International Game Technology, the world’s largest slot manufacturer and the market-share leader in North America, has spent the last year on a roller coaster ride.
Last March, IGT’s stock price plummeted to 52-week low of $7.47 a share. Its competitors have been stepping up their game and claiming larger and larger chunks of the casino floors IGT once dominated.
In response, over the past tumultuous year, the Reno, Nev.-based slot giant has acted decisively to re-energize and even reinvent the company in some ways.
With new CEO and President Patti S. Hart at the helm, and well-respected former Harrah’s boss Phil Satre as chairman, the company hopes to right the ship by infusing it with new ideas, new blood and a refocused dedication to its casino customers and their patrons.
In short, it’s not your blue-haired grandmother’s IGT.
But with the economy in deep recession, and budget purse strings slow to loosen, it’s clear challenges are ahead. Still, the company is making headway, according to Satre, who came on board as chairman in October.
“It’s no secret we’ve lost some share. We want to stabilize relationships and we want to get share back,” Satre said in an interview during the Global Gaming Expo last November in Las Vegas. “We’ve got the initiatives to build compelling products. We’ve got the initiatives to build really strong systems to support the casino of the future. We’ve got more R&D efforts than our fellow competitors in my view, and we just have to bring those to bear on positive performance on the casino floor.”
G2E, the industry’s largest trade show, served as a coming-out party for the company’s new leadership, as the company sought to position itself as a bold trendsetter with innovative products and technologies, but one that kept the customers’ interests and needs front and center.
“What were really trying to let customers see is that first of all that we have products that can help improve their business now,” Hart said in an interview during G2E. “That we’re not talking about products and capabilities years ahead. We’re talking about today, tomorrow on your floor, and communicating the real entertainment value of the product, which we think is becoming more and more critical.”
Among the highlights of the new IGT games shown at G2E were the Sex and the City multilevel progressives game, the first MegaJackpots game to feature IGT’s MultiPLAY game interface, the Center Stage platform featuring Wheel of Fortune and American Idol on a 103-inch screen above a bank of machines; The Amazing Race, which features a group play element of a co-op bonus entry; the media-rich Alice’s Adventures in Wonderland MultiPLAY video slot that offers a Progressive Play feature allowing players to accumulate credits, awards and levels of play on an ongoing basis. The booth also featured the latest bonusing, server-based and other systems solutions, new video poker games such as the community-bonus game Hot Pursuit Poker and a Texas Hold’em Heads Up poker that allows players to match wits against the machine equipped with “neural net” artificial intelligence; electronic table games and more.
Changing guardNovember’s show offered a chance to showcase the fruits of the company’s labor during 2009. It wasn’t an easy year, as IGT went through several rounds of layoffs, cost cutting measures and a retooling of management ranks, with many brought in from outside the gaming industry.
Union Gaming Group principal Bill Lerner said Hart’s performance to date is generally viewed positively by Wall Street analysts “who want to see that IGT has a cohesive organizational strategy from top to bottom.”
“Patti has done a nice job communicating cost strategy, and the early indications suggest IGT will execute on the revenue side as well,” Lerner said.
Hart acknowledged that the IGT work force has had to adjust to the changes in leadership mix and style, but that the changes were necessary.
“As we’ve added new executives, I think it has been people who add more energy than they consume,” Hart said. “I don’t think that you move IGT back to the leadership position it deserves by changing every single person. What you need is to keep your foundation of legacy tribal knowledge and you inject it with a few catalyst people who will be a bit disruptive, and I think that’s what we’ve got.”
Satchell highlighted the importance of the presence of industry veterans, such as Rich Schneider, executive vice president of product strategy, on the team..
“Rich has huge experience in the gaming business, and I bring this, ‘Well, I don’t know you can’t do this’ attitude, and I come from video games… but both of us are as passionate about games and gaming as well as technology, and it’s just a very good combination,” Satchell said.
Hart said it’s the combination of both the longtime gaming veterans and the new crop of outside leadership that is making a difference at IGT.
“People see that the old guard and the new guard are working well, collaborating, debating, deciding, influencing one another, and then it becomes OK throughout the entire organization,” Hart said.
Hart and her top executives have strived to ease the transition by being more involved.
