conuartlbla
a ames
by david rosen
OF SEGA ENTERPRISES
We must not be lulled into believing, even for a
moment, that our industry's past success will be as easy
to come by in the future . The rapid growth we have all
enjoyed has brought with it some very real problems-
problems which must be studied and analyzed and dealt
with if the industry is to continue to grow and prosper.
Market Maturity. The first issue confronting our
industry is market maturity- that is to say, market
saturation. Much of the prime real estate for new arcades
and street locations has already been pre-empted. Most
regional shopping malls have arcades, and the 7-lls of
the world already have the latest in video games, or are
testing the concept for their particular operations.
This means the pipeline for new equipment sales will
be slowing down.How long before we see this
happening? My best guess is before year-end.
What will a matured market for new equipment sales
look like in six months from now? We should plan our
business strategies around what will be a three-tier
market segmentation for new equipment sales.
A word about each market segment...
New "Hot" Games. Regardless of market maturity,
we will continue to see a large and growing market for
new "hot" games. But operators will be more and more
selective in their choice of models as there are just so
many "winners" an operator can absorb. Moreover, we
will see a continuing trend in arcades to "banking" two,
three, or four of the same model. The demand for new
"hot" games, coupled with "banking" of games will add to
distributor sales of the current winners, but will also take
away from sales of the " average" $250-a-week game.
Bottom line, we can expect to see the latest "hot"
model sell very well, but the new equipment market for
all other models may well be sluggish compared with
sales levels enjoyed today.
Replacement Market. The second and largest
segment in a mature marketplace is the replacement
market, which is enormous-estimated to be about
700,000 computer video games. This is where the bulk of
future new equipment sales will come from. The problem
is how to tap the replacement market realizing the
economics of equipment trade-ins are not attractive to
operators- except to purchase the latest "hot" new
game. More about the replacement market and trade-ins
later.
The third segment o{ a mature market for new
10
equipment sales is the steady, albeit slower, s!ream of
pipelines sales to new arcades and street locat1ons. We
can expect to see an increase in the trend towards
"space theme" type arcades. and r~pid expansi~n of
pizza parlor type formats. Major cham street locations,
such as Dunkin' Donuts and Winchell's Donuts, also
offer significant opportunity for new equipment sales.
The words "market maturity" or "market saturation"
may at first sound ominous and foreboding- however,
change always presents new opportunities. And
foresight and proper planning will allow us all to prosper
from such new opportunities.
The pace of new game debuts
.
The second industry issue before us today IS the
problem of rapid introduction of new gam~s.
Distributors and operators alike are being flooded w1th
new games-some "hot" and others not so hot, but
nonetheless good money earners.
Broad player appeal and enthusiastic response to new
video games has turned out to be a double-edged swo~d.
On the one hand, both distributors and operators enJOY
record sales and earnings. On the other hand,
distributors and arcade and street location operators
alike, are virtually forced to carry all the latest games.
The problem is common to every operator: how to have
all the latest games, when prices are up and trade-in
values are down?
For example, every operator must keep on location
the "good earning games" which today have relatively
high trade-in values. At the same time, the operator must
continue to buy the new "hot" games. Taking it one step
further, when this same operator decides to trade in a
particular model, his decision is made about the same
time as everyone else. The market is then flooded with
that particular model, and the floor drops out of the
resale market .
Therefore, the operator has little or no trade-in to
offset the initial purchase price of a new "hot" game-
and the problem then becomes "How do I obtain the
capital to sustain operations?"
We can all remember back a few years ago when the
timing of trade-ins was critical to an operator's financial
success. Today the element of timing is virtually non-
existent; it's simply a matter of survival that an operator
must have all the best new games.
Suffice it to say for now that trade-ins are the key to
video conversions
from a major U.S.
manufacturer:
what do they hold
in store for the
coin industry?
PLAY METER, September 15, 1981