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Issue Date: Vol. 41, No. 4 / April 25, 2001 -May 24, 2001, Posted On: 4/25/2001


Digital Music Market Favors Juke Business: Operators Improve Route Efficiency With Web Management Tools


By Kevin Kenyon

U.S.A. - To go online or not to go online?

That is the question on the minds of many operators who have been patiently waiting on the sidelines to see if digital downloading proves itself in the marketplace.

While a bold few have taken the risks associated with applying new technology, the vast majority of operators have been reluctant to get involved, until recently.

When TouchTunes Music Corp. began deploying the first digital downloading jukeboxes in the second half of 1998, the technology, as well as the company itself, were largely unknown. There was no telling if digital downloading represented the future of coin-operated music or if it was just another high-tech fad that would go by the wayside.

TouchTunes was initially forced to offer operators a flexible jukebox leasing program, because many were hesitant to buy a product that only would be viable if the company remained in business. If the company's file server were to shut down and couldn't update music, many feared, the jukebox would become unworkable.

Nearly three years later, much more is known. To date, TouchTunes has installed about 4,000 units nationwide, and more than 1.8 million songs are played on them each week. The company expects the installed base to grow to 6,000 by the end of 2001.

In August 2000, the downloading jukebox category was expanded when Ecast, an Internet start-up based in San Francisco, teamed up with 90-year-old jukebox stalwart Rowe International. Earlier this year, Rowe introduced "NetStar," a PC-based jukebox that connects to Ecast's interactive broadcast network over the Internet using a dedicated Digital Subscriber Line (DSL) or standard modem.

Ecast's high-speed Internet connection provides advanced applications such as "Single Song Download," which allows patrons to instantly download their favorite songs for $2. Another feature, "Play My Song First," allows customers to pay another $2, or more, to queue their songs to the top of the playlist. The Ecast network also enables e-commerce album purchases, advertising and credit card processing.

In terms of operating efficiency, both TouchTunes and Ecast provide remote administrative services to jukebox operators. TouchTunes' "Operator's Web Tool" and Ecast's "Ecast Central" are accessible through secure pages at the companies' websites, permitting subscribing operators to remotely monitor performance and update content of equipment on location from the comfort of their homes or offices.

Another advantage offered by downloading jukeboxes over their CD counterparts is that they free the operating company from the need to store and transport large numbers of recordings, inventory and create title strips for them, or maintain a vast music library. But those CD libraries do contain a good deal of niche music popular with different kinds of locations, or at certain seasons, a complete selection of which is not presently available for download.

Both TouchTunes and Ecast, however, are building libraries of seasonal music. TouchTunes' Web tool features a searchable "Special Events" database that indexes and organizes holiday and novelty music.

With online downloading jukeboxes still widely viewed as cutting-edge technology, operators are beginning to use them successfully as business-builders, to pitch new accounts and to establish stronger relationships with existing ones. Operators are also taking the opportunity to increase price per play and/or negotiate more favorable commission structures for the cutting-edge equipment and service; and they would not be able to do this if locations were not recognizing the added value this technology provides to their clientele.

Despite its many benefits, the jury is still out on whether digital downloading technology can fully realize its potential, due to current limitations on bandwidth. When broadband services are available in all markets, and are more affordable and reliable than they are today, the technology will have a better chance of succeeding nationwide. Fortunately, there is widespread demand for greater bandwidth by consumers and businesses in general, and the market is expected to respond by providing it. In the meantime, operators in markets where the technology is currently viable are reporting positive results.

Because of broadband limitations, TouchTunes has based its current service model on a standard modem connection.

To get a better of idea of how digital downloading jukeboxes are performing in the field, V/T spoke with operators with first-hand experience in navigating the information superhighway. Some have been involved since the beginning, while others have only recently incorporated the technology into their routes.

THE WAITING GAME

Like the vast majority of operators, Steve Bodenstein of Game Exchange (Atlanta, GA) viewed the emergence of digital jukes from a safe distance, but finally decided to get involved early last year.

