Reaching the Podium

Steve Sutherland calls it the “podium,” and he wants his company, Konami Gaming, to stand on it. Standing with the gold would be nice, but the goal is at least the silver or bronze.

The podium refers to the top three spots among the ranks of the world’s slot machine manufacturers. Earlier this decade, few observers would have given Konami a chance to join that elite club. Sutherland, the company’s executive vice president and COO, says the odds of reaching the podium are better than at any time since the company entered the gaming industry.

Konami Gaming is suddenly the slot-maker to watch. After several years of comparatively flat results, the company’s revenues have nearly doubled in the past two years. Rising sales of the company’s K2V video slots have been augmented by what has become one of the hottest products in the industry, the Advantage 5 series of stepper products.

Rising game sales have been accompanied by a steady evolution of the Konami Casino Management System, or KCMS. Operators have lauded the solid engineering behind the system, which will launch a new module at G2E that can give casinos the capability to accurately gauge customer worth away from the casino itself.

At a time when some slot manufacturers are announcing layoffs and dealing with slumping stock prices, Konami is hitting its stride. The reason, if you ask the slot-maker’s customers, is engineering-and more specifically, the K2V video and Advantage reel-spinning platforms.

“Back in 2002/03, we installed nickel 10-line Konami games,” recalls Robert Allen, corporate VP of slots for Grand Casinos in Minnesota. “They had rock-solid hardware, but they hadn’t cracked what the players were looking for from a content standpoint.” By 2006, he says, “we told Konami we had concluded there was no future for us with their product.”

Luckily for Konami, the end of 2006 was the precise moment of the launch of K2V, a new platform with all new games. After some cajoling, Allen installed a bank of eight K2V games.

“I’m telling you, in 26 years of my career, I had never seen a manufacturer go from worst to first-I never saw a turnaround like this,” Allen says. “We saw some of our best players, who were died-in-the-wool Aristocrat players and usually pretty loyal, cross over to Konami. That’s what captivated my attention. And the numbers were phenomenal.”

Allen adds that he found his players more willing to “price up” on Konami games. “We placed them in pennies and we saw players pricing up to 2 cents, nickels and dimes more than any other manufacturer’s games,” he says.

“We’re just thrilled with the performance. Of the four largest manufacturers we use, Konami has the highest efficiency on our floor.”

Sutherland attributes much of the success of the new platforms and game series to a careful, analytical approach to game design. “Historically, many manufacturers have looked at game design as an art,” he says. “We look at it as more of a science. We were originally in that art mode; we weren’t looking at the scientific component of design. There are some proven principles out there. Today, we are applying these principles to game design, and more importantly, once they are on the casino floor, we make sure we fully analyze the results.”

Sutherland says that from Konami’s entry into the U.S. market in 2000 until a few years ago, the company’s designers were “throwing games up on the wall to see what stuck with patrons.” He says the scientific approach has absolutely reversed the company’s success rate in new titles. “For the first four or five years, approximately 25 to 30 percent of our games had legs,” he says. “Over the past three years, we’ve seen a switch, where 70 percent of our titles are seeing results over the house average. We’re going to continue to refine our design process in a very objective way.”

Entertainment Experts

The improvement of Konami’s video platform and technology provides only part of the story of why the company’s games are clicking with players. The real reason behind the appeal of Konami’s games is that entertainment was the business of the slot-maker’s parent company since its founding.

The company now known as Konami Corporation was founded in Osaka, Japan, as a jukebox supplier in 1969 by Kagemasa Kozuki, who remains chairman and CEO. Within a few years, the company, incorporated as Konami Industry Co. Ltd., was building amusement machines for arcades, and was one of the pioneers of the arcade video game business.

The company eventually moved into several areas of entertainment, from card games to toys and hobbies. But it is Konami’s home computer amusement game business-another pioneering effort that began in 1982-that would establish the company as an entertainment provider of legendary stature. In Europe, millions know the company by its Pro Evolution Soccer game for PlayStation and other computer game systems. In the U.S., the Metal Gear Solid series is a staple of home gamers.

It is this expertise that Sutherland says will catapult the gaming division to the “podium” of slot-makers.

The company’s strategy is to take a careful, deliberate approach to utilizing the company’s vast engineering assets-a process begun with the creation of the K2V platform, as well as the three-reel and five-reel Advantage stepper platforms.

