Unicum’s Adventures

Unicum has promised a sensation at Russia’s largest gaming event of the year, EELEX 2005. But with licensing issues and increased competition, what’s the future for the company, show and Russian industry?

The recent Russian edition of Forbes magazine's, Fortune 500, listed a number of gaming companies among its top ranks. High at number 218 was the Ritzio Entertainment Group, whose expansion within Russia, Ukraine and eastern Europe, gave the company a turnover of 9,018 million roubles in 2004 (270m euros). Ritzio also experienced 20 per cent growth from 2003-04 and saw asset growth rise by 168 per cent. Rival slot operator, Jackpot, occupied the 443 position on the Fortune 500 list. Turnover in 2004 generated 4172 (123m euros), a growth of 94 per cent and Jacpot saw a net profit in 2004 of 91lm roubles (27m euros). Balanced between these two operating giants is Unicum Group. Renowned as the distributor of international slot labels : Atronic, Bally, WMS Gaming and AGT, Unicum also produces its own range of slots, has a world-class production facility in St. Petersburg and owns and runs the EELEX show held each year in Moscow. This impressive CV has placed Unicum at 352 on the list of Russia's biggest companies. It's quite an achievement, but then the company did turnover 5,187 million roubles (153m euros) in 2004.

However, in the last 12 months there's been a great deal of change, both  nationally, regionally and at the company level. Not least, the drafting of a new Gaming Law has long-term investors worried, while in the short-term the suspension of machine licensing for domestic producers has caused hardship in a market that has only known unbridled success for the past half-decade. Unicum insists that the licensing difficulties will be sorted in time for the EELEX 2005 show in December, but with rival show, World of Games, now occupying a summer spot and international visitors worried about the timing of EELEX so close to Christmas, there remain fears about the success of this month's exhibition. It's not something that worries Unicum's marketing Director, Sergey Kazakov, as he explained to G3 overleaf. Meanwhile, Unicum also has plans to launch its brand new hi-end slots range, Sensation, at the EELEX show, openly competing like-for-\' like with its long-standing distribution partners.
G3 asked Unicum's Vice President of R&D, Peter Moffitt to describe his latest creation and the role it will play in the Unicum product portfolio. These plans and the increasingly impressive St. Petersburg production facility form the basis for the interview with Unicum CEO, Yuri Larichev, who outlines his views about the company as it moves forward into a three-year plan. Having only recently taken over the reins as CEO of Unicum, we ask Mr. Larichev about the past, present and future of the company that has been the market-leader for so long. And finally, the last word is saved for Unicum Chairman, Boris Belotserkovsky, who has been a barometer for the Russian gaming industry in the past, and so we ask him to future-gaze into the Russian market and answer a few of the most pressing questions being asked by investors, manufacturers, distributors and visitors to the EELEX show.


Q  How important is the EELEX show to the Russian operators? As Moscow and St. Petersburg become saturated markets, will local domestic shows closer to the regional operators become more important for the suppliers and end-users?

SK: No doubt, EELEX is the key industry event not just in Russia, but for the rest of the CIS, baltic States and Eastern Europe. We can tell this by looking at the attendees list, which embraces the immense territory from the Atlantic to Pacific Ocean. Traditionally, EELEX is held at the end of the year, when operators compile their procurement and purchase plans for the next year. EELEX is thus, truly considered as a trendsetter in the CIS gaming industry. As the gaming market extends more to rural areas of Russia, EELEX becomes an even more vital place to visit for regional operators. Obviously, metropolitan operators have more opportunities to follow the market novelties as all offices, factories, sales force and showrooms are there, whereas rural operators are in a less favorable situation.
Q  Well documented changes to legislation in Russia, and the halt on machine sales from September to the present, have worried international visitors to the show. Can EELEX 2005 be as successful as previous events with such turmoil in the industry?
SK: As we emphasize in our recent various messages to the public, the gaming industry is at a cross-roads, which can be described as a 'land of uncertainty in a time of in- between.' Alas, this is a fact we are facing, but this is really what should happen and has a clear logic. Let me explain. The market to date is chaotic and unregulated, thus bringing many unpleasant but logical things. All key domestic and international market leaders cannot be happy with masses of 'garage-made' fakes, non-approved hardware and games that cheat the player; criminal black gambling with no intention to pay tax etc. Subsequently, all this mess would lead to full market degradation and its legal closure. To prevent this, the top 10 Russian slot makers and operators have helped to propose new regulations that will end the irregularities and build a decent gaming market. Foreign companies should be happy with this situation, because as the new gaming code is imposed, it should stop the current helter-skelter we see at present in the market. With regard to the EELEX and the fears of visitors, the answer is simple: 100 percent of the space is sold, there are 200 exhibitors, plus 120 companies looking to re-book for EELEX 2006. So we can assure everyone that the market leaders are calm and very optimistic towards their and the industry's future in Russia.

