Roblox moves to create a walled garden as it leans into ad strategy

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Advertising is key to unlocking profitability for Roblox. But its ad and child safety policies are complicating a fast-growing revenue driver.

Roblox is building out its own walled garden for advertising by centralising ad buys under its own umbrella, according to multiple experts familiar with the game platform and its business strategy.

Whereas third parties were already capable of selling virtual billboards within Roblox, they are now finding it challenging to operate on the platform due to changes to its terms of service in recent months.

The in-game advertising company Anzu, which had run campaigns in Roblox since 2021, confirmed to The Media Leader its last campaign on the platform ran at the end of August.

“Roblox have been upgrading their T&Cs a couple of times over the last few years, each time making it even harder for their creators to work with any third parties,” a person familiar with Anzu’s history with Roblox said. “They want them to monetise through their official offering, so we had to move away from ours.”

The source added: “Roblox is pretty much pushing everyone out because they want to build a walled garden.”

Max Bleyleben, former chief privacy officer and managing director of youth-marketing tech provider SuperAwesome, said Roblox is essentially “taking control of the informal advertising ecosystem” that had sprung up around its platform in preceding years.

Roblox did not respond to multiple requests for comment.

Ads are key to Roblox’s profitability

According to Bleyleben, Roblox’s senior leadership have had a “tumultuous” relationship with advertising, with many stakeholders initially against turning the gaming platform into an advertising business.

This was especially true given much of Roblox’s userbase is under the age of 13, meaning advertising restrictions are required for a core subsection of users, all of whom lack disposable income.

In a blog post in May 2023, Roblox founder and CEO David Baszucki revealed that around 45% of its users were under the age of 13.

Roblox went public in 2021. While its userbase has continued to grow substantially over time (average daily active users increased 21% year on year to 79.5m in Q2 2024; total hours users spent on Roblox increaed 24% year on year to 17.4bn), Roblox has struggled to tamp down on costs even as revenues have improved.

In its most recent earnings report, Roblox announced it had grown quarterly revenues 31% year on year to $893.5m. However, its consolidated net loss totalled $207.2m.

Rhys Hancock, a freelance strategy consultant who founded metaverse company Metavision and previously worked for Epic Games, suggested that the move to take greater control over advertising on the platform is likely being driven by both the pressure to reach profitability as well as the need to act on online safety.

“Capturing 100% of programmatic ad spend seems vital for Roblox to head towards profitability,” he told The Media Leader, adding, “Ultimately they will need to safeguard against younger audiences for various reasons, including HFSS.”

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In a report last month, Matthew Ball, CEO of Epyllion, a diversified holding company which makes angel investments, provides advisory services, and produces television, films, and video games, outlined how Roblox’s costs have ballooned.

“Unfortunately, many of these costs are outside of Roblox’s control,” Ball explained. He noted that an average of 23% of Roblox’s revenues are consumed by various app store fees charged by the likes of Apple and Google and another 26% of revenues are paid out to Roblox’s user-generated content developers.

That means that Roblox’s revenues are nearly halved before it gets to pay off its own costs, which include pricey but necessary investments in its Trust & Safety team. According to Ball, Roblox’s R&D budget also weighs substantially on profitability; it currently makes up an average of 44% of revenues (or about $1.5bn).

Apart from potentially reducing costs, it is important to Roblox that it generate more revenue that cannot be skimmed by app store fees. The reason so much revenue is taken off the top from Apple and Google is because Roblox currently makes the majority of its money via user spending, such as on in-game items.

Ad dollars, however, don’t incur such fees.

“Advertising solves a few goals for Roblox,” Ball wrote. “First, it turns all users into revenue-generating users (no matter how miniscule) while also increasing the revenue for high-spending customers (which helps cover all other costs and/or subsidise the money-losing users).

“Second, it means that marginal consumption will continuously result in marginal revenues rather than just marginal cost (primarily via Infrastructure and Trust & Safety expenses). Third, neither the Apple App Store nor Google’s Google Play collect a portion of ad revenues”.

Brands lean in

Advertisers have begun spending more on Roblox in recent quarters, especially as the company has begun providing more tools for advertisers.

According to gaming insights platform GEEIQ (pronounced “geek”), there were 347 brand activations across gaming platforms in the first half of 2024, with a plurality (45%) of these new activations happening on Roblox. A third (33%) of activations meanwhile went to Epic Games’ rival Fortnite, making the two games a virtual duopoly on brand-oriented gaming advertising.

