For Today's Fun Centers, Marketing And Upgraded Attractions Are Inseparable

U.S.A. - It's getting harder for "gloom and doom merchants" to keep claiming that the coin-operated amusements industry is dead or dying. If there is a counter-cyclical trend in the entertainment industry these days, it consists of out-of-home entertainment (such as tavern and arcade based fun) enjoying an upswing whenever consumer entertainment (such as home video) suffers a downswing. This cycle is clearly at work today the fun center market, which consists of family entertainment centers, children's entertainment centers, location-based entertainment facilities, and the like. Over the past year, as the latest sales figures and forecasts for home video have steadily fallen, the investment community's support for fun center chains has steadily grown.

Many leading fun center chains are reporting stronger earnings.

The temptation may strong to say: "It's official, that the industry's comeback has arrived full force." That, however, would be a bit premature. Consolidation remains a significant part of the picture for U.S. fun centers. In tandem with this shrinkage, which largely consists of mom and pops and independents exiting the market, franchise chains increasingly dominate the amusement facility market. This is the case regardless of whether the niche in question targets, children, teens or young adults. And, the current atmosphere has also been conducive to buying undervalued competitors.

So while a nascent recovery has not yet become a full-blown boom, the fun center industry is definitely on the comeback trail, aided by factors inside and outside the industry. The question is how the remaining fun centers can best to exploit this opportunity. Marketing professionals like to advise businesses to sell the sizzle, not the steak. But if there were ever a situation where you can't sell sizzle, unless you have a truly excellent steak.that is, a situation where marketing is inseparable from branding, theming, and basic attractions.today's fun center industry is it. So it is encouraging to be able to report that major centers are now making decisive moves to invest in new attractions and new technology, aiming to build stronger traffic from a notoriously fickle player base. How successful such investment will be, remains to be seen.

From a business entity standpoint, the North American market is currently dominated by four basic types of fun centers. These are: brand franchises, independents, FECs, and mixed-use venues. This column will examine each in turn. First, however, we note that two common elements are consistently found among the more-successful exponents of all four basic types. Those elements are the (1) reliance upon combining "Food-n-Fun" (F-n-F); and (2) emphasis on hi-tech: specifically, networked equipment.

The F-n-F principle, once associated mainly with independents and kiddie "pizzacades," has become a universal element of creating a distinctive brand identity among the major FEC and LBE chains. As for networked connectivity, this trend first took hold in the bar and tavern arena, where online golf tournaments sponsored by Incredible Technologies and Global VR almost single-handedly preserved the viability of non-countertop coin-op video. As for the touchscreen countertop games themselves, these have proven a strong revenue generator for an expanding market, and online tournament promotion can boost revenues by as much as 50%. And, the boomlet in LAN-based PC facilities offering "CounterStrike" has not escaped the leading fun center operators. Faced with all these developments, the leading U.S. amusement facilities have (finally) begun to embrace connectivity as a key part of their marketing strategy and basic content.

Big Brand Franchises

Growing steadily in stature and success, the 36 store Jillian's operation has migrated from its 1988 birth as bowling and playing center, to a full-fledged mixed experience venue today. The operation's well-conceived, well-presented "HyperBowl" signature attraction established a level of quality entertainment experience that pleased guests and built loyal customers. A classy yet casual rec-room environment presented with a adult entertainment spin means that Jillian's has achieved something remarkable (yet not often remarked upon). Unlike leading competitors, it doesn't feel like a "restaurant with a midway" or an "arcade with a restaurant and bar." Instead, Jillian's has preserved the classic bar entertainment feel while merging it with the arcade concept, bringing both to a new level. F-n-F is a crucial component of Jillian's success as well.

The gold standard in this sector is the Dave & Buster's empire, with a stable of 31 sites by the end of 2004. D&B's rags to riches story has been tarnished by slow revenue in the past few years, but performance and stock prices have caught a new gleam recently. In part, D&B's was unfairly penalized by excessive and indiscriminate investor panic when Planet Hollywood and other high-profile themed restaurants failed. Since then, however, a combination of perseverance, some management restructuring, and solid improvements in both marketing and store content have allowed the chain to regain momentum. D&B's has also benefited from a more general revival of investor interest in this sector.

