With interactive TV gambling enjoying a time of aggressive growth, hopeful TV operators are betting that the recently created Gambling Commission will opt to loosen the rules governing the industry.

In addition to Sky Active, where viewers push the red button to access a variety of betting opportunities from a range of bookmakers, there are a growing number of dedicated betting channels, from the pioneering Avago with its bingo-style games, to more recent additions like The Poker Channel and Pokerzone TV.

"It's entertainment that works. It pays the broadcaster and the viewer," says Neil MacDonald, group managing director of YooMedia, which operates Pokerzone TV and provides technology to The Poker Channel. Most broadcasters with poker programming are readying themselves for the newly formed Gambling Commission to loosen the current rules.

TV operators are currently limited to fixed-odds betting games but, in the future, the rules could allow casino-style games, such as blackjack and poker, to generate money directly for the channel owners. Even without any rule changes, TV betting numbers are already compelling.

Betting income for BSkyB in its latest financial year totalled £261m, an annual rise of 37%. Chief executive James Murdoch told investors at Sky's annual results presentation last week that betting revenues will likely overtake advertising numbers in the next 12 months. Meanwhile, Screen Digest predicts that, at its current growth rate, overall iTV betting turnover will outstrip total UK TV ad revenues by as early as 2008.

"Interactive TV gambling is going through an intense period of growth, as penetration levels look to have reached a tipping point where mass-market gambling products are viable," says Ed Barton, Screen Digest analyst.

And Sky is upping the stakes. Murdoch Jr announced the launch of a second Sky Vegas channel later this year that will move beyond virtual horse-racing and Super Keno.

"It's not clear yet exactly what Sky Vegas 2 will include but it will have fixed-odds poker, roulette and, in the fullness of time and when the regulation allows it, live blackjack," says Richard Flint, managing director of SkyBet. The TV gambling craze has emerged because of a number of factors.

Sky launched sports betting in 2001, but a few regulation changes later and the sharp rise in internet gambling forced the pace. Internet money is now pouring into betting TV.

PartyPoker.com - valued at just under £5bn in its June IPO - is among an eager new breed of TV programme sponsors and advertisers fuelling much of the new poker programming on our screens.

Gambling has always been a big cake for TV to take a slice from. In 2004, UK betting and lottery revenues totalled £47.6bn, while interactive TV betting was only approximately £400m (estimated to rise to at least £500m this year).

Screen Digest estimates that the gross margin (the amount the punters lose and the TV companies gain) from iTV betting will rise from EUR148.8m (£104m) this year to EUR387.1m (£269m) in 2007.

High-street bookmakers William Hill, Ladbrokes, Coral Eurobet, Sportech (owner of pools company Littlewoods) and Paddy Power have all developed transactional iTV gambling services and regard these as an increasingly important part of their overall betting strategy.

As for the broadcasters themselves, Channel 4 and Five each have a commercial arrangement with SkyBet, which supplies the betting infrastructure behind shows with betting applications.

Under their deals both share the betting revenue with Sky, but they get access to Sky's 546,000 registered SkyBet users. "We'll do betting where it is contextual to the programme like racing, cricket or Big Brother but we won't do it for the sake of just making money," says Paul Whitehead, head of C4's new business development for new media.

A 2002 deal between Littlewoods and ITV has had a slow start with what one analyst called a "skills gap" between the two about how to operate iTV betting. But the recent arrival of Jeff Henry as ITV's new head of all consumer revenues bodes well as his mandate is to drive revenues beyond advertising.

At multichannel player Challenge, meanwhile, there is a shift away from developing expensive, bespoke play-along games based on their programming towards offering traditional fixed-odds games that will run 24/7 behind the red button on Challenge and possibly on Bravo and Living TV.

"These applications should be much more revenue-generative as opposed to being just a scheduling support tool," says Edward Humphrey, Challenge's executive producer of interactive.

The company continues to pioneer programmes like Vegas Virgins, a reality poker show set to air on 15 August that pits poker ingenues against Vegas pros.

The new Gambling Act became law in April, creating the Gambling Commission in much the same way that the Communications Act begat Ofcom.

Following concern from government and pressure from citizens' groups, the commission's remit is to keep out crime, to protect punters from unscrupulous betting practices and to safeguard under-18s and problem gamblers.

There is no guessing how liberal the Commission will make its TV gambling licences (due to be issued in late 2007), so elements like the types of games and the speed of play may yet be heavily restricted.

So for the next two years, all the TV gambling players will push the betting envelope within the existing rules. With 20,000 to 30,000 bets every week on SkyBet alone, the new commission has every reason to feel under pressure to sort out - along with Ofcom and the Advertising Standards Agency - how TV gambling should work. For example, William Hill has launched a channel, but it is called Channel 425 on the EPG rather than William Hill TV because Ofcom rules preclude a high-street bookmaker from "advertising" betting on TV.

The particular scramble around TV betting is because each TV gambler is so lucrative. Sky says it costs between £70 and £80 in marketing spend to acquire one but the subsequent income is huge, with a single TV gambler earning Sky as much as four times more than they get from an internet or a phone gambler. With those kind of figures, the only certain bet right now is that with the rush to attract customers and to find the next hit, TV gambling applications will continue for some time to come.

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