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Issue Date: Vol. 41, No. 8 / July 25, 2001 - August 24, 2001, Posted On: 7/25/2001


CD Jukeboxes Retain Strong Operator Loyalty, Even As Digital Downloading Momentum Grows


Marcus Webb

U.S.A. - Sales of CD jukeboxes are considerably down from five years ago, but most CD jukebox operators remain loyal to the format , even while acknowledging that music stored on computer hard drives could well become the dominant jukebox technology of the future. The amusement industry's overall consolidation, more than any sweeping changeover to downloading, appears chiefly responsible for depressed sales in the CD category. Meanwhile, operator converts to downloading remain a minority, but they are passionate in defense of their choice. And, slowly but steadily, the number of downloading jukeboxes in the field is growing.

Traditional jukebox advocates say compact disc technology, which reached the coin-op market 15 years ago, still represents their current preference for a variety of reasons including equipment price, resale value, independence of music software supplies, and privacy of sensitive route data. They add that CD technology has achieved significantly greater reliability in recent years.

Third-generation jukebox operator John Guthrie Jr. of G&G Amusements (Commerce, CA) is one of the nation's leading music vendors. Founded in 1952, G&G covers five urban counties in greater Los Angeles with a route of approximately 1,800 pieces of amusement equipment, including some 398 CD jukes and two 45-rpm vinyl units. Approximately 75% of G&G's jukebox inventory is Rowe, although the balance of Rock-Ola jukes is growing. "Our longtime philosophy is that we will always be at least a two-machine company, in case one manufacturer or another goes out of business," Guthrie said. "I may be top-heavy in one brand or another, but I will never invest 100% in any one company."

Guthrie's case is especially interesting because he operates in a highly competitive market that requires him to provide the latest games and music machines. His average jukebox is two and a half years old, and he says "Jukeboxes have been the core of our business since our inception and that's still true today."

Some observers might assume the crucial role of the jukebox to G&G's bottom line, as well as its competitive market, would be factors pushing G&G to adopt new technology. However, Guthrie insists that CD phonographs continue to more than meet his needs. "Our customers like the sound of CD jukeboxes and they like the reliability," Guthrie declared. "Also, CD jukebox manufacturers have worked hard to incorporate most of the operators' suggestions and meet their needs."

Improvements by CD jukebox factories in both software design and quality control have led to more reliable products, Guthrie said. The current generation of CD boxes use programs specifically designed for use with the Philips "CDM-12" players, resulting in significantly smoother operation.

EQUIPMENT STRIDES

New jukes from Rock-Ola and NSM also include standard software, he said, making it easy for operators to enable options like microphones, built-in remote volume controls, and better diagnostics without requiring additional hardware purchases, although "you still have to pay for some of these options with Rowe," Guthrie noted.

Replacing 10% to 15% of his jukebox inventory annually, Guthrie says his major expense remains the cost of buying the new machines themselves and outfitting each new box with CDs. Play pricing is typically set at three plays for a dollar, moving to two for a dollar with newer machines. Guthrie declines to reveal commission splits or average weekly earnings, but affirms that jukeboxes are the route's major moneymakers.

G&G stretches its investment dollars by steadily moving the older boxes to B and C locations, or finally trading in its oldest units. "We try to get three moves out of one purchase," Guthrie explained. "We try to keep our jukebox inventory current within five years and maintain every box with original components and a disciplined maintenance program. At that (five year) point, the box still has plenty of value so we refurbish it and sell it for top dollar." G&G finds strong resale outlets in other operators (representing 50% of the company's used CD jukebox disposal), trade-ins (25%), and the home market (25%). "We try to recover 50% of initial investment on both hardware and software," Guthrie said, "and in many cases we achieve it."

For all his enthusiasm about the CD platform, Guthrie (a former banker) is hardly averse to new technology.

COLLECTING DATA

"We are switching over our entire route to the Coin Connexion program right now," he explained, citing a popular route management software program with optional handheld data collection hardware. Guthrie's collectors will begin using Coin ConneXion's Dolphin wands , flashlight sized units that employ infrared scanning , to recognize each jukebox on site and print out a ticket for the location (this system also works for other types of equipment). The collector manually inputs collection figures and other data into the wand's keypad onsite; then, back in the office, the information is downloaded into G&G's computers.

The Coin ConneXion program tracks and compiles the popularity of music by genre, song and artist, as well as tracking inventory, route lists, individual location commission percentages, rotations, and license status of individual machines. "It's excellent software that saves us a lot of time and gives us much more information than we had before," said Guthrie.

