2012 – Change is Afoot
Hofstadler’s law states that everything always takes longer than you expect, even when you take Hofstadler’s Law into account; and that for me has been the story of the development of online and social gaming over the last few years. Mobile has been threatening to take off forever; tablets and iPads have shown glimpses of a better user experience, but it has been slow to materialise. Regulation, particularly in the US, has been the talk of the industry for years, but, in reality, the situation has hardly changed for some time. Social Gaming, which arrived with such a bang, has lost momentum while the quest for a real money/social gaming hybrid seems to be as elusive as ever. Yet, as we consider what has happened in 2012, there is a real sense that the cycle race in the Veladrome has moved from a phase where every cyclist is going as slowly as they can, to one where someone has made a break and the rest of the field are all now in hot pursuit.
2012, for example, has been the year when mobile has exploded in the gaming sector and shows no sign of slowing down. At Virgin Games, over a third of our registration and a fifth of our revenues are now derived from mobile. A recent Com Score US Internet Report predicted that the number of mobile internet users would surpass desktop Internet users by 2014. There’s been a 47% increase in smartphone users (106.7 million, or 45.6 % of the United States mobile population) between March 2011 and March 2012, and Android now has 51% of smartphone market share, up from 35% last year, while multi-device ownership (meaning tablets and phones) is also significantly up, increasing by 308% since March 2011.
That is phenomenal growth and is happening because we are no longer at a time when technology – and what it enables – is leading consumers and rather, it is the reverse with technology now able to deliver what consumers want, when they want it and on whatever device they want. Positive choice is now freely available both in terms of distribution and content. As Gerard Cunningham, Chief Executive of Kool Bet, said, we are no longer “trying to jam a desktop experience into mobile”.
Indeed during 2012, Paddy Power launched its new Casino product specifically created for iPad and iPhone devices. It features a range of 19 real-money games including tables, slots, video poker and roulette. All games can be played for nothing so that consumers have the option of practicing before they commit real money. As Ian Macleod, Paddy Power’s senior marketing manager, explained: “we felt there was an opportunity to create a new mobile casino brand and product to suit the modern lifestyle, and to be completely customer focussed”. And with Paddy’s mobile net revenue up 239% to €53 million in the first half of 2012 with 54% of archive sports book consumers transacting via mobile in June, who is to say he’s wrong. Consumers are back in charge, demanding the games they want in the form they want it in, rather than just making do with the best of whatever is available. In part, this is about drastically increased distribution, but it is also a recognition that consumers want not just content that plays to the strength of a particular device, but also that their usage occasions and the motivations behind them vary significantly throughout the day. As Cunningham went on to say “People around the world like playing casino games. They are willing to search for them and find the best ones. And they’re willing to pay for them.”
The increasing acceptance that large numbers of people like to play casino games and are willing to pay for them has also provided a huge boost to the hitherto stagnant waters of regulated territories. In Spain, where the ‘will-they-won’t they’ journey towards regulation has trundled on forever, they have finally awarded online gaming licenses to a number of companies, including BWin. Party digital and Sportingbet in a move that will not only raise tax revenue for the cash-strapped country (25% of Gross Revenue), but will also remove any regulatory uncertainty hanging over operators. In all, 59 companies are believed to have applied for a licence. Moreover, these new taxes are not trivial. Indeed, Spain has already raised over 70 million Euros in back taxes from companies who transgressed decades-old decrees governing gambling, while the future income from taxing online gaming will increasingly become a useful source of revenue as Spain struggles to rein in its deficit.
That realisation alone, whether in the context of current EU Financial crisis or the need to raise revenues urgently for every state in the US, has gone a long way to softening opposition and removing barriers. The US cycle race is still, arguably, at the wobbly stage, but when the American Gaming Association Chief, Frank Fahrenkopf Jr, describes online gambling as “the next frontier of our business”, it is possible to see how far the debate has moved on since landbased’s implacable opposition to online gaming only a few years ago. The sprint for the finishing line could soon be in earnest. Nevada and Delaware have begun taking steps to allow online betting after the US Justice Department narrowed the application of the federal Interstate Wire Act of 1961 in December to only sports wagering. A number of licenses have been granted by Nevada to offer online poker to residents within the state, whilst Illinois has begun selling Lottery tickets online and there will be more states to come, in particular California and New Jersey. As Fahrenkopf himself says “no matter what Congress does, based on the growth trends…and the actions of various states, it’s no longer a matter of if online gambling will be legalised in the US, but, when, where, how”.
For operators, the size of the opportunity in the US has set in motion an ever growing number of alliances and acquisitions as the market consolidates. Those that will be successful need the licence, the marketing war chest and the appropriate portfolio of content (both real and social) if they are to capitalise on the scale of the opportunity across, as looks likely, a number of simultaneous fronts. That won’t come cheap.
The acquisition of Double Down Casino – a leading online social gaming company and developer of the popular Double Down Casino game found on Facebook – by IGT in January for circa $500 million set out the marker. In theory this provides IGT with instant size and scale in the fast growing world of Casino- style social gaming and is expected to broaden IGT’s popular gaming titles beyond the physical casino to Facebook with its 800 million global users. As Patti Hart, CEO of IGT, put it “as technological innovations increasingly influence consumer behaviour, social dynamics are quickly transforming entertainment and gaming experiences everywhere”.
That is just one example. William Hill has made a number of acquisitions in Nevada to assist the company with getting its license. Landbased casino groups throughout the US are actively involved in acquiring, partnering or investing in online operators. Facebook has done a deal for cash play with Gamesys in the UK in a trend that is likely to be adopted by Facebook in other markets as they regulate. The website’s largest gaming partner, Zynga, has said it is also planning to introduce real-money gambling versions of its games sometime next year.
Everywhere, the principal companies are manoeuvring for position. Even Poker Stars have settled with the US Department of Justice for $731 million and has further acquired Full Tilt, thereby bringing to a close the black saga for the online gambling industry. Obviously, the $731 million will hurt, but, with the huge opportunities now beckoning, particularly in the US, Poker Stars will now be able to dominate the international online Poker market without the distraction of dealing with a massive civil forfeiture filed against it by the US Government. It will also no longer have to compete with Full Tilt, hitherto one of its biggest rivals, and, most importantly of all, it says that “the agreement explicitly permits Poker Stars to apply to relevant US Gaming authorities…to offer real money online Poker when State or Federal governments introduce a framework to regulate such activity.”
2012 is the year when the industry is finally on the march. There is another law, as well as Hofstadler’s, called Murphy’s Law. This law states that everything takes longer than it should, except sex. Perhaps, that’s about to change as well.