Struggling in-game ad firm IGA Worldwide seeks investments or possible sale

IGA Worldwide, a company that inserts ads into video games, is struggling with the recession. The New York company is trying to close a new round of funding, but it has also put itself up for sale.

Justin Townsend, chairman (pictured below), said in a phone call today that the company’s preference is to finish closing a third round of funding within a matter of weeks. But he said the company also had a fiduciary duty to its shareholders to explore the sale of the company.

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Townsend spoke in response to a query from VentureBeat, which learned that the Gordian Group had been hired to handle a private process for either an investment into or possible sale of the company. According to our source, possible buyers must file their bids by March 27.

While Townsend said he did not want to sell the company, he acknowledged that times are tough. After the economic turmoil erupted in September, he said that ad budgets were scaled back and the company realized it wouldn’t be able to make its projected revenues. In November, IGA laid off 25 percent of the company, leaving it with about 45, Townsend said. But Townsend said IGA did not want to accept “low ball offers” to purchase the company.

The bigger question is, are IGA’s problems its own doing, or are they inherent to the in-game ad industry as a whole? On the one hand, the video game industry is one of the few areas of the economy that remains resilient, with growing revenues. On the other, the ad industry has taken a hit, with brands less willing to spend money on advertising at a time when consumers are less likely to respond.

The privately held company does not disclose its finances. The company lost $11 million on revenues of $3 million in 2007. In 2008, it was projecting it would lose $26 million on revenues of $3.4 million, according to VentureBeat’s source. But Townsend said that the company did not lose all of that projected amount because it renegotiated deals with game publishers and platform owners [update: Townsend did not mention previously mentioned partners by name: such as Electronic Arts, Activision and Sony.] Townsend acknowledged today that the company had previously guaranteed payments to the publishers in exchange for the right to insert games into their games. Those guarantees no longer made sense after the economic collapse made the revenue projections unrealistic, Townsend said.

“We had to sit at the table and come up with a new business model that worked for all parties,” Townsend said.

Townsend said that the company is targeting about $3 million in revenue per quarter. [Update: before Sept. 15, the company was tracking at $1 million in revenue per month. Then revenues dropped and now it is slowly coming back up. Over time, Townsend said it will get back to $3 million per quarter.] Others interviewed for this story, who asked not to be identified, have a less optimistic picture of the outlook for IGA. It remains to be seen whether the company can close its new round of funding and it can execute on a revised, less optimistic strategy.

IGA has technology that allows game developers to designate spots inside games where ads can be run. Those ads can be inserted dynamically, meaning they are piped into the spots via an Internet connection. The ads show up in places such as billboards or moving vans inside a game. IGA created a network of advertisers it works with. It shares the money for the ads with the game publishers and console owners such as Sony.

The company said last year that more than 30 million users had seen the company’s in-game ads in the 22 games it had served them to. These ads are considered effective because the gamers are a captive audience, and IGA can report precise information about what gamers see at particular points in the game.

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The company competes with rivals such as Microsoft’s Massive, Double Fusion, and Google’s Adsense for Games. Less direct rivals are NeoEdge Networks, Wild Tangent and Mochi Media. IGA launched its ads for PlayStation 3 games in the third quarter of 2008.

IGA was founded in 2004 and launched its first ads in 2006. It has run more than 200 campaigns with marquee brands such as IBM and McDonald’s.

IGA has raised more than $46 million in two rounds of funding. Investors include Easton Capital, Morgenthaler Ventures, DN Capital, Intel Capital, GE/NBCU’s Peacock Equity fund, KTB Ventures, Itochu Technologies, Translink Capital and Sumitomo/Presidio STX.

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