WMS is such a technology-driven company. Tell us a little about what went into taking the North American ship share lead in the September 30 quarter.
Pacey: It was interesting how we got there. Everybody kept telling us what we couldn’t do. That the players didn’t want it, that the customers didn’t want it, and that the regulators wouldn’t approve it. I swear that for the first two or three years that was all we ever heard.
Gelber: It was “Everything must be old-school-looking. No one wants different graphics. No one wants different game play. They’re happy with their three and their five reels. Nobody wants innovation.” It finally got to the point of, “We’re going to try all this stuff and see how it goes,” and, luckily, it caught on. I sat in on countless meetings for our three-space chair, the 3-D surround chair that we partnered with Bose on: that was a product that everybody looked at us like we were crazy: “Why are you going to create a slot machine with 3-D sound? No one wants 3-D sound on a slot machine.”
How did you turn that around?
Pacey: What we did was we realized it’s a journey, it’s not an overnight thing. And so we created a vision of what we thought a casino would look like in 10 to 12 years, and we called that the “Casino Evolved”. Casino Evolved is an ongoing future state that we maintain. We constantly maintain this vision. It’s constantly being updated. And that’s enabled us as a business to bring some innovation and differentiation into the marketplace.
Gelber: With our first Collaborative Gaming product [Monopoly Bigger Event Big Money Spin] we’re really taking the player experience, designing everything from the player’s point of view. How do we make the game better? How do we make technology to move the game experience forward and create new game experiences?
You’re doing this through difficult economic times. How do you view the recession as it’s impacting the replacement cycle?
Pacey: If you look at what we’ve reported the last few years going through this, we’ve continued to grow at a meaningful rate. We’re still considered a growth company. That didn’t happen through North America. What was great was that we had invested in the infrastructure and the technology and the content to go global just prior to the economy going south. We were already well-invested and prepared from a timing standpoint. Our technology had matured to the point that when we release a product it goes global the first day. So when we release a new game that game can be turned on in Macau before it’s turned on in the U.S. It’s digital, right? The moment that product is done it can be communicated to our different offices. The different offices can start releasing the software. It’s a spontaneous kind of event. And so we sell our products directly into Asia, into South America, Central America, Europe, Australia. And then in North America we’ve delivered on our promise. We have complete transparency with our customers. They know exactly where we’re going. This Casino Evolved vision is clearly articulated to them. We show them products that will be released, and we tell them, “These products will be released in the next nine months, these this fiscal year, these products will be released next year, these products are further out.” And that lays the groundwork at the casino to prepare for these new capabilities. By showing them this vision and being true to it over five, six years now it’s allowed us to build that credibility. And that has driven an increase in our ship share.
So the growth has been global, while at the same time you’re increasing market share in North America, but the replacement cycle is lengthening?
Pacey: It has lengthened. It’s not lengthening. I think we’re at this kind of pace now, and I don’t see it getting any longer than it is right now. We do see traction with customers. While I wouldn’t say the tide has turned by any stretch of the imagination there are corporate customers that are making purchases, that are updating their floors. The onus is on us to really give them a differentiated product that adds value and prepares them for the future when the economy turns.
From WMS’ window on the economy, how do you see that happening near- to mid-term?
Pacey: Until the consumer confidence is there it’s going to sit there. Now it’s interesting. Consumers are still going to casinos, and they’re going at the same rate they did.
Gelber: They’re just spending less.
Pacey: Right. They’re just spending less. So for us it gets back to what is going to excite the gamer to want to reinvest in a game because they find enjoyment in it. For us it goes back to the game itself and the relationship with the players we have, which is to make sure we’re giving them something. Innovation is what has to drive it for us. When I look out there I can’t pontificate about where the market itself is going to go, but when the players come the operators need to be ready.
What strengths are you seeing in terms of new and emerging markets?
Pacey: Italy is the hot thing right now. They had the catastrophe with the earthquakes, and that resulted in the government opening something like 50,000 gaming licenses. A “gaming license” is an individual machine. I think that’s a really hot market for a lot of people right now. Singapore just opened. That’s an interesting gaming market. And obviously we’re watching Asia in general.
Gelber: We’re also seeing great success in Mexico. And Mexico is a market we really weren’t too involved with up until a year, a year and a half ago. We’ve had great market share gains with Class III product. Traditionally, it’s always been a Class II market, but they kind of flipped the switch a year, a year and a half ago. Illinois [with video gaming in bars and restaurants legalized but full regulatory procedures and licensing not yet in place] is going to be a tremendous opportunity once we get everything squared away there. That’s not going to be quick.
Pacey: And that’s fine. With anything gaming you have to make sure you do it right. You have to make sure you have the regulatory body equipped and ready to go, the testing is done right, that you’re crossing your t’s and dotting your i’s.
Going forward, what new things can we expect in game design?
Pacey: I would say it’s definitely a personalized experience with us. Lord of the Rings is live in the field, and this will give you kind of an insight as to where we think products will go in the future. What’s wonderful about Lord of the Rings is that it allows you to earn “miles,” that you’re progressing on the journey, the story of “Lord of the Rings”. As you collect miles, whenever you hit the bonus round you get to choose which bonus you want to play. And as you collect more miles you unlock other bonuses. What’s really cool is that you’re at the casino, you unlock a few miles, and you’re three miles short of getting to the next bonus round when you’re leaving, right? Well, you can go home and log on to our Web site and actually play. It’s called playerslife.com. You can log on to that Web site and play a casual game. Just fun, a little like you would find on a social gaming site. If you complete those games you unlock miles, so when you go back to the casino, when you trigger the bonus, that bonus round is available to you. It’s a new type of engagement with the players. There’s a whole community there on playerslife.com. There are forums. People are talking about the best bonus they hit. We’ve got a lot of support and capabilities in there with regard to our products. People are posting video clips of everybody’s products … “Did you see this?” and “Look at this bonus round,” and “Check out this new game” … from everybody. And it’s a wonderful community.
Gelber: We also started a designer blog where designers are posting their thoughts on designing slot machines. You read the comments. The community is really exciting because they’re getting more exposure to the creative side. That’s the goal, to give back to the player, to give them an experience.
Larry Pacey heads global marketing and product strategy for WMS Industries with responsibility for game development, engineering, advanced R&D, product management and marketing. His background is steeped in video gaming and interactive entertainment. Before joining WMS in 2001 he held high-level positions with n-Space, Segasoft and Atari.
Phil B. Gelber joined WMS Industries in 2001 and is responsible for the 12 game development studios the company operates in Chicago, Las Vegas, Sydney and London. Previously, he worked in video game development for Atari, Sega and Eidos Interactive. He is a graduate of the University of Nevada, Las Vegas.