The Future Of The Amusements Industry: 2007 And Beyond

By Kevin Williams

LONDON – If the amusements industry as we know it survives in any recognizable shape or form, then decades from now trade members may look back at 2007 as the year that so many long-predicted trends finally caught up with this business – for better or for worse.

It has become a commonplace to observe that the shape of the amusements industry is rapidly changing around the globe. In fact, we’ve all heard the list of change factors so often, and we’ve all noticed that the sky has not fallen (despite predictions to the contrary) for so many years, that many trade professionals have finally gone numb to the possibility that real change – even revolutionary change – is actually possible.

But the more thoughtful members of the industry worldwide are quietly asking themselves, “Can this industry survive? Or is it fated to go the way of vaudeville and 1920s style radio drama…replaced by other forms of entertainment that will be delivered in fresher, more exciting channels?”

At the risk of activating the MEGO Syndrome (My Eyes Glaze Over), allow me to briefly summarize a few of the massive changes that now confront the pay-for-play amusements industry.

We continue to experience a worldwide wave of mergers…the increasing deployment of new technologies (Radio Frequency ID systems, cashless payment systems, broadband connectivity – to name just a few)…growing competition from the Internet, digital entertainment, and legalized gambling…and the restructuring of major amusement companies on every level from manufacturing through distribution and operations.

My answer to the basic question, “Can we survive?”, is yes – but only if we react to these massive changes with an intelligent, purposeful, and united program of wise and timely action. Of course, every doctor must make an accurate diagnosis before he can prescribe the right medicine, so this column will outline the negatives in some detail before offering positive suggestions.

Let’s begin by looking at some symptoms that indicate just how hard it is for many people to acknowledge the realities of today’s market. In any time of rapid change, some elements of this industry attempt to react to upheavals with a reassuring “back to the future” reading on market trends. Some hope that we’ll go back to the 1980s with a resurgence of independent single site arcades.

Others believe that bypassing the operator with revenue sharing, leading to vertical integration in the classic 1990s Japanese model, will preserve the basic contours of today’s industry.

Still others hope that just one more hit product will somehow magically bring back the old three-tiered structure of operators, distributors, and manufacturers that dominated from the 1940s through the 1990s.

All of these projections amount to wishful thinking. But nostalgia is not a strategy and the amusements industry cannot solve its problems and meet its challenges with a tired old “back to the future” program.

In the U.S., operators complain now and then about location-owned equipment, but most operators seem to feel they largely have the problem reasonably under control. Few American operators realize that this trend has increasingly become the norm in Europe…and that it is poised to threaten the operator’s role far more powerfully in America than it has to date, as seen by increasing sales, advertising, marketing by traditional coin-op game manufacturers to locations.

Pick up a location magazine, and you’ll find more and more advertisements for amusement equipment. Visit a location trade show, and you’ll find more and more product exhibits by amusement manufacturers. Peek into the boardrooms and the R&D departments of leading factories, and you’ll find more and more plans and products that are centered on direct sales to locations – not operators.

The locations themselves are evolving more rapidly than operators have been willing to acknowledge, even to themselves. While many U.S. street operators remain focused with ostrich-like blindness on mom and pop taverns (themselves a dying breed), the FEC-LBE-CEC sector has expanded, diversified, and stepped up to a new level of sophistication and investment.

“Eatertainment” once meant Chuck E. Cheese’s, ESPN Zone and Dave & Buster’s. Today it means GameWorks, Mr. Gatti’s, Peter Piper’s Pizza, plus and a large and growing planned class of imitators, that mix the drinking and dining experience with amusement hardware.

As branded chains expand, U.S. operators should be prepared to see companies like BuzzTime Networks and various others catering directly to these locations, bypassing the operator with a new breed of entertainment experiences that feature big plasma screens, wireless remote player controls, broadband connectivity (wired or, increasingly, wireless), and billing that has absolutely nothing to do with coin slots, bill acceptors, or credit card swipe slots.

Again, this is already happening very strongly in Europe. (See my column on the new generation of tavern machines in the July 2006 issue of Vending Times.)

