Kate Bulkley, Media Analyst.

Casino TV bets on a full house

By Kate Bulkley

Royal Television Society

March, 2005

Interactive television betting is set to treble or quadruple in size once the Gambling Act is law, says Kate Bulkley. She tots up the stakes being laid by channel operators and broadcasters joining the goldrush.

It’s time to take out some cash and lay a bet on the success of the UK’s TV gambling industry. Delays to the Gambling Bill have caused some changes to betting forecasts, but the odds still look good for a nice little earner as both the country’s terrestrial and multichannel broadcasters move ahead with new services.

Ideally, plans for new betting ideas should both fit into the current rules and be flexible enough to take advantage of the expected relaxation that the draft gambling legislation will provide once it becomes law later this spring.

Certainly, the number of TV gambling services is increasing. Last month Five launched its first betting service, linked to its Uefa Cup live football games. And Flextech recently hired Jason George from Victoria Reel as controller of interactive programming to spearhead more gambling applications and to plan new services beyond its Challenge TV games channel.

“Any changes in the legislation will allow a more direct linkage with our programmes,” says George.

“Our content, such as the poker and casino shows, lends itself to all kinds of potential once there are changes in the legislation.”

Recently, ITV’s beleaguered relationship with Littlewoods got a boost when Debbie Mason, a founder of Avago, was hired late last year to help the two companies work better together.

Meanwhile, Sky has gone from strength to strength as both an operator of its own betting services and as the provider of other channels’ platform of choice. SkyBet revenues were £118m for the last six months of 2004, up some £27m from the same period a year earlier.

Sky reported that its gross margin for SkyBet increased to 10%, reflecting strong growth in betting and gaming through interactive TV.

Just how big the UK market for interactive TV betting will become is a matter of some debate among analysts, but everyone is clear that once the Gambling Act is law interactive betting is likely to treble if not quadruple in size.

Screen Digest predicts the interactive betting and gaming market will grow from £58m in 2004 to some £258m by 2007.

“The change in the legislation will give us the opportunity to offer gaming in all its forms, including poker,” says Nick Rust, CEO of SkyBet, BSkyB’s licensed bookmaker.

“We see live casino games being presented that you play along with. There will also be poker and bingo channels that the big bingo brands could easily monetise.

“I think that there could be 15 to 20 of these type of channels in a couple of years. All this would become possible with the Gambling Act.”

Sky is likely to contribute several new channels. Plans are already being laid to enable the broadcaster to take full advantage of the new legislation as soon as possible.

However, all the TV players know that passing the new law is only the beginning of a process to set up the new Gambling Commission (to replace the current Gaming Board), which will then have to license the operators and clarify the rules.

“Even if the bill goes through parliament before the next dissolution in May it is likely be the end of 2006 or the beginning of 2007 before we can launch new services,” says Rust.

BSkyB CEO James Murdoch recently spent a day touring the facilities of its licensed bookmaking unit and clearly sees huge potential in TV betting.

In addition to Sky Active, where viewers push the red button to access a variety of betting opportunities from a number of different book making companies, Sky Vegas is approaching its first birthday.

Sky Vegas is a full-blown TV channel airing virtual horse and dog racing alongside its popular Super Keno, bingo-style balls game. According to Sky, the average time spent playing on the channel is 45 minutes.

“Although the internet guys would have us believe that all of us have got laptops and wireless home networking so we can watch the TV show and play along on the net simultaneously, that is only true of a few people,” says Rust.

He adds: “TV is more populist. We think that bringing TV and betting together offers the real potential and that’s where it’s going to really hit.”

SkyBet and others such as DITG, the operator of the pioneering Avago channel, are already pushing the regulatory envelope by offering casino-style games while staying within the current rules.

These include making sure that the games are fixed-odds and that they stay two red-button-clicks away from the broadcast.

SkyBet is helping Five and Channel 4 with their TV betting services. SkyBet is the broadcast sponsor and the technology provider behind SkyBet on Five.

