Konami Gaming made a statement at last month’s G2E. Previously a secondary slot machine manufacturer, Konami has rocked the gaming industry with new slot machines, streamlined (and affordable) systems and a new outlook on its future. The Japanese-based company is part of a much larger entertainment company that develops pachinko machines for Japan, video games, arcade machines and more. Steve Sutherland heads up the company’s U.S. gaming operations from its Las Vegas offices. He explained the new direction of Konami to Casino Connection Publisher Roger Gros and Editor Frank Legato in September. To hear a complete version of the interview, including comments from Konami Gaming Chairman and CEO Satoshi Sakamoto, go to www.ggbmagazine.com and click on GGB Podcasts.

Casino Connection: You’re head of the U.S. division. How important is the U.S. division to the overall health of Konami?

Sutherland: When you take a look at the Konami Gaming unit within the Konami Corporation, it’s of very strategic importance to the parent company. It’s a major growth market and they’re looking to definitely make a major play in the marketplace. Right now, I think within the industry we’re considered very much a tertiary player today, however, with some outstanding products.

I guess the best way to take a look at it—we’re just coming off the Olympics, so we want to be on the podium. We want to be No. 1, No. 2 or No. 3. We are following a strategic plan to achieve that. We can see it in our most recent product introductions here over the past few years, through our game development area and also in our systems arena. We are executing a strategy to achieve that.     

Do you think R&D is key to this effort? Between the various teams that Konami has around the world now, how are they going to interrelate?

When we take a look at the business we’re in today as a manufacturer, it’s engineering first, followed by all the other services. Engineering is first and foremost in our mind in the utilization of those worldwide resources is key to our long-term success.     

Approximately three years ago, on the game side, we had invested in a very high-level executive from the technology industry. He knew nothing about the gaming industry whatsoever. He was a proven engineering manager in the high-tech industry. We knew he could learn this industry, and we were looking for him to build an organization to put the processes in place to ensure that we could get the timely delivery of product in the marketplace.

But more importantly, as we take a look at manufacturers in our industry, too many of them have historically looked at game design as more of an art. We look at it as more of a science. We were originally in that art form; we’re now into the scientific component of that that is very analytical and very scientific. So it’s no longer just leaving it up to the game designer. There are some proven principles out there. We apply those to the game, tweak them, but more importantly, once they get on the casino floors, make sure that we fully analyze those.

We secured test sites with key casino operators. We requested specific data back, more than we normally get. Why does the patron like that game? What are the various components of those pay tables that really drive the players? Getting more feedback on the graphics, the arts, the colors, etc. So we’re using that information day in and day out.

For the first four to five years we were—and I hate to say this—throwing games up on the wall to see what stuck with patrons. If we took a look at our game performance graphs at that point in time, maybe 25 percent to 30 percent of our games had a level of legs. Over the past three years what we’ve seen is a switch in that, where 30 percent of the games going out don’t have any level of legs, they’re dogs. But 70 percent of them we’re starting to see are over house average. And out of that we’re starting to determine what the “legs” are. So we’re going to continue to refine that process, more of an analytical, very objective process, take the subjectivity out of it and move forward as a company. And we apply that same process on the systems side also.

One systems customer of yours that we talked to said he liked the Konami system because it started with engineering and then it put the marketing on top of the engineering, where the other ones start with the marketing and then tried to engineer according to the marketing.

My background is in the high-tech industry. We’ve had the opportunity here at Konami to build a system upon the right infrastructure. I believe there’s been a number of very major mistakes by our competitors on the hardware and network infrastructure upon which they’ve built their system. I believe that any implementation should be built upon the right hardware and network infrastructure.

If we take a look at the volume of transactions in the casino industry and you want to draw an analogy to other industries, you have to go to the banking industry. The banking industry’s the only other type of industry above and beyond the internet that has the volume of transactions that our industry experiences day in and day out. So based on that, another decision was made that on the back end it had to have a very large-scale database; something like Oracle, which we ultimately went with. Why Oracle, or a very large-scale database? It’s because of the robustness, the reliability of that database in a number of things that they do automatically that reduces the necessity to have key people on your IT staff, because something like Oracle does it automatically.     

So in effect what I’m saying is we adopted a Fortune 100 company architecture and that was key to our decision-making process. We are authorized by our parent company to acquire any systems company. We reviewed every systems company out there; none had the architecture specifics that we require. Once you have the proper architecture, we felt we could build the appropriate applications.

Tell us about your new system that addresses the integration of non-gaming spend.

We know that in a number of casino properties that casino revenues are down to maybe 50 percent of the overall revenues. The balance of the revenues are being driven through the property’s hotel, the restaurants, the shows, the golf courses, the retail, etc. So the determination was we really had to identify what is true patron value.

The gaming industry has transitioned over the past decade, where you have a number of patrons that come to casinos that don’t gamble. I happen to know of certain patrons that will gamble very significantly at their home casino, but when they come here to Las Vegas and they’re staying at some of these major properties, they are bringing five to 10 other people along with them. Those people may be gambling, but many of these people are not on the casino floor here, they’re in the retail shopping centers, they’re in the restaurants or they’re on the golf courses.     

What is their value for bringing those other 10 people who they’re paying for? How do you tie in the value of those patrons or their friends who are down on the floor gambling? How do you tie in the value of those dinners where they’re paying for those 10 other people? Or the shopping experiences?

In this economic downturn, how are you going to convince casinos that it’s to their benefit to buy some of these new products that you’re offering?

Being in these recessionary times, it’s a two-edged sword. It’s somewhat of a curse to Konami, because we have great product today that if we weren’t in a recession, may take Konami to the podium today. Timing is everything. But on the other side, the positive side, if we didn’t have these winning products, I think the company would be on very hard times at this point.     

Last year, year-over-year growth was outstanding. And it looks like we’re up over this year as well. So from Konami’s standpoint, we’re benefiting from this strong game design in an industry that’s in a downturn mode. Konami’s just getting a greater share than some of our competitors. We’re taking away from others. So we’re growing in that manner.

What does it mean to you to be finally on the verge of becoming one of the major players?

I know executive management is very proud of where we are today. Over the past two years, we’ve had outstanding returns, and we’ve been able to give back to our employees, which is very key to me. We have bonus programs for our employees. The past two years, to me, when you have that ability to hand out those bonus checks to those employees, to see those smiles on the employees’ faces, and for those employees to come up and thank us. In turn, I’m really thanking them, because all we’re doing from an executive management standpoint is setting direction. So there’s a lot of pride in where we are today.

The one thing that I constantly remind a number of people in the company: We are not on the podium today, and when we are on the podium, we cannot become arrogant or complacent. I’ve seen a lot of that in the industry. But when I leave here, I want to see a company that has attained one of the top three positions in the industry. The core components are here. I hope those players who take on this job long-term will carry forward and not adopt the complacency or the arrogance that we’ve seen some people in our industry adopt. We need to stay away from that for this company to be successful for the long-term.

By Casino Connection Staff