A screenshot from Virgin Gaming shows the interface for a tournament featuring the popular shooting game Halo. (Virgin Gaming)

In Canada's booming video game industry, setting up a development studio in the hopes of coming up with the next hot title is one thing.

But hoping to cash in on games without ever publishing or playing one? That's quite another. Yet that's exactly what one Toronto start-up hopes to accomplish by filling what it sees as a market void.

"We're not creating an industry, we're providing a service to it," is how Virgin Gaming CEO Rob Segal puts it.

Virgin's business model consists of hosting tournaments that allow gamers to play against each other online.

On the surface, it's similar to the PlayStation Network and Xbox Live services already offered by Sony Inc. and Microsoft Corp. on their respective game consoles, but with one crucial difference — Virgin lets users bet money on the results of their games, and takes a cut of the winnings.

'We're doing for video games what the internet did for poker'—Virgin Gaming CEO Rob Segal

Formerly known as WorldGaming, Virgin Gaming is the brainchild of Bill Levy and Zack Zeldin. The concept was simple: The generation that grew up with video games has become young adults who enjoy challenging each other in those games, and who sometimes like to put a little money on the result for bragging rights.

"It keeps things interesting," Segal says with an audible grin.

The company was still in its infancy when a fortuitous personal connection brought it to the attention of British mogul Richard Branson and one of the world's most recognizable brands. Segal, who had been impressed enough by WorldGaming to become an investor, was having dinner with friend Andrew Lack, then the head of Virgin Mobile Canada, and the two decided that WorldGaming might be of interest to Branson's Virgin empire.

The idea is essentially a convergence of the three hottest online business trends: social networking (since users can message each other and maintain online profiles), online gambling and video games.

"It was really alchemy," Segal says. "We all decided that the combination of those three pillars would be remarkable."

Free account

The idea is simple. Users sign up for a free account to play games against other gamers. They can even win cash and merchandise prizes without depositing any money. In exchange, they are paired against another player of comparable skill in a secure environment.

The ability to upgrade to a pay account is optional, and more and more users are choosing that option, it seems. Segal won't disclose membership numbers, but says the site is seeing a 600 to 800 per cent nightly increase in users from what WorldGaming drew since the formal relaunch under the Virgin brand in the middle of June.

That people can gamble legally on video games is hard to believe, but it's all above board since they're considered games of skill — not games of chance such as those in the tightly controlled casino industry.

Virgin Gaming partnered with Ubisoft to include the game publisher's best-selling Tom Clancy series in its tournaments. (Virgin Gaming)

For Virgin, the foray is something of a return to its roots. The company used to publish game titles under the Virgin Interactive name for most of the 1980s and early 1990s until it sold the unit in the era of 32-bit consoles such as the Sega Saturn, Nintendo 64 and Sony's original PlayStation.

"Having Richard on board has obviously been advantageous. His son and daughter are actually avid gamers," Segal says. "And we've found it very helpful to have the backing of the Virgin name when it comes to asking users to hand over personal information."

"Gamers want something new, something interactive and something fun," Branson said when the company launched on June 15. "Virgin Gaming is just that."

And far from seeing Virgin Gaming as a threat, game and console makers are eager to participate, Segal says. "Microsoft wants people spending time on Xbox Live, and this does that for them," he says. "And brands are eager to sponsor $100,000 prize tournaments with us."

With 40 million active Xbox Live accounts, it's clear there's a market. But prizes aren't Virgin Gaming's only economic footprint. The company now has 48 employees at its Toronto head office, which speaks to Canada's status as a world leader in the sector.

"Toronto is a fantastic tech market overall, and next to Southern California probably the best place in the world for this," Segal says. "It's the right market for us."

The company does maintain a small sales and marketing staff in Silicon Valley and is in the process of setting up a British office to more closely integrate with Virgin and the online gaming industry overall.

"Gamers want to play in safe, secure environments, and they're willing to pay to challenge each other," Segal says. "We offer both."

He draws an analogy to online poker, a phenomenon that has grown from a fringe hobby into a $6-billion-a-year industry, where more than 1.6 million people log on every night to play.

In 2003, poker champ Chris Moneymaker made history by becoming the first online player to win the World Series of Poker. He turned the $40 US he paid to register for his first online tournament into a seat at the table that won him the $2.5-million US grand prize at the bricks and mortar casino.

Today he's a celebrity in the poker community, and Segal posits it's not long before we start seeing similar "video game celebrities" as their ability to show off their skills becomes more mainstream.

"Poker changed when Chris won the World Series of Poker," Segal says. "We're doing for video games what the internet did for poker."