It is a fact, and a brutal one, that sales in the international amusement sector (especially videos) are at the flattest some have ever seen!
Amusement machine manufacturers and distributors are now facing momentous market disturbances that are sending sales at an all time low, and some analysts view the state of the sector as being close to terminal.
Even the consumer game sector, once a successful industry, has seen a fall in sales of more than 16 per cent over just six months in the UK alone, prompting many to fear that the console scene is about to experience its own version of the 1984 video game crash). In summary, make no mistake: the condition of the amusement sector is near to cataclysmic.
- Worse than 1983!
For many in the modern amusement industry their recollection of the 1983 ‘Video Game Crash' is nothing but a muddled mixture of half-formed memories and unreliable gossip in the run-up to the more publicized 1984 consumer game implosions. A brief history lesson would recall how the halcyon days of the US amusement scene in 1982, with over 10,000 arcades across the States, suddenly ended with an implosion. 2,000 arcades closed in a matter of months during 1983, and the market went into freefall. Much of the failure of the market would be blamed on under-performing hardware, in particular the failed promise of the Laserdisk (personified by the collapse of Cinematronics' - ‘Dragons Lair'), as well as the bankrupt application of new technology such as 3D (such as SEGA's - ‘SubRoc-3D').
Eventually the industry bounced back and, though many manufacturers fell by the wayside, the trade continued, shored-up by new standards to ensure some level of profitability, the JAMMA connector standard of 1985 being one such example. Equally, though less publicly, the structure of private threads that connected the trade associations were put in place.
Now in 2010, sales are going into freefall yet again... but only worse!
What we seem to be witnessing is the wholesale abandonment of the sales infrastructure across the international sector (EU/USA). A mixture of expensive hardware, which does not offer any reasonable return on investment, with questionable sales and availability practices has caused a tipping point to be reached.
- Structure Collapse
It might have been hoped that, as soon as a structural problem with amusement trade sales was noticed, the professionalism of its trade association executives would kick in and they would act decisively to nip the problem in the bud. Sadly, the opposite seems to be the case. Instead, in-fighting and attempts to undercut distribution deals have broken out across the globe. Where once territories had been defined, anarchy has erupted!
The fundamental change that fragmented the market was the move by at first one manufacturer, then by a series of corporations, to ‘sell direct'! The seismic aftershocks of this decision cannot be understated. For decades, the need to protect against direct selling was seen as the bedrock of the international amusement scene, essential to ensuring the distribution operation and allowing the market to continue as it had done since the 1950s!
For operators the opportunity to go direct came in the wake of a series of criticisms as to what distributors actually brought to the table. In the mid-80s it was agreed that the importation of amusement hardware was a complicated and difficult process, with the added issues of unreliable architecture and the need for sophistication service and support. In the modern market however the support and service needs are totally different, while essential extensive marketing (against servicing) has hardly been seen as forthcoming.
When venue operators looked to the trade association to activate its ‘rainy day' funds to help promote the industry and encourage amusement distributors to create sophisticated marketing, all seem to have been wanting. Thus the trade associations, having moved towards consolidating their revenue and control through exhibitions and possible closer relationships with similar operations, left their membership feeling discarded and extremely vulnerable.
A surprising, but revealing, factor of the financial down-turn in some areas has been with the departure of key staff and executives, the extensive implications of individual business styles and thinking have come to light. Examples are now coming to the surface where, with the departure of a member of staff, it turns out that not only that they were the only one that had instigated a block on any new business development, or consideration of different practices (such as Social Networking to promote business), but also the influence of this individual had been such that detailed business inventories had not been carried out. The revelation, that some in this declining sector had undertaken protective practices between cliques to 'protect' their position, proved astounding.
- Legislative and Associational Pressure
In the light of the current Global Financial Conditions (GFC), the legislators of a number of countries are looking towards new means to generate revenue, and with that the arguments over taxation and operational structure have been placed back on the table. The amusement trade finds itself with no concentrated structure to effect concerted lobbying, undermined by both a lack of funds and a perception by governments that the trade and its associations speak at variance.
Larger corporations have now gone it alone to lobby what they feel best suits their needs. Meanwhile some government agencies are looking again at the creation of a structure to allow a greater utilization of Video Gaming Terminals (VGT), including possible video lottery systems. However, even more concerning is the fact that the amusement trade seems to be sleep-walking into allowing ‘Amusement Taxation' to be established, (see previous Stinger feature # xxx).
Incapable of marketing themselves, the trade associations that had generated considerable amounts through membership and investments now stumbled from one problem to the other. The merger of one association caused questions to be raised over the actual state of its liquidity and executive responsibility. The need to embrace social media and active marketing proved such a divisive issue that associations have reverted to attempting to manipulate publicity by control of shows and media outlets.