Q  Is the recent press release, detailing a change of dates for the EELEX show in 2008 to a summer event, a realistic prospect? What are the reasons behind the announcement and why can't the event be moved sooner?

SK: We are facing the obvious fact that after! the 14 years of its existence, the EELEX show  has gone beyond its borders and now is seen as one of the key world gaming industry events. This role is a real challenge for us, but gives an exciting opportunity to compete  with the world's key industry events. We have created a stratergic three-year plan titled ‘NEW  EELEX’ and aim to make this show a world No.1 event. The proposals contain many activities to achieve this goal, including a change of dates. We do not think we should move the dates immediately. It is a long, process, since we need to see if the new dates will fit into the international show calendar.

Q While domestic visitors will not care that this year's dates are late December, what impact will this have on the international visitors to the show, who will be conscious of missing Christmas with their families?
SK: We fully understand the inconveniences caused by the late show dates, but we had to move the days because of the venue host, Exponent. We do what we can to ease the issue for our international guests, and made sure to announce the new dates in May. We’ll  also help to book tickets and help with anything else. By the way, the show dates are December 20-22 and to my knowledge the last working day in the Catholic counties is December 23, so we are fine.

Q  Have further details been finalized regarding Slot Revolution 2 to be held by Unicum in the summer 2006?  Do we know if it will definitely be a two-day event for example?
SK: We still are intending to host a big summer event, Slot Revolution at the same place and possibly at the same dates. Right now, EELEX is our top priority and more details will be available in January 2006, and I will be able to advise at that time. To date, I can only tell you that this will be a two-day show for sure.
Q  There continues to be speculation - concerning the sale of EELEX, despite categorical denials from Unicum. Can you put this issue to rest for our readers? What is the real situation?
SK: From time to time we are approached by big show organizing companies who express their strong interest in an acquisition of the EELEX event. We are considering different merger options, but to my knowledge at this point we are not willing to sell our beloved child and a good cash cow.

Q  Next year the G2E show moves to a mid- November slot. What impact do you see this having on the EELEX show as the major gaming exhibitions rub shoulders with each other on the calendar ?
SK: You know what impresses me most in our industry? I have not seen anywhere else the people and companies that are so dynamic, living and working at such a high pace. Dynamism is a symbol of our industry. With regard to this, I do not see any problems for companies to participate in both shows. For instance, Unicum has in September, October and November participated in three shows plus hosted a huge 15th anniversary celebration event. I think this is a normal situation.
Q  How can you continue to grow the EELEX exhibition beyond its already successful formula to become an even greater event in the future?
SK: I would like to convey to your readers that when we implement the 'NEW EELEX' three year development plan, this will be an absolutely different world class event. You may see our new redesigned eelex.net website this as one of the parts of the development plan.

Q  The EELEX ExpoCenter location is central and convenient, but the lack of space, shifting dates and the amenities it provides have continually presented challenges to visitors and exhibitors. Is there an alternative and is this being investigated?
SK: Unfortunately, there not many options for us available in Moscow, besides building our own exhibition centre, but that is a different story. Of course, we are investigating opportunities elsewhere and Exponent has started their reconstruction by building a new, 8th pavilion, to meet the growing demands made by show organisers.