Meanwhile, the types of entertainment that are offered by non-bar, non-arcade locations is also encroaching on the turf of the amusement operator. Fast food restaurants with kiddie play zones are just the tip of the iceberg. Grocery stores such as Whole Foods have animatronic character displays. Clothing stores have free digital downloading music that is customer-selectable (courtesy of TouchTunes in some cases). Movie theaters are experimenting with using their big screens as platforms for interactive experiences.

Recognizing that street operations are under threat from a new generation of equipment and location types, many top industry professionals believe that fun centers (FECs, arcades, gamerooms, and other venues that focus on redemption games) will be the savior of the business. But FECs are also under a twin threat – and from surprising directions.

Theme parks, once far removed from the amusements sector by an entire order of price and type of attraction, increasingly are blurring the lines between parks and FECs with “big box” attractions. It’s much cheaper -- and far safer -- to offer a simulated roller coaster ride than a real one these days. (Someday, the simulator may be the only legal or practical option if regulation continues to grow more onerous.)

The second threat to FECs comes from the gambling industry. The casinos in Florida have been pushing the state legislature there to pass new laws to more clearly ban so-called adult redemption games. Casinos and other legal gambling interests in the Sunshine State have also pressured government – which doesn’t want to risk those healthy gambling tax revenues – to more zealously enforce existing laws. This year’s courtroom victory by the president of the Florida Arcade Association will not stop gambling interests from continuing their campaign to shut down “adult redemption.”

Similar lobbying efforts, both in public and behind the scenes, are ongoing in other U.S. states and in Europe. The gambling industry thinks that redemption is too close to “risk-reward entertainment” and wants to divert the billions now flowing into redemption games, into slot machines, roulette wheels, and the like.

Industry leaders at the operating level are “complacent,” to use the same word that was leveled by Laurien Henry of AdventureZone (Calgary, Ontario) during her term as president of the International Association of the Leisure and Entertainment Industry.

Street operators don’t describe themselves as complacent. But they do seem remarkable sanguine about the prospect of a 50% reduction in their ranks – seemingly unable to connect the dots and realize that a 50% reduction can all too easily become a 100% reduction.

By contrast, industry leaders at the distributing and manufacturing levels are worried. Last summer’s board meeting for the American Amusement Machine Association was the second or third in a row where board members stood up to say, “We have been saving money for a rainy day – and it’s raining.”

While both AMOA and AAMA have flirted with industrywide marketing programs, the trade’s leadership has given little evidence that it grasps the radically revolutionary media habits of younger consumers – or that it even wants to make a serious effort to capture the younger consumers who represent tomorrow’s player base.

The amusements industry should be deeply concerned that sales of home video game has fallen off so sharply in the past 18 months. The explanation this time is not the usual lull between platforms; it’s a sign of a drastic consumer shift away from “old” style entertainment to newer formats that range from faddish Internet community sites to iPods (which leading consumers have already decided are no longer cool because they’re growing too common).

To recapture its dwindling player base, the consumer video game sector is increasingly targeting the coin-op sector by lifting innovations that were once used to make coin-op games “something they can’t get at home” – from motion capture technology to deluxe arcade-style controls and peripherals.

A decade ago, certain leading manufacturing executives (particularly in Japan) basically wrote off the amusements industry, saying the home game market was the only viable future. With this rationale, they slashed R&D for coin-op games, which of course created a self-fulfilling prophecy.

So much for the negatives. Now let’s examine a few survival strategies that have already proven their value, and that can point the way to a healthier, long-lived

amusements trade.

First, we must acknowledge that companies that do invest in R&D, such as Betson Enterprises with its support for Raw Thrills and PlayMechanix, have proved that targeted R&D and quality products continue to have a vibrant place in today’s market.

Second, new corporate structures must be created to accomplish R&D, manufacturing, and distribution with far less overhead and greater efficiency. Betson’s “virtual corporation” and the versatile, slimmed-down manufacturing at Stern Pinball Inc. both provide models of how amusement manufacturing can remain lean, mean, versatile, nimble, and diverse enough to respond to a fast-changing environment in a way that ensures survival and profitability.

