Helen Fletcher looks at how the signs are there that the European street market may be on the road to recovery, albeit a very long road!

The European street market has had a troubled time of late and has suffered at the hands of restrictive legislation, a worldwide recession and smoking bans. While some countries seem to be over the worst, with Germany looking the most encouraging, there are some, such as Spain, that just can’t seem to catch a break and risk plummeting further into a depressive situation.

Increases in tax and legislation changes are ongoing issues in Europe - often complex, it can sometimes be difficult to grasp a real sense of what is expected from each individual country in order to enter the market. As more and more countries join the European Union there are those involved in the gaming industry that would like to see a general framework for the industry to work to.

“As more and more countries join the EU they come under increasing pressure to tidy up their laws concerning gaming and amusement machines,” TAB Austria’s Dietmar Straubinger told InterGame: “As a producer of amusement and gaming machines everything can change at a moment’s notice and you have to be flexible and react quickly to such changes. Since the borders opened up trading has got a lot easier, but the next step must be uniformed rules that guarantee the same conditions in each country.”

Metronia’s director of international operations, Marcus Marugan, also supports this argument, saying: “Legislation has always and will always be the biggest challenge for the gaming industry and we need to start making the move towards a general framework for every country to work to, that is what being part of the European Union is about after all. While each country still has its own specifications and regulations it remains expensive and complicated to homologate the machines for each individual country.”

Unclear and constantly changing legislation makes it almost impossible to develop long-term strategies covering the whole of Europe. According to Quanmax’s head of international marketing and sales, Christian Bimminger, the impact of legislation on the European street market is very high and determining. “We are forced to follow many diverse strategies all at the same time which are mainly driven by short-term thinking and fast-moving actions instead of long-term strategies and measures,” he told InterGame. “Our biggest challenge is certainly trying to overcome the legal problems that are in many of the European markets and try and find a Europe-wide solution.”

However, it is not just legislation that can determine a market and for Bimminger, smoking bans in bars and pubs, as well as the customers’ strong demand for gaming machines has led to significant changes in the industry over the past few years. “New technologies such as smartphones, tablet PCs and the internet have also changed the conditions of the coin-op industry immensely,” he said. “The successful integration of social media such as Facebook and YouTube into the coin-op amusement industry needs to be focused on.”

Spain is one of the most recent countries to go smoke-free and according to Metronia’s Marugan, coupled with the recession, it has had a significant negative impact on the street market. “Spain at the moment is disastrous,” he told InterGame. “Operators are desperately looking for solutions but it is going to be a long process to re-educate smokers. It is not just about the gaming hall, they will need to look at their smoking habits in everyday life and make changes.”

Almost every market has, at some point, tightened up its legislation and while many in the industry welcome structure and proper legislation, governments have in some cases gone as far as shutting markets down through ridiculous legislation, making it impossible for operators to survive or banning machines outright, Poland being one of the most recent casualties.

For Czech manufacturer and operator Synot, the closure of the Polish market was disastrous. “We invested considerable amounts into product and company development to see it come to nothing,” said Synot’s David Mixa. “The Ukraine was the same; operators were disadvantaged in the same way and we were forced to suspend the operation of more than 4,000 machines.”

For Gabriela Manu of Romanian manufacturer and operator Baum Games, the closure of such markets as the Ukraine and Russia has also led to a negative impact on remaining eastern European street markets. She told InterGame: "Over the past five years there have been a lot of changes in the European street markets. Almost every country has seen more restrictive regulations introduced with Russia and the Ukraine closed completely. A lot of those machines have now entered the Romanian market and at very cheap prices; this is a constant challenge we must try and overcome."

##image2##

Europlay’s managing director Laszlo Palhegyi (part of the Veltmeijer group) told InterGame that when looking at the impact of legislation on the European street market there are multiple things to consider. “Governments of eastern European countries have had to respond to negative images of the gaming industry, which always brought with it restrictions and limitations that impacted the traditional market,” he said.

“But you also have to consider new forms of gambling entering the market such as poker, online gaming, VLTs and server-based gaming. These forms of gaming are still unregulated in some countries and can cause serious disadvantages to the traditional players in the market.

“VLTs in particular have had a serious effect on the traditional street market in my opinion,” continued Palhegyi. “Take the Czech Republic for example. Companies that had sources to invest in a VLT licence got the opportunity to provide higher stakes and prizes to players. This led to players looking for the VLTs, which leaves the traditional AWPs out of the loop and results in them becoming less and less popular and a narrowing of the market.”

Country and regional regulations also have a significant impact on product development and market penetration. For Daniel Lindsay of Aristocrat this is symptomatic of these large and complex markets. “Effort is required to really make an impression in these spaces,” he told InterGame. “The ‘Big 4’ street markets of Italy, Spain, Germany and the UK present the most obvious opportunities, really due to their size. Having said that, there are some barriers to entry in all new markets we assess and every market is dynamic in response to the macro environment. These dynamic and regionally specific regulations, along with strong incumbent manufacturers keen to protect their market position, are the biggest challenges we face as a supplier in Europe.”

Changes in legislation can, however, result in positives. The introduction of VLTs has revolutionised the gaming industry in parts, particularly Italy, which has been a market ‘up in the air’ for years.

Inspired Gaming, based in the UK, is one supplier that sees huge potential in the Italian VLT market. “The Italian government has created optimal specifications for the future of VLT gaming and I’m optimistic that success in Italy will lead to decisions in Greece and other jurisdictions,” said Inspired’s managing director of betting and VLT, Martin Lucas. “If you go for the ‘full-fat’ VLT regulation as in Italy, you can prevent tax evasion and provide player protection through tested fair games and this should be the way forward.

