Stinger REPORT Skinny!
(2/03/08) The Stinger takes another look at the factors shaping our industry, and the opportunity for change. In this feature the amusement venue operators and their ability to offer benefits rather than problems for the market are evaluated. The reality of operating amusement is investigated, and a look at the future opportunities is discussed – especially the fact that self-operation may be the only way to guarantee the survival of video amusement.
Main REPORT:
The Stinger Report ran last year a report entitled "Can the Amusement Industry Eliminate – The Distributor" (#585) – The feature received much comment, as would be expected with the contentious subject the details of a world without distributors had many supporters and detractors. This month we look at another volatile subject – could amusement survive without the operator?
Now before everyone gangs up to mug all Stinger representatives attending exhibitions, the comment 'Eliminate the Operator' refers to the practices used by the current trade, and not the total removal of the individuals themselves. The situation is that we in the trade seem to be continuing methodologies and practices that worked reasonably well in the late 1980's, but do seem totally impractical to the modern market. This feature looks at the survival of amusement machine operation – and ways to develop the business.
- Current Market
We have inherited an amusement market that appears very unwieldy for the experience we hope to provide. This feature will not, however, address the arguments for greater or lesser governmental involvement with AWP, SWP or other gaming machines -- this article is focused solely on video amusement installation.
The electro-mechanical amusement industry of the 1920's has shaped much of the vocabulary in the way we operate in amusement -- the idea of specifically sized wall standing 'cabinets', with 'cashboxes' and 'route' operations with machines left for a period and then swapped for a near identical, but slightly different unit all originated from this era.
A traveler from the past would recognize much -- but would be mortified by how much has stayed the same!
As covered in TSR's extensive 'Monetarisation' feature on e-payment (#625), we as an industry have neglected the whole disposable income retail revolution and fixated on tokens and coinage. The allure of untraceable and undocumented cashbox takings is an unhealthily addiction for all too many in the industry. Implementation of any official e-payment style tracking of coin-box revenue would lay open a number of operators to an Inland Revenue Service back-tax reporting investigation... if not worse!
A case in point recently witnessed; a problem from 1972 is still allowed to reoccur some 36 years later. An operator made a maintenance call to a distributor about a broken machine that was on test – the usual complaint about unreliable hardware, and the impact on the venue of testing a new concept. The operator ended by saying that in fact he knew the machine was not being played and as it was now broken they should not repair it but just come and take it away.
The service team duly turned up and before shipping the machine out, as the site wanted, they checked the exact reason for the fault. They powered up the unit and were greeted by the on-screen fault message. Something to do with the coin acceptor, so the engineer popped the cashbox... and was deluged by piles of coins; the cashbox and inside of the coin-mechanism was filled to the brim. When presented with this, the operator shrugged and claimed it was the venue manager that had told him the machine wasn't popular, and as he depended on him to report takings he had assumed that the broken machine was not earning!
This situation is a near perfect recreation of the first fault call on the classic coin-op game 'Pong' from Atari; though then an improvised paint tin rather than a cash-box proved the overflowing source (recently the story was changed from a paint tin to a milk carton for some reason?) That legendary proof of arcades success at the Andy Capp's Tavern in California, going down in industry folk lore, but sadly the continuing success of arcade to generate profit is taken for granted and even derided by operators.
It is as if the operator and the venue managers have literally become disconnected with their market. The operation of machines is a cold and uncalculated chore for them, that may have interested previous generations of their family, but is now of diminishing interest, and is now often farmed out to third parties who equally do not have the knowledge or vested interest to build the business. This not just an arcade site issue -- too many cinemas, bowling alleys and taverns are farming out their machine operation to parties that have links to the distributors; a vicious circle where machines are placed to clear warehouse space and establish monopolies, rather than build market and revenue.
Another incident witnessed that proves this point -- a brand new concept developed by a green but enthusiastic newcomer was handed to a distributor for revenue testing. The developer stipulated a bar or tavern location as they knew the machines' target audience. A few weeks pass and they receive bad news; the distributor confirms that the revenue generated while on test was very poor. The surprised developer asked the distributor about the sites where the machine had been placed. They were told that the distributor did not have the names, as that was handled by another executive who organized machine routes.
It would take the newcomer many days of private investigation to ascertain the places that ran their machines; a list of rundown bowling allies and one cinema. When confronted with the question why none of the bar or tavern sites requested were selected, a verbal shrug and a comment about not always being able to select placement was given by the distributor. The newcomer would later abandon their arcade aspirations in disgust of the market. This type of behavior would have seen the still-birth of 'Golden Tee' before it was launched, or the scrapping of 'Mortal Kombat' because it did not fit the tried and tested route plan favored by so many at the time.
It is not known if there was a vested interest in snubbing the new product; if it was just laziness or if the distributor had their own motives. Conspiracy stories abound, but the 2008 industry is now too fragile for previous 'gentlemen's agreements' -- all bets are off and it is a case of survival.
- Market Realization
Even when success stares us in the face, second generation venue owners just shrug -- dreaming of selling their arcade and turning them into apartment buildings, rather than have to work hard for a living. Excuses not to reinvest outweigh reasons to do so. When the old practices employed by operators that held them in a profitable position start to fail the whole market is condemned rather than old practices questioned.
