Stinger Report - 12/10/2020

TSR Newsletter | October 12, 2020

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The Global Digital Out-Of-Home Entertainment (DOE) Sector covered in The Stinger Report .

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Kevin Williams

Publisher, The Stinger Report (TSR)

Reinvesting in the Entertainment Landscape

Part 7 | # 1041

Report Skinny

Redefining the new phase of immersive entertainment coverage in The Stinger Report; and in this seventh (two-part) report, we look at the impact and re-emergence of the VR free-roaming (Arena-Scale) business, first looking at the upheavals and new developments.

Main Report

It would be all too easy to write off the VR amusement sector, with some even pontificating that location-based VR has probably taken a terminal hit from COVID. At the same time, we have reported on the reopening of venues in Asia and Europe and even America, and are seeing the return of the audience, although in tentative numbers. The same condition impacts the gym and fitness, cinema, hotel, restaurant, and bar and even theme park industries, to name a handful. But like these other sectors, the COVID situation has been met and the industries are re-emerging, bloodied but defiant, charting a brand new course.

One aspect of the successful growth of LBE VR, before the ravishes of the global health crisis closed all forms of social interaction and entertainment, was the growth in interest of “Arena-Scale”, also dubbed “Free-Roaming” or, in Asia, “Walking Attractions”. That is, with players donning powerful backpack PCs and taking part in multi-player immersive experiences. The compelling nature of these experiences was such that major venture capitalists had vied to invest considerable sums in the early developers of this genera of immersive entertainment.

But even before the global pandemic suspended business, cracks in the business proposition of some Arena-Scale operations had started to manifest. Exiting lockdown, the issues that impacted some business plans have been magnified, and we start to see the damage inflicted by a loss of revenue. While some of these immersive operations are facing more permanent closures, others are seeing renewed interest in their offerings, with a new arms race to dominate what is still seen as a lucrative opportunity.

- The Landscape Ahead

Seen as one of the first exponents of the concept of a immersive, free-roaming experience – The VOID tantalized the investment and operations community with a dream of transporting groups of players into a magical virtual environment (what the company labelled “Hyper-Reality”), powered by their claimed-to-be unique “redirected walking” and physical effects and props. This is seen as one of the prominent representations of the growth in interest in free-roaming immersive experiences – the company had high profile investment from the likes of Qualcomm Ventures and Fidelity, and most famous from Disney, having received investment and support from the operation’s Disney's Accelerator, including business mentorship that saw development resource through ILMxLabs.

The VOID has been heavily dependent on the development resources of ILMxLab for most of their content, with only the Ghostbusters, and horror experience ‘Nicodemus’ developed internally (in partnership with Ninja Theory) and receiving mixed revenues. It was, however, the draw of the big IP and crafted VR experiences based on blockbuster movies that drew the attention. Much of their hoped-for original design hardware would have to be scaled back, to revert to off the shelf hardware, such as their tracking system from OptiTrack, or their headset in reality being made with components from a Oculus CV1 unit, eventually under license, after their own design was abandoned. The company, at its height, was operating some 17 facilities, offering a selection of the Walt Disney movie IP VR experiences (on average, adults $29.95). But the sites opened seemed to offer conflicting information on their actual success, and cracks started to appear.

The company had seen a churn in management, with the revolving door of top executives including CEOs. Also, behind the scenes the operation had been haemorrhaging finances, and plans for a permanent London site were abandoned near completion, with a total restructuring of the operation. Deals were signed with the shopping sector to place a new model of the attraction, that was hoped to address the difficulties of audience retention. This also saw the signing of the first Asian placement for The VOID, in an agreement with Resorts World Genting, in Malaysia (charging RM85 ($20) per-player).

Things, however, have not gone as planned for The VOID operation, with numerous major executive departures and a claimed venue expansion abandoned. Sources suggested that investments were being stretched and revenues were not proving as expected. At this time in July 2019, it was reported that James Murdoch’s holding company (Lupa Systems) invested some $20million into The VOID – for this there were leaks that the board would be restructured, and this investment would be used to attract additional funding. But at this time, with the full impact of the global health crisis hitting from March 2020, and all 17 VOID facilities have been temporarily shuttered. But then things started to take a new turn – sources revealed information that one, and then the second, VOID facilities on Walt Disney property had posted notices announcing their permanent closure, and that all assets associated with Walt Disney were to be removed.