"I looked at downloading music about two and a half years ago, and I felt that if it lived up to its promise, it would definitely be the future of music," he said. "I was just hesitant to jump into it up front because I wanted someone else to be the guinea pig."

Realizing how vital music is to locations, Bodenstein said he wanted to make sure that the hardware and software were absolutely reliable before making a commitment.

"You can get by with having a game down at an account, as long as it's not an ongoing problem. But if your music goes down, especially on a weekend, you could be up the creek real fast, and even lose the location because of it," he said.

The opportunity to embrace the new technology presented itself early last year, when Bodenstein was approached by a TouchTunes representative about finally giving it a try.

"I've believed for a long time that downloading technology, not just of music, but of games, was going to be our future; and I figured it was time to start experimenting with it," he said. "I just wanted to make sure everything was in place."

Bodenstein's foray into the digital arena began early last year with the installation of two TouchTunes jukeboxes: one in a new location that had never offered jukebox music; and another in an "A" location that was due for an upgrade. Placements continued at the end of last year with the addition of "NetStar" jukeboxes in two additional "A" locations.

"The philosophy behind each of the platforms is different, so I wanted to give both of them a try before deciding which was a better fit for my route," he said. "I still don't know which format is going to win; I don't think anyone really knows that. But in the long run I think we're going to see the majority of our equipment going online; I don't think it's a fad."

In general, Bodenstein noted that the most significant benefit of the technology is the ability to get new music on the jukebox rapidly. Switching from CD jukeboxes also afforded Bodenstein the opportunity to alter his price structure from three plays for a dollar to two for a dollar.

"I also have found that the downtime due to mechanical problems is far less," he said. "There is a distinct benefit there."

Most locations are very pleased with the new systems, he added; they are finding that the online jukeboxes are more reliable and earn more money.

Because DSL requires users to install a separate phone line, operators must convince location owners to pay for part of the service. Although this is widely viewed as a drawback, Bodenstein said he was able to convince his clients that it would pay off in the long run.

"For a new account, it's easier, because you just explain that it's a cost of doing business," he said. "With an existing account it's a little tougher; you have to make the sell based on the additional earnings, the reliability and the sound quality."

Bodenstein, who is a member of the AMOA Standards Committee, also dismisses another widespread argument made against the digital jukes: that the service providers potentially have access to sensitive account information, and could use it to the detriment of operators.

"AMOA is working very hard with the manufacturers, and most of them have verbally agreed that the possession of information, and how it's used, is very important," he explained. "They're working to include these things in their contracts, so I really don't view that as a problem."

With any new technology, he added, it's natural for people to be concerned. However, Bodenstein has no intention of turning back now.

"There's a lot of fear out there, and I can't blame them; because even though we're experimenting with it, I don't really understand all the technology that's involved," he said. "At this point I've decided to make the commitment to downloading music."

As TouchTunes account #001, Joe Ferris Jr. of Ferris Music Service (China, ME) owns the distinction of being the digital music provider's first jukebox operator partner. He even has the first dollar bill that went through the very first TouchTunes jukebox in the field.

Six months prior to the jukebox's rollout in September 1998, TouchTunes invited Ferris and eight other operators to the Bose factory in Framingham, MA, where they were given a first-hand demonstration.

Bose Corp., a leading developer of audio technology, builds the TouchTunes "Genesis" jukebox at its Sainte-Marie, Beauce, Quebec plant. The juke is equipped with Bose amplifiers and speakers; the sound system can be enhanced by adding Bose's "Acoustimass" audio components.

Ferris leased 10 of the units after his visit.

Taking calculated risks on new technology is nothing new for Ferris. He was the first operator in Maine to deploy Seeburg's "Prelude" CD jukebox, introduced in 1985, placing him at the forefront of the transformation from vinyl to CD jukes.

"I've always been a risk taker with a strong interest in new technology," he said. "I was intrigued by the product from that very first meeting."

After years of spending time and money keeping his CD jukeboxes up and running, Ferris said he immediately recognized the benefits of digital technology.

