Analysis: how arcade video game 'discovery' works!

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[The GameDiscoverCo game discovery newsletter is written by ‘how people find your game’ expert & company founder Simon Carless, and is a regular look at how people discover and buy video games in the 2020s.]

Sneaking back into your inbox like Sneak King - but not nearly as suave, obviously - GameDiscoverCo has returned to deliver Burger King meals to hungry people expose the latest trends in PC & console game discovery to you.

Today’s lead story is re: something unexpected, but entertaining. Its subject is mainly PCs in very bulky custom boxes, so we feel 100% justified in covering them. (And we run this newsletter anyhow, so our rules rule.) So let’s look at arcade game discovery…

[We hate to be a pain, but we’re still doing 30% off access to our GameDiscoverCo Plus subscription - including a sales analysis weekly newsletter, Steam pre-release data back-end, Plus-exclusive Discord with lotsa handy info, and more… the deal runs until May 18th, btw.]

Exploring arcade game discovery & trends in 2023

Some of you may now be asking - has GameDiscoverCo gone insane? The arcade industry is a fossil. Heck, pinball first started allowing you to put coins in a slot in 1931, making the direct coin-op business model almost a century old.

But we also note that predominant U.S. arcade game maker Raw Thrills’ co-founder Eugene Jarvis - whom you might know as the designer of Defender & Robotron in early arcade days - recently donated more than $30 million to DePaul University.

So it’s not like there isn’t money - or interest - in this business in the West. (Japanese arcade game chain Round One has been expanding significantly in the U.S. too.) It’s just that home video game systems have changed what people expect from the space.

But how does the U.S. arcade market work for one small-business operator? We caught up with Adam Pratt from Arcade Galactic in Utah - who also runs the Arcade Heroes news site. He was kind enough to share his real per-machine $ revenues for Feb. and March 2023 - we will be excerpting select highlights by game genre below:

First, it’s notable that Arcade Galactic is a fairly ‘pure’ arcade. It has almost all trad arcade games, rather than ‘redemption’ games which allow people to get tickets and then redeem them for prizes. (More on this pseudo-gambling flavor later!) But let’s look at trends for this setup:

• Revenue is fairly kid-orientated, so seasonally cyclical - Adam says: “Generally speaking my earnings tend to hit their peaks in July & December of each year, while hitting their lows in April/May & September. It tends to depend on what the local school districts are doing for when kids are in/out of school.”

• Return on investment on machines is 6 months to… many years? If you just count the cost of an arcade game vs. $ put into it, Adam saysa good redemption game will have ROI of 6 months to 1 year. Video games have 1-2 years ROI, but it’s gone up due to post-pandemic price increases. Pinball? As much as 8-10 years!

• Most arcade game players are not repeat customers - Pratt notes: “Most of my customers are casual gamers and they tend to focus on the newer stuff, hence the better earnings there. I do have a few regulars who tend to focus on games like the fighters… or pinball.” And one reason he bought Maximum Tune 5DX+, “a fairly expensive racer compared to other options at the time”, was for its rep for repeat customers.

• Larger ‘per-play’ pricing makes a difference to ROI, too: perhaps an obvious point, but the larger & more impressive machines can charge more. All of Adam’s Top 5 games like Jurassic Park & House Of The Dead are $1 to start (4 tokens), although he allows continues for 50c on a number of them. (Which is generous?)

• Classic arcade games? Not a lot of money there for this arcade: they mainly cost 25c to play in a ‘Classic Corner’, so: “Generally speaking, most retro games are filler and don't earn all that much, although when there's a movie like Wreck-It Ralph, Pixels or Super Mario Bros, I see a very slight bump for older games.”

As noted above, Arcade Galactic decided not to get into redemption titles, but Adam admits that “it likely hasn't been a wise long-term financial decision. On the very rare occasion that I get my hands on an earnings report from other spots in the industry, redemption games almost always top the charts.”

