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Issue Date: Vol. 48, No. 5, May 2008, Posted On: 5/27/2008


Touchscreen Videogames Face Evolving Market, Operators Say


Marcus Webb

U.S.A. — Touchscreen videogames, a crucial category for tavern operators in the past decade, is holding its own in a challenging market, industry members told VT. But as the tavern market and customer expectations both continue to evolve, they said, countertops are increasingly hard-pressed to maintain profitability, player interest and location support.

Challenges include fewer mom-and-pop bars, which are being replaced by corporate chains with shorter hours. There’s also more competition for players’ attention and entertainment budgets, both in public locations and at home.

Finally, law enforcement has become more focused on card-themed videogames, proving problematic for operators of this equipment in certain jurisdictions.

Steven Murphy Sr. of Games Are Us (Greenfield, WI) said he and his son Steve Jr. operate a 100-location route, and half its customers are bars. Countertops are an important staple in most of GAU’s tavern locations, Murphy said.

The operation uses several touchscreen game brands, and Murphy estimated that an average machine earns $250 weekly in his better locations, even without tournament promotions or networking support.

The vendor makes a point of referring to this class of games as “countertops” – and he means it literally. Games Are Us works to persuade location owners to permit installation of touchscreen videogames on main serving counters in bars.

“Tavern patrons don’t get off that barstool,” Murphy said. “Sometimes these games get pushed off to the side, and when they do, players usually don’t follow.” Amusements definitely earn more money when they are located directly on the bartop, he reiterated.

For this reason, the Wisconsin operator is enthusiastic about certain touchscreen models introduced in recent years that feature smaller footprints and slimmer, lighter and more eye-pleasing designs. Players and locations both respond positively, he said, to form factors that integrate large LCD monitors into sleek, illuminated cabinets, some of which offer multicolored light shows.

“Tavern owners often are reluctant to give up some of that bar space to coin-operated games,” Murphy said. “The older models with their heavy, bulky cabinets definitely turned off some owners. But the newer generations of touchscreen videogame models are much more attractive than the designs we had just a few years ago. So it’s easier to get bar owners to let us put the newer, smaller models right on the counter.”

GETTING SLEEKER

Smaller footprints and more attractive designs translate into a “huge, huge advantage for the operator,” Murphy pointed out, because these elements facilitate superior placement of the equipment, which in turn encourages players to spend more.

“When these games sit right there in front of players’ faces, they get played more, no doubt about it,” he explained.

Only one drawback comes with these more streamlined designs, the Midwest operator said – they sometimes are “stolen right off the bars.”

While some operators complain that annual software updates dictate a significant percentage of investment budgets in advance, Murphy believes that these upgrades are crucial to ensure continued player interest and location support.

“The operator has to keep the software fresh,” Murphy said. “Too many vendors don’t upgrade their countertop game menus annually like they are supposed to. There is a big price to pay for that. If people lose interest, earnings drop. Tavern owners notice the cashbox is not strong and bars will push them off to the side, where it’s even harder to generate revenue. If you keep them updated, it’s easier to get them on the counter.”

Murphy concluded: “When manufacturers come out with software updates, you have to update.”

Some operators, however, feel that any decision to implement software and hardware updates should be left to their discretion. They also feel that certain manufacturers employ unwise strategies to pressure route owners to purchase new hardware before they’re ready, or before the purchase would be financially justified.

Warren Holliday of Holliday Amusement Co. (Charleston, SC) said manufacturers “are not doing operators or themselves” any favors by prominently displaying the year of manufacture on game marquees or onscreen menu pages.

“We don’t appreciate it when manufacturers display the year prominently in this way,” Holliday said. “The location owner says, ‘I’ve got an old 2006 model; I need a 2008 machine.’ The upgrades don’t necessarily make money when you upgrade for the sake of upgrading. That’s gotten to be a big problem in this business. I like to upgrade when I know my investment will result in more money.”

Holliday is a second-generation operator whose father launched the business in 1933. Today the business operates in three counties, and Holliday said he has been deploying countertop games since 1978.

Touchscreen videogames face a special challenge in South Carolina, the operator pointed out, because state law forbids them to show cards or dice onscreen.

