Vending Times

V/T Music & Games

Vol. 35, No. 14 / December 25, 2001 – January 24, 2002

Solid ROI, Greater Reliability, Strong Resale Value Improve Pinball’s Position In Today’s Coin-Op Market
By Marcus Webb

CHICAGO — Pinball, a game category whose very survival was questioned by some as recently as two years ago, is enjoying a contained but passionate renaissance as 2002 dawns. According to U.S. pinball operators, distributors, and manufacturing executives, today’s flipper market has solidified its position and is even trending up in certain respects.

If so, it’s one of the trade’s more dramatic turnarounds in recent memory.

After longtime market leader Williams Electronics shut down its flipper line in late 1999, manufacturer Gary Stern jokingly labeled himself “the last man standing.” As president of Stern Pinball, Inc., he heads the world’s only remaining pinball factory in an industry that once supported several. In one respect, Stern’s “last man” joke was gallows humor. It reflected his awareness at the time that many industry members half-feared, half-expected, his company might also fold in a short while.

Many forget, however, that consolidation is a classic free-market corrective. In the case of pinball, it appears to have served its function well. Having a single factory supplying the global market with only three games per year – as SPI did in 2001, and plans to do again in 2002 — prevents oversupply and avoids a negative spiral of depreciation. As the sole factory in its niche, SPI enjoys a worldwide monopoly on pinball talent, drawing from the best minds of a 50-year tradition. SPI also enjoys a global monopoly on new pinball sales, which leads to greater stability for the company and, by extension, for the category.

The result: today’s pinball market enjoys a vastly different situation from that of the shaky, nervous days following Williams’ exit. Confidence is back among operators and distributors that pinball is a viable game – a game that will survive and prosper well into the future. Enthusiasm is back for the new generation of Stern games like “Monopoly” among players, trade professionals, and collectors. Coin-op unit sales remain steady, if unspectacular. Home sales are booming, both for new and used pins — a factor that keeps coin-op resale values high, and a development that may be introducing the game to a new generation of younger players.

“We’re in recovery,” Stern summarized. “The excitement about pinball is worldwide.”

“A core group of operators is committed to pinball,” confirmed Stern’s sales and marketing director Jolly Backer. “In addition, some operators who got out of pinball several years ago are now back in it. Today, only one of the four pinball manufacturers from 1992 is left and the market is not flooded with too much product. That creates strong resale value that changes the whole ROI equation. The operator response, especially at the last show, was terrific. Our booth was busy even at 4:00PM on Saturday when expo closed down. We had more customer traffic than we’ve had in a long time.”

“Pinball is coming back,” declared Stern’s technical support manager Joe Blackwell. “During the past few years, trade shows were very difficult. Operators expressed mostly negative opinions about pinball. But now I even have distributors coming to us at the shows, saying: ‘wow, the home market for pins is so strong that we have zero depreciation!’ Everyone loves pinball and wants to see it succeed.”

“We feel pinball is important,” said street operator Dave Cadieux of Arcade Amusements (Oak Lawn, IL). His Chicago-area company covers street locations in a 50-mile radius and does extensive pinball testing for Stern. “There is a solid market for it,” Cadieux added. “You have to cater to it, but it’s there. Pinball has been stable for us. If anything we’ve seen a few more location requests for pinball in recent years than was once considered the norm. After bars have a countertop, a jukebox, a pool table and a golf game, they start wondering: ‘What else can we have?’ Pinball offers a unique answer to that need.”

UNIT SALES AND INSTALLED BASE

“Operators are buying more pinball these days than they have been in recent years,” said Jack Guarnieri of Pinballsales.com Inc. “It’s shaking loose. Without question there is a bit of a comeback in the pinball market.”

Guarnieri’s online distributorship saw new flipper sales strongly overtake used pin sales in the past 12 months. “In 2000, probably 20% of our pinball sales were new machines,” he reported. “But in 2001, some 48% of our total sales – including other types of equipment — were new pins. The great new products from Stern Pinball are a huge reason for that. It’s nice to see pinball once again getting the respect it deserves and having that floor space in American locations.”

In the face of such upbeat assessments, it may be startling at first to realize that by certain key measures, the coin-op flipper game market isn’t growing. Gary Stern estimates global sales remain stable at 8,000-10,000 units annually, much as they have been for a couple of years now.

But in this case, numbers can be misleading. To begin with, achieving stability in an otherwise shrinking market is significant in itself. And, underneath that seemingly frozen annual sales statistic, the pinball niche is being transformed in many dimensions – some quite positive.

To begin with, Gary Stern estimates 60% of pinball sales today go to the U.S. market, with global exports accounting for just 40%. This represents a dramatic reversal of the prior trend of the past 15 years or so.

