By now, most gamers are familiar with the general arc of American arcade games. They were a huge deal in the '70s and '80s, then they slowly faded into obscurity as home consoles got cheaper and more powerful (and as America continued to suburbanize). While nostalgia is fueling an arcade mini-resurgence these days, most people agree that the arcade business has been all-but-dead for about two decades.

That storyline is a bit incomplete, though. Until five or six years ago, route operators (the people who own and maintain machines at various locations along a defined "route") were still bringing in profits from cabinets set up in restaurants, movie theaters, laundromats, bars, and other businesses that weren't strictly devoted to gaming.

"Our estimates say that about six years ago, there was $4 billion a year dropped into the North American game route," Seth Peterson, co-founder and CEO of All You Can Arcade, told Ars recently. That was down from about $8 billion in 2004, but it's still enough to sustain a healthy business. "Even though you didn't see the classic, traditional American arcade, there were a lot of people who were earning money from putting these games into laundries, into liquor stores, into bars. And you would earn, and that's how our industry operated."

That all came to a screeching halt, though, with the introduction of the smartphone. Suddenly, games that had been bringing in over $100 a month were drawing only $15 or $20 for the operator, Peterson says. Potential players pulled out their iPhones rather than fishing around for quarters to help pass the time. By 2012, revenues from coin-operated games in the US were down to about $35 million nationwide, according to data from the Bureau of Labor Statistics.

"Literally the day the iPhone came out the industry was dead—as far as the route part of it; the arcade part was already dead," Peterson said. "When the smartphone came out, all of a sudden these people that were stuck at the laundromat and right next to the change machine, they started buying apps and they started calling their friends and they started playing games on their phone. With that personal relationship they developed with that computer, our big, giant, oversized games really became relics."

The loss of roughly 90 percent of the industry's remaining regular revenue in half a decade was akin to "what Netflix did to Blockbuster," Peterson said. It was a generational disruption that left a whole lot of arcade machine operators not knowing what to do. "We found one operator and he started crying when we bought out his company because he was going to lose his other business," Peterson said. "We gave him enough liquidity that he was going to get some bills paid, but he didn't really have a choice. It's not like he wanted to sell."

The cratering of the coin-op "route" market had a knock-on effect for the resale cost of arcade cabinets in general, Peterson says. "What happened was, all the games went from being worth $800 to $1,000 each to the point where we've had operators give us free games, because they cost money to store," he said. That might be an extreme example, but working arcade cabinets have definitely fallen in price in recent years, with working games available for $300 to $600 if you're willing to "wait out the market," Peterson says. Those few people who are willing to put in the time and effort to fix up good condition but non-working machines can get even better deals.

Peterson got first-hand experience with this new market reality when he bought a mildly busted Turbo Outrun cabinet for only $75 a few years ago. "The market was so bad, this operator was in such poor shape, that I made this guy drive from Stockton to Antioch, which is about a 45 minute drive, to drop off the game. ... I didn't have the truck, but he was so desperate to get rid of it he did the delivery. That one experience, after that night playing that game, I thought, 'Boy, how nice would it be if I could pay somebody to stop by and drop one of these things off?'"

Monetizing the machines

That night, Peterson says, was the inspiration for All You Can Arcade, a monthly arcade cabinet rental service that Peterson sees as the solution to the cabinet owners' monetization problems. For $75 (and a refundable $75 deposit), customers can choose any game on the site and put it in their home or business on free play for the month. At the end of the month, customers can keep the cabinet or trade it back for a new one, with no shipping or delivery charges.

That's a better deal than what's being offered by party rental companies and similar services, which charge a median of $300 to rent an arcade cabinet just for a weekend (in the San Francisco Bay Area, that is; prices are a bit lower elsewhere). At those prices, though, Peterson argues that most operators' stock is lying unproductive for large periods of time. "Even if you do the party rental thing, there's not enough income," he says. "There are people who will pay $500 so that their kid will have a great birthday party, but they're not going to do that every month or even every year necessarily..."

