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Rental And Leasing Programs Are Center Of Jukebox Controversy

Posted On: 4/10/2009

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Ecast, Amusement and Music Operators Association, AMOA, Amusement and Music Owners Association of New York, Power House Vending, jukebox, digital jukebox, in-bar entertainment, coin- op, digital music distribution, touchscreen devices, vending, vending machines
NEW YORK CITY -- The Amusement and Music Operators Association, a national trade group, and the Amusement and Music Owners Association of New York have strongly criticized Power House Vending of Laguna Niguel, CA, for a direct-to-location, nationwide rental program. The jukeboxes run on the Ecast network.

Some operators have threatened to boycott Ecast unless the San Francisco-based music provider takes action to stop Power House's jukebox program, which allegedly challenges a long-established operator-owned equipment business model.

According to an April 3 statement by Chicago-based AMOA, an unnamed company -- clearly Ecast -- is supporting what the trade group called a jukebox "rental scheme," which "attempts to undermine, threaten or otherwise circumvent the coin machine operator."

The AMOA statement continued: "This is the same firm that was the target of nearly identical operator opposition during the Jukes Direct scenario a couple of years ago."

However, AMOA was careful not to name Ecast explicitly, nor censure the jukebox media company outright. Its statement conceded that "sometimes, it's hard to figure out who is to blame" in these situations.

While Ecast has not yet officially commented on the matter, it has reportedly informed both associations that it believes it has no choice but to continue to honor its standard operating agreement with Power House Vending, and that nothing in its operator agreement forbids the Power House pricing structure.

At the center of the storm are several pages on the California vendor's website that outline a jukebox rental offer. The website text reads, in part: "Welcome to Power House Vending's music division. We are the solution to renting a digital, downloadable jukebox and maintaining the support of a national, experienced operator."

Power House Vending is a high-end operating company that serves 17 states. Its principals, Stephen Bennett and Richard Wolfen, also own and operate a family entertainment center in Long Beach, CA, called The Power House. The executives could not be reached for comment.

The Power House site markets two digital jukebox models -- the J380 and Icon -- that are offered for $119 a month, plus a percentage of the cashbox, under a 39-month rental contract.

Power House's website also contains language that has clearly ruffled the feathers of AMOA's leadership and AMOA-NY's operators. "With our unique rental program and fantastic percentage programs you will keep more of the gross income," the site says, adding, "You have the keys and control the cash."

The response from the national operator association was simple. AMOA said it "condemns the practice," which it termed a "rental scheme."

Comments by AMOA-NY were considerably less restrained. In a letter dated March 27, the state association blasted Ecast in scathing language. It implied that the Power House rental offer amounted, in effect, to a camouflaged "lease-to-buy" arrangement. In the letter, AMOA-NY executive director Danny Frank warned Ecast that many operators are not interested in hearing legalisms or other excuses.

The communication from the New York trade group, addressed to Ecast chief executive John Taylor, broadly hinted that some operators have privately threatened to boycott Ecast if it continues to feed service to Power House for its new location rental program.

AMOA's statement also alluded to this hazard, albeit in vague language. According to the national group, "attempts have been made to ratchet up the pressure on the manufacturer [and] content provider [that] is supplying the units and music to 'cut off' this particular customer."

The Ecast chief executive has reportedly informed both trade associations that the company's attorneys have advised that its hands are tied in the matter. According to the national association, "This company [Ecast] has told AMOA and others that there is nothing in its operator agreement that can be invoked to rectify this situation -- and cites a consent decree that governs some of its business policies."

In 2005, Ecast consented to an agreement with the U.S. Department of Justice to ensure fair competitive practices. The consent decree followed a DOJ investigation into possible violations of antitrust law, and stipulated that Ecast would end its noncompete agreement with NSM Music Group, a manufacturer of commercial jukeboxes. Under that deal, NSM had agreed in effect to market Ecast jukeboxes rather than build and sell its own competing digital music platform, which DOJ said could have furthered competition and reduced prices to the operator.

AMOA-NY apparently heard the same line of reasoning from Taylor, and is not impressed. The March 27 letter from Frank said the AMOA-NY membership believes Ecast's 2005 DOJ consent decree is irrelevant to the current Power House situation.

In March, AMOA-NY began an industrywide movement to build awareness about online marketplace businesses selling, leasing or renting jukeboxes and other commercial equipment to locations. The association contends that the practice conflicts with the "operator" agreements between the jukebox companies that provide digital music services and professional vending companies which deploy their products.

Shrewsbury, MA-based Lease America, which specializes in leasing coin-operated amusement equipment, also appeared on the association's radar. The company's line includes Rowe and Merit jukeboxes that run on the AMI Entertainment Network.

According to an announcement posted on Lease America's website, AMI on March 10 discontinued music services supporting Lease America's jukeboxes. The leasing company said it is pursuing legal action against Rowe and AMI, and is "gearing up for its own Internet jukebox and music server," which it claims is in the final stages of development.

Former vending operator Allan Z. Gilbert observed that manufacturers and distributors have always sold to any customers willing to pay them. "They try to keep this information from operators, for obvious reasons, but it does go on," said Gilbert, who is also VT's financial editor.

"It's also interesting to consider the wide variety of commercial vending and amusement machines that is sold by such giant retailers as Sam's Club and BJ's Wholesale Club," he added.

"The only leverage an operator has is to boycott the suppliers who do it too egregiously," Gilbert said. "Remember how much market share Seeburg lost when it started demonstrating its new jukeboxes directly to bars? And it wasn't even trying to sell them directly. They would put the business through a local operator. Even so, the operators resented them for forcing them to buy new equipment."

Additionally, a rental or leasing business can easily be construed as another way of operating equipment, Gilbert explained. In the full-line vending segment, this is known as cooperative service vending, a program in which the location participates in the service and collection of the machines. "The equipment can be owned by the location, rented from the operator and be managed several different ways. Cooperative service is even more common in the office coffee service segment," he said.

"Operators need to justify their place in the channel of distribution by offering some value in the transaction that the direct sale supplier cannot," Gilbert said.