“The VLT legislation in Italy is not just a hot topic because it is current, the government has created the optimal specifications for the future of street gaming and I believe it will still be significant in five years’ time, having steered the future direction of the global industry.”

While some in the industry fear the introduction of VLTs is taking business away from the traditional low stake/low payout machines, as well as the amusement sector in Europe, for Synot, a leader in VLTs in the Czech Republic, this recent liberalisation of VLTs has caused one of the biggest movements in the industry in years and has resulted in a strengthening of the market, which will work towards opening up markets where limited max bets and wins have traditionally been the ‘norm’.

Inspired Gaming’s Lucas also argues that AWPs and VLTs are, in general, different products, so where legislation permits there is no reason why they shouldn’t coexist in Europe. “While the volumes will adjust to suit the market, both products are compelling in their own right,” he told InterGame. “In UK betting shops the restrictions on the machine numbers saw AWPs removed in favour of VLTs; as a result we provide both AWP and VLT style products on the same machine, allowing the player to choose for themselves.

“In Italy Comma 6a machine sales are reportedly down, but incomes are strong, as are the sales of kits and boards for existing machines. This tells us that operators are waiting until the dust settles before investing in new AWPs. Not that the players are abandoning their old habits - quite the opposite, as there seems to be a renewed vigour for all types of street gaming in Italy.”

Other changes in the European street market mainly relate to improvements in technology. “The entertainment industry has made some big steps forward over the past few years,” said TAB’s Straubinger. “This of course affects the type of entertainment people are looking for as well as their playing attitudes. The pursuit of new challenges, the desire to try something new, is important to the industry and what keeps us pushing forward.

One of our most important challenges will be the development of the next generation of innovative single or multiplayer touchscreen machines and games that fulfil players’ needs. We analyse the present in order to create products for the future to offer our customers that something extra.”

For Susanne Wesemann of gaming giant Merkur, the general trend in most European street markets has been the move from traditional reel machines to modern TFT video machines, mostly multigames featuring two monitors. “In some countries this transition has been in process for some time, while other countries are taking longer for it to pick up,” she said. “In general, however, the reel machine has no future in Europe in my opinion. The present video cabinets feature high-class technology, in addition to player tracking systems and TITO, which are making their move from casinos into gaming arcades more and more.

“There have been lots of changes to the hardware over the years and computer technology is increasing the number of possibilities. Screens are getting bigger, the quality of graphics is improving all the time, special lighting effects are being incorporated more and more and sound effects are also improving.”

“The situation in Europe really does depend on the country,” continued Wesemann, “but fortunately the economical situation does seem to be improving slightly. Most of the European street markets are not growing, but a lot of the operators are requesting new machines so it has become a replacement market, especially the Balkan countries. We are also expecting legislation changes in Greece, which will allow new machines and Italy brings with it great opportunities with the new VLT legislation.”

##image3##

VLTs may be providing the bulk of new opportunities in Europe at the moment but the sports betting sector is also continuing to grow in popularity with players. Cashpoint is one of the leading suppliers of sports betting systems across Europe, with Germany and its home market Austria currently performing the strongest.

It supplies the street market with a single terminal called Tipomat and a counter solution called Touch Office. “Betting shops have been established a long time in Europe and are an important medium for showcasing our sports betting brand,” said Cashpoint’s Lukas Poehacker. “We are currently looking to take our business to the next level and see opportunities in Greece, Cyprus, Denmark, Romania and Bulgaria. Changes in legislation have opened up these markets for us and we are ready to take on local partners and distributors.”

Sports betting terminals can be found anywhere from restaurants to bars to petrol stations in Europe. While in many countries they are operated alongside AWPs, for Merkur’s Wesemann, both sectors of the market are working in harmony rather than in competition with one another.

For DGL’s Marius Stoi, based in Romania, betting shops and terminals have “peaked” at street market level and a lot of the new opportunities will come from the online sector. “This is the future of the betting industry,” he told InterGame. “Betting shops will still have a place in the market but as a place for social interaction.”

For Synot, which operates sports betting both in the street market and online, there is a definite trend towards online. “We think players prefer to bet online because they can do so from the comfort of their own home,” said Mixa, “but the betting shops do still draw in customers wanting a more social experience from their betting.”

So what can we expect from the European street market moving forward? It is clear that VLT, server-based gaming and online gaming will continue to play an extremely important role, pushing machine capability and player offering further as technology continues to advance.

“The industry has to start serving a new generation of players using the latest technologies,” said EuroPlay’s Palhegyi, “in turn convincing the legislators that this segment is able to show an up-to-date, transparent way of working and has the right to exist within new circumstances.”

Italy will continue to be a hot topic, with all eyes on the VLT situation and what it will do for the market. There are also signs that Greece could be about to turn its fortunes around with the government having filed draft legislation with the EU. There is the potential for up to 30,000 machines to be placed in the market and it is thought the VLT model, if successful in Italy, will be replicated in Greece.

The recession is, however, still impacting heavily on the performance of the street market and will continue to do so for some time yet.  “We expect to see a continued step-change in performance in 2012,” said Aristocrat’s Lindsay. “Improving economic conditions in our key markets have the potential to significantly accelerate revenue and profit growth. Our strategy is built around competing aggressively and effectively, not simply waiting for a rising tide. This is ultimately the only way to deliver sustainable profit growth.”

According to EuroPlay’s Palhegyi, the most significant effect of the recession has been the lack of money and resources. “We all know how a chain reaction works - less money in means less income to the operators and pub owners, which means less sources to invest in new technologies, machines and services,” he told InterGame. “Machine income has dropped between 30 and 40 per cent, which speaks for itself. The industry was at its worst at the end of 2009/beginning of 2010. Since then it has seen a slight increase but it is still a long way off from its starting position.”