The number of excuses being used to avoid buying a 'Tekken 6' machine or even considering 'Street Fighter IV' is mountainous despite international interest. It as if the operators are doing everything to deny any interest in arcade resurgence, and act as if they had signed a pact with consumer media. The arcade venues may get caught wrong-footed by this stubborn denial in the face of player interest -- other non-traditional venues may cash in on this artificial vacuum and win big!
The lack of new investment is a malaise in the industry and has been nicknamed as the '30 year itch' (soon to be covered as part of a Stinger feature). A lack of operating machines has seen a number of incorrect conclusions drawn about the validity of the industry – all whilst investment has been withheld. To better understand the stupidity of the situation let me give you an exact analogy:
- The current status of the majority of amusement sites bear a remarkable resemblance to a movie house that does not take credit cards, does not issue automated tickets, does not advertise what it is currently screening nor coming releases on the outside of the building, and hardly ever changes films, having a number of screens still showing the 2003 release 'Charlie's Angels: Full Throttle', just because it was popular five years ago.
- Likewise, imagine a venue that chooses not to fully screen films but instead has them on a short term test, sending them back after they've made a minimum of money, or perhaps just chooses to neglect them. A venue that does not upgrade to Hi-Def hard disk delivery, but still wants to run a movie on film; a movie house stuck in the 90's that has only now updated its seating but still stubbornly refuses to invest in new THX audio or projectors.
- Finally, of the few new movies it actually buys, it does not depend on film studios or reviewers to select films, but instead copies what other movie houses in the area are showing, and, as an added insult, makes no effort to reward those audience members who watch a film more than once!
Is this such a stupid analogy?
For example, many venues still run the 2003 release 'Time Crisis 3' even thought the sequel has been proven to generate more money. Absolutely no venue advertises on the outside of the premises the machines they have inside – and even inside the player has to hunt to find the new releases. The picking of new machines is based mainly on what the competition is doing, or then on anecdotal information from sales guys, occasionally adverts in magazines, or products on exhibition booths – but the majority of operators still want to place the game on 'test' to see how it will perform!
The concept of the 'test' is crippling the amusement scene – operators thinking they now have the power to spot a success after only a few days of placing the machine into their facility – without any marketing -- hoping that like some blood hound the players at his site will sniff out the new machine and play it. Because it is a buyer's market, the manufacturers have to now suffer complacency from operators towards buying new machines – hiding the revenue numbers as if they are family jewels. Many new machines on test are mutilated by operators – disconnecting their coin-counters and even tampering with settings to hide what a machine earns on test.
Placing such power in making or breaking a game in the hands of an operator is like Hollywood depending on the movie theatre business alone to gauge what they create!
- The Future
The biggest issue in how we move forward in this market from here is transparency!
We have to create an industry where the manufacturer and the operator work together to mutually generate revenue, but at the same time share the risks! In the movie sector the consumer pays to watch a film, encouraged by intensive media advertising by the film industry – for this the movie house shares a percentage of the revenue, but also takes a percentage of the hit for the delivery of the movie and which also supports the refurbishment and development of the venues.
The acquisition by manufacturers of amusement space is another way to negate the operator perspective – successful in Japan; SEGA, Taito and Namco have considerable home island amusement facility operations. Most recently the factories have undertaken cost-cutting to focus only on the most profitable venues, with major investment in new broadband connectivity and theming.
The ability to 'sell to yourself' is a strong opportunity for manufacturers, removing the volatile operator component in the amusement machine mix, and ensuring the maximum exposure for releases. This has been seen internationally; Namco Operations Europe recently expanded their operations division adding Number Ten Group and their bowling facility to their retinue. Likewise SEGA's New Space Facility Development Department is expanding the facility presence owned by the amusement giant – along with the self operation of their machines as previous covered in the Stinger.
New ways to operate machines are shaping amusement factories – the success of deluxe machines, set against a larger number of standard cabinets, is a factor in enticing a new audience. The development of 'attraction' style amusement (such as 'Let's Go Jungle Special') has redefined the value of amusement for mixed-use entertainment sites – sites that see amusement as one of many revenue streams, rather than the sole generator. While single arcade sites have collapsed to only 3,500 venues in North America, amusement has found new homes in cinemas, bowling, taverns, visitor attraction centers, etc. The arcade site is now not the main business for amusement!
What Could this all Mean:
Sources close to the Stinger have for sometime stated that the majority of amusement manufacturers around the Globe have started serious investigation into machine self operation – or owning and developing facilities of their own. The early Nineties development of LBE entertainment facilities sadly stalled, and it has taken time for the interest in this sector to regain momentum.
The final observation has to be that this year, the amusement operation scene will be faced by a number of 'Sure Thing' amusement releases – products that will be avidly clambered for by players, both bringing new audiences into sites and enthusing current attendance. Those operators that are prepared to embrace this opportunity will succeed – while the remainder will exit the playing field, leaving a vacuum for the next-generation of Out-of-Home entertainment facilities to fill!
News Story courtesy of Kevin Williams. Please visit www.thestingerreport.com for others.