While admitting he's a fierce CD partisan, Guthrie also concedes that hard drive storage technology may eventually dominate the jukebox market. It's an evolution that he actually supports, under certain circumstances. "I believe what we need is an interim step between the CD jukebox and the next generation," he stated. As Guthrie envisions it, this "interim step" would consist of a jukebox with a touchscreen selection interface and a hard drive music storage system , but not necessarily downloading delivery, given the difficulty of securing fast, reliable, affordable connectivity in many locations.

DOWNLOAD CONCERNS

"So long as we avoided advertising and TV monitors, this type of product could be licensed for music copyright purposes under the current Jukebox License Agreement," Guthrie believes. However, as with many traditional jukebox operators, Guthrie says that before backing any new technology, he'll demand preservation of his ability to control access to his location and revenue data. He will also require availability of music through a third party (not the jukebox manufacturer).

CD may remain the first choice for most operators but a growing number support downloading music, and their enthusiasm for this technology can prove equally fervent. Larry Elbert of Camden Amusement & Vending Co. (Cedar Rapids, IA) operates a route of 950 machines. An attorney, Elbert purchased 35-year-old Camden with a partner in 1996. They inherited exclusively CD jukeboxes, but jumped on the downloading bandwagon early and have never looked back. Today Camden runs 55 CD jukeboxes (averaging six years old) and 72 TouchTunes "Genesis" downloading models, most acquired by outright purchases and placed in neighborhood taverns.

"I'm in the process of changing our route over," Elbert declared. "If I could, I'd convert every location to TouchTunes. Revenue is dramatically different. It's probably not a fair comparison to look at older equipment in weaker locations, but TouchTunes revenues per-jukebox are probably three times that of older CD units on our route. When we first started switching them, the revenue jump was anywhere from 50% to 70% in the same location. Our average cash box increased to $500 a week, with the same three-for-a-dollar price per play!"

all in the cashbox

Elbert says he's not sure exactly why the TouchTunes jukes are so popular, but for Camden it's the results in the cashbox that count'and they're proving to be consistently strong. "The bar owners and players love these downloading jukeboxes," Elbert said.

"Everybody has a different reason , the sound, the selection, the touchscreen interface," he added "I figured originally it was popular just because it was new, but today our downloading boxes are earning as well as when they were first installed. In fact, the unit we originally put on test in December 1998, now earns $20 a month more than its very first collection! It's cranking away. I can't understand why other operators won't at least try them."

Elbert admits that "not every location justifies" the investment in a TouchTunes unit, but quickly points out that "not every location rates a new CD box at a 50-50 split, either.

"I don't know if you can operate a brand new CD jukebox without taking some front money," he told V/T.

As individual CD jukeboxes on Camden's route reach the point of needing replacement, Elbert offers locations a new TouchTunes jukebox and a new commission arrangement. "We get the first $65 and we split the rest 60-40." If a location accepts, Camden's downloading inventory grows. If not, Elbert simply drops the location. "I bought my last CD jukebox 18 months ago," he says. "My goal is to get out of running CDs." (He has a growing collection of old CD jukes in his basement and cannibalizes them for parts to keep his dwindling CD route inventory going.)

Downloading technology has revived music for Camden, propelling jukeboxes to the center of the company's earning strategy.

"The TouchTunes 'Genesis' is probably the top piece on our route right now," Elbert asserts. "When we bought this business, music wasn't that important in the equipment mix. Now it's our most important machine. Probably 25 of every dollar we earn, comes from music. Meanwhile, my music software purchase costs and service costs have dramatically decreased. Think of all the CDs that I don't have to buy! I have probably bought fewer than 100 CDs this year. Thanks to the remote management capability, I can run the music route from home in my spare time. I analyze what's being played and what isn't, change the music, and so on. It's a lot easier than driving to 72 locations myself, or sending a technician to clean up dirty CDs."

Elbert also sees greater reliability as a significant strength of new-technology jukeboxes.

"CDs themselves have problems," he claimed. "You're putting the jukebox into a smoke and grease filled tavern, so the CDs and the player mechanism's laser eye both get dirty. You are constantly cleaning. We've also had times when a CD gets thrown. As far as I'm concerned, laser eyes just don't read properly. The 'CDM-12' player never worked properly in my opinion. The 'CDM Pro' is better, but still a hassle." In comparison, Elbert points to a five year warranty on his TouchTunes jukeboxes, adding: "In three years, we've had two monitors and three computers go down, but it's such an easy fix! Just swap it out and it's playing. The level of maintenance (compared to what's required to keep CD machines running) is night and day."

Overall, Elbert does not hesitate to credit downloading music with the newfound strength of Camden's business. "Music is the cornerstone of our route and that is because of TouchTunes," he says.

