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Issue Date: Vol. 43, No. 10, October 2003, Posted On: 10/13/2003


Online Game Tournaments Poised For Quantum Leap


Marcus Webb

U.S.A. - Members of the amusements industry hear a lot of talk about new products and new concepts "reaching critical mass." This crucial threshold is rarely defined with any precision. But whatever "critical mass" is, online video game tournaments appear to have reached it. More than 3,000 operators in North America presently administer online video game tournaments running on approximately 34,120 dial-up connected games.

The specific breakdown is as follows: Incredible Technologies reports 3,000 U.S. operators with 25,000 golf games and 1,200 hunting games. Merit reports 275 operators with 5,000 online games. JVL Corp. reports 175 North American operators with 720 online games. Global VR reports 400 U.S. operators with 1,200 online games. No doubt there is significant overlap among the operators of all these online tournament games. But 3,000 operators represents at least 60% of the total U.S. operating community, traditionally estimated at 5,000 companies.

The four leading manufacturers of online tournament equipment believe that networked promotions must , and will , grow significantly over the next decade as technology and marketing advance, and as additional manufacturers adopt online strategies. Within a decade, executives forecast, online tournaments will become an indispensable tool to cement the loyalty of existing players and locations. These executives also believe online promotions will become powerful tools to expand both the player base and the location pool.

"In five years, online connectivity and tournament promotions will be five times more important to this industry than they are now, and in 10 years they will be 10 times more important," declared Bob Mills, vice-president for networking and new business at Merit Industries. "Expanding online promotions won't be easy; it will require tremendous commitment from manufacturers, distributors and operators. But it will happen, because online promotions are one of the most powerful tools we have to promote growth in customer traffic to our locations and to increase player loyalty."

"The importance of online tournament promotions of video games is simply huge today, and it will become even more crucial in the next few years," agreed Milind Bharvirkar, president of Global VR. "It should be the goal of this industry to build a major, nationwide community of online video game players. This is already occurring in the home market with Sony PlayStation and Microsoft Xbox; they are building an online player community that drives traffic to their games. In the coin-op industry, online tournaments are an indispensable vehicle to make our locations into true destinations and take our products beyond casual play."

EXPANSION OPPORTUNITIES

Certainly there is room for growth in the online player base. While it's impressive that Merit reports 100,000 registered "TournaMaxx" players, it is also suggestive that IT says just 5% of all "Golden Tee" players compete in online contests. A similar imbalance of tournament versus casual players is believed to exist with other networked video equipment. If just some of the 95% of players who enjoy casual play could be persuaded to step up to tournament play on a regular basis, the video game industry could potentially realize an entirely new level of profitability.

To that end, manufacturers are planning a variety of upgrades to enhance online tournaments and entice more players , and operators , to participate. For example:

* Merit Industries now offers broadband capability on its latest generation of "MegaNet" touchscreen games. Introduced at last month's AMOA International Expo, these games also work with phone lines. Moving beyond its "TournaMaxx" player ranking system without prizes, Merit will integrate Prize Zone (a licensed redemption system from Arcade Planet) into its network. In the near future, Merit will launch a limited program of mass e-mail promotions, aimed at drawing registered players to special online competitions.

* Incredible Technologies will send out 50,000 e-mails to alert players to this November's national "Golden Tee" championships. IT has also created new location-specific, local marketing programs for "Golden Tee" in cooperation with Michelob Light. IT this year introduced tournament play for "Big Buck Hunter II: Sportsman's Paradise," thus bringing the shooting genre into the online competitive field. New features will be added to "BBH" to support local operator-proprietary tournaments.

* Global VR has unveiled a driving game, "Need for Speed," that will be a tournament-connected product next year. For both online golf and driving games, Global VR will offer enhanced player community-building programs based on "loyalty points" earned through frequency of play, not just high-score achievements.

