Microsoft (MSFT) Has an Uber-Lucrative Xbox Ad Model

July 13, 2012 3:37 PM EDT
Microsoft (Nasdaq: MSFT) shares are ticking higher Friday afternoon amid new reports on the monetization potential for its Xbox Live network. And investors should be smiling while actual gamers weep.

When an Xbox 360 is fired-up, the first screen that hits you is advertisements. You can access your game, but you have to peel your eyeballs in order to do it.

But, with ad revs garnering a premium, Microsoft is happy to put gamers to the side. Unlike TV or radio ads, Microsoft is selling a strong user base, which has no choice but to see a home screen when the console is turned on.

With Microsoft, advertisers pay on a cost per thousand (CPM) basis. Currently, the market is fetching $19 to $23 CPM, according to (PA). Other features, like animation and targeting a demographic, will cost more, with CPM maxing out at $34.50.

PA spoke with an advertiser, who said the minimum you might end up spending is $40,000. He also noted that he might get twice as many views advertising on a different medium. Costs might run into the $200,00 range or more, depending on whether you want to target a market and/or run the ad for a while.

Advertisers end up working with a Microsoft Team, which goes over all the details needed for the ad. The source said Microsoft had an excellent team.

Microsoft estimates about 9 million impressions during a weekday, 15 million over a weekend, and 16 million or more during a holiday.

Microsoft didn't disclose specific numbers, only saying that ad spend on Xbox Live has increased 142 percent since 2010.

Shares are up 2.3 percent in late trading.

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