Innovation to continue at Montana gaming companies
Pub Date: 1/1/2009
Analysis
By Cole Boehler, Editor and Publisher
Like any small town, the Montana licensee community has a very active grapevine. By keeping in the loop, the information one picks up can be surprisingly accurate and timely on occasion. On the other hand, the scuttlebutt is more often well off the mark and worthless.
The gaming machine manufacturing segment, driven by a changing marketplace but even more so by changing technology, is certainly subject to its share of speculation, rumor and misinformation.
Video gaming machine (VGM) production has been evolving since legalization and state regulation back in the late 1980s, though the rate of change has seen historic ebbs and flows. It is clear the video gaming business, and particularly the machine manufacturing sector, is currently in a state of accelerated evolution.
The Montana Tavern Times recently talked shop with each of the chief representatives of Montana's manufacturing firms: Terry Geurin at IGT last month (see the report in the Dec. 2008 Tavern Times), and this month with Blaine Bowman at Spielo, Thom Propp at Fleetwood, Kevin Peterson at Summit and the owners of Montana's newest VGM manufacturing company, Grand Vision Gaming, who are Steve Arntzen, Tim Carson, Grant Lincoln, Heidi Schmaltz and Merle Frank.
First, it is obvious that with Geurin's severance from IGT, and the departure of four of five of the remaining IGT service and sales personnel in Montana (reported in last month's Tavern Times), the company has substantially scaled back its aggressive sales posture in the state. The brand has been losing market share and sales for years to its in-state competitors as it has focused on the largest jurisdictions internationally.
However, Seattle's Kevin Lintner, who will be responsible for Montana IGT sales, assured the Tavern Times in a discussion Dec. 17 that IGT is serious about maintaining a presence in this jurisdiction and may even bring forward new games and upgrades for Montana-spec machines.
With our unique Montana machine and game specifications and requirements, one can understand IGT's the world's largest developer and manufacturer of video gaming equipment difficulties in sustaining a full-blown sales operation, and leading market position, in the Montana gaming jurisdiction with its less than 17,000 machines in service. Some Las Vegas casinos may field a quarter that many machines under one roof.
(Note: IGT still maintains a game engineering division in Bozeman that employs 22 and specializes in smaller "VLT markets" like Montana.)
The number of machines in service here hit an apparent market saturation point 10 years ago. Total numbers have not changed appreciably since, though theoretically, legally and technically, up to 44,000 machines could be permitted. The market has determined there just aren't enough players or locations to make any further expansion viable.
Montana most recently saw an aggressive machine replacement cycle 2004-2007 as the automated reporting conundrum that had dogged the industry since 1993 was finally resolved. New games in various stages of development had been gathering dust until the particulars were sorted out.
In addition, rules changes mid-decade allowed developers to integrate poker and keno games on one platform. Other rules changes allowed new bonus round features meant to add to entertainment value for players, which they did while also adding to machine win-volatility.
During this period, game upgrades were being rolled out by all manufacturers with impressive regularity. All the while the manufacturing sector in Montana has gotten a lot more competitive during the last decade and especially so during the last few years.
Summit Gaming, headed by Carson at the time, entered the market with a remarkable zeal just over 12 years ago. In that time, Summit has earned nearly a 35 percent market share. The company also established the industry benchmark for turning out with great agility new, innovative games and concepts and getting state approval for them much the way a PT boat runs circles around aircraft carriers.
VLC, once a VGM powerhouse in Montana, was bought by Anchor Gaming which was in turn bought by IGT. VLC game development and manufacturing ended in the state, along with 250 good jobs. The brand began a long decline to its current level of just under 1,000 units in service.
Then Town Pumps struck a deal about four years ago with Spielo Gaming out of New Brunswick, Canada, to deliver 200 new-to-the-market machines. The Power Station 5s were an immediate hit and were subsequently made available to all operators. The Spielo brand has since ground away some competitors' market shares, now accumulating a 17 percent share with almost 3,000 devices under permit.
Fleetwood Gaming, after years of frustration in attempting to develop its own proprietary games, hit paydirt with It's Keno King line three years back, and followed up that roll-out with the Casino King and Brilliant Bet series running both poker and keno. That company then exited the route vending business to focus on further refining its game designs and manufacturing capacity. It has successfully done so with nearly 1,600 VGMs now in the field, close to a 10 percent share.
Two years ago an upstart company, U-1 Gaming, entered the fray with an almost revolutionary approach to the customer and market, incorporating many unique ergonomic and player interaction features in its game platforms and concepts.