Management remains confident that increased marketing budgets will continue to build revenues for this restaurant, amusement and bar experience. The conjoining of amusement, pool hall and restaurant elements that inspired the original concept has now evolved into a more effective presentation of the same basic elements. Today the flagship D&B's stores feature heavily themed dedicated areas, targeted strongly at adults who desire to meet and play with other adults (and sexes). The formula encourages grownups to unwind with leisure entertainment as much as the alcohol consumed.

Another, quieter comeback is underway at Namco America, operator of the CyberTainment chain which was America's largest arcade chain in the 1990s with 460 locations. But consumer trends change. Mall traffic, arcade video games, and mall video arcades themselves suffered a sharp drop in popularity late in the decade. In 1998, Namco CyberTainment briefly entered Chapter 11. The move was basically a shrewed business ploy to terminate leases on bad locations and renegotiate leases on viable locations. It worked. Having brushed off these cobwebs and reemerged from bankruptcy status, Namco has since slimmed down to 307 sites including many non-mall locations such as movie theater lobbies and Howard Johnson Hotel game rooms. The operation has worked with its reinvigorated video manufacturing empire to focus on the elements players really want. Namco has also become much more cautious in the projects they invest in, as seen with the company's careful and limited experimentation with LAN networks. Further evidence of caution: the ambitious X-S brand concept has not expanded beyond the first flagship site opened in Orlando, FL.

Following Namco into Chapter 11 territory this year - but not, so far, coming back out again - is GameWorks empire, majority-owned by Sega with minority participation by Universal Studios. Management asserts the chain's flagships continue to earn well, so the visit into the bankruptcy protection zone is seen partly as a "spring cleaning" exercise, as well a beautification exercise for possible sale of the company. Sega and Universal originally launched GameWorks with a third partner, DreamWorks SKG.

The concept was to create the ultimate arcade for grownups who fondly remembered their grubby arcade experiences of their teenaged years, combined with a bar and a bit of food (hot dogs, chips). But the much-ballyhooed love-child of this corporate manage a tois quickly became an unpopular offspring.

DreamWorks abandoned the family first, and now the baby has been offered up for adoption. A start-up suitor for the franchise, Paradigm Entertainment Group, has been circling for some time and remains interested and hopeful.

Mixed Use Facilities

The proving ground for the GameWorks concept was Canada's Playdium venue. Now a three-flagship operation, Playdium has ventured beyond multiple arenas to focus on the servicing and operation of mixed-use sites at 61 Cinemark movie theaters in Canada. This year, Playdium expanded its movie chain presence by adding 165 "premier amusement" operations to U.S. Cinemark theaters. Amusement as a companion for cinema installations is nothing new, but offering a stronger interactive gaming companion to a movie has seen investment into concept sites such as the 'GameWorks Studio' brand.

Perhaps the most high-profile (and extremely high-priced) mixed-use venue in America was the Sony Metreon, located in San Francisco's Mission District. Launched with great fanfare in 1999, it achieved disappointing results. Plans to build 30 such facilities were shelved after only three units were up and running (the other two are overseas). Last year, the arcade section of Metreon was acquired by Paradigm Entertainment Group. Now operating under the name Portal One, this hi-tech fun center enjoys traffic flow from many other attractions in the Metron complex including a multiplex cinema, an extensive restaurant and bar mall, and premium retain units. Metreon remains the largest entertainment destination site in its class that has been built to date. But as some cynics might have predicted, Metreon -- first conceived as a dazzling, definitive new innovation in leisure and entertainment -- has proven to be little more than an upscale mall.