Third, the vending industry’s successful example of vertical integration for the 21st century should be emulated in the amusements sector. In Europe, large professional operator manufacturers are maximizing profits by making aggressive use of remote telemetry and other product advances such as cellphone payment systems.

Fourth, while embracing hi-tech whenever feasible, the amusements industry should continue to capitalize on its ability to offer unique entertainment experiences. The mantra used by KWP for the past five years is that the amusements trade must create “Unachieveable@ Home” products, promotions and services.

So, yes, the next generation of sports games may be equipped with wireless broadband capability, and may be linked to 24/7 live tournament structures, supported by dedicated websites, allowing nationwide cash prize contests on a weekly or monthly basis. But the foundation for those games will remain large, expensive pieces that many consumers can’t afford for their home rec rooms -- and even if they could, nobody can create a league night tavern atmosphere in their den.

Fifth, to be blunt, many operators need to “get over” their sales resistance and their anti-hi-tech biases, which are only hurting themselves in the long run. Too many U.S. operators attempted to avoid Smart Cards or fought against broadband connectivity even when revenue data supported investment.

More operators need to follow the example of Jeff and Kama Reed of B.J. Novelty (Covington, KY). This dynamic duo has long been pleading with manufacturers for a new generation of tavern entertainment experiences that utilize large wall-display plasma monitors, remote control wands as player controls, and other cutting-edge technologies.

The Reeds are not simply an admirable, yet exotic example. They are a vitally necessary paradigm of the future amusement operator, if there is going to be one. Let me be clear: if manufacturers believe that operators cannot or will not support such advanced technologies and products, they will not simply shelve such products. Rather, they will build them and operate them themselves. Or, they will sell these machines directly to the new breed of locations. Again, this is already happening in Europe.

The sixth pillar of a survival and success strategy must be implementation of a global mentality and strong international cooperation among industry members and trade associations. Along with this must come a concerted effort to embrace the player base with more respect and more empowerment.

We are long overdue for a viable international association structure, something in the mold of Euromat but engineered for the worldwide amusements trade. Such an organization would then be in position to craft an effective global marketing and PR strategy for this industry.

A pipe dream? No, a necessity in the age of the Internet, which is already creating a global audience of game fans (even if most of the elder statesmen of the coin-op amusements trade have yet to realize this fact).

One obvious example of the success of this approach is the recent re-launch of the International Flipper Pinball Association. Its founders and supports deserve much credit for having the humility to build a promotional organization from the grass roots up, letting players and fans take the lead and seeking only to facilitate their desires – instead of trying to impose a structure from the top down.

TouchTunes has taken a small but significant step in this direction of embracing this same philosophy with the creation of MyTouchtunes.com, a dedicated website that is designed to capitalize on the desire of players to create and run their own online communities.

For the rest of the industry, too (not just IFPA), the time has come to consider the creation of a hybrid association that brings amusement professionals closer to locations and to players worldwide. Such a hybrid would offer the best of an operator and manufacturer mix, but with the dynamism of a non-profit organization steered by player-fueled vision rather than compromise and complacency.

Finally, the industry needs to consolidate its trade show schedule and open it to consumer media, as E3 did successfully for so many years, and as the Consumer Electronics Show and others continue to do today. The day of coin-op insularity is over. The industry of the future simply cannot afford to be afraid of sharing information with everybody and anybody who wants it. Open the doors; let the sunshine and the players and the media (and the dollars) flow in; let the information and the excitement flow out.

People will always want to congregate in fun public spaces -- some with liquor and food, some without. People will always enjoy location theming and group dynamics. There is no substitute for personal contact, which is why Broadway survives despite the success of Hollywood.

Therefore, the amusements industry has a viable future. The only real question is, how many of today’s industry members are able and willing to change themselves enough to remain part of that future?
(First published in the January 2007 issue of Vending Times Magazine)

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