LAS VEGAS - Emerging technology, continued manufacturer consolidation and a struggling bar and tavern market are forcing today's operators to reevaluate how they run their businesses on a day-to-day basis.
With that in mind, the industry's "sharpest shooters" gathered here last month during the Amusement Showcase International to speculate on what the future holds during an entertaining educational session entitled "The Future of Coin-Op/High Noon at the Coin-Op Corral: The Operator's Perspective." The Old West-themed program, which was held in a saloon-like setting complete with a real bar (and liquor), featured former AMOA president Frank Seninsky of Alpha-Omega Amusements (East Brunswick, NJ), Tom Baldwin of Shaffer Services (Columbus, OH), Michael Getlan of Amusement Consultants (New Rochelle, NY), Gary Spencer of California Coin (Paso Robles, CA) and Rod Kruse of Nebraska Technical Services (Omaha, NE).
The panelists, dressed in cowboy hats, leather vests and cowboy boots, discussed how the ever-changing business climate is affecting their businesses.
BACK TO THE STREET
Spencer, who runs a tavern route in California, led off by observing that street operators could ultimately benefit by a shrinking video game market.
"Video games are suffering, and the FECs and LBEs are starting to fall by the wayside," he observed. "I think that manufacturers are starting to learn that even though we street operators have modest little routes, there are a lot more of us than there are of the big arcade guys."
Spencer pointed to the recent decision by Midway Games to scale back its coin-operated video business, reducing it touchscreens only, at least for the time being.
"It's interesting to note that the only machines they still want to make are those small, cheap machines [touchscreens] that street operators want to buy," he said, adding that Internet-enabled equipment also appears to be aimed at street operators as well.
"I'm sad to see the big guys leave, but I think it's going to benefit us little guys," he said.
Seninsky, who began his coin-op career nearly 32 years ago as an operator, attributed the decline of video games partly to the unrealistic prices that manufacturers are charging for new equipment.
"When I first started out, the only machine I knew how to operate was a pinball machine," he said. "We'd buy them for anywhere from $25 to $300 each and put them out and make a decent return in a short period of time."
With the prices manufacturers are charging today, he lamented, that formula simply doesn't work anymore.
"Not many people can afford to operate big expensive games anymore and get a decent return on investment," he said.
To help combat the problem, Seninsky noted that many operators are falling back on equipment that is proven over time.
"As an industry, we might be looking at a situation where we need to go back to basics," he explained. "We've always been involved in things like redemption and cranes, and those sectors seem to be doing well right now."
Baldwin, who joined Shaffer eight years ago from an entirely different industry, noted that he was surprised by the lackadaisical attitude prevalent in coin-op when he first came on board.
"When I first joined the company I discovered that we were a typical passive operation; we basically put the machines out and waited for the money to come in," he said. "What I've learned since is that in this day and age, you can't sit back and operate like that anymore, not unless you want your business to melt away from you."
Realizing that a proactive approach was needed, Baldwin noted that Shaffer has since shifted its focus directly to its customers.
"I would say that Shaffer is less interested in the equipment we operate than the customer we're operating with," he said. "We make sales calls and don't even talk about the equipment. We don't have to talk about it. The only thing we have to talk about is keeping the location alive and keeping people coming in. It's that simple."
Unfortunately, he added, the tavern business also is struggling.
To help those locations remain viable, Baldwin noted that Shaffer has made a concerted effort to teach owners how to promote their businesses. Nearly half the company, he added, is now part of the Shaffer Promotions Team, which is designed to create excitement at locations.
"At first, our employees had a hard time figuring out why we were out there trying to teach our customers how to run their own businesses, but the answer is because they don't know," he said.
After visiting locations in early March, for example, Baldwin said he noticed that nearly every bar and tavern had a promotion for St. Patrick's Day, even though the holiday was 17 days away.
"That's all well and good, but the reality of the situation was that they had nothing planned for the next 17 days," he said. "You need to have some type of promotion every day."
According to Baldwin, the proactive approach, including visiting locations to teach employees how to operate equipment, has had a positive effect on the company's cash flow.
"Once we began teaching our customers how to operate their businesses rather than waiting for them to do it themselves like typical operators, all of a sudden pricing went up, commissions went up, and the bottom line went up," he said. "The reality of the situation is that your competitor operates the same equipment, so you have to make every effort to differentiate yourself."
One way in which operators can separate themselves from the competition, according to Kruse, is through online technology.
Nebraska Technical Services is doing just that, and currently has installed approximately 1,000 pieces of equipment online, including jukeboxes, touchscreens, darts and "Golden Tee Golf" video games.
"I'd say that the only equipment that we don't have hooked up to a phone line are pool tables," he said. "It's been great for our business."
With remote management capabilities, Kruse emphasized that NTS saves valuable man hours, which contributes greatly to the company's bottom line. NTS, he added, is also able to run golf and touchscreen tournaments remotely.