Games On The Menu

A more modest, but better-targeted and far more successful, newcomer to the F-n-F sector is ESPN Zone, a chain of eight stores owned and operated by the Disney Regional Entertainment division. This sportsbar-arcade offers a next generation glimpse at the future of tavern style food and sports venues. The famous ESPN cable TV brand name pulls people in; but what keeps them coming back is that the ESPN feeling is truly achieved in this special sports-style dining and leisure environment. Large monitors on the walls display sports broadcasts while a fine restaurant and attractive games round out the menu. Here again is strong evidence that sizzle and steak, marketing and content, remain indistinguishable in the world of leading U.S. fun centers.

ESPN shows the power of extensive brand placement (including possible retail outlets) and interactive gaming as a means not only to branch out into new areas but maximize brand identification. Other sporting brands are investigating Disney's successful mix of these elements and imitations may be coming soon (if it works for ESPN, can Sports Illustrated be far behind?).

Shifting to the family and kiddie demographic, the powerhouse Chuck E. Cheese's chain remains undisputed leader.and it is steadily increasing its lead on any and all competitors. Currently standing at 455 stores (both corporate owned and franchisees), the company adds 10 or 12 new stores per year in a quiet yet impressive growth pattern. It is appropriate that the acronym CEC can stand for "Chuck E. Cheese's" or for "children's entertainment center," because this chain literally invented the concept of the kiddie-arcade niche. As diversification rears its ugly head for other franchises, the CEC brand remains committed to its successful formula within this established brand. At the same time, however, management looks towards the future with at least two new concept stores under evaluation. As one of America's largest providers of pizza, CEC is also a leading exponent of the F-n-F experience, though the future will see this chain offering a stronger interactive experience.

For a while back in the 1990s, it appeared that America's dominant quick-serve food and beverage operations were about to become quasi-arcades. McDonald's (30,000 plus stores) and Burger King (nearly 12,000 stores) added free soft modular play and tunnel attractions to many of their stores. McDonald's in particular experimented with web surfing kiosks (e-terminals), and has been linked to a least three touchscreen game system initiatives. As one of the largest toy retailers (remember all those Happy Meal gifts), a FEC redemption component is not such a hard leap to comprehend. For its part, Burger King inked an agreement with amusement operator Time Zone. The BK empire is said to be toying with amusement as a brand identifier.

But as diet trends come and go, and as tighter family budgets have led to less eating out, the fast food sector has been hit hard by a shifting customer base. In response, McDonald's management has gone back to basics for now, focusing on reinventing and updating its food menu while delaying or dropping thoughts of making amusement a key component.

Starbucks, with their 7,500 coffeeshops, has made a dedicated movement into the coin-operated and amusement sector. In an April announcement the company confirmed that launch of a new entertainment division that will augment the (already established) 2,700 wi-fi enabled locations to add a touch-screen terminal (e-terminal) system. This system will deliver music, games, and possible other forms of entertainment and online activities.

New Ideas

Video amusement kiosks and interactive kiosks are not new to this industry, but they remain comparatively new experiences for most consumers. Newcomers to the industry are attraced to such equipment because it seems to promise several advantages. One advantage is access to new types of locations, such as McDonald's, Starbucks, and others. A second advantage is access to a new revenue streams, with physical revenue generation (not just a component of the venue's takings in the cash register, but a totally separate cashbox). A third advantage is the possibility of offering new types of services and content beyond traditional games and music.

As broadband becomes more commonly installed in commercial locations across the country, such kiosks are becoming more attractive to existing and potential operators. The traditional tavern market has already migrated into this realm of non-traditional amusement, as seen in the success of Digital Music Xpress, NTN Communications and its football-oriented game, and most recently the downloaded music offered by Ecast and its jukebox partners. Broadband connections enable locations and operators to consider e-terminals, music and games on demand, and lucrative tournament activities within a facility.

