Microsoft’s Massive announced today that it has won multi-year contracts to provide in-game advertising to Activision Blizzard. In doing so, it has landed the big kahuna of the video game business.

In separate deals, Massive will provide ads to both Activision’s line of games and the Blizzard Entertainment division. Massive’s deal with Activision will cover 18 games, including Guitar Hero: World Tour, James Bond: Quantum of Solace, Transformers Revenge of the Fallen and Tony Hawk.

Massive, which is holding its annual partner event in New York today, also announced that JJ Richards, general manager of platform services for the Advertiser and Publisher Solutions Group at Microsoft, is now the division’s chief. In a statement, Richards said that the company would provide ads to Blizzard’s Battle.net online game service. Massive will partner with Intergi, an advertising representation agency that focuses on web-based video games.

The deal with the video game industry’s largest publisher is a big one for Massive and a blow for rivals, which include IGA Worldwide, Google’s AdSense for Games, NeoEdge Networks and Double Fusion. Double Fusion announced this week that it had signed in-game ad deals with THQ, Sega, Eidos and Midway. Massive announced its own deal with THQ a week ago.

In-game ads are inserted at various places in a video game. In an urban game, for instance, advertisers can put their own branded ads on storefronts or billboards, much like product placement in movies. Massive and other companies have innovated in recent years to make those ads dynamic. Every time a gamer views the billboard, for instance, the ad piped in via an internet connection may be different.

Massive’s most famous ad to date was one placed by Barack Obama’s presidential campaign inside Electronic Arts’ Burnout Paradise racing game.

While gamers largely ignore TV ads and otherwise don’t respond well to traditional messages, Massive claims that they don’t mind ads in their games as long as the context is relevant. In one Electronic Arts title, for instance, gamers are allowed to blow up the ads in the Mercenaries 2: World in Flames console game. Based on 65 studies with gamers, Massive said it has found that on average:

— Those exposed to the in-game ads rated the brand 31 percent higher than those that were not exposed to the ads.
— 23 percent more gamers would consider the brand after seeing the in-game ads, while 21 percent more gamers would recommend the brand to others.
— 60 percent of gamers recall seeing ads for the brand in-game.
— Gamers agree the in-game ads improve their game experience by adding realism and graphic quality. There was very little negative response.
— Gamers also agree that the in-game ads stand out compared to other types of advertising.