Governments Getting Into the Online Gaming Game

By Javad Heydary
E-Commerce Times
01/04/11 5:00 AM PT

Current online gaming sites police themselves, which can potentially leave users and the system open to fraud, cheating and other illegal acts. As such, the respective governments believe that offering online gaming in a licensed, regulated environment will create standards regarding who can play, ensure responsible gambling, and thereby improve accountability.

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Governments in a number of jurisdictions are moving not only to regulate online gaming but also to become an active participant in the industry.

Various provinces in Canada have recently entered into the online gaming industry by developing and providing online gaming websites. In July of 2010, the Province of British Columbia opened the first government-sanctioned online casino in North America. The government established PlayNow.com, which allows residents of British Columbia to register and play various games including bingo, sports book betting and blackjack.

The Province of Quebec soon followed suit. Loto-Quebec, a government agency which operates lotteries in Quebec, was appointed by the Quebec government to operate an Internet gaming and poker portal for Quebec residents. The online casino just opened this December.

The Province of Ontario also recently announced that it will follow in the footsteps of both British Columbia and Quebec by offering online gambling in 2012. Ontario, however, remains undecided as to whether to offer a government-run gaming site, or retain one or more private partners to operate online gaming on the government's behalf.

Canada is not the only country moving toward the regulation of online gaming. Many European Union member countries have also established government-controlled Internet gaming sites. Sweden, for example, nationalized online gaming by creating Svenska Spel ("Swedish Games"), a government- sanctioned Swedish site, in 1997.

Svenska Spel offers Internet gaming and online poker. Its online poker room has been opened since 2006. Similarly, the governments of France and Italy also have a monopoly on online gambling. In fact, France and Italy have further expanded its online gambling legislation by offering licenses to private, third-party operators who meet the respective governments' established criteria.

Those countries that have not yet established government-sanctioned Internet gaming sites are taking steps to do so. Netherlands recently stated that it wants to follow the lead of other European Union member countries by legalizing and regulating online gaming.

There are also indications that the United States is rethinking its Internet gambling ban. Most online gambling became illegal in 2006 with the passing of the "Unlawful Internet Gambling Enforcement Act" (UIGEA), which prohibits banks and credit card companies from making payments to gaming sites. However, at the federal level, Sen. Harry Reid, D-Nev., is supporting legislation that would, in essence, overturn the UIGEA and allow states to regulate and operate online gaming sites.

Additionally, a number of states, including New Jersey, California, Maryland and Florida, are looking to implement legislation that would allow them to open their own state-run gaming sites. New Jersey is set to become the first state to regulate online gambling. The state senate has approved the Internet gaming bill, and the New Jersey Regulatory Oversight and Gaming Committee recently did the same.

Most governments moving toward establishing government-sanctioned online gaming sites have cited the fact that current online gaming sites are unregulated and not accountable to the individual players that play on the sites, nor to any laws of the jurisdiction in which they operate. The chief executive officer of Loto-Quebec stated that "online gambling sites do nothing in the way of offering assistance to vulnerable players and leave governments to pick up the costs of problem gaming."

Current online gaming sites police themselves, which can potentially leave users and the system open to fraud, cheating and other illegal acts. As such, the respective governments believe that offering online gaming in a licensed, regulated environment will create standards regarding who can play, ensure responsible gambling, and thereby improve accountability.

However, there are concerns that more people will want to try online gaming if they know it is government-sanctioned. Further, with the expansion of the number of different ways to access gambling, concerns have grown that the number of individuals with a gambling addiction may increase.

Many cynics also believe that aside from offering protection for consumers who wager on online gaming sites, the obvious monetary benefits to the respective governments are the primary reason for establishing government-controlled online gaming sites.

Ontario Finance Minister Dwight Duncan stated that the province loses approximately $400 million per year to offshore websites. In California, it is estimated that offshore gaming sites attract two million Californians, who spend an estimated US$300 million each year. In New Jersey, Democratic state Sen. Raymond Lesniak stated that if legalized, online gambling would generate approximately $210 million to $250 million in annual gross revenues for the state. As these numbers clearly indicate, the potential revenue to be derived from government-controlled online gaming is tremendous.

