LOS ANGELES – TV-like advertising is starting to find a place in video games that people play on consoles like Sony PlayStation and Microsoft’s Xbox as the entertainment software industry undergoes a massive shift in the way games are distributed.

Pioneering the effort to put commercials into video games is Simulmedia, an advertising technology startup whose financial backers include venture capital funds and AT&T’s WarnerMedia. The company recently began testing video ad inserts in console games — one of the last vestiges of ad-free gaming — in a move that could revolutionize the way marketers reach target audiences who are elusive to other media channels like linear TV.

Dave Madden, who used to oversee in-game advertising and brand partnerships for video game giant EA, this summer joined Simulmedia to lead its push into console gaming advertising. In this conversation with Beet.TV, he describes how a growing number of gamers are willing to trade a few seconds of their time to watch a TV commercial for in-game rewards.

“That’s the big opportunity for video game publishers and advertisers to work together,” he said, describing console games as ripe for a more modernized business model that includes advertising. “Games are maybe the largest media format worldwide right now.”

Advertisers including credit-reporting company Experian, Unilever’s Dollar Shave Club and Turner Broadcasting have tested Simulmedia’s platform to connect with target audiences, The Wall Street Journal reported.

‘Scalable Model’ for Advertisers

Traditionally, console games have been ad-free, with video game publishers making almost all their money from sales of compact discs or downloads. As smartphones become gaming devices, video game publishers started to experiment with different revenue models including “freemium” games that were free to download, but charged money for in-game content.

They also started to experiment with ad formats like rewarded video, which asks players to watch a commercial in exchange for rewards like upgrades, vanity items and virtual currencies to help progress more quickly through the game. Simulmedia is bringing that revenue model to console games that are in millions of households.

“The big opportunity and area for brands to participate is building a scalable model around helping unlock all that valuable added content for free in exchange for engaging with a 15- or 30-second ad,” Madden said. Video ads also look much better on a bigger TV screen than on a smartphone, he said.

More than 214 million Americans play video games, and 73% of them own a game console, according to the Entertainment Software Association, a trade group for the gaming industry. Thirty-eight percent of gamers are ages 18-34, compared with about 23% of the general population, making them a key audience for advertisers.

Increasingly, those gamers are playing “live-service games” like “Fortnite,” the multiplayer battle royale game from Epic Games that has 350 million players worldwide. “Fortnite” has experimented with different kinds of advertising including sneak peaks of movies and an award-winning effort by burger chain Wendy’s, whose ad agency VMLY&R created a branded avatar in the game.

With so many people playing video games on consoles, phones, tablets and personal computers, they’re harder to reach through traditional media channels like linear TV — and that’s where Simulmedia sees opportunity.

Opt-In Audience

Simulmedia is mindful of the sensitivities of gamers who don’t want their gameplay to be interrupted with intrusive ads. That’s why its platform only shows ads to audiences who have opted-in to see them. The company found in a survey that 75% of console gamers would be willing to watch commercials in exchange for content.

“The difference with gaming in terms of an advertising medium is that it has to be permission-based,” he said. “If you were to insert an ad into a video game that was interruptive and the player didn’t expect it, by and large you would expect some pretty big backlash from the playing audience.”