Stinger Report - 23/11/2020

TSR Newsletter | November 23, 2020

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-- The Stinger Report: Service Message --

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

Wishing all our subscribers, famlies, loved ones, (and those serving) stay safe and well.

Kevin Williams

Publisher, The Stinger Report (TSR)

The Roadmap Ahead for Entertainment

Part 3 | # 1047

Report Skinny

The only way to “Stay-Up-To-Date” regarding the new phases of immersive entertainment, is with The Stinger Report. In this report The New Facility Perspective is revealed, as major chains supply operation data under COVID-19. A New Business Vertical for facility business is also revealed, as private hire gains momentum. And finally, Cinema Struck a Mortal Blow with information on the continued erosion from streaming.

Main Report

What incredible times, and the scope of how they are impacting the Out-of-Home Entertainment industry continues. This latest report charts some major developments that will totally alter the landscape of the international sector in the coming weeks, but rather recent closures point to new investment and growth in the face of adversity.

- The New Facility Perspective

As covered in our previous report, the Laser Quest chain of facilities in North America had announced, in September, its closure of some 100 sites. However, while the actual owners were in a position to no longer continue, the actual viability of many of the properties was still strong, and with this it was announced in October that a number of these sites were being taken over and reopened. Reports surfaced of the first transferal of ownership and reopening of such sites; in Canada, LaserMaxx was in the process of reopened a previous Laser Quest site under their operation (aiming for November). This is the first of a number of such transferals of ownership, and is marking a trend across the entertainment industry towards mergers, acquisitions and restructuring, therefore making profitable and operational what had previously suffered from poor direction, amplified by the financial conditions of the current global crisis.

The landmark ‘Playdium’ LBE site, owned by Cineplex, in Ontario, Canada, was revealed to be the latest LBE facility to be victim of the current business conditions. Cineplex management revealed they would be declining to renew the lease on the site of the 24-year-old, 40,000-sq.-ft. Ontario facility. There was no news if the second site (Playdium Brampton) would be impacted by this decision. Cineplex is feeling they have more modern and relevant to LBE facility plans, with the neighbouring ‘The REC ROOM’ site in the proximity. The Playdium concept is a landmark operation in the emergence of Amusement Theme Park (ATP) business in North America – the site was previously partnered with SEGA Amusement back in the 1990s, and it became a well-known fact that the ‘SEGA GameWorks’ team shamelessly borrowed heavily for their ideas and operational procedures for their abortive facility business, from information based on countless visits to the Playdium location (at that point called ‘SEGA City Playdium’). The news of this venerable site’s closure mirrors what we have reported in Japan, with site owners clearing deadwood from their inventory; especially for Cineplex, who with their current situation with their cinema business, look to diversity in their LBE business for new investment (rolling out some eight REC ROOM sites).

Gaining an international perspective, a snapshot of the re-emergence of the Chinese entertainment industry was supplied by the Ministry of Culture and Tourism of China in a recent press conference, it was revealed that, as of mid-September, 790 theaters, or 36.4-percent of theaters nationwide, resumed activities. 47,600 singing and dancing entertainment facilities, 93.2-percent of the total, have reopened. Amusement facilities such as arcades are also reopening at 4,900 locations, which is 31.7-percent of the total (information supplied by AFPBB News). Meanwhile, information on the returning amusement venue business from a North American perspective was revealed in part from Dave & Buster’s – the traded operation confirmed that they had reopened 98 of their 136 venues (this included the opening of a brand new site). With this operation recommencing business, they moved from the decline of business to 87-percent (after the lockdown of operations) and now are seeing, with the reopening, D&B store sales moving to a rise of 65-percent by September. The corporation is thanking its returning loyal guests, and they remain optimistic about the future.

An excellent example of the ongoing consolidation in the market was seen in the facility business, with the news that Callaway Golf has moved to secure the remaining equity towards taking full control of the Topgolf Entertainment Group – equity valued at some $2b. The golf club manufacturer had started to invest in Topgolf as far back as 2006, and this development is now taking a majority position in the food and fun style entertainment group. Topgolf is well known for its interactive shooting range experience, with over 58 venues internationally. The company has been broadening its portfolio, with licensed product (‘Toptracer’), eSports, new concepts such as the new “small-footprint” shooting range, and the new ‘Topgolf Swing Suite’ multi-sports indoor simulator concept. Operations had started to be rolled out to some eight sites before the COVID situation. According to news sites, Topgolf has seen sales at its opened facilities return to 80-percent of 2019 same-site operating sales. And, with this new investment, the operation will continue to look at the planning for another 33 new venues in the coming months. The company stated that, with the three sizes of shooting range available, there is room for 200 venues in the USA, and some 450 globally.