But its inherent win volatility seems to have limited its appeal to mostly high-volume casinos, just as expected, according to company spokesman David Kraft. The U-1 quickly put 400, then more gradually 500 and now about 650 machines into service. The market seems to have capped its share in that range.
All this pressure from these locally grown, small firms which were focused on Montana and able to operate nimbly in this specific jurisdictional environment, kept a serious squeeze on the slower moving IGT colossus, which saw its market share decline from over 40 percent to today's 23 percent, despite the best efforts of highly regarded sales manager Terry Geurin.
It appeared to many and apparently to IGT the reversal wouldn't be perhaps couldn't be surmounted given economies of scale and other economic realities. IGT released Geurin and all but one of its Montana sales and service staff at the end of November.
Still, IGT's Lintner confirmed the company has a Montana upgrade moving through the approval process. Company spokespersons have said a single service tech will work out of Missoula and that spare parts would be available from regional sources.
Meanwhile, back in the fall of 2006, it was announced home-grown Summit Gaming would be bought up by Reno based GameTech, primarily a manufacturer of wireless bingo devices. That transaction closed in the spring of 2007.
Last summer, GameTech moved to consolidate its research and development departments in Reno, offering some positions there to It's Montana engineers. Today, development of Summit games and upgrades is initiated solely at the Reno facility.
In June, 2008, GameTech/Summit announced a contract with Rocky Mountain Industries, a subsidiary of Town Pump, to develop and manufacture 500 units of a new brand of games proprietary to the casino company. The cabinets and guts are complete and on the Summit floor in Billings, simply awaiting state approval of the game content and the final installation of the game logic components.
Some have expressed concern and belief that when Summit completed that substantial order, it would move the balance of its operations to Reno. False, says a company spokesman.
Then Fleetwood Gaming, having built up an inventory that will fulfill all its current game orders into the new year, laid off four assembly personnel until it can acquire a new batch of cabinets, now to be delivered with some basic subassemblies pre-installed. That order that will take a couple of months to fulfill. Still, the rumor mill had it incorrectly that Fleetwood was exiting the VGM business.
Rumors, rumors with a notable lack of fact: "IGT was completely abandoning the market'; Fleetwood was out'; Summit would be moving..."
Adding fuel to the gossip fire, a new Montana VGM manufacturing venture has been rumored for months.
In this issue of the Tavern Times, Grand Vision Gaming has announced its plans to enter the market, and has said it will roll out a brand new platform at mid-year. The company's owners have said Montana needs a new kind of gaming machine that will thread the needle of providing maximum player entertainment while never losing sight of the machine owners and location operators needs to retain a reasonable profit.
Other issues bringing pressure to bear on equipment considerations are technological advances that are driving the obsolescence of some makes and models older machines that original manufacturers have said will no longer be upgraded. That's almost 4,000 units in Montana.
This means potentially 20-25 percent of the machines in the state will not get the new-generation bill acceptors that recognize the latest $5 bills released by the U.S. Treasury last March.
And the future availability of impact printers, which produce win tickets and audit tapes in Montana-spec machines, has come into doubt to the point where the Gambling Control Division is readying new rules to allow manufacturers to switch to thermal printers for win tickets and portable data storage devices such as "thumb" or "flash" drives to replace printed audit rolls as the data storage media for compliance verification purposes.
Wary machine owners have also been concerned over recent machine play data which was flat in the first quarter in Fiscal Year 2009 (July 1-September 30, 2008), up just one-third of one percent.
Since gaming expenditures are purely discretionary income, the economic performance of the industry is necessarily tied to the fortunes of the Montana economy, which has been robust during most of the last decade. And so has been the gaming business. In turn, Montana's prosperity is tied to the nation's which, at best, is uncertain as we go to press.
And not far off now October 1, 2009 the indoor smoking ban takes effect. Some industry authorities are predicting negative financial impacts on the tavern and gaming business, while others believe any such impact if it occurs at all will be short lived and followed by a rebound as the customer base evolves.
Still others hold that proactive changes to the business model, such as going smoke-free now and retooling promotion, marketing and even product offerings, is the best way to weather maybe even take advantage of the change.
The only certainty as we head into 2009 is that things will change.
Read further to find out what the respective Montana heads of our VGM manufacturing companies say are the real facts and what we ought to expect. Readers may find they are in for a surprising wave of upgrades and innovative new products, given current economic outlooks.
The Tavern Times will feature a full interview with IGT's Lintner next month.
Source: The Montana Tavern Times, January, 2009, published monthly by Continental Communications, 125 W. Granite St., Suite 102, Butte, MT 59701.