Update, May 4: Can Grand Theft Auto IV defeat “Iron Man”? The weekend box office results are in, and as I predicted yesterday, the answer to that question is a resounding “No”. In its first weekend, “Iron Man” grossed $100 million, far more than industry expectations (and mine), which pegged it at $70-80 million. But the notion that GTA IV (or for that matter, any other hardcore game) would hurt a major Hollywood movie never made sense. Read why below.

Many are predicting that the latest release of the video game franchise is so popular that it will hurt this weekend’s launch of Paramount Pictures/Marvel Entertainment’s latest superhero movie. This theory is everywhere, not just on game sites like Gamepro and Next Gen, but even reputable mainstream sites like CNN.

The argument is silliness on stilts. It is proof, however, that far too many gamers and industry executives are trapped in an echo chamber of self-regard. That’s a bad thing for the industry, so it’s worth addressing. In absolute numbers, the reality is that hardcore gamers who comprise GTA IV’s main audience are minuscule compared to the audience of a typical Hollywood blockbuster.

The latest in the Grand Theft Auto series, which was released on Tuesday, is currently only available for Xbox 360 and the PS3 owners, which means its potential audience is much smaller than the previous game. There’s just 15 million of them in the U.S. (11.6 million for the 360 and 4.7 million for PS3, respectively), according to VGChartz. Even if every single one of them buys a copy of GTA IV, the total audience is still dwarfed by potential moviegoers. “Spider-Man 3,” for example, grossed $336.5 million in U.S. theaters — with the average 2007 movie ticket price $6.88, that’s nearly 50 million viewings. And that’s only the start of a Hollywood movie’s audience, with the far larger DVD, ancillary markets (airplane/hotel/cable TV/etc.) to follow.

As it stands, GTA IV is forecast to sell just six million copies in its first week. Retailing at $60 or more per sale, that does translate to hundreds of millions of dollars — but the idea that this will have any substantial impact on the opening of “Iron Man” is a stretch. I’ll predict it now: This weekend, those six million GTA IV owners will be eclipsed by the 10 million-plus who will be lined up at U.S. theaters, and in the end, “Iron Man” will gross $70 million or more. But I’ll also predict that smackdown won’t quell the myth that video games are bigger than movies, which somehow remains more indestructible than Robert Downey Jr.’s career.

Image credit: rockstargames.com/IV/, ironmanmovie.marvel.com.

On the heels of ECD Systems CEO Jack Hart’s article exploring the methods of growing revenue for casual games, IGA Worldwide said it has signed an in-game advertising deal with casual games publisher Merscom. Chapel Hill, N.C.-based Merscom makes downloadable titles for the PC, as well as Nintendo DS games — the kinds of games that might experience pressure to grow ever more polished (much like the giant console games did) as competitors try to one-up each other with better graphics and better sound design, thus necessitating higher budgets and schemes like in-game advertising.

How casual games will deal with advertising content is still up in the air. In-game advertising has worked beautifully for some titles, but of course it’s all about context — seeing Best Buy (BBY) signs in the world of GTA III makes sense; seeing them in World of Warcraft, not so much.

There is a reluctance to repeat the mistakes of others. At Casual Connect conference in Amsterdam earlier this year, Microsoft (MSFT) Casual Games’ studio manager Chris Early cautioned against going crazy with in-game ads. “If we get to the point of getting like commercial television on cable channels where ads are so intrusive of the experience,” he said, “then people won’t play anymore.”

Very true. And right now the market for so-called “casual games” is bifurcated. We have, essentially, two groups, with some blending in between: On the one hand we’ve got pay-to-download games, usually installed to a PC, although Xbox Live Arcade games install to your console. The bulk of revenue in this camp comes from purchased downloads, and its consumers have demonstrated more sensitivity to in-game advertising. There’s also the sliver of retailed games — again, same in-game ad sensitivity problem. In the second camp are all those free web games on Pogo.com, Kongregate, and other sites that rely mostly on good old-fashioned page views to sell advertising. There is some room here for in-game advertising, but implementation is tricky. Each game, often designed by an independent developer, would likely have to have ads customized to fits with its theme.

And then there are micro-transactions, honed to perfection primarily by casual MMOs like MapleStory and Habbo Hotel, although some titles on Xbox Live Arcade are experimenting with pay-to-download additional content as well. Is there any reason that micro-transactions can’t edge their way into both downloadable games and to free web-based games? The fact that I actually spent a real U.S. dollar on Facebook to send someone a gift — and I am a rational person! — seems to suggest that there is a future for eking out a little bit of money, bit by bit, from casual gamers, especially on sites like Kongregate where it could be tied to the social networking aspect. (”Buy your customized leaderboard for $1.00, feature it on your blog” or “$1.00 to challenge a friend head-to-head” — anything that adds persistence to the network.)

Hm, these are thoughts to bring up with the people who are currently in the trenches of casual game development and publishing. How far have they gotten in making revenue models as innovative as some of their titles?