"My dad started in this business 55 years ago, and Mom used to sit at a typewriter punching out title pages for wallboxes, so I know how time consuming it can be," he said. "I was also tired of sending player decks back; I still have some CD jukeboxes and I'm still sending components back and getting the bills."

Ferris also relished the opportunity to manage his units remotely from the comfort of his office: no small feat considering the company serves the entire state of Maine from its rural office in the middle of the state.

"What I really want to see happen is to come to my office and download requested songs right to the locations," he said.

A GUINEA PIG

Ferris remembers that the first three months of using TouchTunes equipment were difficult.

"It was rough at first. There were some bugs that needed to be worked out and the server crashed a couple of times," he said. "Although TouchTunes was there for support, I was really the guy out in the field testing them. They probably used me as the guinea pig because I'm a hands-on rural operator who likes to know how everything works."

Nearly three years later, Ferris is operating 43 units, and is considering buying out their leases when they expire. Despite those early difficulties, he believes he made the right call in hindsight.

"I may be the guinea pig," he said, "but at the same time, I'm a few days ahead of everybody else."

As a relatively small operator, Lee Prantl of Pride Vending (Salem, OR) understands how detrimental service calls can be to the bottom line. After installing eight TouchTunes jukeboxes in November of 2000, he has grown to appreciate the system's ability to stay up and running.

"From an operational standpoint, the service and repair calls can get expensive," he said. "With CD jukeboxes, after two or three calls, we would find out that the CD player was broken and we had to go out and buy a new one and install it. The downloading jukebox absolutely eliminated all of those problems because there are very few moving parts."

The ability to customize playlists for each location and respond quickly to each location's musical taste, he added, has also been advantageous.

"If jukebox operators would operate jukeboxes, even CDs, the way we should, we would increase our revenue by probably 40 percent," he said. "The ability to know the most played songs at each location and react quickly to requests for those songs is the key."

While most CD jukeboxes can track preferences, Prantl noted it's expensive and time consuming to address them. The operator told V/T that he used to discourage requests for CDs, for the simple fact that 10 CDs can cost between $150 and $160. He also noted that it requires more than a week to fulfill a request, a problem that is solved through downloading.

GIVE THEM WHAT THEY WANT

"Now I encourage my customers to give me those requests because I can do it that night and the next day it can be on the jukebox," he said. "You could never react that quickly with CD jukes."

Another issue with which many operators wrestle is whether to lease or buy digital jukeboxes. Prantl decided to buy the equipment, rather than pay additional interest.

"If you've got the money I think it just makes sense to buy it, just like it makes more sense to buy a car rather than lease it," he said. "When you lease a car, the company you lease from is making about 12 or 14 percent over the life of the lease, and I'd rather not do that if I can afford to buy it."

Making that type of capital investment, however, can be difficult in the short term. The eight digital jukeboxes Prantl installed, for example, replaced CD jukeboxes that were already paid for.

"You have to look at it as an investment for the long-term," he said. "It was also time to upgrade my route, and those CD jukes will make money at other locations."

Another promising application, he added, is a new feature that will allow operators to link their TouchTunes jukeboxes to Merit countertop games, called the "Tavern Entertainment System" (TES). The feature, expected to be released over the next several months, will allow countertop players to select music from a Merit terminal. The two systems are connected by using standard industry Ethernet data transfer technology, a relatively simple procedure (see V/T January).

"I think networking TouchTunes jukes and Merit video games is going to be a nice addition," he said. "Anything that makes things easier on customers should help out."

After wavering on whether to accept the Internet, Prantl says he's become a big proponent of information technology. Nearly 20 percent of his equipment, including jukeboxes, countertops and "Golden Tee Golf" games, is now online.

"I've even encouraged a number of my competitors to give it a try," he said. "I just feel if people give the technology a try they'll be pleased."

STRANGE BEDFELLOWS

After years of focusing strictly on the dart business, Medalist Marketing Corp. (Pacifica, WA) is taking advantage of the digital age by expanding into other equipment, including jukeboxes.