The exhibition and media scene has been hit hard by an increasing inertia in sales. Advertising in many of the leading trade journals has dried up as corporations watch their pennies intensively. Some journals have drastically cut the number of pages they print, while some services are moving to restructure themselves to grab and hold on to a new position on the shrinking iceberg, In the exhibition scene, after the associations in the UK and US have wrestled to retain control (and revenue) of shows of their own, the loss of the independent Preview event in the UK sent shockwaves through the market (an early attempt to fill this vacuum saw Leisure Industry Week (LIW) grabbing Harry Levy and Electrocoin for the September NEC event). The general perception seems to be that, while some executives have used their influence to manipulate the industry behind the scene for their own ends, the rest of the trade is being left high-and-dry!
- The Hidden Sales Success
Although the international market suffers from Global Financial Conditions (GFC), there is proof that the FEC and regional amusement sector benefits from what has been called the 'StayCation' effect (covered at length in a number of Stinger Report's over the years). While the traditional amusement sector has wallowed in doom and gloom, a new and dynamic market has emerged and seems to be stealing the plaudits.
Meanwhile, for those that have written off conventional amusement as a source of sales then the reality will come as an uncomfortable surprise. The manufacturer Raw Thrills has proven the poster boy for the re-structured amusement scene with a number of high profile successful releases topped this year by the launch of ‘Terminator Salvation', with Betson selling 1,000 in the first 30-days of the shooter's release (sources suggest that closer to 8,000 have been sold at this point in its phenomenal rise). Indeed, such has been the success of the robot blaster that the company has gone on to launch a brand new deluxe version in the form of ‘Terminator Salvation Super Deluxe'.
Raw Thrills, alongside development partner Play Mechanix, has established a detailed development resource for not only video amusement but also redemption titles. This partnership has been supported by Betson's involvement in sales and distribution, a symbiotic relationship that has created the best environment possible for strong selling titles. This success has been emulated by other strong selling titles such as the Big Buck range, and from Incredible Technologies, the Golden Tee franchise.
Sadly the US distribution structure seems to have been a fundamental thorn in the side of emerging independent development. We have seen a number of strong ideas strangled by those that purported to test a concept only to become the reason for its failure. The fact of the matter is that the conventional amusement structure is now so broken towards new concepts that it is difficult to move forward given the current landscape.
However, some distributors hope to re-apply their skill-sets to a new dawn in sales generation. One leading exponent is BMI Worldwide. The company - a partner of Stinger owners KWP Limited - has become, in the words of its fans, a 'change agent', with its innovative use of Social Networking tools having generated thousands of clicks while traffic for its innovative HD Video has been seen to drive interest in new developments, to the point of even being used by the very manufacturers of the various machines covered. Only recently BMI, representing the Stinger, compiled a video of new releases at the association Gala. The resultant video generated massive public as well as trade interest - a harbinger of a new way to instigate business.
Increasingly it seems that while those charged with securing our future simply offer more reasons not to do things, others are grabbing the opportunities of Social Networking, offered by YouTube, Twitter and LinkedIN, to name just three resources. Equally, new applications to attract a playing audience have been adopted, such as the Japanese amusement industry's drive towards player engagement through QR-Code mobile phone applications and e-payment.
Despite the conventional amusement factories being locked in a state of depression, victories are being snatched from those that would rather embrace defeat. One such example is Capcom's release of amusement games based on one of their most popular amusement franchises. Capcom USA had demanded that no arcade version of ‘Super Street Fighter IV' would be developed: a misguided perception by executives with vested interests that amusement was not viable.
It would take a tidal wave of player demands across the web and social network landscape for an amusement version of the game that finally forced Capcom's hand. Now on LocTest, the arcade version of the brawler has special features and even hidden characters unique to the amusement release. This move has incensed the consumer game executives of the corporation, feeling that their control has been weakened by a market (amusement) they would rather write off as dead!
The audience success of the amusement version of the previous game in the so-called ‘dead' market was a closely guarded secret, although the revenue it generated was very useful for the still-restructuring Capcom (and Taito) bottom-lines. However, the possibility that a second version could see strong sales in the home market was compounded by strong interest from independent amusement operators internationally. That amusement success proves so bad for some executives is an example of the sterile nature of some of the thinking still shaping our industry. This point was rammed home when SEGA Sammy revealed the importance of amusement business in their return to the black!
- Birth of new Suppliers
It is the emergence of the Korean, Taiwanese and - inevitably - Chinese market that points to what could be the future of the amusement sector. It has to be observed that, during better days in the history of the Japanese amusement, unwritten rules excluded these emerging territories from participating as a result of accusations of counterfeiting of IP by certain parties. Now, however, Japan seems to be feeling the heat of the changed market, and with that a crack has been opened that the new territories have jumped through.
It was the utilization of the cheaper Chinese manufacturing resources that opened this door. With large factories turning to Chinese build, suddenly the opportunity arose for the Chinese to take the next logical step and not just build someone else's game, but create the whole game themselves!