Europe (which absorbed 65% of new pinball product during much of the 1980s and 1990s) still has ardent pinball fans today, but currency issues have severely reduced new unit sales there. Due to the strong U.S. dollar, the cost of pinball has effectively doubled in Europe since 1992, said Gary Stern. In addition, the advent of the euro has prompted many European operators to devote their investment budgets to changing over existing equipment to handle the new coins rather than buying new amusement games, he said.

The U.S. installed location base for pinball constitutes another, even more important, instance in which statistics alone may create a misleading impression about the health of the pinball market. According to the VENDING TIMES 2001 Census of the Industry, from 1999 to 2000 the installed base shrank 17%, leaving just 300,000 flipper units in U.S. locations. (It’s a long-term trend; in 1990, the American industry alone supported over a million flipper games on location, according to V/T’s survey.)

HOME MARKET BOOM

Yet this seemingly negative development actually has (at least in part) a positive cause, and has led to some very positive results. One major reason that the number of older pins on location has declined is that flipper games have become high-demand collector’s items, as well as popular additions to home recreation rooms. This surging demand has “drained every available used pinball from locations around the world, setting the stage for a coin-op rebound,” said Backer.

The disappearance of so many older pinball games from the coin-op environment, combined with ongoing collector popularity, means that new pinball units command “wonderful resale value,” said Stern. “We’re unique in that respect,” he added. “As with jukeboxes, operators should not concern themselves solely with short-term issues of cash in the cashbox, but also with the value of the game itself when it’s older.”

Stern cited numerous examples of pinball’s appeal to the collector and home markets. “There is a strong secondary market for popular pinball titles like ‘Harley Davidson,’ with both new and used games going to a very brisk home customer base,” he reported. “We’ve sold dozens of ‘Austin Powers’ pinballs to The Sharper Image; ‘Monopoly’ is in the FAO Schwartz catalog and it’s on E-bay.

“The secondary market also includes collectors and enthusiasts,” Stern continued. “There is an entire community of pinball fans who attend their own expos, keep dialog about pinball going daily in Internet chat rooms, and so on. This community went wild when they heard a new game was going to be available last year from famed pinball designer Pat Lawlor.” (Lawlor Design Group performed design chores on Stern’s “Monopoly.”)

Cadieux explained why the exploding home pinball market is a positive development from the operator’s point of view. “Prices for used pinballs in good condition have a solid floor,” he said. “They don’t seem to go below $1,000 at the very least – not even for a machine that’s over seven or eight years old, again assuming it’s well maintained. Depending on the popularity of the individual game, some used pins, such as ‘South Park,’ can go for several thousand dollars on the resale market. This means an operator will always make money on pinball, whereas a video game may someday end up in the dumpster. We sell our used pins to the home market through our showroom. It’s a big part of what makes pinball attractive for us.”

Stern added: “I think an operator who purchases ‘Monopoly’ will be able to collect solid cashbox returns for two or three years, then sell it for 80% to 100% of its original price. There will be a shortage and collectors will go crazy for them. So if your focus as an operator is return on investment, you can’t go wrong with pinball today… especially if it’s a Pat Lawlor piece!”

With all these structural factors supporting the product – and with the latest games themselves achieving new levels of play appeal and reliability – pinball appears to be reestablishing its niche as a classic tavern staple. Gary Stern does not kid himself that a tavern staple is exactly what pinball is. “Arcades are great,” he says simply. “But we’re a street piece.”

“Pinball is popular in bowling alleys, pizzerias, location-based entertainment sites like Dave & Buster’s, and even movie theaters,” elaborated Stern business affairs director Shelly Sax. “And yes, pinball is still found in some arcades and fun centers. But taverns are really our strong suit.”

This well-defined location niche brings opportunities and challenges, both for SPI and for pinball operators. One challenge is stiff competition: “People say we have no competition because we’re the only pinball company in business today,” Stern commented. “That’s nonsense. Pinballs are bar pieces and we have competition from touchscreens, jukeboxes, pool, darts, and any other tavern piece, as well as from other forms of entertainment – movies, music, home video.”

A strength of being defined as a “tavern staple” is that even though there is competition for floor space, pinball does qualify to make the cut. Many operators believe taverns can only support a limited number of equipment categories. Pinball – whatever its other flaws and virtues – is safely established on that relatively short list. “In these days when much fewer equipment choices are available, especially for bars, pinball is a good niche to have,” operator Cadieux pointed out. “It’s always been part of our operation and many locations will insist on keeping pinball, even if only three people in the bar play it!”

“Operators for the most part now have all the other bar staples they need and want; so the question is, what else do you do?” Guarnieri asked. “At this point pinball makes sense, especially the new ones with themes like ‘Monopoly’ and ‘Harley Davidson’ and others that will last forever.”

