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International -- Asian Business: JAPAN
LADY LUCK IS FROWNING ON PACHINKO (int'l edition)
The vast pinball gambling industry looks set for a long decline
Shigeru Kaneko is a 57-year-old pinball wizard. For more than a decade, he has gambled at Japan's stand-up pinball game machines, called pachinko. During Japan's go-go years, Kaneko could spend as much as $430 a day in his local arcade, watching steel balls bounce off nails and clink into holes on the flashy neon faces of pachinko machines. But now that his jewelry business is struggling, Kaneko restricts himself to a weekly pachinko budget of $86. "It's tough to make $86 last that long," says Kaneko, leaving a near-empty pachinko parlor in Tokyo's Ikebukuro section, "and I'm the kind of person who likes to play until I have lost."
No wonder Japan's pachinko industry has hit hard times. For years, pachinko was one of Japan's fastest-growing businesses, its players obsessed with reaching the high scores that win big cash prizes. Even today, the total take of pachinko arcade owners nears $206 billion annually.
RASH OF SCANDALS. But since the industry peaked in 1995, lady luck has turned her back on pachinko, as competition from computer games, a rash of scandals, and years of recession have taken their toll. Through July of this year, 76 pachinko halls filed for bankruptcy, up from 65 in all of 1996. Says Junko Nishimura, director of the president's office of the OK Corral pachinko chain: "What's needed is to improve the industry's image. Otherwise, we won't have a new generation of fans."
Revenues for pachinko parlors shrank 7.5% for the first time in 15 years last year, and 1997 sales are expected to tumble further, according to the Leisure Development Center, a research group. With many of Japan's pachinko halls run by Korean residents, the decline also means a diminishing source of funds for impoverished North Korea, which gets an estimated $169 million a year from the parlors. "Without a doubt, we can expect this will have a bad effect," says North Korea specialist Yukio Minagawa of the semi-governmental Japan External Trade Organization.
Of course, the lucky streak couldn't last forever. Some 17,594 pachinko parlors line the nation's back streets, and many chains are discovering that they overinvested. Osaka-based chain Aizen, for example, filed for bankruptcy last September after racking up $224 million in debt, mostly from opening two new arcades in Tokyo, says credit research firm Teikoku Data Bank Ltd.
The industry's deteriorating image also is hurting. Police arrested a couple in July for accidentally suffocating their 2-year-old daughter by leaving her in a dresser drawer while they went to play pachinko. Now, the press is hammering the parlors as breeders of gambling addicts. Acknowledges Tomo Kinoshita, spokesman for the pachinko industry's national federation, Zennichyuren: "These are tough times."
It will be hard for pachinko to make a comeback. Because of the industry's deteriorating fundamentals, banks have become wary of extending loans to pachinko parlors. As a result, parlor owners can't afford to replace as many machines with new models as they used to from Japan's 19 pachinko machine makers. Consequently, pachinko machine makers Sankyo Co. and Heiwa Corp. both forecast only slight increases in their sales and profits.
CRUMBLING. Meanwhile, cozy industry arrangements that protected pachinko machine makers are starting to crumble. Japan's regulators have determined that Zennichyuren, which manages about 200 patents required to manufacture pachinko games, must allow nonmembers to have a shot at its licenses.
Yet the recent turmoil may eventually yield benefits. Sega Enterprises Ltd., whose computerized games dominate the video arcades, recently signed an agreement with pachinko machine maker Taiyo Electric Co. Sega wants to develop pachinko machines based on its computer-graphics software and action-game expertise: Fans may soon be able to watch boxers throw punches on a liquid-crystal display screen as their steel balls go round. That would be a nice touch for a game that needs to change before the parlors fill up again.By Emily Thornton in TokyoReturn to top