01 Mar 2003

Human nature is such that we enjoy predicting outcomes so much that we're willing to put money on it. This penchant to wager is undeniably big business - in western Europe gambling of all forms pulled in $132bn (€122bn) in 2001, according to consultants Schema.

Online and iTV gambling are still relatively small beer but they are attracting some big bets. Schema forecasts that by 2005 fixed internet gambling will be worth $10.5bn and gambling using interactive TV will be worth nearly $4bn.

Among the interactive television applications dreamt up over the last few years, gambling is the odds-on favourite to win. The punter's appetite and eager investments from big betting businesses in these new revenue streams is driving new technologies. The only question has been who will get it right first? My money is on those who make it easy for us to gamble without leaving the comfort of our own couch.

Standing in the studios of TV bingo channel Avago a few weeks ago it was obvious to me that this channel's already hit the jackpot. Avago launched in July last year and two months later was already at operational breakeven, pulling in revenues of £20,000 a day. Some nine months on and the monthly pay out is running at over £400,000.

Avago's interactive technology communicates with the set top box, automatically ticking off ball numbers on an on-screen number card, bought by remote.

There are now 70,000 registered Avago players who spend 25p per card and also pay for the local rate telephone call (1p a minute) while they play.

It's only strict ITC rulings that stop Avago from using the name 'Bingo' but it is in effect just that, making the channel the envy of all iTV gambling channels.

Digital Television Group (DITG), a firm that offers services to companies setting up interactive channels, is the company behind Avago. It specialises in outsourcing the software, studio, production facilities and digital expertise and this is the company's first channel. More casino-style games like roulette and craps are in tests. One potential problem is that current UK rules limit the kind of betting that can be done on TV but a bill currently being drafted is expected to liberalise those rules.

What's surprising here is that big shots like Sky and ITV have yet to seize the advantage. Bookmakers, including Ladbrokes, and leisure giants like Arena Leisure and Rank, proprieters of horse racing tracks and bingo halls, respectively, are already commited to interactive TV betting projects.

Furthermore, Rank even acquired fixed odds interactive betting services company Blue Square in January, in line with plans to increase its online and TV betting businesses.

In contrast, ITV, which signed a deal in February with BSkyB that will allow its viewers to play along with shows such as Who Wants to Be a Millionaire?

as well as place bets using their Sky Digital remote control, has failed to play its hand. A deal between ITV and Littlewoods was even suspended whilst ITV sorted out its iTV arrangement with Sky. Although this now appears to be back on track, problems have arisen with Arena, a partner with terrestrial channel Channel 4 and Sky on At The Races, a TV horse racing channel, which has been struggling to make the high cost it paid for live horse races line up with its revenues.

At The Races is a thoroughbred TV channel but the high cost of airing live horse racing has put pressure on the interactive business to bring in the punters and get them betting. The channel spends about £30m a year on live rights and another estimated £10m to operate the channel, but covering £40m of annual costs has been more difficult than the business plan had previously predicted. Some revenue comes from selling on TV rights both domestically and overseas, with advertising revenue also trickling in, but the rest is up to the betting public. At The Races says it never expected to make a profit earlier than year four or five, but those of a betting disposition say that the upfront costs are just too big for that.

By comparison, putting a couple of pretty young presenters in a studio kitted out with a ball machine costs a lot less to produce. In Avago's case, revenues have been building steadily by 15% a month since November last year, meaning that the channel's backers could be looking at annual revenues approaching £15m.

"We believe that the broadcast is the stimulant for people to play and bet," says Neil MacDonald, CEO of DITG, and although some would argue that's at the expense of quality content, you can't argue with success.

Sky knows it; which is why its backing a winner with its own TV-betting channels later this autumn.