An incredible silence has enveloped an operation that was once so prolific at promotion – while the US venues remained closed, with no information at this time on what the situation of their reopening will be, the Malaysia (Genting) venues have reopened for business since August. The VOID Malaysia site had removed all its Disney themed experiences, only offering ‘Nicodemus’ and ‘Ghostbusters: Dimension’. And that was all the information that could be garnered at this time. No reply to questions had been received from the team at VOID, or from Walt Disney. Many will try and paint this as a bigger problem with the free-roaming VR sector; there seems to be a pattern emerging from the initial operators that expensive IP and a problematic business model have been accentuated by the financial impact of the COVID lockdown on business, as we can see reflected throughout this report.

There is another recent recipient of investment and mentorship from the Disney Accelerator fund that is based in the Arena-Scale VR sector. Japanese start-up, Tyffon, has opened its own Tyffonium – Magical-Reality Theater – which is a backpack VR experience center. While less well known than the other Disney Accelerator investment in VR attractions, the operation had developed, internally, three attractions which were operated in the two Japanese venues. It is much more aimed to offer a theatrical, sensory experience, looking at young couples as a key demographic, offering three game experiences (‘Corridor’, ‘Fluctus’, and ‘Tarot VR’) that support up-to-four backpack VR players for 30-minute durations, charging a walk-up price for adults of ¥2,800 ($26). In 2019 the operation would go on to raise in $7.8 million in its Series A round of funding, added to the previous investment this saw the company valued at $12 million by the end of that year. This includes siting investment from SEGA SAMMY Holdings, Tokyo Broadcasting Systems (TBS) and Mizuho, alongside the Disney involvement. With this investment, the operation had received publicity towards a plan to open in the US as, following behind its first two Japanese venues, a third was scheduled for Santa Monica. However, by March of this year, the Japanese operation had entered lockdown, with plans for the US operation still on the drawing board, and 35 employees furloughed; although the facilities did reopen by October.

Another of the early pioneers wanting to carve out an empire for themselves was Dreamscape Immersive. Described as a “Virtual Reality Experience Like No Other”, the company took on a movie theater style of approach to offering their unique platform – having amassed an impressive cadre of investment from powerhouses from the movie industry. Investors also included AMC and IMAX, with the cinema legends looking at the concept of LBE VR as a means to achieve the industry need for a CEC (Cinema Entertainment Center) hybrid, to address flagging movie ticket revenue. It offers an impressive lobby, presenting the VR experiences on offer like movies, with guests in groups of six entering donning rooms, putting on their PC backpacks and wearing foot and hand tracking devices based on the Vicon system. Then, once inside the VR room, would put on their headset (originally the Oculus CV1, but later the company would migrate over to the HP Reverb platform), with the environment offering physical effects within the space that mirrored to the high-quality virtual experience rendered for the players. The selection of home-grown and IP experiences (‘Alien Zoo’, ‘The Blu’, ‘Curse of the Lost Pearl’, and ‘Dreamworks Dragons Flight Academy’) offers 20-minutes’ immersion at a $20 ticket price. The high production values of the VR experiences, created for the Dreamscape venture, were initially to be able to create their own unique IP, calling on its Hollywood studio talent including 21st Century Fox, WarnerMedia, Viacom, Steven Spielberg and Hans Zimmer.

But with the licensing collaboration with Dreamworks Animation (and Universal Games), the operation ventured into new waters – not only with the creation of a new eight-player experience, different to the general experiences to date. The facility operation had opened first in Los Angeles, as part of the Westfield Century City shopping mall in the shadow of an AMC theater, then in Dallas and Columbus, and then venturing to Dubai. This UAE-based location reopened some three months ago and has seen strong returning audiences – proving the health of LBE VR post COVID lockdown. October will see the US chain of stores also reopening. But following the upheaval in business following the health crisis, the corporation revealed the acceleration of plans for a brand new initiative.

Dreamscape Immersive partnered with Arizona State University (ASU) to launch ‘Dreamscape Learn’. The concept is for “Immersive Education” avatar-driven VR experiences being offered for both campus-based and online courses; planning to start with introductory biology and eventually expanding throughout the sciences and beyond (vetted by top professors and learning scientists). The plan will utilize the immersive VR story-led experience of the VR company, married to the educational platform for students and explorers to create a unique learning environment (immense VR “laboratory”), which will see virtual pods created to traverse students around virtual environments, informing them on the various sciences, and allowing them to interact with the environments. It builds on much of what was defined by the company’s previous ‘Alien Zoo’ experience, and this is the latest VR company to investigate brand new verticals, utilizing their VR technology, into the virtual and video conference arena.

