Online Gaming: Global Trends Are Up

Among industries dependent on technology and regulation, online gaming is expected to show the largest growth in the next few years. In 2007, online gaming excluding the US market is estimated to have grown by more than a billion dollars or more than 17%, from $6.3 billion to $7.4 billion. A recent PWC study (with Wilkofsky Gruen Associates) predicts global gaming yields at a CAGR of 6.5% over the next five years. Although this estimate applies to casino-based operations, Global Betting and Gaming consultants believe that it will be matched by online gaming. Bingo and poker lead growth projections, with Asia-Pacific the fastest-growing geographic region.

Other studies forecast as much as 12% CAGR (PartyGaming/BWIN/GBGC) for online gaming. Growth will depend upon broadband penetration, more convenient and secure payment systems, and new products.

Europe is Regulating and Opening Gaming Markets
The European Commission has shown a commitment to opening gaming markets. The UK has a stable gaming regime under the 2005 Gambling Act now in force. There is a movement toward regulated and open gaming throughout Europe, notably in France and especially in the Southern tier of Italy, Spain, and Greece.

Turkey
While online gaming is legal in Turkey, there are some industry fears of a new Turkish law that forbids “unauthorized” companies from offering games, in an attempt to protect gaming under partnership with the government. This has caused several foreign online operators to withdraw from Turkish markets.

Possibility of a Settlement with the US Department of Justice
This would be an enormous boost to the gaming industry, and it is a requirement for legal online gaming to return to the US. The US Government is presently in talks with interested parties regarding settlement of past exposure to the US market.

Regulation and Innovation Essential to Growth
Online gaming habits and profits are not necessarily sensitive to economic conditions, but they are sensitive to technological innovation in the internet, computer science, security advances, and the programming and conceptual quality of the games themselves. Research has shown that two factors are particularly important to gaming habits: accessibility and product appeal. These factors are dependent on regulation and innovation.

In the UK expenditure on gambling increased in the last decade — at 9% a year during the 2001–3 downturn — and has remained at a constant c.30% of recreational spend (Consumer Trends report). But gaming habits expanded in response to new ways to play, notably with the introduction of a national lottery in Britain in 1994.

When regulatory changes in Australian states legalized new mechanical forms of gaming, Australia saw major steps up in gambling consumption. Overall gaming consumption also grew at a much higher rate than growth in household disposable income for a sustained period; increases and decreases were not systematically matched by changes in gambling consumption.

Growth in online gaming is dependent on higher broadband penetration, and as this happens it will become the most accessible form of gaming. Online gaming, while expanding the overall gaming market, has the potential to divert income from other, more traditional forms of gaming.

Consolidation
At some point in the maturing of the online gaming industry some consolidation is expected, as operators attempt to take advantage of economies of scale, as they acquire and cross-sell new products, and as the traditional land-based casinos make major efforts to enter the sector.

SOURCES: Edison Investment Research – Outlook, July 30/08; Jefferies International Limited, Consumer Casinos & Gaming UK, October 1/08.