So when did these machines come about?
Welcome to: Skill Crane History 101

...dinosaurs roamed the Earth, original concept of the 'claw machine' was created. In the 1890s to be precise. It was a hand-cranked candy dispenser and only cost a penny to operate. In 1920s, it was reinvented and patented as an actual game, called "Eerie Digger." It gained popularity over the the next few decades, especially as gambling was encouraged to stimulate the economy during Depression and through WWII. Electrical versions of the digger cranes surfaced and often had paper currency and bundled coins as prizes, among other things, to entice players.
In 1951, Federal laws classified cranes as gambling devices and preventing them from being transported across state lines, effectively putting an end to the crane business. Two years later, these laws were modified and allowed diggers to be operated at carnivals, as long as they met specific qualifications. They had to be strictly mechanical and could not contain prizes higher than $1 in value. Coin slots were not allowed, so the machine had to be turned on by the operator. Cost per play was limited to 10 cents. Success of crane machines continued and further softened laws in the 70's brought back coin slots and the cost of play on some cranes was raised 25 cents.
Advanced technology allowed more sophisticated cranes to enter the US market in the late 70's and early 80's from Europe and Asia. Some earlier models, such as the Holly Crane and the Lucky Crane, had wooden cabinets and were arranged horizontally, with prizes on the floor and players had to look through the large glass panel on top to navigate the claw. Claw strength on the early "next generation" cranes was not adjustable, so to add challenge to the game, the claw was limited by a single forward and a single sideways motion before the claw would drop to retrieve the prize. Throughout the 80's, many new vertical models appeared and featured adjustable claw strength, paper currency validators, and joysticks for full range of motion, limited only by an onboard timer.
In 1995, "The Claw" made its appearance in Disney's "Toy Story", and a year later, one of the largest suppliers of coin operated machines, American Coin Merchandising, Inc., signed a contract with a number of large retailers, including Walmart, to begin installing and operating a series of "Sugarloaf" branded skill cranes in their stores. Some Walmart stores recieved as many as 10-12 machines per store, set up by the store entrances / exits, as well as in game rooms. Since then, skill cranes have been popping up in many restaurants, grocery stores, and many other commercial locations. New cranes came equipped with advanced features, such as payout ratios, multi-stage claw tension adjustments, and fail limits (to stop operation when too many prizes have been dispensed within a short amount of time). Older models, retired from service, began making their way to Ebay and into game rooms and basements of claw machine addicts.
Skill cranes in many arcades and stand-alone machines in use today have been upgraded with latest models, featuring attractive lighting, music, and special play features (such as "play until you win"), while some locations, especially on Boardwalks, are still hanging onto the older cranes, even the horizontal "Lucky Crane" models from the 70's. Some of these machines do not have adjustable claws, so odds of winning are generally determined by the items and their placement within the machine. A very popular Japanese crane, Sega UFO Catcher, has also entered the US market in recent years. While being more challenging, having only 2 prongs in its claw, it does move very slowly and with a good grab, items generally don't fall out prior to reaching the prize shute.
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