“For many years, law enforcement didn’t care about this old law, and operators in our state were able to offer the same entertainment as one can in most parts of the country,” Holliday said. “But in recent years, officials started enforcing it, so our countertops have lost significant earnings capacity.”

South Carolina operators could increase touchscreen game earnings by at least 25% overnight if card themes were permitted, Holliday estimated.

COUNTERTOP CONFUSION

Last August, across the border in North Carolina, law enforcement overzealously cracked down on card-themed touchscreen videogames – despite the fact that North Carolina does not actually have a legal statute forbidding such content.

Several North Carolina operators were forced to file lawsuits, and it took this action and heavy lobbying by Merit Entertainment executives to persuade authorities in the Tarheel State to back off from this tough anti-card game stance.

Holliday reports that a countertop in a location with reasonably extensive hours now earns just $60 weekly, on average, for his route. Cashbox revenues can dip as low as $35 a week, he said, even in prestigious accounts like certain brand-name chains. By comparison, a touchscreen game might have earned $400 per week in a comparable venue in past years, he said.

Additional factors that have reduced touchscreen game earnings, Holliday believes, are shifting market conditions and lack of innovation in the games themselves.

“Unfortunately, many of our traditional locations are being closed, especially in downtown Charleston, because the land has become so valuable and rents are so high that it’s becoming hard for small bar owners to stay in business,” he explained.

Independent neighborhood taverns are increasingly being replaced by corporately owned chain bars and restaurants that close at 10:00 PM, he said. Operators used to have more opportunities to make money by providing this entertainment in taverns that remained open until midnight or later.

“Operators can get amusement machines into these new corporate chain accounts, but our machines don’t make much money because the hours in these places are so short that there’s not enough volume of customer traffic for our purposes,” Holliday said.

“A big corporation likes to do a heavy volume of food and drink sales in a few short hours, in order to keep labor costs down,” he said. “So when the operator says, ‘I’ll make $35 a week for you with countertops,’ they’re not that interested – and frankly, I don’t blame them.”

Holliday also faults manufacturers for offering what he calls “predictable” game software for touchscreen platforms. “Years ago, every location had a slightly different selection of machines,” he said. “Now most locations have pool, video golf and countertops… and the touchscreen games all have the same software menus. Players find it stale when they go from place to place without seeing variety.”

Pointedly putting the responsibility for this situation on the lap of manufacturers, Holliday said: “I read the trade magazines and it seems to me that manufacturers are constantly lecturing operators. They say, ‘You’re not trying new things.’ I beg to differ.

“We try new things all the time,” he insisted. “But I would like to ask these manufacturers: ‘How many times can you rearrange a virtual golf course or a picture-puzzle game?’ When game themes become tired, especially considering all the other forms of entertainment that people have available to them today, it’s not surprising that customers just don’t want to play on our countertops that much.”

While many of today’s touchscreen bartops offer extensive menus with dozens of games, inspection of game management software reveals that in most instances, just one or two hot titles generate 70% to 90% of the cashbox, Holliday pointed out.

“If the manufacturers would come out with more strong games, we’ll make more money,” he said.

Neither Games Are Us in Wisconsin nor Holliday Amusements in South Carolina make extensive use of Internet connectivity and online tournaments for touchscreen games. Owners of both routes cited similar reasons for this policy.

“There are already enough people cutting into the profits without paying additional fees to manufacturers,” Murphy said. “Many locations just don’t want to pay those percentages and fees, so we’re being forced to stay away from that. And frankly, we don’t have a lot of tournament interest from players.”

Holliday said he experimented with online tournaments with touchscreen games, but had limited success. Like Murphy, he said location owners have soured on this concept.

“We’re not making big money for them, so why should they want to go to the trouble of having online games?” he asked. “We can ‘gadget’ ourselves to death in this industry. The emphasis needs to be on providing more entertaining content, not on linking games together. Let’s keep the horse before the cart.”

While both operators were free and frank with their criticisms of touchscreen games, it’s clear that both also are rooting for manufacturers to keep the category evolving – and to help operators remain competitive in a world where consumers enjoy more and more ways to spend entertainment dollars.

“Countertops are very important for us,” Murphy concluded. “We certainly intend to keep operating them.”


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