Rumours of the death of the arcade game have been greatly exaggerated. At least, that was the message from exhibitors at last month's Amusement Trade Exhibition International (ATEI) show in London. "There's a vibrant market, it's still healthy," insists Jim DeRose, president of arcade developer Global VR.
But where the ATEI was once dominated by driving, rhythm-action and shooting games, it's now primarily a showcase for redemption games, casino equipment and other "section 16" machines - products which, under that section of the Lotteries and Amusements Act, can offer prizes of up to £500. The entire ground floor is taken over by the likes of Barcrest and JPM, names familiar to anyone who's ever spent time lurking around fruit machines. Less than half of the top floor is dedicated to arcade cabinets.
It's 25 years since the commercial (and, some would argue, creative) peak of coin-operated videogames. The statistics aren't pretty. The US market has shrunk to a quarter of its size, from 1.4m coin-operated videogames in the early 1980s to just 327,000 in 2006. Revenue declined from $7.3bn (£3.7bn) in 1982 to $866m in 2004.
Devastating effect
Walter Day took coin-ops seriously. He captained the US National Video Game Team and ran an arcade called Twin Galaxies in Iowa from 1981-84. The glory days, he says, were triggered by one game: Pac-Man. "When arcades first started in the 70s, they had reputations for being rowdy places where people were wasting their time. When Pac-Man was released in 1980, it completely changed the landscape. It leapt out of the arcade and went into theatre lobbies, street corners, doctors' waiting rooms. It led to dozens of other games equally as popular: Defender, Robotron: 2084, Centipede, Joust. The games had little graphical capability, so the gameplay had to be genuinely intriguing. A very wide demographic was playing them."
But the growing popularity - and power - of home consoles had a devastating effect on coin-ops. The Nintendo Entertainment System (NES) was launched in the US in 1985, followed by a European release a year later. It sold more than 60m units. Day identifies the end of "the golden age of videogame arcades" as taking place during the Guinness world championship of January 3-5 1986. Just eight contestants turned up. "By 1986, there were so few arcades it wasn't that easy for a person to continue an arcade habit," he says. "The games would often cost as much as a car, $2,900, and arcade operators bought them on credit. They drove each other out of business. So a new generation grew up with home console games and that became what they knew best."
But it wasn't until after the 1994 launch of Sony's PlayStation that parity was reached between arcade and home technology. As Namco developed cheaper coin-op technology, it took the PlayStation's key architecture as the foundation for its System 11 board, which was used for the first two Tekken games.
The industry reached its nadir a few years later. WMS Industries - the company behind the 1980s hits Defender, Joust and Robotron - stopped manufacturing arcade cabinets in 1999 and now focuses on casino slot machines. Midway closed its arcade division in 2001 while SNK went bankrupt the same year. Konami shut its American arcade operation in 2003. And by 2005, Japan's arcade industry had consolidated: Sega with Sammy, Square Enix with Taito, Namco with Bandai.
"There was a lot of panic," says DeRose. "A number of the large manufacturers and a lot of the developers went out of the business. You spend millions of dollars to get a game into the marketplace but you can't predict how many units you're going to sell. It compelled a lot of companies to say, 'I'm not willing to take that risk'." Today, a successful arcade game will sell, globally, only 4,000 to 6,000 units.
"The videogame when it first got established was the tail wagging the dog, because the coin-op pioneered it," says Michael Rudowicz, president of the American Amusement Machine Association (AAMA) and a former president of Konami Inc's coin-op division. "But now we're really the tail on the dog. It was easy enough to port a coin-op game into a consumer game but it's extremely difficult to take a consumer game and make it a coin-op." Home computers and consoles in the 1980s were flooded with arcade conversions.
Now, the reverse is true, albeit on a smaller scale. DeRose's Global VR specialises in transposing home properties (such as EA's Nascar Racing) to the arcade, while shooters like Half-Life 2: Survivor and Silent Hill: The Arcade are based on successful home franchises.
It's gun and driving games that are at the core of the remaining arcade market, says Namco Europe product manager John Brennan. Hardcore gamers may be keenly anticipating beat-'em-up sequels Street Fighter IV and Namco's own Tekken 6, which is based on PS3 technology: hardcore Tekken fans infiltrated the ostensibly trade-only ATEI to be the first to play the game in the UK. But Brennan admits: "The fighting game market exists but only in very small quantities on coin-op."
Rudowicz goes further: "Until something really innovative or new comes along, I think we're in a holding pattern. We haven't really found that next Pac-Man or Space Invaders."
But the arcade industry does have a future. It's in "offering technology that you can't get in your home", according to Sega Amusements Europe sales and marketing manager Justin Burke. "In OutRun 2 you can sit in a lifesize Ferrari. You can't do that in your living room." It's in embracing new locations for coin-ops, such as family entertainment centres, and replacing old machines, a move that has seen the number of arcades in the US grow from its 2003 low of 2,500 (down from a peak in the early 1980s of 10,000) to a current figure of 3,500. As Rudowicz puts it: "A lot of the movie theatres had games that had been there for 15 years. Unless I'm really bored out of my mind, why would I want to play that?"
Scoring a replay
The future is also in emerging markets like Russia and the Middle East, and in taking coin-ops online. In Japan, where there was a 10.3% rise in the value of the arcade market from between April 2005 and March 2006, Sega's Amusement Linkage Live Network (ALL.net) connects more than 20,000 arcade cabinets.
"The home's interconnectivity is the lesson that the arcade is learning," says Walter Day, who now runs a website that tracks videogame high scores (twingalaxies.com). "The arcade titles that are most popular now in the US, like Big Buck Hunter and Golden Tee Golf, allow players to compete in contests and for prizes online. They emulate what the internet does for home-based games but do it in a public setting."
Big Buck Hunter Pro sold 7,000 units in 2006, making it the year's best-selling arcade game. It's indicative of an industry that, having downsized, survives on modest expectations and successes: within a year of Pac-Man's launch in October 1980 it had sold 100,000 machines.
Has the industry ever recovered from the growth in home consoles? "I wouldn't say it's recovered from it," says Brennan. "I'd say it's learnt to live with it."