Global recession or not, in most parts of the world, slots are still the biggest money-makers for casinos.
For the slot sector of the gaming industry, there is one real coming-out party every year. While the European industry has its more targeted event every January in London with the International Gaming Expo, those manufacturers still come to the big event-the Global Gaming Expo in Las Vegas.
Every year, Global Gaming Business offers an exclusive preview to what the world’s slot manufacturers have in store for the coming year, and the innovations to be highlighted at the G2E show. Welcome to that preview.
Whether or not they are struggling with short-term revenues right now, officials of every slot manufacturer in the business know one thing about the worldwide economic slump: It has created an anomaly in the normal slot replacement cycle. Slim capital budgets have forced casinos to slow their purchases over the past couple of years.
The result? There is a huge replacement cycle upon us. Combined with new openings like CityCenter and other new casinos in several parts of the world, this means there is an enormous potential for a large group of new game sales.
The slot-makers, thus, have pulled out the stops for this year’s G2E show. Prepare for an unleashing of a breathtaking array of new technologies, new game styles, new server-based solutions-new slot technology, from all corners of the sector.
Here is a rundown of what the top slot manufacturers in the business have in store for G2E 2009.
The Player Is King
WMS uses technology and innovation to please the fickle customers
by Roger Gros
Technology is at the very core of WMS. So it is not surprising that technology is driving the success of the company in the 21st century.
When Harry Williams started the company in 1943, it was because the Stanford engineering graduate had developed the innovative “tilt” function that changed the way pinball would be played forever. Williams went on to develop a highly successful pinball company that, like major competitor Bally Manufacturing, morphed into a slot machine company, although several decades later than Bally.
But technology remains at the heart of WMS. The company’s development in the 1990s centered around video lottery terminals, giving it a boost when it came to the tribal gaming market, where video was the game of choice.
Themes became another specialty of WMS when “Reel ‘Em In” and “Piggy Bankin’” took off.
But it wasn’t until the last five years, under the direction of Chairman Brian Gamache and President Orrin Edidin, that WMS began to really shake up the gaming industry. Innovations such as Adaptive Gaming, Transmissive Reels, Sensory Immersion and Community Gaming have blazed technology trails in the slot manufacturing industry, greatly increasing the company’s visibility and market share.
Floor of the Future
When Gamache and Edidin joined WMS, it was a fairly healthy company with good growth in the video slot market, but limited prospects. Along with the WMS team, they launched an initiative designed to envision the “slot floor of the future.” Whether it was technology, intellectual property, theming, the slot cabinet… whatever encompassed the slot experience was dissected and examined from the perspective of the ultimate customer—the slot player.
Gamache says the exercise is ongoing.
“It’s a journey,” he explains. “When we were in our re-emergence days, as we call it, in the early 2000s, we had always planned on a three-part technology improvement plan. The first part was to stabilize our current system. The second phase was to get to a competitive level. And the third was to leapfrog our competitors into the futuristic gaming platform that we see today. All the heavy lifting we’ve done over the last nine years is really starting to pay huge dividends for our shareholders, our employees and our customers. But we’re still in the early innings.”
It has been the company’s ability to re-invest in research and development that has made the difference, according to Gamache.
“Our board was very instrumental in giving us the ability to invest in R&D when others weren’t,” he says. “We’ve gone from $16 million in investment in my first year in 2000 to $115 million this year. We’ve shown to Wall Street that we can convert that additional R&D spending to revenue for our shareholders. We’ve demonstrated that it’s the right strategy. We’ve become known for our innovation, and I think our best days are ahead of us. “
The initiative to envision the slot floor of the future has led to a germination of these ideas and concepts developed during that exercise.
“The marriage of the intellectual property with the technology and game content is allowing us to have a discernible difference over our competition,” says Gamache. “When you look at our CPU-NXT2 Platform, it allows us to develop games that we could never have considered because of the depth of the math modeling, the various outcomes, the graphics… All the things that our games are known for would not have been possible without this platform.
“We went from worst to first. In the first five years we were here, we spent a lot of time hitting singles and doubles. We had to do that to get our company back in play and get the acceptance of the players back in our camp. Now we’re able to swing for the fences by taking calculated risks and pushing the envelope.”
Edidin says the technology is nice, but there’s only one way to measure a company.
“It always comes down to the strength of the product,” he says. “We used to measure the breadth of our product offering by the number of themes we had. We’ve gotten away from that and now use product categories as a yardstick. So instead of selling 80-90 different themes, we have a few basic categories with the themes behind it. Whether it’s Sensory Immersion, Adaptive Gaming, Transmissive Reels… These are important categories that are built on innovative technology and intellectual property.”
WMS has continued to boost revenues and grow market share even through the worst economic downturn anyone has experienced. Gamache says the legacy of the founders and the previous chairman, Louis Nicastro, has benefited the company.
“We’re a conservative company by nature financially—that our former chairman left to us,” he says. “We are a very creative, innovative company when it comes to finances. We don’t have to go out and buy everything just to have it. We don’t have a corporate ego. If we license a theme, that’s OK with us. We’re very proud of our balance sheet. It doesn’t get a lot of attention when things are great, but over the last couple of years the strength of our balance sheet has made the difference. We’re debt-free; we have a great cash flow situation and it’s only going to get better.”
That balance sheet enables WMS to make deals with casinos that some other suppliers just can’t do, according to Edidin.
“The strength of our balance sheet does allow us to get more creative in trying to help our customers through tough, challenging times,” he explains. “We want to work with them to get our new products on the floor in a timely manner. For no capital spend at all, we lease the products to them and they get the best, highest-earning products, like Wizard of Oz and Star Trek, which are going gangbusters!”
