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Issue Date: Vol. 44, No. 2, February 2004, Posted On: 2/6/2004

A Patch Of Blue

Marcus Webb

People in the know are reporting that the amusement machine industry may finally be headed for a modest rebound in 2004. Inside this issue you can read the remarks of Craig Styles at First Lease, a direct lender who says operators and distributors on his customer list are forecasting a "breakout" year.

Styles added that his customers backed up their words with significantly more new machine purchases. The increased volume has given First Lease its greatest January coin-op business in several years.

Confirmation comes from the powerhouse known as Firestone Financial. CEO David Cohen believes that new technology - specifically advanced countertops and digital jukeboxes , is creating sufficient demand in the marketplace to force operators to upgrade their routes. Eyeing this trend as well as the next generation of arcade video that will soon arrive, Cohen is also cautiously forecasting that operators will spend more on new equipment this year.

At the same time, these experts caution that consolidation on the route level will, if anything, increase in 2004. VT adds this note of caution, as well: if operators get cold feet thanks to patent infringement lawsuits, even some of the hot new product categories may see sales remain more sluggish than manufacturers would like.

There are a number of important lessons here. One is that operator demand is driven by location demand, which in turn is driven by player demand. Scolding operators for "operator sales resistance" is a useless activity, even if it's true. Countertops are roasting hot in terms of sales, but let's recall that the touchscreen generation of countertops had to be "forced" on operators at first, in some cases through direct sales from the manufacturer or distributor to the location. Operators squawked, but they eventually bought.

Another key lesson is something that many industry professionals have already learned, but not all. New technology alone does not drive the cashbox. Neither does online promotion. What drives the cashbox is wisely applied new technology in a way that appeals to players and makes sense for operators. What enhances (but does not drive) the cashbox are wisely-applied promotions that draw player attention to entertainment content that is already strong on its own.

This brings us to the "third generation" of video games: arcade games and countertops that will have a live Internet connection 24-hours a day, seven days a week, enabling both better content and better promotions. The shape of things to come in the "third generation" of arcade video is revealed in this issue by Kevin Williams of The Stinger Report, who joins VT this month as a regular columnist. Hints of what the future may hold for countertop videos are provided by executives from Ecast Inc. in our feature story on the state of the touchscreen market.

In discussing these future possibilities with operators recently, we were told more than once that "I'm not interested in broadband-connected video games because I don't want to share the cashbox with a third party (the content supplier); and besides, the cashbox doesn't justify it."

With all due respect, that may be the case with some machines today, but things can change in a flash tomorrow. Let's face it; in principle this industry has no problem with revenue sharing. Operators are perfectly happy to share the cashbox with a third party , such as a state government , if the cashbox is big enough and if the split is healthy; just look at video lottery. The question is, can broadband and licensed content generate a new type of pay-for-play entertainment that players absolutely love? That locations demand? That operators are "forced" to buy? And if so, will manufacturers leave enough money on the table so that operators can get rich, too?

If yes, then we could see a humdinger of an industry revival over the next few years. The jury is still out, but we're encouraged by the much-larger cashboxes that are already being generated by downloading jukeboxes. Operators should be encouraged, too.

Topic: Editorial: Music and Games

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