“As a manufacturer, it’s engineering first, followed by all the related distribution services,” Sutherland says. “Engineering is first and foremost in our mind, and the utilization of those worldwide resources is key to our long-term success.

“There is a lot of focus right now on Konami’s gaming and systems business in North America, but I really think we have to start taking a look at our company as Konami Corporation’s worldwide gaming and systems business. We have manufacturing, engineering and distribution resources at Konami Australia; we likewise have that in the U.S. KGI Japan is another engineering resource. It will be through the effective utilization of these resources that we achieve the podium, how we become one of the top three players in the industry. I am very confident we will achieve our goal.”

So is Satoshi Sakamoto. The president and CEO of Konami Gaming Inc., Sakamoto heads the Gaming & Systems Division at Konami’s corporate offices in Japan.

Sakamoto says the gaming division-with an amusement and a sports/fitness division, it is one of the company’s three main business segments-is growing in importance within the corporation, particularly in the U.S. Like Sutherland, he credits improvements in engineering and R&D.

“When we entered the gaming business in 1996, we didn’t have much gaming-related technology,” Sakamoto says. “We had to catch up with our competitors. But last year, we started talking to our amusement division, and we started to mix that technology and entertainment essence into our gaming machines. To accomplish this, we would like to tap into the know-how on entertainment at our Japan headquarters.”

“Within Konami Corporation, the Konami Gaming unit is of very strategic importance to the parent company,” adds Sutherland. “They’re definitely looking to make a major play in the marketplace.”

Coming-Out Party

That major play will begin at this year’s Global Gaming Expo, which is something of a coming-out party for Konami. Sutherland says this year’s G2E will demonstrate how the company has evolved in game design. “When we introduced our K2V platform, we replaced our older platform with a larger footprint and viewing area for our patrons in the field, and then applied the engineering techniques I mentioned though new engineering management,” he says. “We finally hit upon a formula for success, where the platform and the engineering behind it have allowed us to take control of our destiny.”

Yuji Taniguchi, senior director of games R&D for Konami Gaming, adds that he began “global synchronization” of game design, research and development shortly after he joined the company early in 2006. “When I started at KGI, I observed territory ego,” says Taniguchi. “It was, ?We are right; you are wrong.’ I encouraged global synchronization, maximizing the output from the three R&D centers.”

Taniguchi says the goal of R&D was to balance game output, and to ensure quality content rather than simply increasing the quantity of games. “We’ve reached the position where we can balance unique game development, because our financial status has improved a lot,” he says. “Since that has been accomplished we have started unique product development. The number of new games launched in fiscal 2007/08 was 55-fewer than the previous year, but we balanced product development with our new standards.”

Sutherland says the evolution of the game content itself has been just as pronounced. “When we launched as a company, we had to develop a baseline of industry product offerings,” he says. “Our competition had video product, we had video product. Our competition had stepper product, we had stepper product. Over the past few years, between our new K2V and Advantage platforms, our KonXion and Scattereels concepts, we’ve begun to establish a Konami brand, a Konami uniqueness.”

At G2E, the company will showcase new titles in all of its established game styles, as well as rolling out completely new game and system concepts.

Leading the way will be new games for the company’s ultra-hot “Advantage 5” series of reel-spinning slots. If any format has established a “Konami brand,” it is this one, which features five full-sized reels, a large LCD video screen that appears to be floating in air within the top box, alternating lights on and behind the reels, and a cabinet style that uses mirrors for a cantilevered effect.

“When the first five-reel stepper products were coming into the market,” recalls Sutherland, “there was a disagreement between myself and Satoshi Sakamoto-my position was to take advantage of the market trend. It would have been a ?me-too’ product, very similar to the IGT and Bally five-reel steppers. Mr. Sakamoto insisted it be extremely different than the rest of the industry, and the five-reel product was shelved until the development of Advantage 5. Strategically, he made the right decision.”

(Interestingly, rival slot manufacturers are beginning to take a “me-too” approach to many of the groundbreaking Advantage 5 features, such as using standard-sized reels in five-reel formats.)

Konami is launching six new titles in the Advantage 5 group at the G2E show. “It will be an exciting show,” says Taniguchi. “Our new steppers feature full-color back lighting behind the reels. In addition to that, we are taking advantage of the top-box LCD with exciting graphics.”

Among the new Advantage 5 titles is “Secrets of Egypt,” which uses the top-box video screen for a second-screen “pick-a-tile” bonus event. Other new titles include “African Diamond: Jewel of the Wild,” “Gold Frenzy,” “Thailand Fantasy,” “Challenge of Perseus” and “Lucky Fountain,” a reel-spinning version of what has been one of the company’s more popular K2V video slots.