Numerous developers of Arena-Scale platforms had already started the process of redressing their business model to embrace new verticals. One of the front-runners in the development of IP-based Arena-Scale VR experiences, was the new operation SPACES. The company retained a wealth of experience, having been spun out of DreamWorks Animation back in 2016. The corporation also saw investment from Tencent, and other leading players had launched their first Arena-Scale platform with ‘Terminator Salvation: Fight for the Future’, opening their first permanent location in San Jose and then a temporary installation in partnership with Cinemark (adults $30). Also, SPACES had signed agreements with SEGA JOYPOLIS to install their VR experience at the Japanese sites (charging ¥2,500 ($24)). The operation was in the process of redefining their offering following feedback as the global crisis hit, but innovation continued, and pivoted during lockdown to create a groundbreaking VR-based video conferencing product (a boon to the current remote working and learning landscape). The interest in this product was such that, in August, SPACES announced that they would be "heading in a new direction", thanking all those who had supported their LBE work – later to reveal that the company had been acquired by tech-giant Apple, for an undisclosed sum.

The ravages of the enforced COVID lockdown on businesses have marked many established, as well as start-up, operations. The use of bankruptcy protection to protect against this, and allow restructuring to address debts and business, has become sadly common. Joining the likes of Chuck E. Cheese in seeking Chapter 11 protection was Sandbox VR. The company had been a prominent name in the LBE VR (Arena-Scale) business, coming from a meteoric rise supported by the Alibaba Entrepreneurs Fund, and raising some $68m and $11m rounds of investment (finally achieving a total estimated at some $82m). With this investment, the operation focused on both improving the level of experience on offer, signing a licensing agreement to use major IP, such as releasing an experience based on ‘Star Trek: Discovery’; and a business plan to take the US market by storm targeting the key population points with their own Sandbox VR venues. Following on from their first China-based venues, the investment focused on the first Western examples seen in San Francisco and Los Angeles. In total, some eight venues, split between Asian sites and their first few US locations, offered four-player backpack PC VR, using Oculus CV1 headsets, and charging on average $38 per player.

But following lockdown, Sandbox VR (Glostation USA Inc.) filed for Chapter 11 protection in August, and this was on top of the previous announcement of the loss of their original CEO and 80-percent of their workforce. One of the co-founders of the operation took the vacated position and started the process of restructuring under the bankruptcy protection of the operation. It was revealed that the company had started to reopen its venues, promoting new safety measures for guests and staff post lockdown. The restructured management is evaluating a plan of survival with the VR center (single attraction) model, that others at the time were placing so much faith in. For many observers, this placed a vulnerable dependence on the quality of the content to generate the sufficient audience churn, and why in some cases operations rushed to wrapping their centers in recognized Intellectual Property.

As originally broken by The Stinger Report, the BANDAI NAMCO VR ZONE Project-i-Can operation has been in serious transition in its home territory. The closure of the flagship VR ZONE location in Shinjuku was followed by the surprise news that the other VR ZONE flagship, the MAZARIA multi-VR attraction venue, also closed its doors after just nearly 12-months of operation. Details on the closure we left ambiguous, with rumors of lower than expected ticket sales that were compounded by the five-month lockdown of the venue because of the global health crisis. It is important to understand that, as part of the VR ZONE Project-i-Can experiment by the amusement and video game publisher, several Arena-Scale installations were fielded.

While not getting the same publicity as other Arena-Scale installations in the West, one of the first VR ZONE free-roaming offerings, developed by BANDAI NAMCO and being shuttered at MAZARIA, is ‘Dragon Quest VR’. Developed for the original VR ZONE brand back in 2018, the game is based on the popular RPG property, with four-player PC backpack (HTC VIVE headset) – one of the few Arena-Scale installations that uses wholly unique player interfaces representing the shields, and swords of the game. The 20-minute experience charged at an extra ¥3,300 ($31), on top of the ¥4,500 ($42) entry ticket. This was not the only Arena-Scale VR attraction BANDAI NAMCO developed, launching its Ghost In the Shell property (‘Ghost In The Shell: Arise Stealth Hounds’) back in 2017. Going on from the closure of the MAZARIA facility, the corporation is reappraising its approach to VR and immersive entertainment, with new plans to be revealed soon that could see new free-roaming properties.