The current situation is best illustrated with the example of ‘SEGA Racing Classic', a game that was supposed to be a cost-effective update of the popular ‘Daytona USA' racing classic. After a number of inglorious internal difficulties, the final release was seen as an expensive missed opportunity. This "dropped ball" by a major manufacturer proved an opening for the Chinese sector – and already a number of titles from new territory manufactures such as InJoy, IGS, Universal Space and Tecway (to name a few) are receiving representation out side of their home market.
Meanwhile, it was recently discovered, while compiling a Chinese show Stinger report, that a number of operators were considering adopting amusement products from this territory, even though the game play (if not the construction) is different from what they are used to from the Japanese factories. As operators continue to elongate the time between new video purchases, buying ‘Chinese' begins to look like a viable option; the potential impact of this market on future sales was best illustrated by the relenting of a private ban on Chinese exhibitors at recent Japanese amusement shows.
It should also not be forgotten that the Chinese (Taiwanese and Korean) manufacturing base has been the first to adopt some of the latest technology trends. Indeed, the Chinese sector has been the first to release a production 3D amusement product (with ‘Star Raiders' from Dragon World); the first to launch large touchscreen cabinets (Pentavision with their ‘DJ Max Technika'); and the first to mass-produce mini-motion based cabinets. The reality seems to be that the torch of amusement development may be about to be handed to a manufacturing base that can take it and run with it!
Breaking Stinger News – Just as we went to the wire it was revealed that the 2010 US distribution start-up – Pipeline Games, run by ex-Anadmero executives - had signed an agreement to merge with NeoWiz Games-owned Pentavision. This move will see Pentavision being controlled from a USA headquarters, but offering in-house R&D and production line in South Korea. The company will now be called Pentavision Global. As yet there has been no further word on the signing of UK distributor UDC to represent the DJ Max line. Expect more news in forthcoming reports.
- A Brand New Industry
Covered under the descriptive term of ‘Digital Out-of-Home Interactive Entertainment', another emerging sector offers a fresh platform for the pay-to-play model. Along with comprising more familiar hardware for us in amusement (deluxe, upright, terminals, and bar-tops systems), this sector has given rise to a whole new machine category. Sitting between a deluxe amusement system and a theme park attraction, these ‘Mid-Scale Attractions' are the result of a selection of developers selling machines that encompass the space that would have been normally allocated to over 12 conventional video amusement machines, but that have an audience through-put and revenue generating capability way over anything conventionally achievable.
Systems from TrioTech Amusement, Trans-Force and AlterFace (to name a few) are now looking to create a brand new aspect to the digital gaming map that could leave the amusement scene out in the cold. Put simply, these interactive systems offer repeat play, simple content swap-out and a large audience/small footprint opportunity to a new style of operator (see the forthcoming feature on this sector soon in The Stinger Report).
One of the most contentious, and far reaching, aspects being embraced by Digital Out-of-Home Interactive Entertainment' is a change in strategy, a fundamental restructuring of the very foundation of our industry: the Pay-to-Play industry aspect.
Where many in the amusement industry would rather continue to use cash to operate their machines, others have found incredible success employing electronic payment and card payment systems. The success in revenue of operations such as Dave & Buster's with their ‘PowerCard' has played an important part in the growth of brand revenue. But so many operators are intransigent to this opportunity; due in part to a stubborn refusal to change their ‘coin-machine' heritage, but also to the dangers inherent in revealing (in receipts) the ‘variances' that exist at some venues between what is collected and what is reported!
For this industry to emerge from stagnation and take its rightful place in the Out-of-Home sector, the need for effective revenue generation is fundamental. Likewise, the infrastructure to support this, one that embraces Social Networking and online connectivity, has to be put in place. If that means that we need to fragment the industry (letting go of outdated thinking) and start again on a more profitable footing, then that is what we have to do – despite those vested interests that may obstruct this undertaking!
Breaking Stinger News – The need to move away from direct coin handling was rammed home as we went to the wire. As covered as far back as 2008 in the Stinger Report (#667), the ‘epidemic' of counterfeit coinage – in particular the British one pound coin – has escalated at an alarming rate as the Global Financial Conditions (GFC) take hold. Sources close to the Royal Mint, responsible for producing the country's currency, and UK Treasury (now under the new Coalition Government) revealed that a Parliamentary answer to a raised question confirmed that, in 2010, at least one coin in 36 is a counterfeit pound coin. It was also revealed that organized crime gangs have deluged the UK with millions of coins, the gangs making an estimated 55p from every coin. In the Stinger's follow-up 2009 report, we revealed that there were an estimated 30m counterfeit coins in circulation. The new 2010 statement suggest that number has risen to 41m.
The British government was quick to down play the severity of the situation, wanting to ensure trust in the currency. But as the impact of the situation hit homes it was revealed that the UK government was considering issuing a brand new pound coin to replace the current design. As the government and retailers are not obliged to refund those that find themselves with counterfeit coins, a move to address this problem, and the impact on the industries that depend on coin trading (such as the pay-to-play coin-operated sector), has been described as a genuine matter for concern.
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News Story with thanks to Kevin Williams (KWP Ltd.)