“I deal with it by being in the mix every day,” she said. “I think the work force’s ability to marshal themselves every day, has to do with the confidence and trust they have in the leadership team, and the only way they can trust you and have confidence in you is if they know you,” she said.
Studio city“I think there are a lot of new messages that IGT is new and improved,” said Joe Kaminkow, vice president of game design and leader of Studio One, one of the five distinct studios IGT has created to help game development flourish.
“The message that Patti and others have clearly proffered to the investment community and certainly to the employees of IGT is that the number one mission of the company is to make the best earning, highest quality games in the industry. I think for a while we had lost that message for a little bit. Emphasis had turned away from game development.”
The creation of the studios, each with all the resources and personnel to develop games, has been one of the biggest changes to occur at IGT over the past year.
“The game studio concept is one of the major contributors to what you see on the floor today,” Hart said, referring to the slew of new games displayed at G2E. “These guys are wildly creative, so the studio concept has really amped up the creativity, there’s no question about it,” she said. “And in reality there’s a little competitiveness that goes on within the studios that’s healthy. I think you need that healthy competitive feeling within the company that says my game is going to play better than your game.”
The studios, Kaminkow said, “have allowed us to be very nimble and to react to the marketplace quicker.”
Instead of taking one or two years to create, game products can be created or modified to take advantage of a new feature in a matter of months, he said, giving as examples the MultiPLAY version of Sex and the City, and the creation of the massive 103-inch Center Stage display system.
“Everybody gets more bang for the buck. The company gets a great benefit of more efficient development. The player gets more exciting games sooner, and the operator hopefully gets a greater return on investment,” Kaminkow said.
While noting the studio concept makes sense, Lerner noted he’s adopting a wait-and-see attitude. “IGT has changed strategy here multiple times over the years. We’ll see what market share and profit margins look like and then we will be in a position to evaluate.”
Emphasis on the customerHart noted that IGT’s focus today is different from a year ago too in that it’s not just about delivering products for tomorrow. “We really made the decision to say we have to find a way to move ourselves from always selling the future because what our customers need, particularly in these economic times, are solutions today,” Hart said.
“We have to be about solving products for customers today. And if you looked at the products on the floor today, you can place an order for every one of these products versus a year ago,” when many of the products were yet to be delivered.
For instance, at G2E, the company offered a product bundling package that offered customers a new box, plus two conversions on a casino’s install base, and four new games. Satchell noted that bundle gives casino customers “a product you can go forward with for 10 years, but we’re also giving you a great product today at a price you can afford to help you move toward getting there.”
IGT also has made a very visible effort to reach out to operators, Satre said.
“We’re doing a much better job of letting them know that we’ll do our very best to make sure that their casino floor is as successful as possible, both from a product standpoint as well as the systems that support them,” Satre said. “I think that’s probably a big contrast with the last four or five years.”
Another part of the equation is delivering more entertainment value to the player, Hart said. “I really think the entertainment value of the games is an indication of where the company’s going, where we really are seeing ourselves as a an entertainment company.”
“It’s partly about winning, but it’s also partly about, ‘Can I sit in my chair for a long period of time?’ When people walk away, whatever amount of money they’ve spent, if they walk away and spent it all in two minutes, will that feel like entertainment? It is different when you can go away, even if you lose it all, in an hour or 30 minutes.”
For a while, she said, IGT had gotten away from emphasizing that entertainment value. “We’ve been very focused on the technological advances that we have been making as a company, not as much on how does the patron feel about that,” Hart said. Now the company is also focusing on that patron more. “And I think Chris, coming from Microsoft’s gaming division, has really helped us think about that entertainment proposition differently than we did before.”
Satchell added that “nothing’s more important than producing great, great games that the patron is going to want to play. We’ve really focused in on that so it’s about content and experience.”
IGT seems to be stacking up to its competitors “better now than over the last couple of years - especially on the video front,” Lerner said.
The company’s MLD (Multi-Layer Display] technology, developed by PureDepth, and used in IGT’s REELdepth games, show strong signs of acceptance, he said.
“Casino operators seem to like their MLD product. That’s important for video share, which is important for overall share and earnings,” Lerner said.
