Gamespot has a short piece on advertising in games. From the article:
Moreover, many firms resist in-game advertising because the formats and metrics are new to them. This is one reason, Madden noted, for the widespread use of in-game billboards: Ad agencies gravitate to this format because it mimics a medium they already know.
How I imagine the conversation:
Madison Avenue: Ummm, I don’t think we like game advertising.
Game Developer: We could stream your ads – on the fly – to this in-game billboard and get…
Madison Avenue: Billboard? You can make us a billboard?
Game Developer: You like billboards? Sure, we’ll make you a billboard.
Madison Avenue: And… uh… could we stream pictures of Paris Hilton to it?
Another line from the article:
He noted the game industry is now struggling with innovation…something he sees as a key strength of the advertising industry.