Other Japanese amusement factories that operate their own venues in the territory have been attempting to jump onto the Arena-Scale bandwagon. CAPCOM, with its PLAZA CAPCOM chain of sites, has added the CAPCOM VR-X areas to the landscape. With that, the company has created a unique Arena-Scale VR experience based on corporation-owned IP. ‘Biohazard: Valiant Raid’ (better known in the West as Resident Evil), launched last year, with the four-player experiences negating the use of cumbersome backpack PCs for a restricted player space, using tethered HTC VIVE headsets and customized controllers, for ¥2,200 ($20).

One of the largest of the Japanese amusement and gaming corporations is SEGA, which has invested heavily into VR attractions for its facility business. Under the SEGA JOYPOLIS VR chain, operated through CA SEGA JOYPOLIS (the co-Chinese and Japanese partnership), the company has deployed several third-party VR attractions. At this time, SEGA’s amusement GM division has not created a unique VR platform of its own, favouring in representing other developers’ products as the company evaluates the opportunities provided by this technology. The Asian market has seen the adoption of the term “Walking Attraction” when describing Arena-Scale VR experiences, with the PC backpack offering a freedom over tethered enclosures. Such operated systems include ‘Mortal Blitz for Walking Attraction’ (15-minutes’ play for ¥1,500 ($14)), developed by SKONEC Entertainment. SEGA had also fielded the system from SPACES (as mentioned above), charging ¥2,500 ($24) and, later, the Zero Latency VR free-roam experience in several JOYPOLIS sites (charging ¥2,000 ($19)).

Zero Latency VR is one of the earliest to see the opportunity and unique compelling nature of free-roam VR entertainment. The company deployed its first facility in 2014, and then went on to establish and defined its unique, up-to-eight players, immersive arena experiences, amassing a considerable library of seven popular games. Emerging from the global lockdown and the company has continued to plough a course in this sector. The company has defined the scope of the playing arena (ranging from 200 to 400 square meter) experiences, customised its own backpack harnesses and haptic game controllers, along with the need for appropriate briefing, loading and unloading of players and staff training, all packaged in a franchisee offering which over-40 operations have added to their entertainment venues. The company also announced a major partnership to bring AAA content to its platform – Ubisoft, creator, publisher and distributor of interactive entertainment and services, revealed that they would be bringing their million selling consumer game license to VR with ‘Far Cry VR: Dive into Insanity’.

This LBE VR experience for up-to-eight players, takes players back to Rook Islands, the setting of ‘Far Cry 3’, for intense action. Working in partnership to develop and implement their multi-player combative experience with Zero Latency VR, the game will be released across their 45 venues in 22 countries during 2021. This experience will be deployed on the HP backpacks, and the first to use the new HP Reverb G2 headsets (after previously using the OSVR system). One of those sites that is seeing strong business post-pandemic from their VR operations that deploy Zero Latency VR arenas, is MeetSpaceVR – one of the first London VR venues visited when they reopened (see our coverage here). The site now reports that August proved to be one of their most profitable months this year – at the newly-opened London location in Wembley. The venue is charging some £25.95 ($38) for backpack VR experiences from Zero Latency VR.

With the penetration achieved by Zero Latency VR, numerous Asian start-ups hoped to emulate the concept and try their hand. Over the last few years we have seen a plethora of backpack PC VR Arena-Scale shooters deployed in the numerous Chinese VR Parks – from companies such as Air Group (‘Fatal Firepower’), DJM (‘EXA Verxus’), KT Corp. (‘VRIGHT’), Hypercell, and VR Base. Investment into creating a dedicated LBE VR brand was also seen from attempts like SoREAL from Sky Limit Entertainment Group back in 2016.

The importance of new developments in the market will be covered in the coming UNIS Showcase on the 21st of October. The event will be touching on several new technologies that offers new opportunities to the amusement operators. Stinger Report owner’s KWP will be presenting a special session covering the emergence of new platforms in the “Exergaming” scene, offering a new business offering and driving young players to compete as well as get fit. Click here for more information on attending this great virtual event.

This concludes the first part of this extensive coverage; we will now look at the rest of the sector and the new entrants bouncing back into business after lockdown in the following coverage.