* JVL Corp. has announced "Itouchnet," a new feature for its touchscreen multimenu games and the associated "Touch and Win" online tournaments with sweepstakes awards. Supported by the new "Itouchnet.com" dedicated website, this feature allows operators to run three levels of tournament competition: national sweepstakes events organized by JVL; local and regional online tournaments organized by operators; and single-location (offline) tournament events.

BROADBAND POSSIBILITIES

In the field of broadband products, all Rowe-Ecast "GemStar" touchscreen units are plugged into the Ecast network for content updates. No tournament program has been launched for "GemStar" as of this writing, but the capability exists. Ecast is actively exploring the possibilities, officials told VT.

Other manufacturers are anticipating the benefits of going to broadband when enough locations are wired with high-speed connections. Global VR will "absolutely" go to broadband connectivity at some future point "when it's affordable for the operator and more widely available," said Bharvirkar. "We look forward to eventually taking advantage of this. Our games have a lot of functionality, such as voice communications capability, that we can take advantage of once our games connect to a broadband network."

Incredible Technologies is also "definitely looking at broadband," said the firm's vice-president of marketing, Scott Morrison. "For now, phone line connections make sense, so it depends how fast broadband is rolled out. The critical mass has to be there. Most bars now have cable TV so they can show all the sports events; the next step may be cable modem. We're keeping an eye on this development and if everybody gets wired, we'll be all over it."

"In the long run, going online will give operators a lot of convenience, allowing them to monitor and update machines remotely," pointed out JVL CEO Peter Guterres. "This I hope will eventually open the door for operators to enter corporate accounts."

The result of all this innovation and evolution could transform the face of online game promotions, and of the entire video game industry in the process. As more than one manufacturer tells it, in just a few years the coin-op industry's most high-profile online video tournament could be a driving or hunting game. This equipment could be placed, not just in taverns, but also in arcades, FECs, and even branded national chain restaurants. This theoretical tournament could feature national championships that offer real-time, head-to-head, remote-interactive competition between players from all over the country, in addition to the traditional score-comparison structure. And, such a tournament could be promoted by millions of e-mails sent to players nationwide.

"We see great potential to run video game tournaments in locations beyond the taverns," said Global VR's Bharvirkar. "Racing is a universally popular genre, and there are other sports games that can open more spaces as well. There is plenty of retail space available that coin-op can enter if we approach them with the right product that makes enough money."

LEGAL OBSTACLES

But before this glowing picture becomes reality, manufacturers also say a long list of obstacles must be addressed. One crucial obstacle is the legal climate. As of now, six states do not permit cash awards on skill-based video games. They include New Jersey, Arizona, Louisiana, Montana, Wyoming, and South Dakota. Morrison of Incredible Technologies says IT closely watches the legal climate in these states, but IT officials see "no movement" toward a more permissive environment in any of these jurisdictions at present.

Further legal obstacles arise from a federal privacy statute that makes it illegal to take player information over the Internet from minors. The Amusement and Music Operators Association has created a set of recommended guidelines, called the Information Privacy and Security Policy, that calls for manufacturers to abide by this law. Some states have their own prohibitions on minors entering and winning most commercially sponsored promotional contests. The legal age barrier alone could pose a major challenge if the industry seeks to expand online tournaments into arcades and other under-18 locations.

Still more legal barriers to online tournament growth could result from opposition by casinos and lotteries. According to Global VR's Bharvirkar, well-financed lobbyists for the gambling industry are actively seeking to limit online video skill games with cash awards, since the gambling industry perceives these products as unwelcome competition for machine entertainment leisure dollars. Happily for the industry, however, federal legislation designed to curb online gambling is expected to contain a provision that clearly exempts skill-based games (see sidebar).

Even when skill-based games are clearly legal, awarding cash prizes for playing them can be politically risky'particularly in the case of larger amounts, or touchscreen products that feature card-themed games. "We have to be very responsible and not kill the goose that laid the golden egg by giving out cash awards and having it backfire," said Merit's Mills. IT's Morrison agreed, adding: "That's why we keep our top prizes to $2,500. The larger amounts seem to draw unwelcome attention. You don't want to take any chance of provoking some law enforcement official into saying, 'I will sieze this game until I figure out what's going on and whether or not it's legal.'" JVL has finessed this issue by awarding prizes on a random-drawing basis and using American Express gift certificates rather than cash.

