Another Year Flies By

A Look Back at 2016 and Ahead at 2017

By George McAuliffe, Chief FEC Strategist, Redemption Plus

 

Did you ever notice how time seems to fly when you’re busy? If that’s true, then I’m not alone in feeling as if this year went particularly fast. It was a great year for industry growth and it sure kept us busy. Here are some thoughts on why that is, plus a few on what we might expect for the year ahead.

Macro Factors: Circumstances Combine

What are the driving forces of the current boom? There is a happy combination of circumstances around the generational maturity of the arcade, the U.S. economy, gas prices, and interest rates. Toss in the state of the bowling industry’s transformation, other industries’ success modeling bowling, and companies adopting best practices and you round out the picture.

Generational maturity of the arcade is a fancy way of saying we are now mainstream entertainment. The growth of redemption as wholesome, challenging fun makes it popular –– and not just among kids. We are entertaining three generations of players in our arcades these days, including Millennials. Just ask Dave & Buster’s, Main Event and countless smaller FECs.

An improving economy and low gas prices are stimulating demand, while low interest rates support purchasing a steady supply of good games that resonate with players. This happy combination allows the now popular but capital intensive arcade (and related attractions) to expand. The bowling industry has and continues to be a major part of the growth story as the marriage of bowling and family entertainment center attractions proves a successful business model. Other industries –– cinemas, casinos, restaurants, and retail –– have seen this and want in!

Internal Industry Factors

As I’ve written before, I think debit card technology (DCS) as the “media of pay” is a major contributor to the current state of affairs. It’s helped transform the arcade from a pocket change outlet to an entertainment destination. And it is fashionable. As society goes cashless, DCS takes the “coin” out of the “coin-op” arcade.

Beyond DCS, we have vastly improved our execution as an industry. Although there are pockets of resistance –– operators who refuse to change, reinvest in the tools to succeed, or choose cost over quality –– that group is shrinking. For the most part we’ve come a long way in our management, marketing, and the all-important quality of delivery of entertainment experiences.

Redemption continues to be the most popular game category and has been central to our success.
In terms of merchandise execution, we are light years ahead of where we were just a few years ago. We have great technology to help support controlling the detail and delivering a great experience within a profitable cost structure.

 

Last, but certainly not least, are the games themselves. There has been a steady stream of quality new games, and not just redemption. Witness the video hit Jurassic Park Arcade, what I think is the best video game in ten years.

The Year Ahead

Predictions are always tricky. Last December, I predicted we’d see a slew of “virtual games” this year. It’s been more like a trickle. I do think the prediction is valid but my timing was off; I expect to see more in 2017.

On the macro side, I’m writing this the day before Election Day in the U.S. –– obviously the next president will have an impact on the general economy. Assuming it continues to move in the right direction at some point interest rates will be rising. I read an interesting article arguing that as the results of global warming are visible to even the most hardened skeptics, green technology will be the industry of the future, displacing fossil fuels enough so that low gas prices become the new normal.

Within the industry, we saw some consolidation this year at the operating and distributor levels, and I think this will continue. At the “retail” level, like many industry veterans who have seen boom turn to bust over the years, I do worry about saturation. Saturation occurs when that great new concept becomes commonplace, spreading out the entertainment dollars available for the category, and losing audience share as the novelty wears off. This has happened throughout the history of “amusement.”

Which brings me to my last prediction: Operations matter. Execution matters. Mediocrity does not survive. Hopefully we’ve got another banner year ahead. However, if the curve starts downward weaker concepts and facilities will shake out of the marketplace. The strong will survive and these companies will be categorized by their financial strength and operational excellence.

On a personal note, my son and partner Howard and I would like to thank our clients, friends and supporters in the industry as we relaunched Pinnacle Enter­tainment Group in April of this year (see grouppinnacle.com). We have been blessed with great relationships that have helped us to hit the ground running. So thanks, and a happy, prosperous 2017 to all.

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George McAuliffe has created and operated family entertainment centers from 2,000 to 150,000 square feet as a corporate executive, entrepreneur and consultant. He’s President of Pinnacle Entertain­ment Group and leads the company’s strategic advisory team. George, recently moved back “home” to the Jersey Shore with his wife Julie, has a passion for passing along what he’s learned in the fun business to the new generation of operators and suppliers.

Readers can visit  grouppinnacle.com for more information or  contact George at georgemc@group
pinnacle.com; phone: 314-422-7197.