MAINTENANCE ISSUES

As electro-mechanical devices, pinball games require more maintenance than other types of equipment. Many operators have traditionally disliked pinball for that very reason. “Operators view pinball as a challenge,” admitted Backer. “They have to pay attention to them and work a little harder at cleaning them, making adjustment, and changing out a popped bumper or a fuse. It’s a mechanical device in a public location, so it gets played hard; and yes, it will require more maintenance.”

Making a virtue of necessity, Stern’s team points out that pinball’s maintenance requirements help ensure this type of game will remain operator-owned. As technical expert Blackwell put it: “Now that the video boom has come and gone, the operator has to get back to doing what he always does, providing service. Remember, any location owner can buy a game – whether it’s a jukebox, pool table, or countertop — slap on a license, and collect the cashbox. In fact, the more hi-tech and downloadable entertainment becomes, the easier it is for locations to own their own equipment. But the location can’t do what the operator does: service equipment, fix equipment, rotate equipment, and keep up with trends in the industry.”

“Pinball is probably the most maintenance-heavy coin-operated device we have,” Cadieux judged. “A lot of operators don’t want to bother with it. But you can make money if you maintain it. Operators can obviously do a much better job than locations on service; that’s a priority. Anybody can put equipment in.”

CLEAN AND ROTATE

Cadieux described his extensive professional maintenance program, designed to keep pins running smoothly and earning strongly on the Arcade Amusements route. “We do a six month rotation on machines,” he said. “After that they need to have rubbers and bulbs replaced and be scrubbed and we’re right on it.”

Online dealer Guarnieri keeps a comprehensive pinball maintenance guide permanently posted on his website. “We have a checklist that operators and private pin owners can refer to,” he said. “Most guys just spray WD-40 and put new rings on, but that’s not enough. Cleaning it on a regular basis, not just emptying the cashbox, is a big help! Some operators take $30 off the top to pay for that extra maintenance. If you can make the locations understand how important that is, they’ll agree because they know in the long run it means the machine makes more money. In turn, the location knows they get a slice of a bigger pie.”

“Invariably when a location complains about a low-earning pinball, it’s a poorly-maintained pinball,” Blackwell contributed. “Pinball earns when it’s maintained!”

“Pinball has definitely been getting more reliable in recent years,” Cadieux added. “They’ve come a long way with better designs and much better, more reliable electronics. The designers and all the factory people are trying to eliminate typical service problems like ball traps. They’re making progress!”

Blackwell, a former operator, is zealous about supporting pinball operators through Stern’s service department. “We talk to 50 to 100 operators a day and you get a feel for what people want,” he said. “I make time to visit operators in the Chicago area, tour their shops, keep in touch. You have to understand what they see on their end. Our goal is answer the 800 number in three rings; get a board turned around in two days; keep charging flat rates per job, not per hour; be personable and answer people’s questions; post regular service bulletins in Star*Tech Journal… and be on the operator’s team!”

The close identification of pinball with tavern locations means the lion’s share of pinball players have traditionally been limited to a somewhat narrow demographic: males age 18 to 35. Most players are believed to be on the upper end of that spectrum. “Nobody really knows, but we believe that’s our core market,” said Gary Stern. “What we need to do is interest the younger tavern patron. We need to attract beginners and let them have fun.”

The factory president said too many young people walk into a tavern, never having seen a pinball game before, and try a super-sophisticated model – only to have a disappointing experience because they can’t master the complexity of the game. “The young people I talk to think pinball is cool, but some of the pinball games they’ve played are intimidating because they’re too difficult,” he said. “As a result, they haven’t played it that much. In order for them to become regular pinball players, beginners need to have a simple introduction to the game and just have fun with it.”

Meeting that challenge remains a central focus for Stern himself, as well as his designers and marketing staff. “What we need to do, and what a game like ‘Monopoly’ does, is interest the younger tavern patron,” he analyzed. “A title like ‘Austin Powers’ attracts the youth market; then the good physical layout and ball movement, plus a few rules that casual players can catch onto quickly, gives them a good time for their money.”

Meanwhile, the recent explosion of pinball popularity on the home market may be yielding an unexpected benefit. According to Stern, children are increasingly becoming exposed to pinball at home. Acquiring this familiarity in a comfortable setting has the effect of conditioning younger players to acquire the coin-op pinball habit once they reach their majority and venture into the commercial market, he said.

“The home market is raising a new generation of coin-op pinball players,” he said. “They have enjoyed pinball in dad’s rec room, so they naturally make the transition to playing it in arcades and then taverns as they move into those environments.”