These games will join several other new Advantage 5 games at Konami’s booth that will be in casinos by then, including “Thunder Warrior,” a unique take on a reel-spinner that uses a bonus round in which the middle three reels become wild. Konami also is releasing “Rawhide: Marshall’s Bounty,” a reel-spinning version of the popular “Rawhide” video slot, which features a free-spin bonus round in which all pays are doubled.

The company’s three-reel stepper series, Advantage Plus, also will be well-represented at the show. According to Taniguchi, many of the new Advantage Plus titles will utilize the top-box LCD for bonus events and attract/celebration animation. “Last year, we first exhibited our new cabinet and top-box LCD for the Advantage product; this year, our content will take advantage of that LCD,” he says. “Players will be able to participate in the game. On one title, the player touches his palm to the screen to activate a bonus.”

The “KonXion” series, which features hexagonal reel symbols in a cluster-pay screen setup, got a facelift this year with a new look and feel, and with an increased number of reel spots for higher hit frequency. The first two games in the new KonXion will be “Eleven Pearls” and “Full Moon Diamond.”

Also at the show, new K2V slots will be showcased in an improved format, says Taniguchi. “K2V has seen lots of improvement in its graphic power,” he says. “The platform is much more powerful than previously. We can present better graphics and more complex games.”

The improved platform also will permit the standard Quick Strike mystery progressive link to be installed with both stepper and video slots linked to a single jackpot. According to Sutherland, all stepper and video slots will soon be on the same improved K2V platform.

“There are significant benefits for the company to utilize the same electronics in both stepper and video,” he says. “In the multiple jurisdictions in which we operate, it is easier to get one electronics platform approved, versus multiple platforms. Also, there are inventory benefits which result in cost savings to the company. If the electronics are designed correctly, there is no reason they cannot be utilized over all platforms-video, stepper and also some unique products we’ll be launching in the future.”

Attendees at the G2E show also can expect new games using the innovative play features the manufacturer has developed in the past few years, including “Xtra Reward,” which features an extra ante wager that enables several bonus features. The version of “Arctic Diamonds” in this series, for instance, randomly changes the entire fifth reel to wild symbols when the extra bet is made. On “Egyptian Eyes,” the extra wager activates a feature that randomly changes four different symbols in the pay window to wild symbols.

Other new launches in the K2V series will include 50-line and 100-line setups.

Finally, Konami will display a completely new game style for U.S. markets this year, in a unit called “Beat the Field.” Originally released in Australia under the name “Sport of Kings,” it is a community-play game with a horse-racing theme, which places all players in the bank in a bonus horse race.

System Advances

The systems division also is a big part of the Konami success story. KCMS is now the primary casino management system at over 100 casinos and growing, and that number promises to grow more as the company reveals unique new capabilities at this year’s G2E show.

Konami’s system customers offer the same explanation for the success of KCMS as for the success of Konami slots-engineering first.

“When we were searching for a casino management system, I told my department directors there are two approaches-marketing-driven and engineering-driven,” says Jay Burgess, chief information officer for Oklahoma’s eight Creek Nation casinos. “Marketing-driven systems are created by marketing (officials) and then place the technology underneath it to support it. Engineering approaches create the technology and roll marketing on top of that. One of the things that set Konami apart was that it is an engineered casino management system.”

The Creek Nation team selected KCMS as the standard for all of the tribe’s casinos. “It operates first as a networked system, and connects to all other systems seamlessly,” comments Burgess. “There is strong technology underneath-Oracle, the Cadillac of database systems today.”

Sutherland refers to it as having the right infrastructure on which to build.

“We brought in Senior Director/R&D Tom Soukup, who has a background in the high-tech industry, which provided us the opportunity at Konami to build the system upon the right architecture,” he says. “Mistakes have been made by some of our competitors in their hardware and software infrastructure design decisions. For KCMS, we wanted to make sure the system was based upon an Ethernet network and a very large-scale database.

“The banking industry is the only other type of industry I am aware of beyond the internet that has the volume of transactions the casino industry has. We decided we needed to have a very large-scale database, so we went with Oracle. In effect, we adopted a Fortune 100 company architecture.”

At the G2E show, Konami will launch two truly groundbreaking software products that utilize the power of the Oracle database. The first, called “Patron 360,” solves a problem system engineers in the casino industry have been grappling with for years-how to track and reward non-gaming customers of casino resorts.

