Round 1 (4680) In-depth Analysis Part 1: Understanding Crane Games and Arcades
Round1's unique amusement offerings explained
For those who have not had a chance to read my quick pitch on Round 1, featured by
, click the link here:In my subsequent posts, I will be performing a deep dive on the core qualitative factors that affect the stock.
For this post, my focus is on the business economics of crane games and arcade games. Particular focus will be put on crane games and how the current trend of crane games is a driver for the company’s continued success.
What are crane games?
I think most of us have experienced what it is like to play a crane game. In Canada, where I grew up, I typically saw crane games at movie theatres or arcades. The prizes are typically small stuffed animals or cartoon characters. You insert change into the machine, and you have a joystick that moves the 3-pronged claw in 4 directions. Once you have the claw setup in your desired location, you press the “capture” button, and down goes the claw.
I think most children can recall the moment of delight when the claw picks up the prize, only to be immediately disappointed when the claw loosens up ever so slightly to drop the prize.
@4:28 is the typical crane game experience. (Watch for 15 seconds)
Newest Crane Games:
Over in Japan, the newest crane game machine that is responsible for the crane game craze is made by Sega, and it is called “UFO Catcher.” The most popular variant of the Sega UFO catcher is the 2-pronged variant.
How is this variant different from our childhood crane games?
Every customer walks out a winner!
Watch the following video until @13:33 to understand how crane games are played in Japan? (Focus should be on the CDawgVA, wearing white, trying to win an anime figurine on the UFO catcher machine)
We can see that CDawgVA, YouTuber in white, has spent 2500 yen before asking an employee “すみません” (su-mi-ma-sen or excuse me in Japanese). The employee places the prize in an easier position to win, but CDawgVA messes up, so he asks for help again. This time the employee places the prize in a “sure-win” position, and CDawgVa wins the prize after 1 more attempt.
Sometimes, if you have exhausted enough coins, the employee will position the prize in a position that almost guarantees victory.
In a sense, crane games are like slot machines in that there are an expected number of attempts needed to win a prize. What makes them less predatory is the ability to ask for assistance when one has been on a string of failed attempts.
I asked Arcade Rising (YouTuber), in their recent Round1 video, whether assistance is provided in the Round1 US stores, and it seems that the “assistance” measure provided in Japan has not been implemented in the US.
Based on Arcade Rising’s comment, it may be due to a lack of employees, low retention, and tight scheduling that make implementing the “assistance” measure difficult.
Japanese employees are known for their work ethic, even at minimum-wage jobs. The current minimum wage in Japan is around 1000 yen per hour. Anecdotally, I watched a Japanese drama where low-income employees took pride in being given additional responsibility, as that showed they were being valued by the company.
Living in the West myself, I am aware of the current minimum wage mindset. It is hard to hire people for low wages, so if you expect too much from employees, they could just quit and leave. This may serve as a challenge for R1 in figuring out how to hire more employees and motivate them to take on more responsibility.
I may be looking too deeply into this as the company only started rolling out the “Mega Crane Game Zone” store conversions in FY2024. Perhaps after the full conversion is finished, employees will be trained to provide additional assistance. Based on the videos I see of YouTubers playing crane games at R1, it seems employees are already trained in setting up various mini-games within each crane game.
The UFO Catcher can be setup with many different variations
Most UFO catcher games are played with primarily 2-prongs. There are different attachments and configurations: 1-prong, magnets, hook, pinchers, and other attachments. (In this video, you can see a magnetic attachment; watch 15 seconds)
Pincher attachment (watch 15 secs)
Hook (ring-picker-upper, watch 20 secs):
In addition, the UFO Catcher has more structural rigidity. What I mean by this is that traditional 3-pronged crane games are rather flimsy. The claw comes down on a wire, so there is not much downforce that can be applied.
The UFO Catcher comes down via an extendable rod, which allows it to apply downforce. Watch below for an illustration of a variant of a crane game where the prize shouldn’t be picked up but should be pushed down (1-pronged setup, watch 60 secs).
Owing to the catcher's strength in pushing and lifting objects, as well as its many attachments, a variety of mini-games can be setup behind the glass to keep visitors engaged as they figure out how to win the prize.
Crane game centers are rather creative with the types of mini-games that can be set up. They use rods, props, cable ties, and other non-standard attachments to make the crane game experience more interesting. Below is an illustration of thinking outside the box about how crane games can be played.
Ping-Pong mini-game (drop ping-pong ball into dotted spot in tray, watch 15secs)
Gold Mini-Game (Watch 30 sec)
It is also worth noting that crane games are the predominant prize game, but there are other prize machines that crane game centers invest in:
-Hand-Push machine (15 secs)
-Sega Key-Master
-Spin-stop machine (watch 15secs)
Variety of prizes
-anime figures (mass market/limited edition)
-plushies (mass market/limited edition)
-collectibles (mass market/limited edition)
-food/snacks/candy
-Other: accessories, t-shirts, key chains
What differentiates R1 crane games from the prizes from our childhood prizes is that R1 caters more to the “fan economy” (more on this later).
One of the most popular content exports from Japan is anime. Anime is essentially Japanese cartoons. When an anime is popular, it’s common for there to be toys, accessories, t-shirts, collectible figurines, and other merchandise. An alternative to purchasing anime merchandise outright is to attain it by playing crane games.
Round1 owns a 32% equity stake in SK Japan (7608). SK Japan manufactures plushies, key chains, accessories, promotional prizes, and other merch for crane games, gacha machines, and retail stores. Read my quick pitch on SK Japan here:
Read my deep dive on SK Japan here:
Track record of stock pitches:
Haier 690D: +45%
Round1: +15%
SK Japan: +15%
Okano Valve Manufacturing: +45%
GAN: +80% (closed)
CNTY: -50% (closed)
*As of May,1, 2024
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