Prices are so high, Peterson argues, because the supply is controlled by the few people in each metropolitan area that have the skill to repair and maintain these fickle, aging games (not to mention the space to store them). "What we think is that there is an army of people that would love to rent games at a fair price, but there's this cartel that has formed around the arcade games," he said. "Any time there is a lack of competition in a town, it doesn't make sense for them to rent their games for $75 if they can charge $200 or $250."

The breakdown of the nation's coin-op routes, though, has allowed Peterson to come in and undercut this cartel pricing in a way that he says will attract more customers and more regular income for operators. "What ends up happening is all of these operators go bust, so the games are there for the pickings, but they don't earn income," Peterson said. "Because the industry got devastated, all of these professional operators who did this for a living—they've gone into bankruptcy and flooded the market with these cheap games because they do cost something to store if you have more than one or two of them... There are all these dirt cheap assets lying around because other people don't know how to make money with them."

Peterson has been scooping up these cheap assets for the last year and a half, working as a stock broker by day and obsessively scanning Craigslist for fleeting deals by night. "My Friday nights, instead of going out drinking with the boys, I sit there [at the computer] because that's prime time," he said. "People are moving out on the weekends and just want the games gone, so if you're the only sober one and everyone else is out partying, you can get those games without any competition at all."

So far, Peterson has amassed a collection of 150 games that he'll be renting out in the San Francisco area. But he also wants to take the business national by letting other cabinet owners sign up to rent their own machines at the All You Can Arcade website. Those operators get "the framework, the legal agreements, the website, and finding the customers... centralized in one place," Peterson says, while AYCA gets 25 percent of the flat, $75 monthly fee.

That's a lot better than the 50/50 split operators usually share with the business owners that actually host the cabinets in their spaces, Peterson says. It's also a lot safer for the cabinet itself, partly because of the customer deposit and partly because these cabinets aren't going to be out in public for coin-op use.

"You should see [these cabinets] when we get them [from bars]," Peterson said. "They've got chains wrapped around them, they've got graffiti all over them, and the bar owners, they don't pay you for that, that is on the arcade operator to fix... There's really stupid, obvious, negligent things that people do to these things when you put them in traditional locations that make a lot of people wary to put them there. If we can provide a safer environment where it doesn't cost me $30 for a new acrylic sheet or $45 for a new control sticker because some gang member decided to tattoo it, then all of a sudden it makes it even more profitable."

Finding customers

But are there really enough customers willing to spend $75 a month on an arcade cabinet to sustain a business? Peterson says a recent private beta test for the service shows that there is, and that it's not just guys with space in their garage that might want to rent cabinets.

"One of the companies that rented eight games from us, they brought all their clients in over that month, literally the HR person got a promotion as we were picking up those games," he said. "It's amazing the reaction people have when you're a 40-year-old guy and you're playing some game you touched when you were teenager that you were in love with. It's more than just a game, it's more than just getting some disc in the mail. There's a little bit of magic that goes on there, and a little bit of nostalgia."

Of course, there's always the risk that customers will just buy cabinets directly from the flooded market themselves rather than throw money at rentals. But Peterson thinks the average consumer doesn't want to spend the time and effort to go bargain hunting or to fix up machines that might need some TLC. Renting from AYCA also means getting a regular rotation of cabinets rather than being stuck with one game.

"A lot of times what happens with these games is you buy them, you have a lot of fun with them, but they get old after three weeks," Peterson said. "I think that's a lot of why the MAMEs and the Multicades have gotten so popular with other people, because they give you this tremendous selection all at once, but it sacrifices some of the experience of an arcade game that you don't get with consoles or even with arcade games that aren't dedicated to that particular game."

After premiering the business at the California Extreme classic game show last weekend, Peterson said he got a lot of attention from potential customers and even more from operators that have a good number of cabinets sitting idle.

"The thought that they could not only save on storage fees, but earn three to four times more than what an arcade will pay you in a liquor store today was a very compelling value proposition for them," Peterson said. "Based on our conversations, we're optimistic that we'll be adding hundreds of games to Florida, Texas, and Southern California over the next month or two. While it's still too early to tell whether or not our company will find market acceptance with the public, our conversations with others who own massive portfolios of games settled a lot of the butterflies we had and made it clear that the industry is ready and willing to adopt our solution."

"As long was there are people out there willing to support the games, there are people willing to deliver them," he said.