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Ops Bet on Gambling

Recently, gambling-themed fare has been the closest thing to a sure bet in the high-stakes TV programming world, with NBC’s Las Vegas, The Travel Channel’s World Poker Tour, Bravo’s Celebrity Poker Showdown, ESPN’s World Series of Poker and GSN’s Celebrity Blackjack all paying off in the ratings game.

Now, though, some companies are hoping to take the genre to the next level: rolling out interactive-TV gambling applications.

Both HorseRacing TV (HRTV) and TVG Network already allow viewers to bet on the horseraces carried on the networks over the phone or via Internet sites in states that allow the practice. Sometime in early 2005, both networks plan to rollout ITV betting applications, first on direct-broadcast satellite providers and then on cable systems.


HRTV will offer a gambling application on EchoStar Communications Corp.’s Dish Network in the second quarter of 2005, allowing subscribers in about 30 states to bet on the races, with rollouts of ITV services on cable operators to follow, according to HRTV president Bill Bridgen.

Meanwhile, rival TVG Network is planning to launch its own ITV application that will allow horserace wagering “on a major satellite platform” in about one third of the country in early 2005, according to that network’s president, Ryan O’Hara.

O’Hara declined to say if that platform would be News Corp.-controlled DirecTV Inc., which already carries TVG and allows viewers in some states to place bets over the phone or the Internet. News Corp. controls not only DirecTV, which has announced aggressive but as yet unspecified plans to rollout ITV services, but also TVG’s parent company, Gemstar-TV Guide International Inc.

Other operations hope to tap into booming U.S. gaming industry as well.

Last year alone, 53.4 million Americans visited a casino, according to the American Gaming Association, betting $27 billion at 443 casinos and employing more than 350,000 workers.

Overall, more than $61 billion is legally wagered each year in this country, including about $15 billion on horseraces.

Another $6.3 billion is bet on illegal offshore Internet sites.

Analysts caution, though, that companies trying to hit the jackpot with ITV gambling will have to learn how to play a very complex, potentially risky game. For starters, ITV penetration is still relatively low.

Todd A. Chanko, media analyst at Jupiter Research, estimates there are currently about 3 million domestic interactive cable households and 17 million interactive satellite households.

While the numbers will grow rapidly after the start of 2005 — jumping to an estimated 32 million ITV enabled cable households and 30 million satellite homes in 2009 — DBS and cable companies have not yet provided a detailed explanation of the ITV service they plan to offer and most refuse to discuss their plans, if any, to provide ITV gambling applications.

Potential players also face a complex regulatory environment that varies from state to state, a formidable challenge to introducing national gambling services.

While opinions towards gambling have relaxed over the last few decades, powerful political blocks still oppose the practice and they could create huge problems for highly regulated TV, cable and satellite companies hoping to offer the services.

Because of the uncertain regulatory climate, The Casino and Gaming Television Network, which hopes to launch next year, has no plans to allow viewers to bet along with its programming, which focuses on casinos and the gaming lifestyle, said Nick Rhodes, the president and CEO of CGTV. “There is just a labyrinth of regulations that you would have to follow,” he said.


Equally important, business models for the gambling services are largely untested in the U.S. What kind of revenue can operators realistically expect from these services? How might the pot be split between operators, programmers, software developers and other players?

A few of those questions have been answered in the United Kingdom and France, where ITV gambling was launched several years ago.

The largest revenue haul is in the U.K., where betting on sporting events, horseraces, the lottery, games of skill and some casino games are legal. Satellite provider British Sky Broadcasting plc offers ITV services to its 7.4 million households. In the fiscal year ended June 30, 2004, ITV revenue at BSkyB jumped 41% to £307 million ($557.5 million), most of which came from its SkyBet gambling division, which saw revenues jump by 63% to £191 million ($346.8 million).

In France, the two satellite operators, TPS and Canal Satellite, have ITV channels that allow subscribers to place bets on horseraces through Paris Mutuel Urbain, a state-owned company. Michael Gass, vice president of interactive television for Canal Satellite parent Canal+ Group, said about £250 million have been bet on their platform since 2000 when the system was first launched.

“Gambling has clearly been the most successful ITV application,” Paul Jackson, a senior analyst at Forrester Research, said. Forrester estimates ITV betting in Europe will grow from about £400 million ($489.5 million) in 2004 to about £3 billion ($3.67 billion) in 2009.


In the U.K., that opportunity has drawn a variety of players, from broadcasters and software developers to betting companies and content providers.

Broadcaster Channel 4 and Ladbrokes, the betting and gaming division of Hilton Group plc, each have joint ventures with BSkyB to provide ITV betting channels, while Betting Corp. UK Ltd., a subsidiary of Liberty Media Group’s OpenTV Corp., has launched a number of television games on BSkyB.

Claire Tavernier, senior vice president of interactive at FremantleMedia Licensing Worldwide, said her company is now licensing such shows as The Price is Right to online casinos, mobile phone operators and ITV channels that take bets in the U.K.

“If the U.S. market opens up, we will be there,” she says.

Some of the same players are eyeing the U.S. market, notably News Corp., the controlling shareholder of BSkyB, as well as DirecTV and TVG.

DirecTV executives have said they will draw on News Corp.’s experience with BSkyB to launch ITV services, though they have yet to announce what the services will be or if they will include gambling.

Betting Corp. CEO Michael Lobel is also eyeing the U.S. market. Betting Corp. develops gaming applications that allow people to place bets through a variety of platforms, including ITV, mobile phones, kiosks and the Internet, using a single account. The company specializes in lotteries, games of skill and casino games and currently has no plans to expand into the sports betting or horseracing business.

“We are in discussions with a number of people in the U.S.,” he says, including lotteries and operators.

Like in the U.K., players in the horse-racing business are placing bets on ITV gaming applications.

For example, Magna Entertainment, which has spent over $1 billion to acquire 16 racetracks around the world, sees ITV gambling as part of its overall strategy to revitalize the horseracing business and build up the fan base, HRTV’s Bridgen says.

To that end, the company has been investing heavily on its 14 U.S. tracks to make them a more enjoyable entertainment experience, it has expanded the TV distribution through HRTV and it has launched an Internet betting service, XpressBet Inc., which takes wagers over the phone and online in about 30 states.

“Interactive TV is the next extension of our business,” according to XpressBet’s Ron Luniewski.

Other potential players include game developers and programmers, as well as companies already offering online betting sites.


GSN, formerly the Game Show Network, which has refocused its programming to include all types of games, is developing ITV applications so viewers can play along with them, according to network president Richard Cronin. While GSN airs number of shows about casino games, Cronin, citing regulatory concerns, said there are no plans to let viewers bet on those games.

GSN is, however, developing a reality show on horseracing and considering working with an outside company that currently takes bets over the phone or the Internet. If such an alliance could be struck, viewers would be able to bet on some of the horses featured in the show, Cronin said.

He said GSN would not be taking the bets or trying to make money on the wagers.

“Programmers like ESPN have a lot of assets they could use even if they don’t want to make money from it,” said Peter Schultz, director of solutions marketing at ITV developer ICTV Inc. “It is only a matter of time before that happens.”

Games of skill or chance face an uncertain regulatory future but if they prove to be legal, they’ll be profitable. In some games, such as roulette, a very high percentage of the total amount bet is returned to the winners, up to 98%, but the volume of the bets allows operators to see significant profits. Typically, “a person who deposits $100 might lose half his money over time,” one executive said.

There’s also a payoff in customer satisfaction. The popularity of ITV applications “have helped reduce BSkyB’s churn to 10%, which is unheard of,” TVG’s O’Hara said.