Traditional video game manufacturing companies are finally getting on the ball with the potential that such technology has to enhance their products with such extras as online tournaments. In Japan, Namco has entered the Local Area Network (LAN) arena with a new type of franchised site called LedZone. Stores offer specially developed PC kiosks, and software that allows players to participate in the popular "CounterStrike" game - a networked, multiplayer, realtime extravaganza. LedZone PCs also offer more conventional online activities. Soon to be a 1,000 strong franchise operation in Japan, international opportunities are being eyed.

Not to be outdone, Sega Corp. has been working on its "Bee" facility chain in Japan. This is an adult venue that offers a rec-room style atmosphere with darts, board games and a relaxed bar environment. Three test sites are now open; the chain is to be expanded to 10 by the end of the year. Industry experts have said Bee feels like a Jillian's or D&B bar concept given a Japanese flavor. How successful this concept will be remains to be seen. In the LBE market, a large part of establishing a brand is getting the mix precisely right - as GameWorks has painfully learned.

Back in the U.S., another uncommon mixture is beginning to attract the attention of industry professionals. That is a blend of the dining experience with a sports-related interactive element. Yes, it's been tried before, with mixed success (think Malibu Speedway and others). But Interactive Motorsports and Entertainment Corp. is going strong with over 15 NASCAR Speedway franchise locations. Some are wholly owned; others are shared-revenue sites. Having gone through a restructuring of their operation, the company has focused on individual simulator installation, as well as establishing their unique NASCAR driving location-based entertainment retail unit sites. Theming is heavy and attendant interaction with customers is very energetic.

Consumer Trends

As the terror of 9-11 fades and the U.S. economy bounces back, American consumers are leaving their Internet and game consoles behind.venturing out of their homes and investigating available entertainment venues. (It's worth noting that the Internet is playing an increasing role in the decision of where to go, made before the consumer gets out the door.) As always, the players, drinkers, eaters, and socializers are looking for something exciting - which fad-happy Yanks usually define as "something new and different." As always, amusement facility operators are under greater pressure to attract the new audience.

The amusements industry is beginning to come to term with these trends, not only in the site developments discussed above but also with online marketing. Current trends see game manufacturers at last offering a more-informative media presence for newly released coin-op video games (supported by online web ranking and specialist pages). This is light-years beyond previous operator dependence on word of mouth to circulate the news that "XYZ new game is available at ABC location." The next level of online promotion consists of dedicated forums for players to converse among themselves, and this too is becoming available - usually sponsored and controlled by players, but sometimes by manufacturers or distributors.

What do players talk about on these sites? Not just the games and the game play experience. They also discuss the location and quality of various fun centers that operate their favorite machines.and they do so in tremendous detail. As a result, independent and franchise venues are under the closest scrutiny in history.

Certain elements of the U.S. amusement industry, in particular distributors, are trying to control the dissemination of information about locations. Betson Enterprises has invested in a dedicated players site (www.barcade.com) that offers player-authored game reviews. Players also get the opportunity to post comments about locations they have visited. Years after Wal-Mart and K-Mart and every other leading retailer had a "store locator" service on its website, coin-op amusement factories have (finally) started to incorporate "machine locator" services on their sites. These services allow players to find the machine closest to them. This web-based scrutiny can drive traffic to an operator's location. It also provides indirect pressure for competing operators to make sure their own locations have the latest equipment.

Amusement playing may be cool again, but the venues must continue upgrading and modernizing their offerings in order to win anything like permanent loyalty from today's newly emerging player base. The sizzle smells great, but the steak is still on the grill.and a few more ingredients need to be added, before it's presented as a final, finished dish to the customers.

ABOUT THE AUTHOR -- Contributing editor Kevin Williams is founder and director of the out-of-home leisure entertainment consultancy KWP Ltd. His 15 years in the global video amusement and hi-tech attractions industry includes top management and design posts, with special focus on new technology development and applications. A well-known speaker on the industry and its technology, he also pens extensive articles for leading trade publications. Williams is editor and publisher of The Stinger Report, a leading industry e-newsletter and web-based information service (www.thestingerreport.com).

(First published in the May 2004 issue of Vending Times)

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