Why? Machines like Bay Tek’s Big Bass Wheel - spin a giant wheel and win tickets - and marble or coin ‘pushers’ with licenses like Spongebob Squarepantsand Willy Wonka - push coins over the edge to win tickets - “really make bank.” They’re also very gambling-ish, for better or worse - see our article on compulsion loops in games.

There are also quite a lot of middle-ground ‘not so gambling-y, but spits out tickets’ titles that are based on famous non-arcade franchises nowadays. Raw Thrills has an arcade version of Minecraft Dungeons, and there’s even a Crossy Road arcade game.

And redemption is really where a lot of the growth is coming in the arcade game biz. There are still ‘route operators’ (locations like movie theater lobbies & restaurants) with arcade games, as well as barcades, but it’s the FEC (family entertainment center) that are making the strongest moves.

Adam explains: “FECs I like to think of as mini-amusement parks - Dave & Busters, Chuck E. Cheeses, Round 1 USA and a plethora of others fall into this category.” They will often throw food & drink options, bowling, party rooms, minigolf, and laser tag into the mix.

As Adam explains: “Because FECs tend to have millions in capital behind them [and can buy games in bulk across the whole chain], this is where the game development focus has gone to in recent years - bigger, more expensive games that stand out in the busy crowd. 

Where the average cost of a new game used to be $7500, post-pandemic and inflation we're now looking at an average of $12k. The new Fast & Furious Arcade by Raw Thrills is about $25k per cabinet, so a pair is over $50k after shipping and taxes.” Bigger/pricier is the rule, with cheaper exceptions like Griffin Aerotech’s Enter The Gungeon light-gun shooter.

Oh, and finally, a point on pinball - from an arcade operator perspective - from Adam: “I can't blame people for thinking that pinball is on fire [in arcades] as it is for collectors. But… it's not a cash cow for the commercial amusement space.” Even The Addams Family only grossed $150 for Arcade Galactic in March! (Though its re-sale value is way up…)

IP engagement metrics: games come out on top?

We were interested to read this piece over at LinkedIn from entertainment lawyer Simon Pulman, with the slightly staid title ‘Rethinking Metrics for Entertainment IP Valuations’. But wait - it has some stellar ideas in it! Let’s go through them:

• Are you down with AEPTU, yeah me know you? Simon - who works across multiple media types, not just games, btw - suggests: “the most important indicator of future value is something I seldom see mentioned: AVERAGE ENGAGED TIME PER USER.” (Henceforth known as AEPTU, acronym fans.)

• Video games do AEPTU the best: compared to a TV show you watch idly once, Pulman suggests: “The future entertainment superbrands will be those either created in or catalyzed by digital media.. when we are looking at engaged time, any immersive media is generally more valuable than passive or superficial properties.” Brands that you can create content in - woo, UGC in Minecraft or Fortnite - even more so…

• The deep ‘store’ of AEPTU is fueling games as transmedia successes: in fact, “When you look at the success of The Super Mario Bros. Movie through this prism, it becomes incredibly obvious and predictable. Mario has sold over 800 million units worldwide… All Mario had to do was reflect back to those engaged fans what they wanted to see by being authentic to the brand.”

Pulman concludes by saying that big media companies looking for transmedia breakouts “…can use [AEPTU] to find undervalued assets and predict hits. I’d be looking at Steam Charts and fan communities to find hidden indie gems that could grow much bigger.”

But we particularly wanted to feature this write-up because we have a concrete example of this in action. As regular visitors to the Target toy aisle, we’ve noticed a significant increase in video game-related toys. Sure, there’s Mario & Sonic there.

But we’ve also seen Poppy Playtime’s Huggy Wuggy, aka ‘the terrifying plushie taking over gift shops everywhere’, and multiple toys for the Roblox game Piggy & for Pet Simulator X. And they’re breaking out, thanks to new digital-first entertainment IP.

In time, we’ll see whether Mario has given us an ‘outlier’ look at how well game properties can do elsewhere. (We’re keeping a close eye on the Five Nights At Freddy’s movie from Blumhouse, for example.) But you ignore engagement time at your peril. And the top video games have a heck of a lot of it.

