Are commercial arcades in trouble deep?

For the past few years speculation has been one of the most common problems video game operators have had to face from the direction of legislatures and local tax and licensing bodies.  Most of the speculation has centered around the exaggeration of supposed "financial riches" coin game operators are believed to be reaping from the golden goose that is video games.  The fact is that most of this speculation has been directly connected to local and state needs to offset dwindling revenue and escalating costs.

To offset this situation the operator has had few credible facts and figures to fall back on.  One resource guide has been the "Cost of Doing Business Survey" conducted for A.M.O.A. in 1981 by Dr. James F. Gaertner of Notre Dame University.   Happily, this too is changing.  During the past year the Amusement and Music Operators Association (A.M.O.A.) has been coordinating operator input on the state of the industry and channeling it to appropriate media and financial information outlets.

It is working.  Working for the operator and for the industry in terms of an improved information environment, a more enlightened public and, more importantly right now, it is producing realistic facts and figures about this industry.

One of the more immediate results has been the newly released Bernstein Research Report on "The Video Game

Industry," prepared by Christopher Kirby, marketing analysts for Leisure Time Industry with Sanford C. Bernstein & Co. Inc.

Some of the revelations are no surprise at all, being a repeat of what most operators have been saying all year.  The difference here is the credibility of the sources.  According to Mr. Kirby, "The coin operated game market (video games) has encountered a flat growth stage" with results being a unit decline in 1983.  This is not falling off in total play time by players, but a reduction in the number of machines purchased by the operator and a reduced income per machine.  This is seen to be a direct reflection of the saturation of the market.

The effects of this number reduction will carry over to the manufactures and distributors who find themselves with reduced pricing flexibility and margins.

Mr. Kirby concludes that following the shake-out phase the industry will experience all through 1983, modest growth may be expected.  However, this growth will not carry over as fully to arcades as to machines in set street locations.  It is estimated that fully 25% of the approximate 10,000 video game arcades in business by the end of 1982 will pull the plugs and close the doors on their equipment by 1986.

According to Mr. Kirby, an analysis of game locations revealed approximately 1,220,000 coin operated video games on the street and in arcades at this time.  Of this equipment, the industry average for street locations reveals a loss of $616.00 per piece of equipment and about an $80.00 loss for each arcade piece.

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