Having already achieved success in Russia and Ukraine with its Adventures platform, Unicum adventures is set to launch a new high-end gaming platform, Sensation, at the EELEX show in December...
Q  When did you start development of the new Sensation platform and what where the goals you set out to achieve?
PM: I put the new platform on our wish-list when I came here in mid-2004 and reviewed the existing offering, so it has been an ongoing project since then. We spent a lot of time analyzing what was already in the market-place, plus looked at some new and upcoming platform designs, looked at what we felt our various markets needed over the next few years, then started to map out a plan. We actively started defining the technical spec in late 2004- early 2005, finalized the detail in about April this year, then finalized our development options in August. We signed off on the Production Spec in late September and had Pre- Production units running in our lab in early November. So, as you can see, we did not waste a lot of time once we had identified what was needed. We've been very pleased with the process, so far.
Q  Talking raw power, what are the statatics being thrown out your new creation?
PM: Actually, I'd rather not rest on 'raw power' benchmarks for a measure of this platform. Sure, we have some significant processor and graphics accelerator capabilities, but this platform is more about flexibility, reliability, security, scalability, etc. It's true that we have a range of processor options and graphics options on this platform that allow us to address both the lower end of the market and the higher end, but what's more important to us is that we can target this platform correctly to the needs of the various market segments and still deliver that performance at a price-point that is relevant and attractive to clients, as well as superior security and other features.

Q  In your opinion, what part does the platform play in the creation of a great game?
PM: The gaming platform is really only a support mechanism for the game. An important mechanism, no doubt, but if card game is not good and the player is not interested in what he or she sees and feels, the platform is of no benefit. We made sure, in the design spec of this new platform, that we could support our game plans for the next generation of games, but we also looked at our Roadmap for the next 3 years, 5 years and 8 years and tried to be sure we could meet the goals we have set. Since no-one can say for sure what will happen 3 or 5 or 8 years out, we just had to be sure we had flexibility, feature and performance that can meet many variants and many regulatory requirements. We think we've done that.
Q  Why does Unicum need this high-end platform when it's already so successful with it's low-cost Adventures platform?
PM: It's true that Adventures is successful, but we are finding strong interest in our games and extensions of our games in areas and markets where we previously have not been. In particular, there are niche markets that are not filled by any of our present offerings, either from our own product or from those of our strageic partners, We need to address those. There are also international markets that have interesting possibilities for us -we believe we I can meet those requirements.

Q Do you look to existing platforms as benchmarks and seek to emulate them, or surpass them?

PM: Without a doubt, we look at other platforms as benchmarks, but we really do not want to just be another 'me too' producer. We want to focus on what our market needs are and what we feel our customers want, not what 1 others producers are creating. While we intend to exceed what others are delivery, we will only do it in areas where we think it is relevant. We think that many of our competitors will be more than a little surprised by our new creation.

 Q What's specific about a gaming platform that differentiates it being just a high-end PC with a is graphics card and monitor?

PM: We have some of the most sophisticated security features ever placed into a gaming machine (though, obviously, I cannot say what they are), we can meet or exceed all presently applicable standards (not only GLI, but also CE, FCC, RoHS and others) and we can scale this platform up or down, depending on the market segment we need to address. We've designed in a guaranteed minimum three year active life of this platform with supply plans for five years, but we've also included both upward and downward variants for a Roadmap to take us out 5 to 8 years. You can't do this if all you are using is a high-end PC with a graphic card and a monitor -some high-end PC's change motherboard design and graphic offerings every 3-6 months, some more often. Some disappear completely after just 6 months, causing severe logistic/production problems.
Q  What kind of testing have you Carried out to ensure the platform is bullet-proof?
PM: I’m not prepared to go into details of testing, since that would reveal too much about the technical specs, but I can say that the end- product meets or exceeds our original design goals and has been tested to do exactly that. Our original design goals included such things as the ability to operate in extremely cold and extremely hot climates (such as those found across Russia and the CIS), to meet and exceed present and pending international and local standards even when they are not specifically gaming-industry related, such as RoHS, FCC and CE, and to improve serviceability by eliminating active components on the cabinet backplane, etc. We think we’ve made a good set of design decisions.
Q  Unicum is one of the few companies to have achieved ISO certification and implemented the SAS protocol. How important are these standards to a Russian gaming company?

