them update this virtual advertising space dynamically and in real time, providing recurring revenues. Draper elaborates to us:
‘The standardised old gaming market model would see a developer sell a game for around £40 or £50, and that would be the only revenue they generate from the user. This can make a tidy sum if the game sells five million units, for example, and many companies still operate like this. However, the move towards free-to-play and subscription models in the industry sees developers make more from users by exposing them to different, tailored adverts that can each be monetised separately and regularly updated. This model can make developers around 300 times as much as the original model in some cases.’
Bidstack also offers flexible advertising pricing based on market demand, which can be used to maximise utilisation of advertising space at any time. Meanwhile, its advertisements will even appear on pirated games, meaning developers and publishers are still able to monetise promotional opportunities from unlicensed copies of their work.
On the demand-side, advertisers pay Bidstack to insert adverts onto the space the firm has secured from publishers and developers within video games. Typically advertisers pay for campaigns based on reach, which is determined by the number of ‘impressions’ acquired by their material – that is, the number of times it is seen by a discrete player.
For example, Bidstack has secured exclusive access to advertising billboards placed around the pitch in football management simulator ‘Football Manager’, published by Sports Interactive, a subsidiary of Sega. Each of these billboards typically runs an eight-second advertising loop visible to players at all times. Advertisers will pay Bidstack an agreed fee for every one thousand times a player sees one of these adverts.
Around 150,000 people play Football Manager on a typical day, spending an average of four hours in the game per day. According to Bidstack, this generates around 25m potential impressions per day, giving the game an advertising inventory worth over £100m per year.
As well as providing access to this large market, Bidstack’s technology allows advertisers to alter their campaigns in real time in response to market trends and business needs. Meanwhile, unlike ‘real-life’ adverts, virtual billboards can provide advertisers with detailed campaign analytics that paint a picture of their customers and allow the success of theit campaign to be measured. This means that users playing the same game will see different adverts tailored to their age, gender, and location.
Finally, Bidstack’s advertisements cannot be blocked by ad blockers. This area has been a big challenge for the video game advertising industry, with more than 600m people using blocking technology around the world. Indeed, such software is expected to lead to more than £125bn of wasted expenditure by 2020.
Across its advertising client-base, Bidstack sells its inventory both directly to brands and indirectly through advertising agencies. However, it has also adapted its offering to cater to the growing use of ‘programmatic’ advert buying, which is now thought to account for the sale of more than 80pc of US digital display adverts.
The programmatic method sees computer algorithms automate the process of buying adverts through what are known as Demand Side Platforms (DSPs) and Sell Side Platforms (SSPs). Owners of advertising space upload their opportunities to these platforms, while brand owners and advertising agencies allocate a certain amount of expenditure to spread among the opportunities best suited to their campaign.
Bidstack has developed the necessary interface to upload its advertising inventory to these automated platforms. This has enabled programmatic advertisers to place their advertising copy into video games for the first time in history, in a similar way to how Spotify helped the industry open up programmatic advertising for music.
Bidstack was founded in October 2015 by Draper, with its chief technology officer Francesco Petruzzelli joining later that same month. The organisation focused initially on developing technology that allowed smaller firms to purchase excess capacity on physical, digital billboards. However, it decided to re-focus on in-game virtual advertisements in 2017 upon seeing a tremendous amount of market opportunity.
Indeed, according to Newzoo, revenues from the sales of video games last year were higher than those for the global film, video on demand, and music industries combined. The same agency estimates that 2.3bn people, or one-third of the world’s population, now play video games. Alongside this massive growth in video game players, the number of people watching others play has also surged. It is believed that more US citizens now watch gamers play video games than traditional spectating sporting events on TV. Elsewhere, the stereotype of games being played solely by male teenager adolescents also appears to be outdated – approximately 46pc of teenage gamers are now thought to be female across all platforms.
What’s more, this rate of growth could be set to increase even further, with tech heavyweights like Google and Apple recently announcing plans to invest heavily in the video game streaming industry. According to Draper, streaming will give gamers access to high-resolution games without having to own a console or high spec PC, attracting an ever-greater audience.
Bidstack believes that it has a significant first-mover advantage within this vast industry, where traditional advertising methods like television and radio are less effective. As far as it is aware, it is currently the only company that can insert native advertising directly into video games dynamically and in real time. It describes this as a ‘net-new revenue opportunity’ for video game publishers, who would otherwise be unable to make money from this style of advertising. Likewise, it believes its ability to sell both manually and through programmatic advertising platforms will place it ahead of any competition that could emerge over coming years.
Speaking to ValueTheMarkets, Draper describes the company’s opportunity as ‘once in a lifetime’, adding: ‘We are considerably ahead of our competitors in many areas – for example, creating the compatibility with the programmatic platforms alone would take some time and expense. We aim to use the work we have already put into distancing ourselves from our competition to become the biggest video game advertising media owner in the world. If you want to go and put an advert into a video game, any way you want to do it, then you come to us.’
