U.S.A. - The classic arcade-type video game sector continued its ongoing, years-long shakeup during 2002. Even a superficial survey of today's coin-operated video game market reveals a bewildering variety of trends, countertrends, currents and riptides so complex as to almost defy analysis. Yet beneath this seeming chaos, two trends are emerging which may hold the key to the sector's future. These trends are the movements toward more consumer technology, and toward more online tournaments.
First, an overview of the video market as a whole reveals many dramatic ups and downs during the past year. The "downs" consisted of consolidation as formerly high-profile video manufacturers reshaped or cut back their U.S. presence, some to the point of near-invisibility. These included Konami of America, SNK, Arcade Planet, and HyperWare (the latter in fact closed its doors in November).
But in a contradictory countermovement, a host of second-tier video manufacturers gained new prominence, including Global VR, Andamiro, Sammy USA, and Tsunami. In addition, Betson Enterprises stepped up its manufacturing of yesteryear's licensed Midway titles while promising still more video to come. Some of these companies have achieved significant progress this year, although the ultimate success of all these ventures remains to be seen.
Meanwhile the surviving leaders of the amusement video game sector , Sega, Namco, and Incredible Technologies , each pursued markedly different strategies during 2002. IT remains centered on the tavern market with video games for grownups. These games plug into the company's ITNet to offer tournament play and cash prizes.
But Sega Enterprises USA and Namco America continue to pursue mostly the teen/arcade market; and they continue to adapt various consumer video game technologies as the heart of their efforts. Sega leavens these offerings with massive simulators that are out of the typical operator's reach, while Namco achieves variety with a sprinkling of European imports.
Further complicating the amusement video picture is the foreign factor. Some of the most fascinating , and potentially significant , developments in this year's video game sector happened overseas, far beyond the radar screen of most American operators. Political, financial, organizational, and technological turmoil rocked the arcade video game sector in Asia.
Sega and Namco both appear to be undergoing major internal restructuring in Japan , developments that could eventually have a noticeable impact on their U.S. manufacturing subsidiaries and arcade operations. Reliable sources say Sega and Namco apparently are backing away from the possibility of a merger, or even from producing more joint ventures such as last year's "Vampire Night."
As for former powerhouse SNK, which declared bankruptcy last year, the fate of its intellectual properties and brand names grows ever more mired in conflicting claims by competing successor companies in three or four different nations. Other leading Japanese manufacturers such as Konami clearly suffered from decreased revenues and disappointing sales.
Against this backdrop, Japanese manufacturers continue experimenting with relatively exotic technologies: fiberoptics to link arcades; cell phone and memory card technology to link consumer and arcade video play experiences; motion-sensor devices, and the like.
Adding to the confusion and uncertainty, rumors continue to circulate that various leading Japanese coin-op manufacturers are targets of acquisition by the three consumer video game giants (Sony, Nintendo, and Microsoft).
Finally, in some ways the U.S. amusement video sector was notable for what didn't happen in 2002. No major new themes or radically different technologies were launched. And the mass media, state and federal lawmakers largely muted their criticism of violent content (except for a two-week flurry during the Washington, DC sniper attacks).
Making sense of this globe-spanning, complex picture is a formidable task. Yet from all the seeming chaos, two central trends are gradually emerging: more consumer technology in coin-op games, and more online tournaments.
A growing number of arcade videos are piggybacking on consumer R&D, both for hardware and software. Exponents of this trend include not only Sega and Namco, but also Sammy, Global VR, and Tsunami. Sega is launching a new hardware system this fall called "Chihiro," based on Microsoft's "Xbox" consumer platform. Namco America's line continues to include homegrown titles running on "System 246," which is based on Sony "PlayStation 2" technology.
The new "AtomisWave" system from Sammy is based on Sega's "DreamCast" chips; its earlier line of hunting themed video uprights was developed in-house but clearly inspired by consumer hits. Global VR and Tsunami have both made great strides with licensed consumer hit software; Rowe has emulated that tactic with its countertop titles; and Ecast has announced it plans to follow this approach. Finally, Betson is reportedly exploring the consumer video licensing strategy for coin-op application as well.
