A series of articles that challenge the gaming industry stakeholders to think differently by analyzing the current state of the industry to find sustainable solutions for the future.
At the end of every year industry experts are called upon to predict what they believe is likely to happen in the industry during the following 12 months. Quite frankly, the benchmark forecasts for 2013 didn’t come anywhere near the actual, and somewhat surprising, events that subsequently unfurled.
• The mega mergers among the largest gaming manufacturers that ended the year with two colossal vendors—Scientific Games and GTECH.
• The $4.9 billion takeover of PokerStars by Amaya.
• The en-masse closure of the Atlantic City casinos was definitely not on anybody’s Christmas list in 2013.
And yet, the assortment of factors that brought about these changes have long been brewing. The signs were all there, and arguably we should have anticipated these events, but regardless, now that they have become history, we need to analyze more closely the underlying causes so that we can map out the future landscape of our industry with more accuracy and plan in advance to mitigate the downside and maximize the upside. As Winston Churchill once said, “The longer you look back, the farther you can look forward.”
We remain in a stage of transition, and instability will probably persist for a good part of 2015. The possibility of other states, beyond New Jersey, Nevada and Delaware, legalizing online gaming in 2015 is very remote so the focus is likely to be on consolidation rather than creation.
It is not possible to benchmark a particular region with the global casino industry situation. Casinos’ potential to attract players remains locked within certain travel isochrones except for some exceptions. Different regions of the world are experiencing either growth, stagnation or shrinkage, but the reasons may be different from those of the U.S. market.
The main problem with the U.S. industry is that the incumbents are too entrenched in their own ways and their domestic market. The world outside their nest has changed dramatically in many ways, but they are fearful to fly beyond their own tree.
Players and Products
The connection between the gaming floor and the player profile has never been underestimated in the casino industry, but in the last 10 years the industry somehow failed to see a change in the gaming trend and respond accordingly. Now it is struggling to catch up.
Casinos in the United States have gratified the baby boomer generation for many years. (According to Wikipedia, baby boomers are people born during the demographic Post-World War II baby boom between the years 1946 and 1964.) American casinos, many operated by the mob, predominantly consisted of table games that attracted male gamblers. Slot machines were introduced at the perimeter of the gaming floor as a distraction for the female companions so that the men could play on the tables for longer periods of time. But technological innovations that extended the possible outcomes on electronic slot machines changed the industry forever. It became possible to win huge jackpots for relatively small stakes, and for a generation that discovered instant coffee, instant pictures and never-lasting peace, the lure of instant riches was too hard to resist. With the business cleaned from the mob and the industry becoming well-regulated, commercial casinos boomed. Las Vegas and Atlantic City became the ultimate icons of a generation that dared for nonconformist excitement and temptation.
Now the youngest baby boomers are 50 years old and the oldest are nearing 70. The generations that followed are digital natives rather than immigrants. Leisure and entertainment activities expanded prolifically to include wide-ranging activities as diverse as console gaming, online P2P gaming and social gaming. The generations who discovered instant answers to everything and instant friends are not the type to get excited by spinning wheels and fake electronic sounds of dropping coins. They have developed a new concept of social status—one’s popularity online can be more important than his or her wealth.
Additionally, the idea of destination casinos has gone out of fashion. In the baby boomer era gambling was perceived as a sin that nobody wanted in their neighborhood, so it was conveniently pushed to remote spots.
Gradually, with the advent of tribal gaming and more state governments realizing the huge gaming tax potential, casinos flourished everywhere. This led to the redistribution of gamblers in proximity to newly opened resorts. Now most of the U.S. population lives less than an hour from a gaming establishment. The end result is a quasi-stagnant market that is currently showing little signs of recovery. The recent closures of casinos are simply a result of rebalancing oversupply with a stable consumer demand.
Solutions and Advancements
The objective now is for casinos to regenerate their business by adding the younger demographics with more diverse tastes. The gaming floor needs to be revitalized so that it attracts new players without alienating the existing demographics and stems the downward trend of gaming revenues.
At the moment the industry does not seem to have found the answers. Two years ago social gaming was heralded as being the solution. The only thing one heard in every conference and publication was how social gaming was going to save the industry. Now we learn that the sector’s potential has been misunderstood and if someone speaks to you about social gaming for land based casinos it is going to be in whispers in a hidden corner.
We realize today that social gaming has great revenue potential as a standalone product. It is another marketing tool for the casino industry, especially for brand loyalty and retention, but it fails to maximize ROI. The real disappointment is the gaming floor which still fails to cater to the social gamier demographic. Going to a casino has nothing to do with the journey, but with the experience.
In the gaming industry casinos are at the top of the supply chain and can play the role as either hero or villain, as it is their performance that has a ripple effect on the rest of the industry. Gaming equipment manufacturers are profoundly impacted by casino revenue and manufacturers have tried valiantly to address the problem by endorsing online gaming—a sector that for many years, together with casino operators themselves, they vehemently lobbied against to make sure it remained illegal.
Their sudden U-turn was, at best, misunderstood. It confused many stakeholders, including the policy makers and some parts of the industry itself. The net effect is a state of instability that is taking away energy and financial resources from resolving the stagnant situation.
The U-turn that Leads Us to the Future
What caused the dramatic shift? Gaming equipment manufactures are essentially technology companies with highly efficient supply operations to fulfill market demand. One apparent factor is casinos have not been replacing their slots inventory as frequently as they have in the past, so output has been declining.
There is another critical factor that is bringing about the change. A slot machine is a complex piece of heavy-duty electronic equipment housing many different high-quality peripherals. Over time most of the critical functions are gradually moving out of the electronic gaming machine (EGM) itself and into the central casino management systems. Ultimately a slot machine may end up to be nothing more than just a PC or a tablet inside a pretty, consumer-friendly cabinet. With cashless gaming, there is no longer any need of the peripherals for cash and payments. This means that player tracking, readers and printers will go out too and will be replaced by the mobile device using Near Field Communications.
Moreover the casino management system itself is becoming more inline with an Internet gaming platform and server based gaming. Equipment vendors are realizing that “online gaming” is not just “Internet gaming” by the traditional definition, but an entire new generation of slot machines. Indeed, in the future there may not be an EGM as we recognize it today.
The industry needs to redefine the meaning of “gaming floor.” Most of the R&D for these companies is going to be developing the future online gaming systems enabling gaming across heterogeneous platforms. These technologies will in turn impact casino operations. The concept of a virtual casino floor is approaching. Casino managers will eventually holistically and seamlessly manage physical slots and tables, BYOD (Bring Your Own Device) on the property and remote gameplay as a single gaming floor.
The biggest innovation of our future is the redesign of the gaming floor from ground up. It will continue to exist in theory, but its landscape will be dramatically different.