“The neat thing about all the recent home sales is that you are getting younger players to play pinball,” agreed Backer. “We skipped one or two generations because all the excitement was centered on video for several years. But today, kids eight to 15 are playing pinball at home in the basement. That player base will soon be 18 to 24 and will be attracted to the game when it sees it on location.”

THE ART OF PINBALL DESIGN

As Backer indicated, pinball took a back seat in the coin-op industry for several years while most of the customer base was obsessed with video games and hi-tech. To some players, an electromechanical game seemed passé or uninteresting – certainly one without a ticket dispenser. Today, however, pinball’s electromechanical nature gives it unique, if somewhat old-fashioned, appeal in a world where computers are built into everything from wristwatches to cars and cell phones. “The key word is retro,” Gary Stern said.

Bolstering that appeal is Stern’s deep understanding of the classic principles that make pinball fun. “As pinball designer Harry Williams said in the 1940s, and as I never get tired of quoting, ‘the ball is wild,’” Stern rhapsodized. “When you pull back the plunger and shoot the ball onto the playfield, no preset computer program or set of codes dictates what is going to happen. It’s just you, the ball, the playfield, plus flippers and physics! Anything can happen, and the ball can and does go anywhere. No two games can ever possibly be alike.”

“With pinball, you can have a good game or a bad game,” Cadieux said. “Even the best pinball player can lose to a beginner. There is always a challenge; the game cannot be mastered. That old saying that ‘the ball is wild’ is a true statement. You could play 10 games and never know who is going to be the winner until that tenth game!”

“Pinball has become unique in the market as a pure skill game,” commented Blackwell. “You can’t beat it by memorizing a pattern; one game you beat it; the next time it beats you. That’s the whole art form. It’s a beautiful thing.”

Within this fundamental philosophy, however, Stern’s strategy of game design is constantly if subtly evolving. “We’re changing our games to keep up with the changes in the market and make sure we have that broad, long-earning appeal,” said Stern. “With titles like ‘Austin Powers,’ ‘South Park,’ and others we’re planning have broad appeal and offer humor as well as skill challenges. As for licensed themes, I think some are stronger than others but our three products a year will be licensed products.”

Current Stern pins reflect a deliberate blending of design philosophies from several pinball giants and pinball manufacturers of the present and the past. As Joe Blackwell put it: “I tell people, don’t think of us as just Stern – we have some of the best engineers of the last 20 years here from Sega, Gottlieb, and Williams. Think of us as pinball, period!”

“Some people say our new direction, especially with ‘Monopoly,’ is more similar to what our former competitor used to make,” Stern said. “That’s not surprising since Pat Lawlor designed ‘Monopoly.’ Pat Lawlor is working on another game for us and we plan to do at least one game with him per year.”

Stern Pinball recently convened an in-house “pinball summit” of manufacturing, design, and technical experts from inside and outside the company to address software and hardware issues, as well as brainstorm simple technical questions. The group also spent time exploring high-flown future directions for the product and considering how to smoothly blend the many corporate cultures and design influences that now contribute to a final product from Stern.

“There are no cookie-cutter designs anymore based on a previous model,” Blackwell explained. “The old idea said you should have three top lanes, three pop bumpers, three standup targets, two slingshots and two out lanes. Now we look beyond that. The designers think more freely. Yes, we borrow from the past but we mix the ideas up and offer more variety.”

PLAY PRICING

Stern pinball games come factory-set at 50¢ per play or five games for $2. Games are equipped with two coin chutes and two plates in which different types of bill acceptors may be installed. Some operators do make pricing adjustments, of course. “The majority of our pinballs are set on one play for 50¢, two plays for 75¢, and three for a dollar,” said Cadieux. “With the newest machines in the last year, we’ve been pricing two plays for a dollar and five plays for two dollars.” The investment in a bill acceptor is well worth it, he added. “We use bill acceptors and in taverns, probably 80% of our collections are bills, not coins.”

Beyond playfield design issues, Stern Pinball is also addressing the ever more important question of operator-run marketing. The company explored an online tournament system in recent years, but gave up the effort for technical and security reasons. However, by mid-2002 Stern plans to debut its In-House Tournament System, the first generation of which will permit operators to run cash prize contests within a single location – no online component needed. (See sidebar.)

One longtime pinball design wizard likes to say that pinball has historically proven a leading indicator of the U.S. amusement machine market. When there’s a dip in the industry’s fortunes, pinball comes back first and all the other types of equipment follow – or so this source believes.

The theory provides comfort and encouragement to people like Blackwell. “If it’s true that pinball is a coin-op weathervane, then America’s current passion for pinball makes me feel the industry’s future is indeed golden,” he declares. “I mean, heck, Gary Stern is constantly asked for his autograph everywhere he goes now; it drives him crazy!”