The second major trend for the video sector may be found in the growing use of networked technology to offer tournament play for cash or merchandise prizes. The success of Incredible Technologies in this department is being expanded by IT itself as the company moves beyond golf tournaments, plugging hunting-themed videos and countertop games into ITNet. The number of participants in "Golden Tee" tournaments leapt by a stunning 150% during 2001. This compelling online tournament business model (including cash or merchandise prizes) is now being emulated, or soon will be emulated, by Global VR, Sammy USA, and Arcade Planet (as well as countertop makers JVL Corporation, Rowe-Ecast, and possibly others including Merit Industries).
As noted by VT's editors last month, the growing success of online video game tournaments suggests that amusement manufacturers are , finally , learning how to serve up hi-tech in packages that operators find profitable, reliable and acceptable. Some operators have noted up to 50% increases with tournament promotions for countertops. The increase for arcade-style uprights may not be that dramatic with online tournaments, but the boost to profitability is clearly powerful enough to motivate more and more operators to embrace this model.
Yet while American operators warmed up to online video tournaments in 2002, they hardly seemed to notice , or care , how deeply the larger amusement video game sector suffered from ongoing turmoil this year. Apparently, U.S. operators were too busy shifting more and more of their attention (as well as their investment budgets) to other types of equipment, such as merchandisers and tavern staples. Mike Rudowicz, president of the American Amusement Machine Association, told Time magazine this fall that a "fantastic" coin-op video hit today might sell 5,000 units'a far cry from the category's heyday of the 1980s, when top titles moved 100,000 units.
The reason for this relative indifference on the part of operators is the only simple, clear part of the amusement video game picture. Despite a few bright spots and stellar earners, the category as a whole saw revenues continue to decline. According to the 2002 VENDING TIMES Census of the Industry, video games on U.S. locations registered a 15% drop in cashbox dollar volume during 2001 (the latest year for which figures are available). The average video game earned $48 per week last year. The number of units on location likewise declined 11% to 400,000 games, the Census revealed.
(Editor's Note: the VT Census does directly reflect the location-based entertainment sector. LBEs, which can be thought of as fun centers for grownups, absorb an ever more important percentage of video uprights and simulators.)
The negative emotional reaction that many operators continue to voice regarding video as a class, coupled with the above-cited declines in video unit sales and weekly earnings, tend to obscure the category's fundamental strengths. If amusement video is no longer king of the hill, it remains an impressively strong earner, as this year's VT Census noted. The "Golden Tee Golf" games alone were poised to earn up to $350 million for operators worldwide during 2002. And, total video game revenues in the U.S. during 2001 totaled an estimated $998 million. Only pool tables earned more money for the American operator.
The real question for amusement video now , as it has been for about a decade , is, "Where does the sector go from here?" No less an expert than Betson Enterprises president Rick Kirby has noted that today's industry is basically selling very much the same types of games, with the same themes and much of the same technology, as it was selling in the 1980s. Meanwhile the rest of the world has moved on to embrace new forms of entertainment , including the Internet, satellite-based amusements, and cell phone-based amusements.
At present, the riddle of video's future offers no definitive answers. But some intriguing hints and possibilities have begun to emerge. Some American manufacturers visualize , and have quietly begun to pursue , an advertising-driven model that could create a powerful blend of video games, music, and broadband communications. Certain Japanese manufacturers support , and have begun to pursue , a matrix of consumer and coin-op technology, linked by cellphones and fiberoptics, that could finally create the long-sought synergy between arcade and home game play. Finally, the ever-growing presence and power of the Internet , both for communications and promotions , remains a potential tool that could be applied in ways that have yet to be attempted by this industry on a significant scale.
Indisputably, the amusement video game has taken a beating in the U.S. market during the past decade. Nevertheless, it remains a workhorse of routes and arcades alike. Amusement video still retains the capacity to evolve and explode back into the single most important segment for coin-op amusements. "All" that is required is the right combination of new technology, new content, and new business structures. The evidence suggests that game manufacturers may at last be groping, however slowly, toward that combination.