I read in the Sept. 8, 1997 issue of USA Today that the home video (movie) rental industry has a problem. The video tapes the stores such as Blockbuster are purchasing from distributors have such a short "shelf life" that the stores can't afford to purchase as many as they need to. As stated in the article, "Under the present system, it doesn't pay for Blockbuster to buy extra tapes. Fickle videophiles lose interest before stores can rent the tapes enough times to make a profit." Sound somewhat familiar?
Blockbuster is now talking to the studios who manufacture the movies to try to change conventional wisdom. They propose to purchase a few copies of the tapes for each store, and then the studio will supply additional tapes for $4 each (approximately 7% of the original purchase price), and then share the revenue from the rentals with the studios. If the product is good, everyone wins. If not, the risk is shared between supplier and operator.
That sounds a lot like what the movie industry has been doing for years. When the manufacturers (studios) release a new movie, they get a percentage of the ticket sales. The studios receive a higher percentage of sales initially during the peak popularity of the product, and a decreasing amount as time passes.
If the movie studios and theaters, and the home rental stores conducted themselves as our coin machine industry does currently, they would go out of business, or at the very least be existing on a much lower sales volume. The movie studios and theaters learned this long ago, and the rental stores are learning it now.
All three industries are very similar, and subscribe to the same economies. The high cost of the product, combined with a very short shelf life, demand a non-traditional distribution method. Of course I'm talking about shared risk between supplier and operator.
Our industry has a sordid history with such arrangements. The operating pioneer of this concept in the late 1980s - the dreaded "revenue sharing" - was Pete Casas from California, with Diversified Coin. He met such resistance that he was eventually ostracized from the industry, only to return in the last few years. He was ahead of his time. He still may be. Many of my own operating peers scoff at the concept of revenue sharing.
The last few years have seen some manufacturers, distributors and operators dabble with the concept of shared risk distribution - yours truly included. I know of no manufacturer promoting revenue sharing today. If they are, they are locked tightly in the closet. Our personal experience has been terrific for our company, and a success for our supplier. We've "secured" many high priced games in the last few years that we never would have purchased in such quantity traditionally. They earn well in our locations, and each week we send our supplier a check for his share of the proceeds, along with a total accounting complete with gross earnings, meter readings, location names, and installation dates for the machines. When visiting with our new "partner," we are told the biggest downside is that some operators don't give the supplier the honest count on the weekly earnings (imagine!).
Here are a few revenue sharing concepts:
1. The manufacturer's earnings should correlate directly to the earnings of the games on the street. The operator's primary job is to have the best locations. The manufacturers will always have greater financial resources than the street operator.
2. A manufacturer should select his participating operator "partners" very carefully. Absolute credibility and honesty should be the primary criteria. Secondly, a manufacturer should select only those operators with the best locations.
3. Payments should be made to the supplier weekly with location name, address, earnings, and meter readings.
4. Revenue sharing is not a means to move excess inventory. It is a great opportunity to "break" new product in large quantities.
One of the best video simulators manufactured in the last few years sold fewer than 2,000 units worldwide. And that's a success story. Compare that with Pac Man in the 1980s, with a distribution of well over 100,000 units, and you begin to see our industry's dilemma.
Our industry is struggling with different solutions. Some manufacturers are becoming operators, placing their own equipment. Many distributors are financing their operators. Some suppliers are offering very creative leasing options. Leasing games is not revenue sharing. The operator pays his monthly lease payment regardless of the game's earnings.
Industry leader WMS (Midway Games and Williams Electronics) has hinted recently that revenue sharing is in their immediate future. Done correctly, they will succeed and take their profits to a new level, only because they will be taking their financial risk to a new level. But it has to be with the best product. Both supplier and operator are motivated to enter into such an arrangement with only the highest earning pieces.
The player today has a short attention span for movies, whether in the theater or in the home with rentals, and with coin/ currency operated video games in the arcades. The player has a very limited appeal to any given game. It's not the player's problem that the games cost over $15,000 each in some cases. It's not the player's concern that his attention span is short and that he is tired of the game long before it is paid for. These are OUR industry's problems...problems that we must address. It is our responsibility to meet our customer's demands, not try to conform him or her to our archaic industry standards.