Wednesday, January 17, 2018 | Today's Vending Industry News
How To Improve Coin-Op Game Revenue

by Malcolm Steinberg
Posted On: 5/30/2013

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TAGS: amusement business, Family Entertainment Centers, FEC trends, Vending Times Census, Malcolm Steinberg, coin-op games business, Dave and Buster's, Main Event, Incredible Pizza, Brunswick Xtreme, entertainment trends, recreational activity, mobile games, arcade games, Leisure and Allied Industries, LAI Games, Timezone

The coin-op games business has been in decline for several years. The industry survey prepared by Vending Times in 2012 shows the coin-op revenue in constant decline from a peak of $6.2 billion in 2005 to $4.7 billion in 2011. That's a 24.2% drop. Every amusement machine category, including the usually stronger segments like redemption and prize vending, has declined during this period.

Traditional street operations have declined significantly, and the iconic mall arcade is almost a dinosaur. The only area of the business that is showing some resilience is the large-format family entertainment centers like Dave and Buster's, Main Event, Incredible Pizza, Brunswick Xtreme and Itz, among a few others.

It begs the question: Why?

If you consider the basic fundamentals of supply and demand, you will establish that when demand exceeds supply, the market tends to adjust by increasing production and, in the interim, restricting access. In the short term, it usually results in increased prices for the goods or services. In such circumstances, all the stakeholders enjoy economic prosperity.

Conversely, when supply exceeds demand, which is most of the time, industry players and stakeholders react in a number of ways to maintain an increased market share. Well-established strategies include discounting, product packaging, loyalty programs, customer communications through databases and other value-based offers to induce customers to buy.

In any free-market economy, the norm is when supply exceeds demand.

These are normal strategies within the retail and other industries, but not so in coin-op because the basic coin-op game does not have the structure or infrastructure to apply such strategies.

The games business as a whole -- when including consumer, MMOG and downloadable products and services -- is a $150 billion business. Coin-op is less than 5% of this, so if we are going to claw back reasonable market share, our strategies will have to change. The worldwide movie production and exhibition industry is $87 billion, just over half the size of the games industry, which brings us back to FECs.

Large-format FECs are exceptions because they have similar capabilities to the retail industry, which includes variable pricing, value packaging and the ability to communicate with customers through databases. They also have the ability to control and manage their inventories and accounting functions. They achieve all this by using card-based systems. This eliminates coins and gives them the ability to operate like any other retail organization.

I am the chairman of the LAI Group and one of our businesses is Embed, a supplier of card systems to the FEC industry, so some cynics might think I am pushing my own barrow. Another business within the LAI group is Timezone, which operates more than 230 FEC locations in Australia, New Zealand and six other countries in Southeast Asia. All of these locations operate on card systems and I can tell you that despite the industry worldwide being considered in decline, Timezone is achieving consistent annual growth both in total and on a like-store basis.

Although card systems are an excellent marketing and management tool, the real revenue driver is product. A movie theater would not sustain box-office sales if there were not a continuous flow of new movie releases and, in that regard, coin-op games are no different. Our industry also has the challenge to reach players online, particularly through handheld devices. This market segment is currently 95% of the interactive games industry, whereas coin-op is only 5%. Some 30 years ago, coin-op represented 95% and home games 5%, so there has been a total reversal of market share.

Wherever you go, on train or bus or in a coffee shop, you see people staring at their smartphones and twiddling their thumbs to interact, communicate and play games. Young people are addicted to their phones and tablets, and this is an extraordinary opportunity to communicate with billions of people around the world.

I strongly believe that the future of coin-op lies in its ability to compete and gain market share in what is the world's largest entertainment industry. The size of the coin machine sector can double simply by increasing its share to 10%.

Amusement Industry, coin-op statistics, Malcolm Steinberg, Vendign Times

Malcolm Steinberg MALCOLM STEINBERG is chairman of Perth, Australia-based Leisure and Allied Industries, which he founded in 1958. The LAI Group, a pioneer in family entertainment centers, is active in amusement machine development and manufacturing (LAI Games), POS systems (Embed) and arcade operations (Timezone). Timezone operates in more than 200 locations in Australia, India, Indonesia, New Zealand, the Philippines, Singapore and Vietnam.