Not a good model. It's been tried by many companies. The fact is this: When dealing with a confined set of viewers it is not the number of impressions that counts anymore, it is the number of viewers. This makes it wildly less profitable for advertisers. To make matters worse unless you have an extraordinary churn rate getting repeat business is nearly impossible (no need to re-advertise to the same people).
So what you end up with are sub-par rates and less return business EVEN if it made them a profit.
Even if your game had 10,000 active players you couldn't charge too much for an ad. If I had to price-tag it I would say about 5 cents per active player is all you could get. That would be 500 dollars for a month of ad space.... and getting 10,000 active players is nothing short of "damn hard." Even for a free game.
If you plan on this I suggest a CPC model actually: It will get you more repeat business.