There is a knee-jerk reaction against any advertising but I argue that product placement can be tastefully done. Video games have a huge amount of advertising space available in the form of product placement. That extra revenue could reduce the cost of games.
I was watching the movie Hackers (you know you love it) when I noticed some very blatant product placement. A Coca-Cola can was very obviously and suggestively placed on the screen. I wasn't upset by this - people drink Coke all the time! It was natural for that character (The Plague) to have a Coke in his hand. However, some people hate product placement - they find it distracting. Do you know what I find distracting? When fake brands are invented, or when cans are covered with tin foil to keep them "generic."
I advocate product placement and advertising in modern video games. I haven't played all of the video games ever made, so I bet it is already being done. One of the oldest examples are the Coca-Cola signs in Ninja Gaiden for NES. I don't know if this was official product placement by Coke or just randomly got in there, but it is very progressive!
In Doom III there are Thirsty Burst and Robo Cola vending machines on the Mars station. Why not Coke and Mello Yellow? Because by the time we are on Mars, Coca-Cola is no making soda? Because Thirst Burst took over the carbonated beverage market so decisively that only they appear on planetary colonies? The Mars station in Doom 3 could be full of real product placements that feel natural. From Capcom arcade machines, to AT&T "interstellar service" ads or Nike moon-sneakers.
Mass Effect is another game that could easily have some great entertaining product placements. They could mix real advertising with the fake advertising as long as it's themed to the game. Here are some examples right off the top of my head:
These could be billboards, video ads, or radio broadcasts when you are riding the elevator. They can be intermixed with fake ads for Sirta Foundation and ExoGeni. They could also mix it with some news stories about how Nike is opening new operations on some random planet, or how Microsoft donated 40 trillion credits to a planet protection foundation. It would be seamless, entertaining, and make some advertising money!
I never played the new Fallout games but I did play the originals. Bottle caps are the currency in game. Why not brand the bottle caps? I don't want to complicate the game by adding values, it's fine if they all simply become "caps" once you pick them up. But when you find them, the items could be called "450 Pepsi caps" or "205 Mr. Pibb caps." You could find treasure troves of branded caps in broken, branded vending machines. What about the guns? I am not sure if it's illegal to advertise for or not, but every gun in Fallout could be a Glock or a Beretta.
Don't even get me started on Grand Theft Auto.
Games have good replay value, so these ads would get plenty of exposure. Also with the advent of online and cloud gaming they could even patch ads in and out! So there isn't a risk of a company going out of business and making the game look dated. You can just patch it out and replace the ad, and get paid again. They could sell placement in the 1st three months of a game's release at high prices and then lower the prices as they keep rotating and the game ages. This money could be used to increase the game's budget, decrease price, or support future DLC plans.
Of course this doesn't work with all games or genres, but it should be used when it fits. There is some serious unexplored territory we could work with.