Regardless of the competing rationales behind this impetus to establish government-sanctioned gaming websites, it is evident that many countries have already moved in that direction.

Whatever the outcome, one thing is certain: There are many new "sheriffs" in town, and it appears that the unlicensed freewheeling days of the metaphorical "Wild West Virtual Casino" are numbered.

Javad Heydary, a columnist for the E-Commerce Times, is chairman and managing director of Heydary Hamilton. His business law practice focuses on commercial transactions, e-commerce and franchising law. Heydary is also managing editor of Laws of .Com, a biweekly publication covering legal developments in e-commerce. Print Version E-Mail Article Reprints More by Javad Heydary

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Survey Surprise: Online Content Doesn't Have to Be Free

By Rob Spiegel
E-Commerce Times
12/30/10 11:55 AM PT

Though there's still plenty of experimentation with different business models, online content providers are finding that many consumers are actually not averse to paying for content they value. In fact, the Pew researchers discovered a surprising willingness to subscribe to newspapers and magazines online.

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A hearty 65 percent of Internet users have paid to access or download online content, according to survey results released Thursday by the Pew Internet & American Life Project. The study focused on content such as music, articles and apps.

There were a number of surprises in the data. With the exception of software, which is a predominantly male interest, men and women bought content at roughly the same rate. The researchers also found it surprising that Internet users bought online content and subscription services at the same rate as physical products and travel.

The big categories of purchased content were software and online music. In both categories, 33 percent of online users have made purchases. Typical users pay about US$10 per month for content. As for methods of purchase, the majority of users pay for subscriptions services (23 percent) versus downloads of individual files (16 percent).

The survey data came from telephone interviews with a nationally representative sample of 1,023 adults in a mix of age groups during the period of October 28, 2010, through November 1, 2010.

The print publishing industry has taken a significant hit due to the migration of readers online. The newspaper industry has been hit particularly hard, with major decades-old papers folding during 2010. There's good news online, however, with 18 percent of Internet users paying for online content from newspaper and magazine sites.

"Eighteen percent is well above noise level, so it's a positive thing," Jim Jansen, the author of the report and senior fellow at Pew Internet & American Life Project, told the E-Commerce Times. "Whether all the print outlets will be able to switch to an online model is another story."

The type of business model that supports online paid content is still the subject of experimentation.

"I think it's an issue of working out a price structure and subscription model that works for online consumers," said Jansen. "If there is a good model, people are receptive to paying for things. Music is a good example."

While the Internet has dealt print publishing a mighty blow in recent years, the Internet may also be the salvation of content publishing.

"Nearly a fifth of users have paid for articles. That did jump out at me," Charles King, principal analyst at Pund-IT, told the E-Commerce Times. "While some online-only sites have been very successful -- like the "Huffington Post" -- most of their income is coming from advertising rather than premium subscriptions."

Those sites selling newspaper and magazine content tend to be print-based publishers that also have a Web presence.

"Most of the newspapers and magazines charging for content also have hard copies, including The New York Times, The Wall Street Journal, The Economist and others," said King. "I do think it portends potentially good news for the magazine and newspaper industry. There has been a lot of concern about how online content has impacted traditional newspapers. These numbers are higher than I would have expected."

With so many sites selling subscription services, the future of Internet advertising could be challenged. "I think a lot of different business models are going to develop," said the Pew's Jansen.

The advertising model is still evolving online.

"Niche sites do well -- like car enthusiast sites. Advertising works well there. Other places where advertising works are at sites with high traffic," said Jansen. "I don't think the subscription model is a threat. There are just different advertising models for different verticals."

The Pew study is the center's first survey of online content consumption. It may become an annual report.

"This is the first time we've asked these kinds of questions, and certainly there is a lot of interest in trend data," said Jansen. "It would be great to re-do in a year's time and see what the changes are. I would expect there would be some dramatic changes given the technology that's coming."

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