Is gambling entertainment? It seems a reasonably straightforward kind of question. Why else would approximately 10.5% of the adult population of this country alone spend as much as they do both in terms of time and money on remote gambling (web, mobile, interactive TV) if it isn’t? However, because gambling can become an addiction, it is routinely presented as the source of all evil, and yet, while no one would deny that alcohol can also lead to addiction and that as much as possible must be done to identify, contain and cure those who suffer from it, not many advocate it being made illegal because of it. A glass of wine. A few drinks with some friends. All of these combine to create enjoyable and time rewarding experiences.
And so it is with gambling and yet, interestingly, it is not the ‘entertainment’ brands that have taken the world of on-line gaming by storm. And nor is it those brands traditionally associated with gambling. MGM Mirage set up in the Isle of Man in 2002 hoping to transfer its casino reputation and expertise from bricks and mortar to the virtual gambling experience. Traditional bookmakers, such as Ladbrokes and William Hill, opened up with an on-line proposition, but, despite their retail footprint through the UK – or perhaps because of it – have failed to become the market leaders.
Instead, it has been the new brands, formed especially for the on-line gambling world, such a Party Gaming, 888, Poker Stars, etc. that have to all intents and purposes made the running. And why has that been the case? Essentially, there are two reasons. Firstly, they saw the opportunity and went for it, for which they are to be commended; but, secondly, because they had no fixed assets in the jurisdictions in which they were operating, overseas licenses without too many questions, and a willingness to take illegal bets, particularly from the US, with impunity. That gave them scale and war chests with which to attack new markets and outspend more honorable and conscientious rivals by an overwhelmingly large factor. Some, such as Party Gaming, have made their peace with the US, but still, according to their annual report, make a significant amount of their revenues from Germany in defiance of the German government. Others, such as Full Tilt and Poker Stars, plough on regardless, other than ensuring that US airspace does not feature on their travel plans.
Sheer volume of money irrespective from what jurisdiction it was earned is what consolidates their position. MGM Mirage’s attempt to get into the online market place failed because in the final analysis, the requirements of the Nevada Gaming Board were more important to them and their business than online, and the resultant high acceptance requirement meant that a very high proportion of potential customers were rejected at the registration stage. It will be interesting to see how Harrah’s fares in its attempt to develop an online track record prior to the opening of the US market. It will also be interesting to see whether the US either federally or an a state-by-state basis will be prepared to grant licenses to those operators who have flouted at any time the US authorities view that on-line gambling in the US was illegal. If they were not prepared to do so, then that would bring about an entirely new balance of power.
And it is in this context that it is worth looking at the role of entertainment brands and the role they could perform. Some things, of course, would still restrict what an ‘entertainment’ brand could do. Irrespective, for example, of how successful or big or profitable Sky Bets becomes, it will still be of secondary interest and importance to the main thrust of Sky’s business. Likewise with Virgin. For Virgin Games to become as important to the Virgin Group as, say, Virgin Atlantic or Virgin Active, it would need to be able to market itself throughout the world as many of its larger rivals have done. Yet, it is precisely to protect the increasingly global franchise of the other Virgin brands that prevents Virgin Games from taking illegal bets from jurisdictions where they are not allowed.
This is important, because, in the final analysis, success as an online gambling operator comes with scale. And yet there is a finite audience interested in, and willing to become involved with ‘gambling’. In the UK, even if you include the National Lottery, there is a total universe of only 10.5% of the adult population who ‘gamble’. No such restrictions, however, exist for gaming. 10% of all Facebook users for example visit Farmville every month – that’s some 55 million users. Gaming occupies the biggest usage of the internet. It is bigger even than emails. And what big brands (and, especially, entertainment brands) want most is mass, which, ultimately, only gaming, rather than gambling, can supply. For this reason, I could imagine a ‘Google Games’ being launched, but not a ‘Google Gambling’. For why would Google want to compete with itself for the significant revenues it is already earning from on-line gambling? Gaming, however, would be different. Look, for example, at Zynga, the social games platform, which has grown over three years to be worth between $4-5 billion. In other words, it has grown to be twice the size of Betfair in half the time.
In other words, it is important to understand what people are proposing to bring to the party, so to speak. Media brands, for example, have reach and engagement, which lend themselves more appropriately to white label arrangements where they can monetize their audience and their traffic. Ultimately, theirs is a content play. Consequently, unless they have relevant content, such as sports, it is hard to see where a media or entertainment brand can get its traction from unless it does so through differentiation. And it is a fact that differentiation is hard in the highly competitive world of online gambling, with its promiscuous user base, many of whom have a portfolio of different sites that they play on. However, only through differentiation that is entertaining and fun and which, because it does things differently, defines a new market can entertainment brands prosper and flourish.
For this to happen, entertainment brands will need to invest in social gaming, in casual games and in lotteries, because this is where the great drivers of growth will be and because this is where through content a brand gets to interact fully with its customer base. And for this to happen, entertainment brands will need to own its own environment, its own platform and, importantly, its own customers. In other words, it needs to become a real player, as white-labeling is about monetizing short term foot fall. It’s not about a long term revenue stream.
However, this is not to say that entertainment brands have no advantages. They come with a reputation of trust and accessibility and, just as important, access to an existing database. But the ability to leverage that database successfully is by offering it something that is not just exciting, but relevant. Consumers are currently bombarded with sales messages at every turn. Being able to access them through the existing database may get their attention as they are, in one form or another, existing customers, but it certainly won’t guarantee you a sale. Take, for example, the successful promotions that Virgin Games has run with Virgin Atlantic. In order to make the promotions relevant to Virgin Atlantic’s customer base, we integrated the Virgin Atlantic Flying Club miles into the Virgin Games Loyalty offering. This meant that when we offered their database the chance to earn Virgin Atlantic Flying Club miles – something they already collected – AND play at Virgin Games, it gave those customers who were gamblers a good reason to switch their play to Virgin Games. Moreover, ongoing research by Virgin Insight has highlighted that if a customer is a customer of more than one Virgin company, then they are 31% more likely to be loyal. This represents a huge prize if you can get your products right and introduce them to a sister database in a relevant and interesting way. This is particularly valuable in new regulating markets where the cost of establishing a B to C brand from scratch can be exorbitant.
The fact remains though, that gambling has to be entertaining to be successful and has to understand that it is in the context of entertainment that it must compete. 217 million users access Zynga’s 53 social games every month – that is 44% of Facebook users – with 34 million Facebook members playing poker on Zynga. They don’t play for cash. It’s the same game they can play elsewhere. At best, they will pay cash for in game benefits, which, interestingly, 20% of all Facebook users already do. And when you consider that a greater number of people than the entire population of the UK play games on Facebook everyday and that nearly as many people as the entire population of the US play every month, you begin to get an idea of how entertaining this is for huge numbers of people. Moreover, it is not just the number of visits that they make – although 50% of Facebook log-ins are specifically to play games – it is also the time they spend playing. The average time per month is 421 minutes. That’s a lot of poker, a lot of virtual farming and one hell of a lot of entertainment.