PM: We think these standards are extremely important for any company to compete, not just Russian companies. But, for Russian companies, it is doubly important to be able to show that our products are world-class and top quality. In the past, Russian products might have been thought of as second-rate, or as copies of other products. We want to show that we can now produce innovative world-class, competitive, reliable products in a modem and efficient assembly plant using the latest design and manufacturing technology.
Q  How crucial is the external package, the cabinet, the sound system, the quality of the graphics, etc. to the success of the high-end platform? And how does this equate to pricing the end product competitively?
PM: These are all important parts of the puzzle, but there is no exact ‘formula ’ for what makes a successful machine or game. There is (what I call) a ‘recipe’. That is, there is no exact ‘science’ that says a particular 'formula ' will work, but just like baking a cake, there is a 'recipe' that can be varied a little by different creators and the end-result can often be quite different. So, all of the things you mention are important and without them, you can only predict that you are not likely to have a successful platform, but the exact combination of the parts varies. Of course, pricing the end product competitively starts back in the original design spec phase, to make sure you are going to build something that is relevant for the market segment you are addressing. With this platform, we can vary the feature set and this moves the cost up or down, depending on the performance/cost crossover point.
Q You're technically going head-to-head with some of the most high profile, only just released, high-end gaming platforms in the market right now -how does your platform stack up against the rest?
PM: We plan to start out with one variant of this platform and target the market we address. Our cost-to-produce this platform is extremely competitive and we are targeting markets not presently addressed by the high-end units. When we have proved to the market that we have achieved our goals, we will vary the feature set to address other parts of the market spectrum, as we see fit and as the various markets become attractive to us.
Q  How quickly will the new platform be GU approved for international markets, and is this a sizeable goal for Unicum to expand its international market share?
PM: As any gaming industry developer can tell you, getting a certification of any kind, including GLI, is not something you can put a time-stamp to beforehand. However, we designed this system for GLI-11, CE, RoHS, FCC, and other relevant standards and compliance testing is under way even now. We are aiming for compliance certificates before any volume production is begun, even for the local markets where these are not yet required.
Q  Is this going to be a Russian machine for Russian players needs? Or will the new platform be an international gaming device, suitable for any location around the world? If so, what makes it applicable for any market?
PM: It will fit to the Russian market extremely well, but it is truly an international platform with a wide range of suitable markets. For that type of flexibility, we had to understand the requirements of a lot of places and a lot of regulatory documents, but we think we've addressed the needs of the markets that we plan to enter. Only time will tell if we are correct.
Q  What are your expectations for the platform, what do you hope to achieve?
PM: We want to have a good, solid and reliable platform that addresses our specific target market needs at a price-point that is better than any other competitor, but with a feature set that delivers true value-for-money. With this design and its feature set, and that modem and sophisticated production facilities that Unicum has, we believe we can deliver on these goals.

Q  Unicum is designing its own high-end gaming platform for launch at EELEX. How does this fit into the distribution ethic of a company that is now competing like-for-like with each of the companies Unicum represents in Russia ?
YL : We have already mentioned it before in private conversations and public interviews
that Unicum does not develop or release a line of products without a good reason. Behind every Unicum's slot there is a strong marketing stratagie, thought-out positioning and a non- interference approach. Every product is different and that's why a launch of a new machine does not influence the sales of other slots. In the gaming industry performance of a slot machine is more crucial than its price. Therefore, in the same price segment some slots may be more popular than other and the success of the first ones affects the sales of the second ones. Since nobody knows a perfect slot math formula, we think that wise brand diversification is an effective solution that provides Unicum with a considerable market share.

Q  How important is the new platform to the manufacturing strategy of Unicum?
YL: It is greatly important as well as our previous machine, because in December Unicum launches a whole product line of its own slots. We have developed a product targeting the low segment with a very affordable price, have updated our Adventures platform with an LCD and a built-in hopper and will unveil Unicum Sensation, which we will sell in domestic and international markets.
Q Unicum has always been seen as a partner to international companies in the Russian market. Is this view likely to change as you compete both domestically and ultimately in the international markets too?
YL: Correct, Unicum will change, turning from a Russian distributor of big Western brands into an international company that sells its own gaming products abroad and in the CIs markets. Our business relationship with Unicum's partners has also changed. We are no longer a company that buys machines from manufacturers and sells them. During all this time Unicum has been successfully selling and overselling foreign products in Russia. I do not think it is likely to change unless Unicum fails to carry out its obligations. Today, Unicum and its partners are interdependent and our business cooperation is a complex series of services we provide to each other.