OPERATOR RESISTANCE

Beyond legal issues, the single most important factor that could limit the growth of online video tournaments might be operator resistance. One camp of operators enthusiastically points to revenue increases, averaging 25% to 35%, during online tournaments. But a significant group of operators remains indifferent, or outright hostile, to the idea of connecting machines to a communications network.

Operators object to online programs for a variety of reasons. Some operators dislike sharing location and earnings data with manufacturers. Others balk at paying a monthly administration fee for online services. Still others resent sharing a portion of their cashbox revenues with manufacturers and, in some cases, distributors.

Manufacturers hope to overcome all these operator objections with a variety of incentives and assurances.

Merit charges a flat fee for tournament administration and never takes a percentage of tournament earnings. Operators of online Merit games receive some free software updates and early availability of certain game updates, every year.

Global VR now offers a variety of monthly administration payment plans (subscription vs. fee-for-service). Global VR also rewards operators of connected golf machines with a certain amount of free software upgrades.

JVL points to a very low, flat $20 per month tournament adminstration fee for national promotions (this fee also funds the prize pool). In addition, the company's new software enables operators to run offline tournaments that don't require any data sharing or administrative fees.

Incredible Technologies ran a summer price reduction on its games, asking distributors to pass on the savings to operators. IT CEO Elaine Hodgson signed the AMOA International Privacy and Security Policy a year ago.

Money, the traditional persuader, remains the most powerful tool that manufacturers have to overcome operator resistance. Executives point to fatter cashboxes enjoyed by operators who do participate in tournaments. IT and Global VR officials cite revenue jumps of 25% to 35% on average when games are connected to their respective networks. Touchscreen game makers report impressive results as well.

"Operators of our games average $180 of incremental income per month when they go online," said Merit's Mills. "Probably the majority of Merit 'MegaNET' operators are in B+ locations that average $175 per week. Online features add 35%, which translates into another $45 per week. This amounts to $180 per month from tournament play, which is certainly much more than the small flat fee, which averages $25."

JVL executives report that some operators have seen 25% to 30% average  increases with tournament play, without raising play pricing. Increases of up to 250% from tournament play have been reported in isolated cases. "The greatest success stories come from operators who believe in the tournaments and support them, not only with national events but in-house and local events," said JVL's Guterres. "When you run a tournament game, it may represent one or two out of 80 games on the menu, but it will attract up to 40% of play that month."

LOCAL GENIUS

A key development that manufacturers say will be crucial to future growth of online tournaments is the option for operators to create their own proprietary, local tournament events. "I think proprietary and local tournaments are bigger than national tournaments," said Mills. "Since day one, Merit has had 'Operator Level 2,' which creates a middle level tournament ranking list. This tool is exclusive to an operator's route and facilitates local tournaments. This keeps the biggest fish possible in the smallest possible pond. Your best regional players will not be discouraged by competing with the best player, who may live at the other end of the country."

Operator-run tournaments "are all over the place now," said Morrison. "In some ways these local, proprietary promotions are even more important than national events, because the skill level of players has grown very high, even with ranked divisions. They may be the wave of the future."

Guterres predicted that the industry will see more interactive and customized online environments, creating greater loyalty among customers. He reported that two operators in North Carolina have created their own, highly successful statewide tournament using JVL equipment.

Local tournaments can inspire player commitment of surprising intensity. Guterres cited a California operator whose players launched their own informal tournament playoff in a particular tavern. Two groups of competitors agreed that members of the losing team would shave their heads. Soon after, JVL got word that the bar was full of chrome domes , and a lot of smiling faces. Operator revenues, meanwhile, went through the roof.


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