NOTE: This article was reproduced as best I could from a microfiche my University has archived. The original article consisted of a picture of three businessmen at a Chicago arcade show eyeing a Pac Man with the caption underneath, "A few hit games got most attention at a Chicago show."

ELECTRONICS

Arcade video games start to flicker

Just as Pac-Man sometimes gets trapped in a corner, the video game industry that he has come to symbolize is having trouble negotiating the maze of fickle consumer taste. Except for companies that make the most popular arcade games, the players in the coin-operated video game business are finding themselves stymied by an unexpected halt in their explosive growth.

Sales of arcade video game machines grew from $50 million in 1978 to about $900 million this year. But manufacturers expect equipment sales to be flat next year. Distributors are overstocked and few operators foresee a repeat of the action in 1981, when players slid an estimated $7 billion worth of quarters into arcade game machines. A shakeout among operators, whose ranks grew by the thousands with the lure of easy money, is already under way.

Summer doldrums. Industry executives are uncertain of the causes for the slump, which contrasts sharply with still-rising sales of video games for the home. But many cite competition from other forms of entertainment, particularly last summer's string of blockbuster movies, that kept players out of arcades during a seasonally slow period. The lack of challenging new games -- with the exception of Williams Electronics Inc.'s current superstar, Joust -- extended the doldrums into the fall.

Distributors are just now starting to work off inventories that built up over the summer, and there are reports that manufactures have begun even their newest games. "Instead of expanding, we're now fighting for market share," says Donald B. Osborne, marketing vice-president at Atari Inc.'s Coin Operated Games Div., the industry's No. 2 producer after Chicago-based Bally Mfg. Corp.

The crunch is particularly bad for the dozen or so new game-machine builders that have entered the market over the past three years. With fewer dollars to spend, operators are no longer snapping up every game that comes on the market. "Buyers are becoming very selective and very conservative," says David Marofske, president of Midway Mfg. Co., a subsidiary of Bally. "The market has plateaued, and companies that have been struggling along without a hit are going to be the losers." Leisure-industry analyst Steven Eisenberg at New York's Bear, Stearns & Co. predicts that next year's machine sales will be no better than this year's estimated 450,000 units, priced at $2,000 or so each.

'A hits-driven business.' The caution among operators is working to the advantage of the major producers. "The top manufactures of '82 will be the top ones of '83," says Eisenberg. "Operators are opting for the proven winners." While it is difficult to predict which new games will attract players, activity at the industry's annual show in Chicago in November centered around only a few booths. "This is a hits-driven business," says Eisenberg, "and once again the top four or five have all the product."

Bally -- which this year rode Ms. Pac-Man and Tron to an amazing 50%-plus market share, up from last year's estimated 35% -- has a clear winner with Super Pac-Man. In the latest Pac-Man incarnation, Super Pac-Man, sporting a red cape, must negotiate a maze and find escape keys or wind up trapped in a treacherous dead end.

Operators polled by BUSINESS WEEK also like two new shoot-'em-up space games: Williams' Sinistar and Buck Rogers Planet of Zoom from Sega Electronics Inc., a Gulf & Western Industries Inc. subsidiary. Atari has fielded Pole Position, a specialized driving game, and Japan's Nintendo Co. hopes to continue the success of Donkey Kong with Popeye, a similar game.

For the long term, the industry is banking on technology to bail it out of stagnation. Sega, for example, wowed the crowds in Chicago with an experimental space game that combines conventional technology with a videodisc player to yield dramatically realistic art, and other manufactures hinted at games using holography. "It will take the industry 9 to 12 months to go through this purge and stabilize," says Atari's Osborne. "But the thing that fortifies us is that technology and creativity can unlock the market again."

CAPITOL HILL

Business Week, December 6, 1982, pg. 39-40

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