I don't know at what point a person goes from new kid in the business to industry historian. I think the longer you do this the more respect you gain from those that have gone before you. At Coinstar, I'm surrounded by some of the sharpest people in the business, but they're new to amusement vending and its storied, colorful history. I shared it in a presentation recently, and they seemed to enjoy it at least slightly more than the accounting presentation that preceded me or the information technology presentation that followed.
How do you know where you're going if you don't know where you've been? That's the precept of my message. This industry has a history of repeating itself but at what seems like bacterial half-life speed as technology has repeatedly thrust us forward, whether we wanted to go or not.
Let's go back.
1940s: This is as far back as I can go with any certainty. What was interesting to my audience is that the industry as we know it today started in earnest with the jukebox. It was the popular medium of choice for all gathering places. I love the definition of "juke" that a Google search produced: "An out-of-the-way shack used by workers for dancing, drinking and brothels," as in "juke joint." Not much has changed there.
The price per play for a jukebox was five cents per play and six songs for $1. The product was popular, so popular that the performing rights societies began the chase for royalty dollars. That was the entire premise for forming the Music Operators Association in 1948, known today as the Amusement and Music Operators Association (AMOA): to fight the royalties paid by jukebox operators. That is a fight that is ongoing, and the AMOA is still leading the way on this issue.
In 1949, Roger Folz started Folz Vending, the first scalable bulk vending operation in the U.S., in Oceanside, N.Y. He built the business to annual sales of $55 million and sold this business to Sugarloaf Creations in 2003. He is part of this timetable for obvious reasons.
The part of Folz Vending that sticks with me is that shortly after entering the business, Roger made the decision to go outside of his immediate marketing area toward large national accounts like A&P. This decision to start a business with sound fundamentals and then focus on ways to scale it throughout the U.S. is a model we'll see a few more times with success.
1950s and 1960s: I lump the '50s and '60s together since not much is written about that timeframe other than that the jukebox continued to evolve as the entertainment device of choice. Bingo games, the precursors to pinball machines, also dotted the landscape.
No one has made more than a couple of sales calls in this business that has not been asked if he is a member of organized crime, though usually in jest. I have never met a gangster that I know of but have met a couple of wannabes in this industry. Look around tradeshows today, and you'll see a couple. This industry reputation seems to have been well earned years ago with mobsters finding out that this cash business was an excellent vehicle for money laundering and evading taxes. It was the years just before marijuana, crack cocaine and other drugs that I read about, which I don't know how to pronounce or what they are. This is where the mobs have gone today, but back then our industry had our share of them.
Therefore, changing vendors was not as easy as it is today. An owner thought twice about calling his connected vending company to say that he got a better deal from someone else. You might get a visit from Vito and his brother or your building might burn down. Talk to enough old timers, and you'll hear the stories. They're out there. As a customer, your commissions were whatever they decided to leave behind that day.
1970s: These were the crazy years. In 1972, Nolan Bushnell came up with the concept of Pong, the first video game, and Atari was born. Midway brought us Pac-Man and Galaga, and Atari brought us Asteroids. Donkey Kong, Ms. Pac-Man and a host of others followed, bringing us to the late 70s, the most financially lucrative period in our industry's history (1977-1982). For those not around in that day, think of this: you bought a game for $1,500, put it in a location and kept 75% of the money, and the average revenues per week were between $300 and $400. If a location balked at that relationship, which they rarely did, you had 10 other locations asking for the same games. That's a little different than today's video game that costs $5,000 and earns $75 per week, and locations will bump you for another guy for a $20 bill per week.
1980s: Twelve thousand people attended the 1981 AMOA expo, the largest ever. Compare that with a 2006 projected attendance at less than a third of that, and you get the frenzy that was the AMOA fall show at the Conrad Hilton in Chicago. If you had a few bucks, you became an operator. The parties were unbelievable. I was a college student, and I still remember them. You can mark this down: 1981 was the official peak of the video game years. Then, as fast as it was here, it was gone.
We put this in the category of "What Goes Up Must Come Down." In August of 1982, for those of us who charted such things, it all went to heck in a hand-basket. You borrowed money from banks at a discount rate of 20%. The U.S. economy was free falling into recession. Nintendo had introduced the first generation of home video games, and kids everywhere were buying them. Coin-op video game manufacturers, who had been accustomed to selling everything as fast as they could make it, were now producing games so fast they did not realize the quality of the product was awful. We still bought them. This had to be a blip on the radar.
We can buy our way out of this slump, can't we? What happened to the video game industry at that time can best be compared to an episode of the cartoon Roadrunner. Running as fast as possible, the industry went right over the cliff, and we kept running like mad until one day we looked down and plummeted to earth. That's what our weekly collection chart looked like in 1982 and 1983. Only the savviest operator was automated at that time, so many didn't know what was occurring in their business until it was too late.
If you come back next month, I'll tell you what happens next.