Sunday, January 21, 2018 | Today's Vending Industry News
Trust Is Paramount In The Relationships Business

Posted On: 3/7/2014

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TAGS: Vending Times editorial, coin-op amusements, coin machine business, vending, jukebox, amusement arcade, video game, amusement operator, Nick Montano, jukebox ownership models, TouchTunes, Charles Goldstuck, AMI Entertainment

How can the music and games industry remain relevant in the deepening information age in which two of its core products -- music and videogames -- are available on ubiquitous personal devices? Can we be relevant at all? Furthermore, is the three-tiered structure on which it's built -- manufacturer, distributor and operator -- the practical business model it once was, and does it possess the nimble reflexes needed to adapt and innovate in the digital entertainment world? Amusement industry members have been asking these questions for at least the past decade.

While each of the industry's segments has lost ground to route consolidation, distributorship closings and product category fatalities (most recently the touchscreen countertop videogame) the coin-op business model continues to survive because it still succeeds in satisfying location clients and end consumers. Holding the industry together are the relationships among the three tiers, and trust between the industry and its customers.

A recurring challenge for these relationships is direct-location sales. Internet technology has enabled new jukebox ownership and operational models. Flash back to 2009, when a nationwide rental program piggybacking on the Ecast network prompted controversy and heated debate in the operating community. Fast forward to today: NSM Music is running its "own your own" jukebox program, which it rolled out in December 2010. The former offered an inferior jukebox, and dealt with a music technology company that was on shaky financial ground and is now out of business. The latter offers jukeboxes that connect to a limited music library; it likely has sold only a small number of boxes.

Last month, a story surfaced about an equipment reseller marketing jukeboxes to locations. However, this program offers locations an opportunity to own their own boxes that run on the leading TouchTunes network. (To be sure, TouchTunes is not involved in direct sales, but not all readers understood this. See "New Direct-To-Location Jukebox Program Sparks Alarm Among Operators". )

A key reason NSM's direct sales have been weak, our recent story reported, is that location-operator relationships remain strong throughout the country. But the opportunity for a location to own a TouchTunes jukebox is compelling, and could further test those relationships. The TouchTunes brand is now part of bar and nightclub culture and its lexicon -- it's known colloquially as "the touch tunes." So it's no surprise that this new development has some operators more concerned than previous "direct" programs challenging the status quo.

This latest paradigm of location equipment ownership illustrates how the mere presence of digital music networks can enable alternative ways to operate jukeboxes, or ways to misrepresent contracts between operators and music providers.

Media outlets sometimes reach out to trade journals seeking information about the industry. Reporters are fascinated by its operational model, usually having thought that venues already owned the equipment themselves. At Vending Times, we explain to them that the coin machine industry originally developed as a "concession model" in which manufacturers sell to distributors, who sell to regional operators who place the machines. The venue would not have to purchase or maintain machines, but shares in the income for allowing it to be placed its property. They are tenants.

Buying a jukebox has always been possible, we point out, but distributors have been reluctant to sell them because local operators might resent it and prefer to do business with a different distributor. In many instances, the story goes, the venue owners who canceled their operator's contract and bought a jukebox sooner or later realize it needs more maintenance than anticipated. As a result, they end up calling the operator and ask for the contract to be reinstated.

While this explanation of the existing prejudice against location-owned equipment, and the three-tiered industry model, is debatable, it is not illogical. And the prevalent system does deliver the greatest value to customers. However, operators need to be reminded that conditions prevailing during their formative years are not part of the natural law.

At the end of the day, consumers decide what works. What's worse: A location that buys its own pool table, or one that replaces an operator's piece with four tables and 16 chairs because the pool revenue is no longer attractive?

Both TouchTunes and AMI Entertainment are creating products to enable operators to compete with and complement digital mobility. TouchTunes chief executive Charles Goldstuck said 2014 will be his company's most prolific year, and March's Amusement Expo will host the most significant product rollout in the company's 16-year history.

What matters is the consumer's relationship with the industry's products and services.