Other perils

Fraud and shoddy merchandise aren't the only perils of video game ventures. Even with quality equipment, which' is widely available from established distributors of vending machines and coin-operated amusement devices, the risks are formidable.

"The name of the game is location, and the good ones have been taken in most places," says John M. Tifford, an FTC attorney in charge of franchise and business opportunity regulation. What few investors realize, apparently, is that the business of placing and servicing video games, juke boxes and other amusement devices is dominated at the local level by long established commercial enterprises, called operators. There are more than 6,000 of them from coast to coast, in communities large and small. The typical operator staked out a territory years ago, knows the good locations and constantly prospects for new ones.

"Anybody in a built-up area could pretty much assume that if there isn't a video game in a place he would think of putting one, it is because businessmen who know their stuff have decided it's not financially worthwhile," says Tifford.

A retired Air Force man who lives in Oxon Hill, Md., found that to be all too true for areas he scouted. After buying two machines for $2,700 each, he spent four months looking for places to put them. "Every Saturday I'd hit the pavement, go door to door for hours," he told Changing Times.

"Absolutely no takers."

"Make sure everybody knows this is no get-rich scheme," urges Maj. John Hitt, an engineering instructor at Fort Belvoir, near Washington, D.C. In November 1981, he bought three machines for $9,800 plus taxes and shipping costs. He has been grossing an average of $45 per machine each week and calculates that at that rate the investment will be paid off in 18 months. But, he says, "there's a lot of work involved, too. You have to empty the machines, you have to change them, you have to service them. If you don't have a good location, you have to move them."

Short life spans

Without a popular game, even the best location may be unprofitable. More than 100 video games are currently on the U.S. market, and new ones emerge regularly. Only about ten or 15 are really hot at any one time.

In Mount Prospect, Ill., near Chicago, there's a market test center—a large arcade—where manufacturers can place their wares to measure popularity. During a recent seven-day period, collections from 47 machines there ranged from $496 down to $27.

"Most games retain their popularity for no more than nine to 12 months," says FTC lawyer Tifford. "After that they lose their appeal." And life spans are getting shorter, both for video games and pinball machines, adds Leo Droste, executive vice-president of the Chicago-based Amusement and Music Operators Association.

Machines are available that can be modified and fitted with some new games as they come along. It's done by changing cassettes or circuit boards. But these constitute only a small segment of the industry. One distributor suggests being wary of interchangeable machines, explaining that they're not "first-line stuff."

Another cause for caution is the possibility of restrictions and steep

Ordinances disallowing any new permits for video games have been adopted in Coral Gables, Fla., and Orange County, Cal. The number of games in a single location is limited to three in Irvington, N.Y., and Los Angeles has put a freeze on new arcade licenses. Other jurisdictions have slapped on stiff taxes.

There is also the question of how long the public's fascination with video games will last. A fad that sweeps the country like a prairie fire can sputter and die just as quickly.

The big manufacturers know this and are trying to keep interest alive by coming out with new machines. Atari, the largest producer, plans sophisticated models that use advanced computer technology.

"You'll see three-dimensional holographic games," predicts Leo C. Loevner, who runs two arcades in the Washington, D.C., area. "Imaginations are going crazy. You'll be able to have gunfights with' Gary Cooper."

Selling the machines

Atari and the Bally Manufacturing Co. produce about 80% of the equipment. They and other major manufacturers sell to regional or local distributors (the major manufacturers say they sell only to distributors). There are dozens of small manufacturers, some of which make only one or two games.

Investment promoters sprang up with the first signs of a boom. They buy equipment from some manufacturers and distributors, mark up the price and resell to individuals. A few promoters send sales crews from city to city. They set up an equipment display room in a hotel or some other public facility, stage an own-your-own business show, take orders and move on. Other outfits operate locally. Besides selling machines, they claim to