The Great Recession may be over by the time you read this or it may have turned into a double-dip downturn. Either way, America's Great Recession has killed a politically popular myth in the U.S. economy. It has also killed a big myth in the music and games industry.
The economic myth is the belief that governments can spend their way into prosperity. Some economists claim this actually happened during World War II. But having the entire globe as America's near-exclusive postwar market, along with cheap oil and other vanished factors, also helped drive the peacetime boom -- not just deficit spending.
For decades, this industry cherished an equally big myth. Operators, distributors and manufacturers believed that the industry's success occurs in inverse proportion to the success of the overall economy. In plain English, industry members often liked to reassure each other, "People need cheap entertainment during hard times." What they really meant was, "Coin-op amusements flourish in a recession."
Well, it's true that people need cheap entertainment in hard times. But it's a myth that coin-op amusements flourish during recessions. Unfortunately, the industry's romanticized view of its own history has contributed mightily to this myth.
Here are the facts. Hollywood enjoyed a rebound in 2009-2010 for the first time in six years (movies also did very well during the 2001-2002 recession). And while Hollywood's current comeback is solid, it's hardly spectacular.
The really spectacular growth is happening for Redbox, with its unbeatable $1 price point for two hours' worth of entertainment, and Netflix, with its high-value rental subscriptions and unbeatable convenience. Few bargains in pay-for-play machine amusement compare with these automated services.
The kind of entertainment that is truly flourishing today is not just cheap -- it's free or nearly free. It's TV, Apple and the Internet. But the coin-op industry still has not figured out how to compete with American Idol, 99¢ iTunes songs and World of Warcraft.
The plain truth is: Coin-op flourishes when everyone else does, too. This industry's last big hurrah was 1992. Street Fighter Champion Edition was all the rage. But when the economy went south, so did this industry. Tellingly, the music and games business did not see a significant revival during the last two recessions. Instead, it suffered whenever the U.S. economy suffered.
The all-time greatest boom for coin-op occurred in 1981 when Pac-Man, Space Invaders and Galaga took America by storm. That year, according to a study by the Gallup Organization, that year the amusements industry generated $7 billion in revenues -- more than music and movies put together, something that has never happened before or since.
Many people remember 1981 for a very bad economy, and it was bad. In fact, Ronald Reagan won election to the presidency in 1980 based largely on the 21% "misery index" of combined high inflation, high unemployment and high interest rates.
But let's look closer. Despite high inflation and interest rates, most people still had jobs and money in 1980 and '81. The videogame boom was well underway before the recession officially hit in July of 1981. And, the Great Videogame Crash of 1982 coincided precisely with the bottom of that recession, too.
The myth that "coin-op flourishes during hard times" chiefly rests on this industry's amazing performance in the 1930s. Back then, the electronically amplified jukebox was booming, a distribution network was forming and many of today's operating companies got their start. But that historical period could also stand a little closer scrutiny.
To begin with, it could be argued that the industry's 1930s boom was, above all, a side effect of the repeal of Prohibition and the legal availability of alcohol. Bars were open, beer was flowing and champagne corks were popping. (That was what the song "Happy Days Are Here Again" was really about, not the New Deal -- even though FDR and Democrats made it their campaign theme.)
Talk to the old-timers, if you can still find any, who actually operated during that era. Talk to the historians who track the numbers of machines, and you learn something else that is very interesting. Much of this industry in the 1930s was making its money from novelties, pinballs and venders that included a game of chance and paid winners a nickel. Many of these devices were outlawed by the 1940s. Today, those games would be classified as "gray area" or outright slot machines.
The way out of the industry's current woes must begin with truth and clarity of mind. Hard times won't save anybody. Innovation and hard work will.