Pachislot and Pachinko machine

Competitive Conditions of the Pachinko and Pachislot Machine Market

The pachinko and pachislot machine market comprises 34(*1) pachinko machine manufacturers and 84(*2) pachislot machine manufacturers. Manufacturers' shares of the market fluctuate significantly depending on whether or not they have hit titles. Recent years, however, have seen a concentration of orders on a certain group of manufacturers, increasing the market shares and consolidating the standing of the leading manufacturers. This reflects the strengthening of a tendency among pachinko hall operators-who face tough market conditions-to choose machines and brands that have proven high utilization rates and hence likely to give a reliable return on investment. Consequently, the industry is witnessing a growing trend toward tie-ups and mergers centered on companies with robust development capabilities and abundant funds for investment.

(*1) As of July 31, 2011. Member companies of Nikkoso, the pachinko machine manufacturers' industry association

(*2) As of February 28, 2011. Member companies of pachislot manufacturing network

Overview of the Regulatory Environment and Its Effect

Before launching a machine, manufacturers are required to navigate an approval process in accordance with the Entertainment Establishments Control Law. First, they must file an application for prototype testing with the Security Electronics and Communications Technology Association, acquire certification that elements like materials, functions, and gameplay are in conformance with the law. Then, the machines are verified by the Public Safety Commission in each prefecture. Only then can they be supplied to pachinko halls. Before operations, the halls must acquire approval from district police stations.
The Entertainment Establishments Control Law and the internal regulations of industry bodies have been revised with a view to the sound development of the industry. These changes, and manufacturers’ innovations in response, have driven cyclical changes in market conditions. In the 1990s, changes in regulations and internal regulations aimed at controlling excessive gambling elements caused a sudden slump in the pachinko market, while triggering expansion of the pachislot market. More recently, July 2004 saw the revision of regulations pertaining to the Entertainment Establishments Control Law, which initiated major changes that continue to affect the market.

Long-Term Trends-from the 1990s to 2005

After peaking in 1995, the pachinko and pachislot market(*1) entered a period of long-term decline, stemmed from a reduction in the number of players, mainly due to casual players leaving the market because an increasing number of machines featured more complicated gameplay or strong gambling elements. Fiercer competition among pachinko halls to attract players and major operators’ expanding market share led to a shakeout of small halls, and the number of halls continued to decrease.
Meanwhile, unit sales of pachinko and pachislot machines remained solid, thanks to heavy demand from pachinko halls as they sought to secure players by replacing existing machines with new models. The market generated higher revenue levels as the prices of machines continued to rise due to the incorporation of such features as LCDs. From the mid-1990s onward, however, regulatory reform caused pachinko machine installations to trend downward, while installations of pachislot machines grew because they offered a wider scope of gameplay thanks to the requirement of much more playing skill and the incorporation of such new functions as "assist time."

(*1) The total of pachinko hall operators’ ball rental fees and token rental fees

Following the July 2004 Regulatory Revision
1.Pachislot Machine Sales Slump, Pachinko Machine Sales Rise (from 2006 to mid-2009)

Focused on controlling excessive gambling elements, the regulatory revision of July 2004 narrowed the scope of pachislot machines' gameplay. The effect of the revision became clear from fall 2007: after the interim measures period(*1) ended. As hall operators proceeded in stages with the replacement of old-format pachislot machines with those compliant with the new regulations, players' departure from the market accelerated due to difference in gameplay. In response, hall operators actively replaced pachislot machines with pachinko machines, which were recording steady utilization rates.(*2) This resulted in an upturn in installations of pachinko machines. Also, the pachinko machine market continued to expand on a revenue basis due to higher prices, attributable to the increasing use of advanced technologies and a hike in copyright fees that reflected fiercer competition over the acquisition of intellectual property. Facing deteriorating profitability as the investment burden of machine replacement grew while player numbers declined, hall operators sought reliable returns by introducing machines that promised high utilization rates. This caused the market to polarize fur ther into two groups: leading manufacturers and other manufacturers.

(*1) Viewing to mitigate sudden change of conditions and investment burden of hall operators, the regulatory revision of July 2004 included a three-year interim measures period for replacing old machines with new-format machines.

(*2) The utilization time of pachinko and pachislot machines as a percentage of business hours

Following the July 2004 Regulatory Revision
2.Pachinko Machine Sales Decelerate, Pachislot Machine Sales Recover (mid-2009 to the first half of 2011)

From around 2008, casual players began to leave the pachinko market due to the increasing installation of pachinko machines with a strong gambling element, known as “Max-type” machines. Aiming to counter this trend and broaden the base of players, hall operators adopted a strategy of lowering ball rental fees called "one yen pachinko," while manufacturers introduced pachinko machines with a weaker gambling element, called "amadigi".
Although lowering ball rental fees increased utilization rates, in the short-term it led to a decline in sales per machine for hall operations, which worsened their business. As the sudden drop in annual turnover shows, the softening of replacement demand for new pachinko machines-which had underpinned the market-became pronounced from the second half of 2009.
Meanwhile, the downward trend in pachislot machine sales since fall 2007 is approaching a turning point. Manufacturers' development efforts have enhanced the appeal of pachislot machines and restored their popularity. The marked improvement of a range of indicators testifies to this positive change. With pachinko hall operators' replacement of low-utilization pachinko machines with pachislot machines providing a tailwind, hit pachislot machines that ship nearly 100,000 units per title are emerging.

Tasks the Industry Must Tackle

Although there are promising signs, such as the pick-up in pachislot machine sales, annual turnover remains low. This indicates pachinko hall operators’ cautiousness about introducing new machines is largely unchanged and that the industry has outstanding tasks to address to achieve a recovery in the overall market. The manufacturers that are able to enhance competitiveness by using their abundant funds for development and advanced development capabilities is becoming even more clearly defined. And, the industry is seeing intensified tie-up and merger activity.
To realize a full-fledged recovery of the pachinko and pachislot machine market, hall operators-manufacturers' primary customers-have to stabilize their business positions. To achieve this, increasing the number of players is indispensable. Therefore, the industry must make a concerted effort to develop new groups of players. Pachinko and pachislot machine manufacturers have to cater to the needs of a wide range of players by concentrating on the development of machines that are easier to play. At the same time, pachinko halls need to manage operations with an emphasis on broadening their base of players.