Q Unicum shed staff over the summer and closed its live gaming division, is this a reflection of the changing market in Russia or a change within Unicum itself?

YL: It is not. As a team of business professionals we prefer to do things [that] we do better. We are doing a good job by producing, selling and supporting slot machines. It is our expertise and our core business. And a shut-down of our live gaming division is nothing else but a commercial and financial decision that we made after researching our share in and market prospective of this segment. We see live gaming's future in hi-tech development. Since we have nothing to offer in this field, we preferred not to invest into this market.
Q  Many companies have already announced the number of machines they are to sell into Russia over the next three years. Do you think such projections, which are based on previous years' figures, remain safe predictions?
Those companies who make such announcements are primarily public companies who follow, the rules of the 'go public' game. The Russian gaming market is a hot topic, which fits well into a business news section. That is why company announcements are money making activities. They are also a fruitful source for banks and financial services companies to research investments, markets and etc. We are a private company [that does not depend on securities price] and earn money by selling gaming equipment and do not play “public ” games.
Q  Unicum has been a dominant force in the Russian gaming industry for the past decade. How does the company maintain that position in the future and what changes are still to come?
YL: To keep a dominant position one should be a step ahead of competitors, offering new products, better customer service and new formats of sales activities. We are trying to mind all these 'commandments' and they help us to keep and improve our status.
Q  Can you maintain your relationships with your distribution partners with such massive legislation changes and such large-scale changes to your own manufacturing and distribution processes?
YL: No massive legislation changes have happened yet. Today we are working as we have been working before, only there is no institution that provides licences to operations and licenses sellers. These problems are temporary and we are looking forward to see Russian gaming industry maturing and growing. We will comment on a new gaming law when the Parliament releases one. Unicum's investment into manufacturing is the company's investment into its future, regardless of a gaming law.

Q In the past there has been Unicum and then the rest of the Russian gaming  industry in the opposing comer. The recent summer exhibitions have underlined this divide. Is this still the case, or is the external view of the rivalry mis-represented?
YL: Every company follows its own path and Unicum has always been positioning itself as an industry leading company. At the same time we tried to correspond to international industry standards, products quality and the peculiarities of Russian gaming business. At the same time too, favorable legislative conditions and lack of regulation made the among market attractive for 'random' people, who entered the market with workshop-made slots of questionable quality. Such companies you might have seen at the World of Games tradeshow, the companies you won't see at EELEX. Simply because EELEX is not only a business project for Unicum, but also a face of the industry and a gathering of responsible market players. That was a reason for Unicum not to exhibit at World of Games.
Q Having seen the impressive Unicum manufacturing facility in St. Petersburg, the company's relationship with its distribution partners appears to be changing. Are we about to see the complete assembling of gaming machines in Russia , with major gaming labels supplying game software and little else?
YL: Even before we launched a new manufacturing line, we had been a complete assembling company. Today, we extended our manufacturing by starting new deeper production processes, which provide us with better economics, flexibility, lead time and customer service.

Q  You have ISO certification and comply with the SAS protocol, does this mean that in 2006 we will see a greater international presence for Unicum?
YL: SAS protocol is an obligatory requirement for games and platforms which aim towards international markets. ISO certification is also a step towards an entry ticket into the world's gaming community. We are working hard, country by country, to make our products compatible with local requirements and to receive necessary approvals and certificates. We have already applied for GLI 11 to allow us to work abroad.
Q  How much damage have the legislative changes and the halt in domestic games sales from September to the present caused to Unicum?
YL: Unicum and its clients have changed its business processes adopting to the current situation. We have successfully switched from sales to rent, which prevented us from revenues drop-down.
Q How much of a threat to Unicum's position in the Russian market are the local domestic machine suppliers? What differentiates Unicum from these companies and what will ultimately keep you ahead in the future?
YL: Well, our competitors are different and we learn from some of them. The most dangerous competitor is the one you do not know. We think that we have enough ideas, professionalism and technological advantages to compete with others. The dynamic Russian market makes us keep up the pace and does not give a chance to stop and relax. Competition moves the market forward and Unicum moves together with it.

