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A Google spokesman declined comment, saying the company's policy is not to respond to "rumor or speculation."

Video game industry analysts said the acquisition, if successful, could give a boost to the nascent in-game advertising market.

Adscape competes with advertising start-ups Double Fusion and IGA Worldwide, which have already inked deals with major publishers.

It also has a rival in Microsoft Corp. (Nasdaq:MSFT - news), which last year paid $200 million for in-game ad company Massive Inc. -- lured by Massive's agreements to place ads in online games from UbiSoft Entertainment SA (UBIP.PA), THQ Inc. (Nasdaq:THQI - news) and Take- Two Interactive Software Inc. (Nasdaq:TTWO - news)

"My take on this probable deal is that it doesn't make a lot of difference to Google ... but it does provide significant credibility to the game marketing space," Forrester Research Inc. analyst Shar VanBoskirk told Reuters.

An Adscape spokeswoman previously told Reuters the company struck deals with video game publishers, but that for strategic reasons, is not revealing names or commenting on the Google acquisition speculation. A company representative was not immediately available for comment on Friday.

While Adscape is seeking deals with virtually all major publishers, its value is expected to be based largely on its team and its technology that places dynamic ads on billboards, or vending machines that appear in video games.

Adscape, which has received funding from HIG Ventures in Atlanta, is poised to be the big winner if a deal is struck because Google built its multibillion-dollar Web search advertising business with a huge roster of large and small marketers and now has a large, experienced ad sales staff.

Google is the king of search advertising, but its success in the video game advertising market is not guaranteed, said Michael Cai, director of broadband and gaming at Parks Associates.

"Whatever they have in terms of search expertise may not apply to video game advertising ... It's a different dynamic," said Cai.

He said Google's ad expertise may be a better fit for Web sites and game makers that focus on quick, skill-based casual games like "Solitaire," "Bejeweled" or "Diner Dash" than for more complex online and console games that bring in the lion's share of the $30 billion industry's revenue.

Through Microsoft, Massive has an in with the maker of the Xbox 360 video game console. Rival console makers Sony Corp. (6758.T)(NYSE:SNE - news) and Nintendo Co. Ltd. (7974.OS) have not outlined their in-game ad strategies.

Electronic Arts Inc. (Nasdaq:ERTS - news), Activision Inc. (Nasdaq:ATVI - news) and other large players in the global video game industry are eyeing in-game advertising with interest, but are cautious about setting expectations too high, too soon.

Parks Associates said 2005 revenue from dynamic in-game ads was $80 million in 2005 and forecasts it could grow to $605 million.

Right now, there is more space available for ads -- or inventory -- than advertisers willing to take a risk on the new genre, video game publishers said.

"Advertisers have been a little shy to try games as an advertising vehicle," said VanBoskirk.

But she said, having Microsoft and Google in the market should help convince hesitant marketers that video games are a viable advertising medium.

"Google's challenge (like everyone in the game marketing space) will be to show that games work for advertisers outside of the 'obvious' fits like those in the media and entertainment space," VanBoskirk said.

Lisa Baertlein
www.reuters.com