Hopes high for sbXServer-based gaming has long been the Holy Grail for the traditional casino industry, for its potential entertainment and customer benefits for players and efficiencies for casino operators. And IGT has been at the forefront of efforts to bring server-based gaming to the casino floor. Its server-based gaming platform sbX is being trialed in several casinos. But its biggest showcase opened Dec. 16 when ARIA Resort & Casino opened its doors at the CityCenter project on the Las Vegas Strip.
IGT’s server-based gaming platform now connects some 1,000 sbX-connected games from IGT and WMS. The remainder of the games, including machines from Bally Technologies, Aristocrat Technologies and Konami Gaming, will be integrated soon into the system.
“I think Aria will be very important to the industry because it’s a business model change, because you don’t have a game associated with a machine anymore so the way you manage your real estate as a casino operator will be different,” Hart said. “The interoperability requirement of the manufacturers is going to be very different. We’re going to be highly collaborative, at the core system, at the applications level and then at the machine, we’re going to fiercely compete. And so I think you have such a business model change, that it’s more important to the industry as a business than a technology.”
The gaming industry and IGT have a lot riding on the success of server-based gaming, said Bill Eadington, director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada, Reno.
“I would watch very carefully the first 12 months of server-based gaming at CityCenter. If it’s successful and if it’s able to fulfill its potential, then you have some very fundamental changes in the whole casino structure that could occur,” Eadington said. Lerner noted that “ARIA will help validate the server-based gaming concept especially for its most basic elements, such as the ability to change machine denoms during different day parts.” He noted that MGM Mirage management “feels it was the right decision already after limited commercial experience with the install.”
Hart noted the company also is focused on marketing its sbX-Tier One system, a smaller scale system that allows casinos to trial the technology at a lower capital investment.
IGT sees the future of gaming as distributed gaming, Hart said, but she also noted that the economic realities of today “created a little bit of bad timing for us.”
“In a strained capital environment, I think people take lower risks in their decisions, and this [Tier One] allows for a more low-risk decision for folks with less capital outlay to upgrade their floors, but moves them over time to the notion of distributed gaming in their floor,” Hart said. “And I think we’ll be more successful this way, allowing people to digest this transition a bite at a time instead of in a wholesale change, unless you’re a new casino,” in which case it usually makes sense to go with the latest technology.
Cautious optimismAfter a lackluster 2009, Hart isn’t expecting a major turnaround in 2010, as operators are still wary about making major investments and while voters have approved slot gaming expansion in several states, there is a lag time before those jurisdictions start up.
“Domestically we are expecting 2010 to be a little bit like 2009,” Hart said. “We’re very excited about some of the new jurisdictions, but we don’t see any of that having significant impact on 2010 revenues for us, maybe orders but not revenues.”
Hart sees casino operators continuing to exercise caution. “People are still a little skeptical about consumer confidence and discretionary spending picking up by consumers. I think you’ll still find it to be a very judicious decision for casinos to spend capital.”
But the company is preparing for the eventual emergence of a replacement cycle. “We are confident it is coming eventually,” Hart said. “The slot floors are getting very tired. Predicting when it will come is a little more difficult.”
SIDEBAR: New Faces at IGTFive top executives among those joining leadership ranks:
Phil Satre, the former CEO and chairman of of Harrah’s Entertainment, was named chairman of IGT’s Board of Directors in October, replacing TJ Matthews, who remains on the board.
Patti Hart replaced Matthews as chief executive and president on April 1. She has served on IGT’s board since 2006. Prior to joining IGT, she was the chairman and CEO of Pinnacle Systems, Inc. from 2004 to 2005, and of Excite@Home, Inc. from 2001 to 2002.
Chris Satchell came aboard in June as chief technology officer. Satchell, who has spent 17 years in the video-game and technology industries, formerly led Microsoft’s Xbox program.
Eric Tom joined the company in July as executive vice president of North American sales and global marketing. He formerly was vice president of corporate and business development and and strategic alliances of Force10 Networks, a network equipment manufacturer.
Robert Melendres, chief legal officer and corporate secretary, is the former chief of staff at IGT. He joined the company in June and previously was employed as executive vice president and chief legal officer for Sunnyvale-based Spansion Inc.