G&G's John Guthrie and Camden's Larry Elbert may represent the two extremes of sentiment among today's operator population, with one fiercely pro-CD and the other just as strongly pro-downloading.

The majority of street operators, however, are probably somewhere in the middle: interested in new technology, while still very comfortable with the traditional CD format. Many elements combine to favor the continued heavy use of CD jukes on U.S. routes, including lower initial purchase price, operator familiarity with the technology, plus operator and distributor ownership of extensive spare parts for CD machines. Also important is the existence of an industry infrastructure, from one-stops to the Jukebox License Office, which has evolved to support CD jukebox music over the decades.

THE MIDDLE ROAD

In some ways, Chris Warren of Capital Music (Helena, MT) may represent the middle ground of the jukebox market. (Warren currently serves as AMOA secretary and is expected to become the association's next treasurer in October.)

The 20-year industry veteran held an ownership interest in Capital during most of the 1990s before it was sold to another operator in the state. Today Warren is manager of the company, which continues to be operated as an independent division. Capital runs 400 legal gaming devices, 30 CD jukeboxes, and 10 vinyl 45-rpm jukes, mostly located in small towns spread over a five-county area.

Warren describes music as a "nice addition" to his gaming-dominated route. Capital Music exclusively runs Rowe CD machines, averaging five years old, on a lease basis. Capital typically takes the first $60 of revenue; the location gets the rest. Play pricing is mostly set at five for a dollar. For CD jukes, Capital's typical arrangement is a $60 per week lease, with all additional revenue going to the location. The company does not track individual jukebox earnings but, as Warren notes: "If the locations want to make a lot of money, they have to promote it themselves." Capital purchased one new box this year, a Rowe "Saturn II."

"Most bar owners seem pretty content with our CD jukeboxes, knowing we can provide any music they want," Warren said. "We usually install three or four external speakers and everybody really likes the sound. And very few bars are beginning to say there is not enough selection on CD jukeboxes. They are hearing about more selection on downloading jukeboxes. Of course, our stops with 45 jukeboxes are more likely to want an upgrade to CD, but not all of them justify it."

Capital's vinyl jukes are located in non-tavern locations such as bowling alleys, candy stores, and small fast food establishments. Equipment is usually retired only in the case of location closure or remake, which is rare, Warren said.

The biggest expense of operating a CD jukebox remains the initial investment, purchasing the equipment itself and loading it with software, Warren observed. Afterwards the investment is minimal, mostly buying new CDs. Most units are reliable, requiring simple general maintenance such as replacing light bulbs, although in dustier locations the CDs themselves have to be cleaned more often.

CAUTIOUS INTEREST

Warren describes the new Rowe-Ecast "Netstar" downloading jukebox as "interesting," but cites familiar concerns about pricing, software supply, and data privacy. However, the issue remains mostly theoretical for Capital Music at present.

"Small areas like ours don't warrant the use of downloading jukeboxes," Warren said. "There are some features of the downloading jukeboxes I like, but I don't see us getting into that market in the near future. We are content with the technology of CD jukeboxes now; it serves our purpose and those of our locations."

Assessing the prospects for music on the Capital route in the years to come, Warren's opinions are a mixture of logic and sentiment.

"Music is not our biggest niche, but I think it will always be part of our business," he ventured. "For an operator, there is something enjoyable about being known as 'the jukebox man.' And it's nice to know the jukebox is not going to go away. Some locations couldn't live without it; music is a necessity in the good little local bars. I hope and believe the coin-op and music industries will continue to support CDs and CD jukeboxes."

However varied their views of the jukebox today, Guthrie, Elbert and Warren appear to share somewhat of a common view of the product's future. It is a view that acknowledges the inevitability of change, driven both by the ongoing evolution of technology and by sheer economics.

"We probably will see more downloading products in times to come," G&G's Guthrie conceded, "and almost certainly a shift to hard drive storage is going to happen sooner or later. Still, I feel the CD market will continue strongly for quite some time. Compressed digital music will be available [for downloading] in the near future, but I don't feel that the next generation of download boxes will be suitable for all locations due to greater expense, as well as lack of availability of DSL or other stable high-speed connectivity."

Elbert's forecast for Camden was simple and upbeat: "As we continue to upgrade our route [to include more and more downloading jukeboxes], I expect our music will continue to become more profitable over the next few years."

Even Warren, whose Capital Music is feeling perhaps the least pressure of the three to upgrade, commented: "I do find myself wondering, if we have downloading now, what new technology will come after that? In this industry, we never know."


Topic: Music and Games Features

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