The company, which runs the world's largest soft-tip dart league, has installed 15 TouchTunes units over the past four months. According to Medalist's Chris Peppard, the company has changed its philosophy drastically over the past two years.

"For the past 19 years, we've been running a huge dart route out here, and we've always had the mentality that we're darts only," he said. "It wasn't until recently that we started looking at other pieces that fit with what we're good at, which is promoting and going above and beyond the installing and collecting of equipment."

The transformation, which started with countertops and "Golden Tee Golf" games, has now spread to music.

"On the music side we're kind of 'newbies,'" he explained. "We have this huge customer base because of darts, and we've been kicking ourselves for not taking advantage of that over the past 10 years."

Looking to take advantage of its drawing power on the dart side of the business, Medalist started installing TouchTunes jukes in its established accounts.

"We put the bodies in the locations, running up to 600 teams in the market in a given season," he said, "so they are apt to listen when we make a suggestion."

Medalist has also benefited, he added, from the fact that the 15 locations in which it installed TouchTunes equipment were running CD jukeboxes set at three plays for a dollar.

"Our general rule of thumb is that if its doing $100 per week on a CD jukebox, we'll put a TouchTunes in there," he said. "We're finding that the revenue is increasing to anywhere from $150 to $300."

Sticking to the philosophy it uses for darts, Medalist is also offering services above and beyond what typical music operators provide. The company is holding "Song Parties" to promote the jukebox.

Like others, Peppard noted the company is also educating locations about how fast they can react to customer requests.

"They were conditioned that if they had a request for a CD it was four weeks or so down the road, and by the time it arrived it was an afterthought," he said. "We're reconditioning them to see that we can react much more quickly to those requests."

From his office in downtown Washington, DC, Mark Balint of Coastal Vending Co. has been observing closely the developments brought on by the Internet since the mid-1990s.

The phenomenon, he said, permeated every aspect of people's lives, with one exception: the coin-op industry.

"The Internet has affected everyone, but it hasn't been in the lounges and the bars yet," he said. "Outside of 'Golden Tee,' which basically collects scores, the Internet has had little or no impact on my business."

With the majority of his customers being young, technology-savvy government workers just out of college, he knew he was missing out on a major opportunity.

"Music is a big part of their lives, and the timing was right in terms of all the hoopla with Napster, the record companies and MP3.com, because every time you pick up a newspaper or turn on the television you would hear someone talking about it," he said. "I was also unhappy with the CD jukeboxes, especially giving away 50 percent of my cashbox and all the service that's required. I knew something had to change."

After keeping an eye on Ecast for two years, he visited the company's development studio in San Francisco and ended up taking home five "Siren" systems, Ecast's original floor model jukebox, which he installed on Jan. 2. In late March, he pulled the "Sirens" and replaced them with five Rowe "NetStars."

While the units have only been in place for a short time, Balint has been pleased with the early returns. He's had particular success with the "Single Song Download" and "Play My Song First" features.

Like his grandfather, who established Coastal in the 1940s, Balint takes great pride in making sure that each location has the right mix of music; something he is able to have greater control over with "NetStar," which can be updated remotely at "Ecast Central."

"My grandfather was very involved with music, so I'm real progressive when it comes to my music purchases because it really matters," he said. "Now I'm able to make adjustments much quicker than I ever could before."

He was even surprised to learn that his customers, the majority of whom are in their early twenties, weren't so easy to predict in terms of their music preferences.

"After I looked at the numbers, I was shocked to see that these kids were downloading songs from artists like David Allen Coe, Dean Martin and Frank Sinatra," he said. "It's really been educational."

Based on his initial success, Balint plans on expanding the technology to more locations along his route. Like others, he sees no reason to return to the past, now that the Internet has finally entered the coin-op scene.

"I don't like the old business model, and I know we need technology to change it," he said. "It just happened that the Internet was the perfect venue to do that."


Topic: Music and Games Features

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