IN-DEPTH 4 January 2017
Interblock CEO John Connelly interview
The Interblock CEO chats to Gambling Insider about how the company has succeeded through 2016, and the scope for advancement in the casino industry in the coming 12 months
By Gambling Insider
You came to Interblock at the beginning of 2015. Have the past two years gone quickly? What have been the highlights?
We have been so busy, it takes interviews such as this to remind us how fast time is flying. The first twelve months were specifically focused on building the appropriate infrastructure to make a truly global company, while creating a player portrait of the electronic table game (ETG) segment.
We wanted to know who is really playing an ETG, and why. The findings were surprising, we began to share them with our customers and the industry at this year’s G2E. After more than a decade in the slot business, I would have made several assumptions that would have been completely wrong.
The greatest challenge we have to overcome is the historical method of measuring ETGs against slot machines or a house average. Several large casino groups are in the process of breaking ETGs into an entirely new product category, and are reorganising their corporate reporting structure into slots, tables and ETGs. This lines up with the data we found in our research.
As we worked through the study’s findings, we also started to implement the tools and processes necessary to take the business to the next level. Hiring the right team to execute this strategic vision has been a crucial part of this. We now have implemented lean management, division KPIs, product life cycles, a detailed Budgeting Process, and more while opening offices on several continents and investing heavily in the company’s support/service structure.
More recently our focus has shifted to creating the highest quality and largest portfolio of ETG products in the industry. We were extremely excited about last year’s G2E Show in Las Vegas, where Interblock released more than twelve new innovative products. The goal of this portfolio is to increase the North and South American casino floor footprint to over 5% ETGs.
Internationally, we are seeing this category surpass 15% to 20% of the floor in many markets, and we are confident that the products that were shown at this year’s G2E will produce similar rates in other regions.
Do you feel that you have changed the company’s focus significantly in that time? If so, what is the main factor behind that?
This depends on what area of the company we are referring to. Interblock continues to be known as one of the most innovative companies in the world, due to our founder, Mr. Joč Pececnik, and the team he has assembled over the past 25 years. That innovative culture is essential to Interblock, and I want only to support and strengthen it.
However, we have been working extremely hard to improve some aspects of the business. We are shifting our focus toward a data-driven decision making process, which means sharpening our ability to measure the actions taken within each division of the company.
We spend a considerable amount of time researching all aspects of our business, both internally and externally, before making major decisions. This strategy has allowed us to be much more effective, and to optimize return on our investments.
Interblock is known for its innovative products? Which direction do you think innovation will take casino floor games in the coming years?
We believe very strongly that a larger percentage of the casino floor will be much more driven toward an electronic table game type of product. Our research shows that we are attracting not only Millennials, but existing players as well. These existing players are playing a month-over-month higher handle and average bet, while coming to the casino more often. We continue to see double-digit growth in this segment, and our forecast indicates no slowing down in the foreseeable future.
Interblock was a finalist in the Global Gaming Awards’ land-based supplier category for its innovative new launches including Pulse Arena and Star Bar. What role do you foresee the game having on the casino floor and what would it mean to you to win the award?
We believe the Pulse Arena has the ability to bring new players onto the casino floor, while attracting core players as well. Recent trends have found players heading from the casino to the pool, nightclubs, restaurants, shows, and so on, at Interblock we are constantly trying to find new ways to help make the casino floor more exciting to counter this.
The Pulse Arena combines a gaming experience with entertainment in a new manner. We plan to make some more announcements before soon to bolster this vision, as we form long-term partnerships with some of the largest casino groups in the world.
As for the Star Bar, this is another very exciting area for Interblock. We invested heavily in finding a way to bring our knowledge of the ETG business to a bar-top device. This area has traditionally been dominated by IGT, and we see a tremendous opportunity to enter this segment with something new and innovative.
The Interblock bar top will offer a larger portfolio of traditional table games, and will be able to interface our ETGs to the bar tops, as well. The beta test was Nevada extremely promising, these were conducted with the intention of releasing this product officially at G2E in 2016.
This recognition from the industry in these areas is very motivating to our team, and encourages us to work harder to make these products even more successful for our customers.
How does a provider such as Interblock make sure it keeps up with gaming industry trends? Is your strategy to react to changing operator demands, or are you actively looking to lead the market with new product development?
Our team logs millions of frequent flyer miles each year. We make sure that we see the markets around the world first-hand, rather than through the internet. As a company, we are constantly conducting competitive gap analysis, market segmentation, and focus group studies to stay tapped into player trends, to determine what is and isn't working, and find inspiration for new products that improve the gaming experience.
Our product development goals emerge from supporting our customers' changing needs, and actively leading the market in new product development.
Mergers and acquisitions activity has been rife across the entire gaming industry for a number of years now. Do you envisage that we could see Interblock involved in any business of this kind in the near future?
We are always watching for opportunities that would be complimentary to Interblock.
Opinion seems to be split 50/50 on whether Millennials want to play skill games in casinos? What is your opinion?
Skill-based gaming is one of those areas we are watching, but have decided to focus on our core business. We now have substantial data indicating that Millennials are likely to play ETGs on a regular basis, and are increasingly coming to casinos specifically to play these type of table game products.
Are Millennials too heavily focused on by the gaming industry?
We believe that this is a critical demographic to focus on, if you wish to remain relevant in the near future. Failing to understand Millennials could amount to a death wish in our business. The demographic shift will not be an overnight transformation, but it is something we all should be investing in today.
Why are we entering an exciting phase in the casino industry?
For years the casino sector has been looking for killer applications and products that would help transform the casino floor, and suppliers have spent hundreds of millions in R&D trying to keep the casino floors relevant as we see our new and existing players evolve.
Only in the past year are we beginning to see a few products achieve this objective on a global scale. Electronic table games appears to be one such product segment, gaining momentum at an astounding rate. Data confirms that not only are new carded players migrating to this product more than virtually anything else on the casino floor, but existing slot players and table game players are spending incremental dollars as well.
We have seen this trend for years internationally, where electric table games can cover 20% of a casino floor. The North American market is still less than 0.5%, but increasing at a considerable rate over the past 24 months. We are seeing a necessary transformation in the way we are measuring ETGs vs the traditional slot and table game mix.
Recently, Mr. Wynn spent several minutes on his Earnings Call expressing the need to invest more in ETGs and the future he sees within the segment of the floor.
For as long as I can remember, ETGs were measured against slots – something we are quickly learning was a critical mistake. Several large groups have now broken ETGs into a separate reporting structure and are evaluating them away from the slot structure, for good reason.
The ability of an ETG to attract a new type of player to the casino, while delivering incremental EBITDA to operators, seems to indicate an untapped demand we are only beginning to understand. My strong feeling is that this category will continue to be one of, if not the fastest growing area of the casino floor for the foreseeable future.