Royal Reels

8/11/2019 Royal Reels

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Should Royal Reels invest in:

(a) App Development

(b) New and Innovative Video SlotMachines

(c) Both



1.Stop investment in video slot

machines. But stay in market as the low-cost competitor.

2.Bring focus back to mechanical slots.

3.Invest in the online/mobile market.

Specifics





2005: First year

selling video-

reel slots.

23.0%

23.5%

24.0%

24.5%

25.0%

25.5%

26.0%

26.5%

27.0%

27.5%

28.0%

Royal Reels Slot Machine

Market Share by Revenue



-5%

0%

5%

10%

15%

20%

2004 2005 2006 2007 2008 2009 2010 2011

Change in Slot Machine Market Share by

Revenue

Generation Games Royal Reels Dexteira Other

0%

5%

10%

15%

20%

25%

30%

35%

40%

Slot Machines Market

Share by Revenue

Generation Games Royal Reels

Dexteira Other

Slot Machine Market Share by Revenue

2004 2011 Change

Generation Games 34.9% 33.2% -4.82%

Royal Reels 27.3% 24.7% -9.72

Dexteira 9.4% 16.8% 78.27%

Other 28.3% 25.3% -10.72%



0%

5%

10%

15%

20%

25%

30%

35%

40%

Market Share by Number of

Leased Slot Machines

Generation Games

Royal Reels

Dexteira

Other

-10%

-5%

0%

5%

10%

15%

20%

Change in Market Share by Number of

Leased Slot Machines


Market Share by Number of Leased Slot Machines

2004 2011 Change

Generation Games 34.24% 31.78% -2.46%

Royal Reels 27.39% 26.57% -0.82

Dexteira 8.37% 14.53% 6.16%

Other 30.00% 27.11% -2.89%



Dexteira’s game catalog consists of largely

of “classic” games offering themes and

combinations that have been part of slot

machine gaming for decades and that neverseem to go out of style with patrons. In

contrast to the games offered by Generation

Games and Royal Reels

exteir ’s

are

conventional mechanical-reel machines.



Preference by Lessee

• Mechanical Reels

– Individual Pubs

• Video Reels

– Gaming Institutions

– Casinos

– Entertainment Centers

– Managed Pubs

52%

11%

14%

7%

12%

4%

0%

Distribution of Slot Machines

in the UK, 2011

Individual pubs

Betting shops

Managed pubs

Bingo clubs

Gaming and

entertaintment

centersCasinos

Other



Slot Player Gaming Preference in the

United Kingdom, 2011

Traditional

Fruit Machine

Digital/Touch

Screen Fruit

Machine

No

Preference

All 68 18 14

Male 64 21 15

Female 74 15 11

18-24 63 26 11

25-34 69 17 1435-44 72 15 14

45-54 70 15 15

55+ 68 24 24

Only 18% prefer

digital/touch

screen slot

machines. 68%

prefer traditional

slot machines.



• Royal Reels alsostarted selling itsWild Bulls app in2006.

•

Royal Reels’ declinein market share is notdue to the Wild Bullsapps cannibalizing theWild Bulls video slots

because thenGeneration Gamesmarket share wouldhave increased.

32%

33%

33%

34%

34%

35%

35%

36%

2003 2004 2005 2006 2007 2008 2009 2010 2011

Generation Games Slot Machine




1. Be wary of judgment bias.

Gedman was committed to preventing the

kind of crisis his father had encountered

when new technology nearly killed thecompany. But the numbers weren’t there

to support the idea that video slots were

going to kill mechanical slots no matter

how compelling the interest, options,surprise narrative was.



2. Watch MarketShare, Not Revenue

It may be true thatGeneration Gamessales were growing

50% faster thanthose of Royal

Reels, butGeneration Games

sales gains were notkeeping up with

industry growth.Dexteira was

outperforming themarket and gaining

share.