This functionality has, of course, become increasingly important as resorts have moved toward non-gaming amenities as a revenue source. “We know that in a number of casino properties, casino revenue contribution may be 50 percent or less of total revenues,” comments Sutherland. “The rest of the revenues are driven through the property management of the hotels, the shows, the golf courses, the retail, and so forth.”

Patron 360 uses the Oracle database to collect and store information across a property. Patrons swipe their player’s club card at POS terminals in the retail outlets, for those thousands spent on bottle service in ultra-lounges, in high-end restaurants, in the hotel, and everywhere else on a property.

“Oracle takes it a step further by creating very strong relationships between different systems,” notes Burgess at Creek Nation. “The information can be quickly retrieved. I can not only look up demographic information, but I can take a multi-dimensional look at that player.”

Soukup notes that Konami’s acquisition of Mindset and its business-intelligence system last November was the key in being able to develop a system that could capitalize on the information being collected in Oracle.

“In the time since Konami purchased Mindset, instead of making it a stand-alone application for a data warehouse, we integrated it into the KCMS architecture,” Soukup says. “Patron 360 mines against the Oracle database that is the repository for the traditional slot and table gaming spend data, as well as POS, hotel and retail applications, or the non-gaming spend data.”

According to Soukup, the Patron 360 Patron Worth module mines this gaming and non-gaming customer spend, and computes a “worth code” for that spending. “Now, when you bring up a patron in KCMS or through the S2S interface to the hotel system, you have a score that says this person is in, say, the 95th percentile for non-gaming spend. Do I want to give him a comp?”

At G2E, the newest module of Patron 360 will be demonstrated. It is called Patron 360 Campaign/Offer Management. “Now, in addition to looking at customer worth, making groups out of them, sending them offers and seeing how many patrons return, I can analyze my return on my marketing investment through Patron 360 Campaign/Offer Management,” says Soukup.

While Soukup acknowledges that large operators like Harrah’s are working on CRM systems that mine data in a similar fashion, he notes that Patron 360 is affordable to any size casino. “If a smaller, 1,000-game casino tried to build its own repository for this information, it would be a very significant investment for them,” he says.

In addition to the advances with Patron 360, Konami will launch another groundbreaking product at G2E-a mystery progressive jackpot that can be won anywhere in a property. Called “LotABucks,” the operator can set up a multimillion-dollar progressive incremented through gaming revenues. The next version of LotABucks will not only enable gaming revenue to contribute to the progressive, but any S2S-interfaced non-gaming revenue source. This would mean a customer could swipe his card at a high-end restaurant and win the progressive.

It is true that to gain these groundbreaking capabilities, an operator must install the KCMS system. Sutherland says that while he doesn’t expect large casinos to rip out their current Bally or IGT systems to implement Patron 360 or LotABucks, these advanced marketing products will give them one more reason to consider KCMS when it’s time to replace their casino management systems. “It’s compelling enough that when a casino has made a decision that its system is obsolete or no longer fulfilling its needs, and they do a point-by-point analysis of KCMS, that KCMS not only stacks up, but surpasses the competition,” Sutherland says. “Those companies that have done a detailed, non-biased casino management system comparison have selected KCMS over our competition.”

Approaching the Podium

Sutherland says Konami is nearing the end of a road that will catapult the company toward that “podium” as one of the industry’s top three slot-makers. He says it has been a deliberate, step-by-step process.

“If you review the Konami corporate financials, you’ll see the consumer software division, Konami Digital Entertainment, along with the Yu-Gi-Oh! card business and other toy and hobby divisions, is a billion-dollar-plus entity,” Sutherland says. “That did not happen overnight. There were small investments, and today, it’s a billion-plus revenue-driver.”

He says the small investments are now ready to return big-time. “We want to be on the podium,” he says. “We want to be No. 1, No. 2 or No. 3. We are following a strategic plan to achieve that.”

Sakamoto adds that the future of Konami game and system development will be a future that sees continued merging of gaming technology to the amusement and electronics prowess that has made the parent company successful.

How about slot machines based on Konami’s PlayStation games?

“Transfer of that entertainment essence may come later,” says Sakamoto. ” Metal Gear Solid is very popular in the U.S., and one day, we in gaming may come in with that kind of title. We don’t know when, but it’s possible.”

These days at Konami, just about anything’s possible.