The game discovery news round-up..

So let’s finish off the week - at least until the Plus-exclusive Friday newsletter - with a look at a whole cornucopia of discovery and platforms news, as follows:

• Hearing some of the recent chatter on ‘players skip Steam page videos’, Valve has tightened up rules on everyone’s Steam page vids: “Starting today, a maximum of two trailers can appear in the row of thumbnails to the left of screenshots. Any remaining trailers will be displayed after the screenshots… You can now select from a pre-set list of categories for each trailer.” There’s also a reminder to get to gameplay footage fast!

• Some of the key not-E3 showcase dates are coming into focus, with Xbox confirming that “the Xbox Games Showcase will be livestreamed on June 11 at 10am PT… Immediately after the Showcase, we’ll be airing Starfield Direct, a deep-dive into Bethesda Game Studios’ highly anticipated sci-fi RPG.”

• What are the largest PC/console game publishers spending on making & marketing games? According to the CMA report on the MSFT x ATVI deal, one giant (un-named) firm “said budgets ranged from $90 million to $180 million with marketing ranging from $50 million to $150 million. Its most expensive game cost $660 million to develop with a marketing budget of $550 million.” That’s some moolah.

• Epic is trying some interesting cross-promotion bundling tactics for its key first-party GaaS titles, since the Fortnite Crew sub “now includes a bonus: Rocket Pass Premium in Rocket League!” Fortnite Crew is a $12/month pass that includes access to the current Battle Pass, V-Bucks, and exclusive Fortnite items otherwise, btw.

• Microlinks, Pt.1: Xbox’s new offer “lets Xbox Game Pass Ultimate and PC Game Pass members give up to five friends a free 14-day PC Game Pass trial”; Amazon’s Prime Gaming deals for May include Star Wars: Rogue Squadron and in-game League Of Legends items; here’s a whole heap of mobile game ads that borrow from unrelated games styles/genres - and each other.

• PlayStation Studios head Hermen Hulst, interviewed by GI.biz around the Firewalk acquisition, made it clear that Sony’s live service push isn’t just 10 x Destiny clones: “PlayStation Studios are making a variety of games that could be referred to as 'live services', targeting different genres, different release schedules, and at different scales. We are… creating games for different audiences.”

• We already reported on it obliquely in our ‘state of VR’ round-up, but Meta’s Chris Pruett did a very informative GDC talk about the Quest 2 market, and it’s now available in full, via Meta Developers’ YouTube channel. Oh, and there’s a Quest Gaming Showcase coming up livestreamed on June 1st.

• Could lack of cheap debt, not just IDFA changes be a big reason for the mobile game biz slowdown? Chris Heatherly thinks so, saying in a recent podcast: “The entire mobile games era happened in an era where the prime lending rate was extremely low…. When there's a real cost to money, and suddenly you're paying a premium on that payback window, you can no longer afford to finance user acquisition in the same way.”

• What were the trending virtual clothing items in the Roblox store last month, sorted by ‘most favorited’? According to analysis by Metaverse Marcom, it’s lots of Sanrio (Hello Kitty & friends!) merch, a squirrel suit, ‘Year 2000 fashion’ items (!), and… knitted arm warmers? Now we feel old.

• Slightly esoteric, AI-tinged microlinks: The games industry's response to AI? “Reverence and rage”; also, “Game development is in crisis. Can creative AI tooling save it?”; on another front entirely, ‘Inside the chaotic world of kids trying to play video games on school laptops’! (RIP: Vice’s excellent Waypoint, which this came from.)

Finally, my buddies at the Video Game History Foundation got visited by ex-Nintendo Minute hosts Kit & Krysta, which meant lots of Nintendo (& Gizmondo?!) material:

[We’re GameDiscoverCo, an agency based around one simple issue: how do players find, buy and enjoy your PC or console game? We run the newsletter you’re reading, and provide consulting services for publishers, funds, and other smart game industry folks.]