Probability Turns toward Profitability

Probability, the London mobile gambling operator, finished 2007 profitably on reduced losses and strong growth in gaming revenue -- a year Chief Executive Charles P. Cohen called "transformational."

Net gaming revenue, which comprises the majority of the company's total revenue, was up 152 percent to £3.1 million, with gross operating margins up to 75 percent from 46 percent a year ago.

When asked about the strength of margins, Mr. Cohen told IGamingNews Thursday:

"I think that these kinds of margins follow from your strategy, particularly depending upon how high up you are in the supply chain. We are vertically integrated, meaning we control most of the supply chain. That means you attract -- and need -- high margins."

Operating losses, meanwhile, were reduced by 70 percent to £1.17 million, with losses per share down 71 percent to 7.07 pence per share -- figures the company said were in line with expectations.

In February, Probability generated £1.69 million via a placing to Michael A. Spencer, one of the City's richest men and the majority shareholder of Intercapital Private Group Ltd.

Mr. Cohen said that the company has sufficient cash for its current plans, and is not looking now to raise funds through another round of investing.

With mobile technology changing rapidly, and with an average of two new handsets being released each week, Mr. Cohen said, the company is still able to keep research and development costs low for its software development arm.

"We have developed our own tools to ensure that new phones can be ported very quickly and at almost no cost," he said. "Some people realize too late that portability" -- reusing existing software code -- "is a decision you have to make right at the beginning of the life cycle of your technology in this sector."

The company has also developed a real-money gambling game for Apple's wildly popular iPhone. With a rich display and tactile features, the iPhone would, at a first glance, seem ideally suited to host a new generation of mobile gambling technology.

"The touch-screen interface and emphasis on big screen is a radical break with the form factor of all previous consumer mobile devices," Mr. Cohen said.

"The user experience of being able to, say, place chips on a roulette table, is quite sensuous," he continued. "It opens up a whole new dimension that simply doesn't exist with PC.

"I think that if you look at what the Wii motion sensor has done for the console gaming market, by unleashing a whole new market and a wave of creativity, the iPhone could lead a similar type of revolution in mobile. That's very exciting for us."

Meanwhile, Mr. Cohen said he could not give revenue guidance on the company's business-to-business white-label service -- which has done deals with Rupert Murdoch's News Corporation as well as Maidenhead's Rank Group -- other than to say Probability's own-label service will "continue to represent the main part of our revenues."

Looking ahead, Mr. Cohen said recent deals with Three, the mobile network operator, and Paramount Pictures Corporation would be key to revenue contribution. The first of its movie-branded slots, he said, will begin contributing materially from the second quarter.

In other sectors of the online gambling industry, film-themed content has been a revenue-generative phenomenon of which operators and developers -- most recently, PartyGaming and Playtech Ltd. -- make apt and lucrative use.

Probability, Mr. Cohen said, is likely to be the first to market with mobile slots content themed around film brands, and on Friday went live with its first offering, "King Creole," based on a 1958 film that starred the poster boy of modern slots, Elvis Presley.

How the proposition fares will be a litmus test other operators in the space are sure to watch closely.

Perhaps the largest growth driver for Probability will be its rate of player acquisition, which for its flagship casino, LadyLuck's, doubled over the 2007 fiscal year.

Mr. Cohen said that most of its customers do not moonlight as online gamblers; unlike the ferociously competitive online poker market, mobile players can be acquired "economically with the right marketing and relationships."

Probability's results, a rare glimpse inside the mobile gambling operating community, certainly show that the sector has not lost the promise long touted by proponents as interactive gambling's Next Big Thing.