Q  Having only relatively recently taken over the reins as CEO of Unicum, what are the goals you've set yourself to achieve in 2006?

YL: One year in Russia is equal to three years elsewhere. So our strategic goal may sound unrealistic to some people, but how can we reach great results without setting great goals? One big task is to make Unicum a more sales-oriented company. First of all, we sell gaming products working close with our clients. And only then, we are a development and manufacturing company. I want Unicum to continue to be a solid customer- oriented team of professionals. This is the main target of 2006 and everything else is financial figures


Q  On the eve of the EELEX show, will the Russian gaming industry be back to 100 per cent in time for the exhibition, or will legislative difficulties still be hanging in the December air?

BB: By EELEX time we are more likely to see a newly appointed licensing institution and first licensing requirements projects. At best we will see the federal law going through its first reading in the State Duma (Russian Parliament). I believe a new licensing system will be launched in the second half of 2007.
Q  What kind of changes are we going to see in the Russian gaming industry during 2006?  What adjustments are we going to see taking place and who do you think will be the winners and the losers?
BB: The business will be moving towards enlargement. We will see ‘stolbiki’ (what also may be known 'pillars') disappearing from cities streets, grocery stores and non-gaming sites. We will observe new requirements for gaming sites, those will include minimum size of a gaming site, minimum number of slot machines per site. These processes will start in 2006 and will lead to the gaming industry consolidation.
Q Are international investors still wise to finance foreign slot manufacturers who see Russia as a never-ending source of sales?  Should we be revising our views of the Russian gaming market as legislation shrinks the market and domestic suppliers take more the of the market for themselves?
 BB: Changes in the market development will lead to operator's interest in higher-class machines, which are primarily manufactured by foreign producers. But, please, do not underestimate Russians, they learn very fast.
Q There's been a great deal of focus on the issue of copyright in Russia . Is there answer to the problem that will provide a lasting solution, or is this an uncontrollable issue?
BB: The copyright issues are gradually improving in Russia. Unicum as a developer, manufacturer and a partner of international producers, is a supporter of a strict regulations and we hope this problem will be solved very soon. We stand for governmental control : every single slot machine should be registered and its copyright authenticity should be checked.

Q  How much will the new certification body favour domestic manufacturers over international slot manufacturers looking to sell into the market? There are fears that Russia will become a hostile place for foreign games manufacturers, with control over the market solely in the hands of the domestic industry. Is this the way the Russian market is heading?

BB: The new certification body will drive no difference between local and foreign manufacturers. And I do not fear that western or domestic companies will take control over the industry, because Russian companies are stronger [than their international competitors] in their segment and foreign manufacturers are stronger in their segment. You might ask 'What about diffusion?' but it is not happen tomorrow, that's why now we cannot talk about one's control. We will observe a healthy competition between businesses regardless of their origins.
Q There has been a decade of ever expanding growth with the domestic Russian market, but as the regions continue to grow in importance, at what stage will international markets become the focus of Russian games developers? How important to you is the success of Unicum in external markets?

BB: Today, Russian games cannot compete with ;: I. foreign products, (the whole gaming industry here is 15 years old) but Russian slot machines can compete pricewise and costwise with their:' international ‘colleagues. ’ Our 'external' success is very important to us, Unicum has been working hard to approach international markets with its products and now we are ready to reveal them.
Q  You recently attended the Gaming Business in Russia meeting in Moscow that brought together each manufacturer and distributor at the Chamber of Commerce and Industry to discuss a voluntary industrial standard. Do you think the government will accept this? How strong is the resolve of the participants to make such a code work?
BB: The Russian government has not provided any certification programme yet, that is why we hope that they will consider the standard offered by the Russian gaming industry.
Q  Does such collaboration between all members of the Russian gaming community mean that we might see a single trade association backed by all parties and supporting singular summer and winter trade events in Moscow ?
BB: Today I see only one independent institution; it is The Chamber of Commerce and Industry, which is not associated with specific names and parties and which may become a consolidation unit.

Q  What is going to be the impact on the operators, both large and small, of the legislation changes in Russia

BB: The market is changing now and soon the gaming world will see new civilized Russian gaming community. Those who are willing to take a side of conscientious market players, will succeed.