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EDITORIAL: The Hottest Selling Machines of 2008

Posted On: 8/18/2006

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Our colleagues at RePlay Magazine recently published a stunning statistic based on a reader poll, to the effect that 55% of U.S. operators do not reinvest profits into their routes in any systematic way. Paradoxically, the lend-lease professionals at Firestone Financial Corp. and Betson Financial Services have reported (in VT) that their volume of transactions in the coin machine industry increased by double digits from 2005 to 2006.

At first blush, these findings appear contradictory. On second glance, they could mean that many operators have been upgrading their routes, but not by means of reinvesting. Instead, they're borrowing -- taking advantage of attractive opt-out leasing programs and multi-million-dollar finance programs, the latter often linked to heavily-discounted unit costs for downloading jukeboxes. This would suggest that the 1940s business model of letting the operator pay for new machines out of cashbox earnings remains a solid strategy.

However, the mixed findings may simply mean exactly what they say: that a small core of progressive, aggressive, healthy operators -- say, 45% of the operator base or 1,200 businesses -- are borrowing and reinvesting versus 55% who are not. It could mean that all the increased business that Betson and Firestone are generating comes from that 45% minority.

As previously discussed in this space, some leading operators point out that the size of the U.S. operator population has been cut in half in the past decade. These same operators predict that over the next 10 years, it will be cut in half again. If so, it's not too difficult to predict who the survivors will be: the 1,200 who are borrowing and reinvesting.

It is a striking fact that 1,200 operators is about the same number who show up at the industry's national trade shows these days. Coincidence? Not likely. A pro is a pro is a pro, whether the measurement is reinvestment, association support, or expo attendance.

All of this raises another interesting question: how do major new products filter into the U.S. amusements industry? The answer is a familiar story, usually told in four predictable chapters.

Chapter One: A new, hi-tech version of a previously non-computerized product is introduced by one or two cutting-edge manufacturers. Some operators claim the new product is not needed; many operators insist that they are not interested.

Chapter Two: A few early adopters purchase these advanced machines. They discover that banknote crediting and depth of programmability translate into higher play-pricing, fewer pieces of location-owned equipment and much healthier cashboxes.

Chapter Three: Players strongly embrace the new equipment, repeatedly and insistently requesting it from locations that don't have it yet. Location owners pass these requests -- or demands -- along to the operators. Operators grumble, but are increasingly "forced" to buy the new product.

Chapter Four: After a few years, the hi-tech version of this class of equipment becomes the standard new purchase. Typical operators, not just the big boys, begin placing this type of machine in their best locations. Early skepticism is long forgotten, replaced by a near-universal glow of enthusiasm. Meanwhile, by this point the early adopters have converted their routes 100% to the hi-tech generation.

Variations of this story could be told about several categories of equipment: downloading jukeboxes, touch-screen countertops, networked video games and even digital photo imaging booths. The latest sector to fit into this paradigm is computer-programmable, bill validator-equipped pool tables.

VT covers that class of equipment in depth, in this issue. It appears that electronic pool is at about the same point on the sales curve that downloading jukeboxes occupied three years ago. They have moved past the "early adopter" stage and have been passionately embraced by the industry's leading operators. If the four-chapter paradigm outlined above holds true, the hottest-selling machine of 2008 or 2009 will be the electronic pool table.

At least these products will be the hot purchases among the more aggressive 45% of the operator population known as the survivors.