The new service attracted so many new punters on its first night (a double header of Grazer AK vs Middlesbrough and SC Heerenveen vs Newcastle United) that it paid for a significant part of Sky’s broadcast sponsorship deal with Five for all of the games, according to SkyBet.

“We are the last station to get into betting in the UK, but that was a deliberate decision,” says Jon Lewis, head of commercial development at Five.

“We wanted to ensure that we did it the right way and that it was a robust service and we were also able to learn from others’ mistakes.”

Five plans to add other content to its betting service with SkyBet but Lewis is quick to say that the development is not just about getting a commercial return. “I sit here with my commercial hat on and interactive services like betting must be revenue earners, but everything has to be done hand-in-glove with the programmes,” he says.

Channel 4’s new relationship with SkyBet was penned after it made a costly exit from the spectacularly unsuccessful Attheraces venture early last year and it is beginning to pay off. Like Five, Channel 4 has a revenue-share deal with SkyBet that includes a minimum guarantee.

Paul Whitehead, Channel 4’s head of business development, insists the deal with SkyBet to supply the betting for its live horse racing coverage is “going well” but he declined to provide any numbers.

“The key for us is, yes, getting a commercial return, but we have also learned that it is important to support the programmes on TV,” says Whitehead. “SkyBet would love to offer odds on any programme and on any show, whereas for us there have to be some editorial considerations.

“We would only add betting where we think it is contextual to the show and we think it adds some value for the viewing public.”

Clearly, it’s important to tie betting in with the programme but it is also important to make the process of betting easy for viewers because many iTV gamblers are not seasoned punters.

One reason SkyBet is an attractive partner for both Channel 4 and Five is because it already has 400,000 registered SkyBet customers. “What we want to avoid at Channel 4 is people going onto the SkyBet service and then changing the channel if, for example, they want to place a bet on a Premiere League game,” says Whitehead.

The 2002 deal between ITV and pools company Littlewoods has had a slow start. “They tried to put internet-style games on the TV but people go to the internet to do that,” says Paul Leyland, an equities analyst at Seymour Pierce brokerage in London.

“It’s also taken ITV a while to back interactive TV properly so there has been a skills gap between ITV and Sportech (the parent of Littlewoods) in that there hasn’t been content-led development. There also hasn’t been the necessary marketing spend.”

Leyland says ITV’s hiring of Debbie Mason should help “smooth the relationship” between the broadcaster and the gambling supplier, but much remains to be worked out in terms of technology platforms and focus. He also notes that the five-year, exclusive deal does have a “get-out” clause in 2006.

Littlewoods has gone through two CEOs since the original deal with ITV was signed in 2002 but its current acting CEO Roger Withers said in a January trading statement to the London Stock Exchange that Sportech and ITV both “remain fully committed to the ITVi opportunity.”

He added that the existing red-button service, which has only attracted 25,000 customer sign-ups since last June when it launched, would have “increased red button prominence and promotion in the coming months.”

Littlewoods and ITV are working on new product developments. These are likely to tie together the online and red-button services and full-screen games, including a snake eyes dice-style game, keno and a slots-style game set to launch this month.

But Withers sounded a cautious note. In his statement he said that “forward levels of customer activity and gross win levels remain difficult to quantify, [and] we have taken actions to ensure that the cost base and overall cash requirements in 2005 are materially lower than those in 2004.”

Jonathan Lewis, director of channels at ITV, says that he is very interested in gaming applications that naturally support ITV’s content and that this is not traditional betting on sports.

He says the focus is on entertainment, as well as new gaming opportunities that haven’t had a lot of exposure so far. “If the economics are right, we would also spin out a dedicated channel,” says Lewis. “No one knows what the silver bullet is in TV betting but if we leverage our heritage as a broadcaster we stand as much a chance of success as anyone else.

“Over the coming months we’ll try a range of formats to see what works on a number of ITV programmes.”

Television bosses are clearly gambling money on the growing potential of the business. Who will win the most in the long run is unclear but you can bet there’s more than an each-way chance that the business as a whole is on to a winner.


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