The long-awaited replacement cycle will kick in strongly once the recession eases, says Gamache.
“Innovation is going to spur the next replacement cycle,” he says. “The server-based initiative and our application suites will be important elements. We’ve been planning for this for nine years now. We believe our suites of applications are going to radically change the way this industry sees slot machines.”
And the renewed expansion of gaming will also play a key role in building the business of the slot manufacturers.
“This is the recessionary silver lining,” says Edidin. “When we go through one of these economic downturns, we always see an expansion of legalized gaming. The riverboat phenomenon was born of that. Indian gaming, which is really the state sharing the revenues from tribal casinos, was part of that too. This latest expansion is more of a state-owned VLT market, which is one we served for many years. These are fresh markets for WMS and great growth opportunities.”
The international market has always been good to WMS. The strength of the European market has been long-lasting, and now Gamache is eyeing Asia for a similar success.
“Asia is just at the tip of the iceberg,” he says. “Our market share in Macau is in the 12 percent range, which is great because we’re a relatively new player in that marketplace.
“In Singapore, our market share will be in the 18 percent to 20 percent range, a respectable amount. We think that will grow over time. Typically, we’re not as strong at the openings because of the bundling that goes along with the systems deals, but over time, that second and third wave of purchases to right-size the casino floors gets us well over 20 percent.”
Unlike many slot companies that cater to the casino executives who buy their products, WMS concentrates on the players—the end user—of the slot machine, when designing its products.
“This is where our strategy differs from our competitors,” says Gamache. “Our strategy is all based on the players’ experience. Our goal is to provide the player with a new and different gaming experience than exists today. Our challenge is not to come up with new ideas. We have to de-select some of the great ideas we’ve already had. We almost have too much going on. We want to concentrate on the slam-dunk ideas going forward.”
Some of those player experiences are now focused on community gaming—those groups of machines that link together players for bonusing and teamwork purposes.
“Many of our most successful products are networked through our systems,” says Edidin. “When you look at our Community Gaming Big Event systems, those are really baby steps toward networked gaming, because they are truly a server-based game. And when you add ‘Reel ‘em In Compete to Win,’ we’ve got a way to identify players so we can offer them terrific game experiences that they recognize and enjoy, whether it’s episodic or persistent.”
Gamache downplays the importance of technology in developing successful slot machines. The technology in use on slots and systems is generally technology proven in other business sectors to work, he says.
“Cutting-edge technology is too expensive for our business,” he insists. “It’s kind of like buying a car. You don’t buy a car for the radio or the airbags. You assume they’ll be there and work well. You buy it for other reasons.
“The gaming experience is no different. The players assume certain parameters when they sit down at a gaming machine. Server-based gaming is just a delivery vehicle. It’s always going to be about the content and the applications you bring to the table.”
One of the company’s player-oriented innovations was the “Bluebird” slot cabinet, which was developed ergonomically for the player’s comfort. It was the first such cabinet that placed the buttons and the screens in positions that were comfortable and convenient for the player, and were proven to produce higher earnings than the same game in a standard cabinet.
Networking the Servers
WMS officials believe the benefits of a networked floor are going to be too important for casinos to ignore for much longer. Whether it is community play, competition among players, the ability to specifically recognize individual players with games and options they enjoy, or casino executives understanding the benefits of networked slots, he says the need for networked gaming will become paramount.
“Let’s be clear,” says Edidin. “The slot machine is the revenue engine for most casinos, and they understand they have to update that floor regularly to remain competitive and drive revenue.”
Gamache says the pressure will build on casino companies to invest more heavily in slot machines.
“Most of the multi-unit operators haven’t bought product for the last couple of years,” he says. “And there hasn’t been any pressure on them because the guy across the street hasn’t bought product either. When one starts to buy games, it will create a domino effect that will benefit our company.
“We’re hearing from customers we haven’t heard from in a long time. People are coming back in, kicking the tires and wanting to know more about our products. That’s all positive, but I’m not overly optimistic. We’ve told Wall Street that the first six months of 2010 are going to be challenging, but that things will loosen up by the end of the year. We think the worst days are behind us.”
For the future, WMS is working on some equally revolutionary systems that will tailor the games to the individual players.
“The gaming experience will transcend the physical constraints of a slot machine,” says Edidin.
“We’ll see more and more applications that are personalized to the player, but follow that player, whether that’s around the casino or online.
“If you ask any great game designer, they’ll tell you that the Holy Grail of game design is player identification. They’ll say, ‘If I only knew who was playing my game I could customize the experience for that player.’”
Gamache says these innovations will change the way the business operates.
“Ten years from now, our business is going to be dramatically different,” he says, “and it’s all about the way the content is distributed. Internet gaming will be alive and well, which will create a lot of opportunities to create new relationships with the players.
“We spend a lot of time as senior management talking about the future of our industry and how we can define it rather than react to it. We’re focusing on that GenX and GenY player who might not be a player right now, but 10 years from now, they’ll be in our wheelhouse.”
As he considers the future, Gamache is confident that WMS is on the right track.
“I want to make sure we have the right intellectual property, that our strategy is flexible enough so that we plan for the vagaries of the business climate and the replacement cycle,” he says. “Some of those are out of our control, some are not. So we do the best we can every day to make sure we have the right people, that they are inspired, that they have to right environment in which to thrive, and then we want to ensure we make the customer experience a great one. If we do those things
well, we’ll have a lot of opportunity for growth.”