Notably, GEEIQ’s analysis found that new brand activations on Roblox grew 85% in H1 2024 compared to H1 2023.

Hamid Habib, chief experience officer at Havas Media Group, told The Media Leader that brands generally consider Roblox in media plans “if the audience you’re going for is slightly younger”, including teen and early-20s consumers.

“It’s also a softer environment so if the brand context is lighter then Roblox works,” Habib added. “If you want higher octane then we’d look at Fortnite.”

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Apart from brand integrations, which include the creation of custom worlds or items within Roblox, programmatic buys are another source of growth for Roblox, and explain why the company has boxed out third-party competitors like Anzu. Roblox has been offering programmatic inventory to advertisers in partnership with supply-side platform PubMatic since April.

In May, Roblox made in-game video ads available to all advertisers through its self-serve Ads Manager and, hinted at the potential later this year to purchase the inventory through additional programmatic media partners.

According to Nina Mackie, co-founder and CRO of gaming consultancy WeGame2, the partnership with PubMatic has been “huge” because it means both that more advertisers have been able to access Roblox’s ad inventory and that Roblox is willing to allow the media buying process to be “as automated as possible”.

Mackie told The Media Leader that other media agencies are seeking access to Roblox’s inventory, and that one of the industry’s major agency groups is poised to announce a similar partnership with the gaming company that would allow their clients to have direct access to Roblox ads.

Online safety remains a core issue

Given Roblox’s young userbase, a key concern for brands, regulators, and Roblox itself remains online safety.

In May 2023, Roblox banned ads aimed at children under the age of 13. According to Bleyleben, the announcement came “out of the blue” and “left a lot of brands and organisations rather confused” because of unclear definitions over what counts as an advertisement on the Roblox platform.

It was also a puzzling decision, said to Bleyleben, given Roblox’s large under-13 userbase and the fact that brands targeting children are already required to be compliant with the likes of COPPA in the US, the Data Protection Act in the UK, and GDPR in the EU.

“Deciding that their kids audience is 100% not monetizable with advertising strikes me as weird,” Bleyleben told The Media Leader.

Since the policy change, brands looking to do brand integrations on the platform are required to tag whether they are directed to kids. If an integration is declared as being directed to kids, then it will not appear to users registered as under the age of 13; if it is not, then it can appear for all users. Roblox audits the tagging to ensure compliance.

Bleyleben thus described that “a lot of effort is going into building experiences that are just on the line and then tagging them as not for kids and hoping that Roblox doesn’t disagree with you”. Alternatively, brands can tag experiences as not for kids regardless, and simply hope that many under-13s are misrepresenting their age on the platform by registering with an older birth date.

Habib told The Media Leader Havas would not target under-13s on behalf of clients, anyway. “I can’t think of any brands that wouldn’t have an internal policy that would prohibit that — at least not with direct paid ads,” he said.

However, he added that “partnerships can bypass that as can in-game collabs, but it needs to be something aimed at an older child that may spill over to the younger cohort”.

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Mackie described that advertising on Roblox can run brands into a “grey area” wherein HFSS brands like McDonalds or Coca-Cola are disallowed from running direct advertising on the platform, but could create custom branded worlds so long as they don’t show off products and directly target under-13s, since the game worlds are not strictly considered an ad.

“Brands have realised they can build these worlds and get in front of that under-13 audience by making a game. It’s the only moral way to do it. There’s no functionality to sell products; they’re just building loyalty and reward without selling anything,” she said.

Programmatic ads, meanwhile, can only be served to users whose login details state they are over the age of 13.

Of course, that runs into the aforementioned issue of age verification, which other online platforms, especially social media companies, are also struggling with. According to an Ofcom report, a third of UK children between the ages of eight and 17 falsely register as being over 18 on social media.

But for Bleyleben, the concern should be less about whether advertising is served to young users and more about whether the platform is generally safe for young users.

“The Nazi sex parties are a much bigger problem compared to Hasbro wanting an advertising integration,” he said, referring to 2022 reporting of lewd virtual parties hosted by users on the platform.

While Bleyleben said he admired Roblox’s efforts in tackling online safety, the scale of the platform makes fully policing safety measures implausible.

“100% coverage is impossible,” he said. “I think Roblox does as much — if not more — than anyone.”

He concluded: “As a society we have to figure out how much of something is an acceptable risk to let through”.