In this reprint from the July 1997 issue of Game Developer magazine, Pong creator Nolan Bushnell explains why arcade machines failed and how location-based video games could still thrive in the age of online technology. The story may be old, but the problem is the same -- how do game makers adapt to meet the needs of an evolving market? The video coin amusement business in the late '70s to early '80s exceeded $18 billion annually before declining. It has been stagnant for over a decade, and today brings in only $6 billion a year. But that is rapidly changing. In fact, I believe location-based entertainment has the potential to be a thriving $20 billion market -- in a remarkably short time. The internet is driving this change. By giving the public greater variety of entertainment, by pricing it fairly, and by promoting it like crazy, we can tap the one thing that people who frequent hospitality venues have in common -- the desire to have fun. From the time Pong came out in 1972, the video game market has been title-driven. "Make a successful game and they will come." That strategy has been applied to

console video games, to standalone PCs, and now to online gaming in the home. In large part, this strategy has worked. But it ran its course in the arcades, and is approaching its limits in the home. In location-based entertainment, what matters most is tailoring a customized and rapidly-changing entertainment package to the tastes of particular locations. With online technology, we can do that. Rather than developing games only for young males, we must reach out to many different audiences. To the travelers and business people that frequent hotel lobbies. To the upscale "latte crowd" that frequents Starbucks Coffee Bars. To the eating and drinking crowds in restaurant chains and bars. Games are played by less than 10 percent of typical bar patrons. The recipe for success now must also include games, communication via email and chat, shopping, tournaments, and music. Each location must find the right mix for its customers.

We need a new set of rules

We've used any number of explanations for why the floor dropped out of coin-op, including: coin-op failed to be significantly better than home games in terms of technology -- polygons per second, real-time ray tracing, MIPS, and so on; if we only had a $1 coin...; if only the manufacturers would produce fewer games, build cheaper games, not release games into the home so fast, and build games that would last for 100 years; home games killed the coin-op business; all the industry needed was a great hit; and the number of locations has fallen. But none of these arguments hold water. If coin-op games need to be superior, why has Megatouch (with a Z80) out earned Cruising and Mortal Kombat in bars over the past few years? If the type of coin is so essential, why have tokens of high value failed every time they've been tried? The only bright spot on the U.S. landscape is the nickel arcade. The home computing market comprises 15 million households out of over 100 million in this country. There's a brave new world out there in public places, and we are just beginning to find it.

The new rules

It's going to take a shift in our thinking to make this happen. Here's my recipe: The value of a game has to be higher or its cost reduced. Compare the cost of a first run movie -- $7, or roughly $3.50 an hour -- to the $24 it costs for an hour of entertainment; arcade players shell out a buck for every two-and-a-half minute game. ROI must come from multiple sources, not blockbuster hits. Despite the doomsayers who predicted that TV, VCRs, and finally cable would kill off theaters, the movie industry has never been healthier, hitting record sales levels that year. But notice which movies dominated the Oscars this year -- independent films. Not the big budget studio movies. The best movie of 1996 had less than a six-month run, and the average movie ran for less than two. We've got to go that same route by reducing development costs and adjusting to the reality of shorter life cycles and lower returns on individual games. Let's take another page for movie marketing -- seasonal and holiday fare. For example, is a Halloween game that is downloaded at the beginning of October and taken off the first week of November such a bad idea? Variety is the spice of location-based life. Why would someone pay $60 for a software title when a similar game could be played in a public place for a quarter? And when those quarters can be spent on ten new games instead of just one? Variety has always been more important in leisure time than price. Why is that any different now? Perhaps we haven't seen enough variety in arcades up to now. We've got to bring entertainment to the places were most people socialize. I travel a lot. I see games in sports bars, but not in hotel lobbies. I see fast food locations without games. I see coffee bars with no games, and many chain restaurants with no games or amusements. In most of these locations, a pinball machine would look strange, but a countertop web terminal with easy touch screen menus and game play would not. For those of you who remember, Pong was in a wood-grain cabinet that went into places that didn't want garish graphics and decals of monsters in their locations. I find little that can be purchased today that will fit the decor of a Starbucks or a United Airlines terminal. Has our industry kept current in meeting the demands of an older, more upscale crowd?

Finding the bridge to newfound revenue

Now, with online networks, entertainment providers can change games at will, experiment to find out what works best for a particular location and customer base, and put in those games that provide the greatest income. Instead of a hit game that brings declining revenues over time -- the old arcade model -- we will find that the hardware makes more money as the software is finely tuned to each location. With networked entertainment, revenue streams can multiply in locations through national and even international tournament events with big-time promotional sponsors and through advertising and the sale of merchandise via location-based terminals. We don't have to market to get the people to come to us, we are bringing the entertainment to the places they already frequent -- and spend a lot of money -- to have fun. The customers are there. There's no shortage of talent to develop entertainment for them. But we've got to challenge ourselves to invent new rules and jump-start this next wave of location-based entertainment. Nolan Bushnell is an industry veteran whose creation of Pong and founding of Atari in the 1970s is often credited with launching the video game revolution. You can find more great stories from old issues of Game Developer Magazine in the GDMag Archive section of the GDC Vault.