Bidstack has made considerable progress since listing on AIM last August, when it reversed into cash shell Kin Group alongside a £3.5m placing at 6p a share. When it entered the market, the business had exclusive rights to place direct digital advertising into seven games, including Football Manager 18. By the end of the year, it had also been introduced into Football Manager 2019 and was enjoying one million impressions a day in Asia alone across the franchise as a whole. At listing, it also had numerous agreements in place with programmatic advertising platform operators, which it claimed to give it access to a further 150 integrated buy-side platforms.
Bidstack said it would use the money raised at listing to widen its demand-side customer base, expand its sales team, and improve the range of its products. Since then, it has signed a deal with AIM-listed, award-winning video game developer Codemasters that will see it provide exclusive native in-game advertising to two of the firm’s titles for three years. One of these titles is DiRT Rally 2, the sequel to BAFTA-nominated rally similar DiRT Rally, which is available on XBox, Playstation and PC platforms. A three-deal has also been signed with Soccer Manager 2019, a free-to-play mobile game that has access to an audience of c.1.8m across mobile and PC.
It has also gone live with its first full integration with a demand-side platform called Avocet Systems, marking the first time its advertising inventory has been able to buy programmatically on a DSP. Draper says that, while small, the Avocet deal is significant because it sets a standard for similar, future deals with larger DSPs and SSPs:
‘The Avocet DSP is significant because, while it is not like the floodgates are open all of a sudden, it sets a standard on the programmatic side that we can build upon. There is a lot of interest out there, and we are excited about executing similar programmatic deals moving forward.’
The business is also actively preparing itself for future growth. For example, it is in discussions with the Interactive Advertising Bureau (IAB) – a trade group for the digital advertising industry – around creating a recognised advertising category for native in-game advertising. Draper tells us that this standardisation of Bidstack’s services could benefit its operations greatly:
‘If a ‘native in-game’ category was created, then an advertiser to go on to a programmatic platform and immediately access our inventory. Having this standardised format means that our advertising type will have more scalability, and this provides us with more opportunities to make money. We are working through this bit by bit with the IAB and expect all the things that people take for other advertising categories to be present for ‘in-game native’ advertising by the end of the year.’
It has also established an advisory committee that aims to harness the talents of a select group of high-profile executives across both the video gaming and digital advertising industries. To date, it has hired Pete Beeney and Joel Livesey, senior figures from Spotify and The Trade Desk respectively, to support it in monetising the video game industry’s moving towards a streamed subscription model.
Most recently, Bidstack announced that it has appointed Mercia Technologies investment director Michael Hayes to its board as a non-executive director. Hayes previously worked as chief executive of SEGA Europe and America, where he was responsible for a team of more than 1,000 employees generating annual revenues of more than £400m. He has also held senior positions at Codemasters and Nintendo, where he oversaw the launch of brands like Mario, Zelda, Donkey Kong, and Streetfighter, as well as the launch of the Gameboy console.
Elsewhere, in its full-year results earlier this month, Bidstack said it plans to use its healthy cash balance (£2.1m as at 31 December vs 12-month administrative costs of c£1.3m) to build upon its 2018 revenues of c.£317,000 – slightly ahead of market expectations of £300,000. It is important to note that 2018 revenues were mostly generated after the RTO, aided by the launch of Football Manager 2019 in November. Management also reiterated its expectations of meeting revenue guidance for 2019 of £5,850,000, weighted to the second half – in keeping with the high growth nature of the business).
To do this, chairman Donald Stewart said the company would prioritise investment in technical developments that would place the business in the best possible position to operate at a significantly increased scale. Likewise, Draper said the firm would ensure it has the resources, connections, and personnel required to make the most of its first-mover advantage as the growing adoption of streaming continues to accelerate industry growth.
‘Streaming, virtual and augmented reality services – as well as the evolving business models towards subscriptions and free to play, make our net-new revenue offering enticing to game publishers and developers. Crucially, every game publisher we have spoken to welcomes our proposition,’ he said.
‘We believe our model is a win-win for developers, publishers and advertisers and will position Bidstack well to make the most of its first mover advantage in the provision of dynamic native in-game advertising.
Bidstack’s strategic challenge is about speed and execution. Our technology continues to be developed by our highly skilled team in the UK and Riga. We are ensuring that the Company has the resources, connections and personnel required to maximise the considerable opportunity we find ourselves presented with
I believe we are very well positioned to exploit this growth opportunity and build a highly scalable native in-game advertising business that can carve out a significant position within the video game advertising world.’
With everything in place to give it a true first-mover advantage in the booming video game sector, Bidstack is well positioned to continue growing following its strong entry to AIM. What’s more, it is likely to receive a welcome, additional boost over the longer-term from the gradual move towards free-to-play and streaming-style gaming, which favours its style of advertising. Monetising the secondary audience is a topic for another article as we have not touched upon in this piece but in itself could provide significant growth opportunities.
Bidstack must now work to build upon its strong foundations by securing deals with more developer & publishers and advertisers – both directly and programmatically. Regular deal flow in these areas is likely to make the market sit up and listen and really begin to recognise the organisation’s unique opportunity.