-0.4% -1.3%

4.9%

0.2%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2003/2004 Change in Market

Share by Revenue


8.56%

3.70% 3.49% 3.08%2.16%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

2003/2004 Change in Revenue

Dexteira Other Overall Generation Games Royal Reels





-10.00%

-8.00%

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

2004 2005 2006 2007 2008 2009 2010 2011

Revenue Growth From Slot Machines

Total Royal Reels



200

220

240

260

280

300

320

340

360

2004 2005 2006 2007 2008 2009 2010 2011

Revenue Loss

27.3% Market Share Actual





0

50

100

150

200

250

300

350

400

2003 2004 2005 2006 2007 2008 2009 2010 2011

Royal Reels Gross Profits (£ in millions)

Slot Machine Online/Mobile Total



0%10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Royal Reels Market

Share by Revenue

Slot Machines Online/Mobile

Total

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2003 2004 2005 2006 2007 2008 2009 2010 2011



Dexteira Other







Currently, 80% of Royal Reels machines are video reels.

• Win back market share by shifting to a primarily

mechanical slots strategy.• Stop investment in video slots because that strategy

decreases market share.

• But do not entirely exit the video slots market.

– Do not want to lose core competency in casevideo reels do take off.

– Core competencies can be shared between

mobile/online and video slots, creating value.



– Take the low-costcompetitor position in thevideo reel market.

– Let Generation Games take

the differentiated innovatorposition.

– Already set up as the low-cost competitor.

– Strategy: optimizeoperations, aggressivelypursue customers lookingfor low-cost video slots.

3,861

3,433

4,273

3,449

3,000

3,200

3,400

3,600

3,800

4,000

4,200

4,400

2003 2004 2005 2006 2007 2008 2009 2010 2011

Revenue Per Leased Slot

Machine (in £)


Dexteira Other



An online/mobile

and slot machine

combination

reduces risk andincreases profits.

Slot machines are

more profitable.

65.61%

48.92%

30%

35%

40%

45%

50%

55%

60%

65%

70%

75%

Gross Margin

Slot Machines Online/Mobile



An online/mobile

and slot machine

combination

reduces risk andincreases profits.

Online/mobile is

risky because it

is fad driven.2006 2007 2008 2009 2010

Online/Mobile 62.86%552.63%111.69%57.46% 21.01%

0%

100%

200%

300%

400%

500%

600%

Change in Online/Mobile

Revenue for Royal Reels



• Work on improving online/mobile gross

margins (49% online/mobile v. 65% slots).

• Looking forward, do not offer app versions

of video-reel slot games to avoidcannibalization. Develop games for one

mode or another.

• Continue to develop in-house themes

because it does have demand, drives

profitability, and brings in licensing revenue.



Key Recommendations

Stop investment in video slot

machines. But stay in market as the low-cost competitor.

Bring focus back to mechanical slots.

Invest in the online/mobile market.



1986

•Martin Gedman becomes CEO

•Company begins using exciting themes and licensing brands

1989•95% of revenues come from slots

1996 •Generation Games is acquired by International Game Technology

1997

•10th year of double-digit profit growth

•Average age of gambler has dropped to 35

1998•Generation Games uses predominantly video reels

2000•Many start-up game development companies appear in the market

2002

•Generation Games experiences double the growth rate of Royal Reels

•Royal Reels develops a CCF: 1) spark interest 2) deliver options 3) create surprise

2003

•Royal Reels buys DDS for 40 million Euros

•UK defines “remote gambling” and begins licensing and regulating it (organizations become comfortable moving into this new territory)

2004

•Boyd of DDS shows Gedman and Royal Reels his first prototypes which are met with lukewarm reaction, but enthusiasm grows when shown market research showing

the games meet the CEF goals

2005•Royal Reels launches video reel games including Batman Begins, Battlestar Galactica, and in-house brand Wild Bulls

2006•Number of Royal Reels machines grows by 12%•British government announces its plan to ban smoking in pubs and restaurants starting in 2007

2007•Pubs experience 7% decrease in customers

2008

•World financial crisis hits

•Texas Hold Em poker game is the most popular paid app

2009

•Dexteira offers machines with drink holders

•Wild Bulls gains popularity

2011•Almost 80% of Royal Reels games are video reels•Slot machines can be found at almost 70,000 locations in UK; they generate 2.4 billion Euros in GGY



Documents

Royal Reels