"One of the benefits is that we don't have to run down to locations for every little problem because we can make adjustments from the office," he said. "You save so much time with downloading."
NTS is the largest operator of TouchTunes' digital jukeboxes. With some 150 units in the field, the operation has reduced labor and costs associated with CD systems.
The rapidly changing business climate, panel members agreed, is forcing operators to alter how they run their businesses.
According to Spencer, operators must work harder than ever, albeit in a different way.
"In the old days you'd walk into a bar and there was a body on every barstool all day long," he said. "Drinking laws were different, smoking laws were different, and every barstool was occupied."
If an operator could convince the bar owner to let him put equipment in the location, he pointed out, he was going to make a lot of money simply because there was a huge customer base. The battle back then, he added, was to convince the location owner to allocate additional space for equipment.
"Now the situation has changed," he said. "I was just at the Nightclub and Bar Show, and people were approaching operators right and left saying, 'put games in here, we need your help.' The games might not be making as much money, but we have an audience that wants us there."
PRICE IS NOT RIGHT
Seninsky, who serves as a consultant at Alpha-Omega, reiterated prohibitive pricing structures set by today's games manufacturers.
"The way I see it, over the past few years, is that the games have gotten so expensive that most operators are forced to put them out at ridiculously high prices per play, at $1 or even higher, and the truth is that it's not working," he said. "People that play them initially are not coming back to spend that kind of money."
From its inception, he emphasized, coin-op has been about offering an inexpensive form of entertainment; a lesson that seems to have been lost over the years.
"Maybe that's why the street is doing so well right now; the equipment doesn't cost so much, the price per play is reasonable, and people recognize that they're getting value," he said, noting that a game of pool, for example, is widely viewed as reasonable for 75 cents or even a $1 per play.
Getlan, who operates a number of arcade locations in the New York metro area, indicated that he has attempted to deal with the pricing problem; going to three plays for $2 to help raise unit sales and charging groups a flat price for a fixed amount of time.
"For the most part, games that are 75 cents or a dollar are not worth it to the player, especially with the competition from the home market," he explained. "People can purchase game CDs for $20 and play at home for hours upon hours, and it's difficult for us to compete with that."
Just one or two years ago, he added, the argument was that people would come to the arcades to socialize, reasoning that cannot be made anymore with online play gaining popularity on the home side of the business.
"People have no problem playing people at home, because they can communicate online," he said. "That's one less reason to come to arcades."
Spencer noted the irony of declining video games in arcades while they continue to flourish in the home market.
"If you talk to someone in the coin-op industry, the general consensus is that video games are down right now," he pointed out. "But if you talk to someone in the entertainment industry, you'll hear that video games are still as popular as ever. Consumers are just not putting their quarters in our games."
When home video games first came onto the scene in the late 1970s and early 1980s, Spencer added, the arcade industry had superior technology, an advantage the industry is losing in today's market in which home computers and game consoles feature more powerful processors and graphics engines.
"Nowadays, the game quality is right up there, if not better than what we can offer, so we have to look at new ways to keep people interested," he said. "We can't just rely on having better games like we could back then. We're dealing with the problem in our neck of the woods through interaction and promotion. We're doing everything we can; we're out there trying to educate our bar owners about the value of promotion, and we're running leagues and tournaments."
Seninsky suggested that the industry needs to work together and look for ways to attract players, giving them a reason to leave home and play coin-op games.
"I believe that we still have superior games and that the technology is there," he said. "I just think it's a matter of taking advantage of it."
In terms of what the future holds for coin-op in the wake of the current market conditions, Seninsky offered two possible scenarios.
"One part of me says that our industry is going to serve a niche the way it has for the last 30 years; inexpensive entertainment with a lot of product and new ideas coming out; new companies making quality products that will earn over a long period of time," he said.
"On the other hand," he noted, "I have this feeling that space in locations will become more competitive than ever. The big conglomerates can afford to put things out for free through advertising or just to promote their big company. That's going to be tough to compete against. Some may even pay to get locations, and of course they'll utilize new technologies like the Internet. It's something we need to keep an eye on."
Spencer suggested that the Internet, along with decline in video games, will eventually convince manufacturers to dramatically alter how they release new products to the market.
"A few years down the road one big thing that's going to happen is that downloading is going to become more important," he said. "In regard to video games, there's been talk that there might be a situation involving cartridges, where an operator would buy one cabinet and then change the game out periodically."
He described the current situation in which operators are often forced to buy new cabinets for every new game, as unrealistic.
"Every time I go rent a movie I don't have to buy a new VCR, which is basically what we're doing," he explained. "I'd like to be able to buy a VCR and keep changing the tapes. I think that day is coming, whether it's through cartridges or downloading or a hard drive, and of course that's going to be nice for us operators."