Another major entertainment chain that revealed its new landscape was CEC Entertainment. The company’s CEO, in an interview with Restaurant Business, revealed that 336 of their locations had reopened for dinning and games, while some 450 had reverted to a delivery-only service, including the inclusion of the Pasqually’s Pizza concept. So far, the company had permanently closed some 47 locations, marking the impact of the pandemic on its business and the beginning of a Chapter 11 restructuring process towards removing deadwood. It was revealed that the company was investing heavily in what they called at-home birthday packages and, with a move to promote heavily during the Halloween period, they had partnered with Kidz Bop (children’s singalong compilation brand). The executive declined to reveal the sales metric of this new vertical, although claimed the at-home offerings include goodie bags, tickets for future game play, branded tableware and photo backdrops, and it was “very good” for Chuck E. Cheese. Just as we went to the wire, it was announced that CEC had reached an agreement with their committee of creditors, towards implementing sweeping plans to reorganize the operation and secure lines of credit – major developments in the operational structure are expected.

Concerning the rest of the amusement scene, and the need to rationalize the traditional amusement venue scene to deal with the impacts of the post COVID market was again evident from the Japanese amusement scene. The Japanese amusement factory facility operators have been rationalizing their busines offerings and cutting deadwood (as previously covered by The Stinger Report in our coverage of the VR ZONE situation at BANDAI NAMCO). Other operators have been following suit and it was revealed that SEGA had started a process to address store effectiveness. SEGA Entertainment operates some 200 arcade venues in Japan and announced it had introduced Digichaim for the purpose of improving store operation efficiency and customer satisfaction. During the closure of facilities over April, the corporation implemented the retrofitting of the platform across its chain. Digichaim is an operator-based streaming store management app, that allows operators and staff to monitor and manage machines, inventory, and revenues. This is the biggest investment and redevelopment of the chain of amusement sites in the last thirty years for SEGA, and is part of a far reaching development to totally revolutionize the business generated from the 200 arcades – this will also see the deployment of a brand new concept in amusement venue operation that will be revealed to the public in the next few months.

Just as we went to the wire and fallout for the amusement division of SEGA, and the future of their entertainment facility business was revealed. News had broken regarding SEGA Entertainment’s business status in Japan. The Stinger Report will have an in-depth report on the unfolding situation, and the impact on their business, and the Japanese perspective that could have immense ramifications for their facility business.

- New Business Vertical

With regards to venues attempting to create new business models under challenging COVID conditions, several sites have been seen to offer the ability of full “Facility Rental” for private hire. The concept of the “Bubble” (groups that are close contact and so offer protection but can hang out together) has been promoted by many governments. And with this, some venues have started to look at private hire as a business opportunity, moving beyond party room business. Vancouver-based facility Industry Arcade was one such example, with the facility comprising some 50 amusement pieces, which can now be rented out to groups of up-to-ten players for $200 for two hours. These groups can even bring their own food and drinks.

This trend continued with the announcement that Urban Entertainment venue chain, Main Event Entertainment, would be making available (for a limited time offer) the ability to rent an entire 40,000-sq-ft. facility, for between ten-to-1,500 guests. The operation proposes to offer special drinks and concessions to guests in the party. While the package allows guests the run of the venue, there are variant deals including the Most Valuable Package (M.V.P) for a minimum of 50 guests, with a full three hours of unlimited access to activities. The packages become available from November, during 4pm until 7pm, across all 44 locations in the USA (no words on pricing). It is not known at this point if the other entertainment chains that may follow this lead. Main Event is seeming to double down on attracting audiences back to its venues, with the addition of a “Kids Eat Free Tuesday” offer across their operation.

While other amusement venues look towards this as a new and interesting business, the cinema industry (in a slightly more dire situation) is also turning towards the concept as a possible money maker. It was revealed that Cinemark was making available rental packages that could see groups of up-to-20 rent a screen for $175. Not to be left out, AMC also announced that some 300 of its reopened cinema theaters would also be offering the ability to rent a screen for 20 guests, starting at $99 per audience member (with charges for food and beverages). Smaller cinema chains were also starting to construct packages to offer this rental plan. Not just entertainment venues, but also visitor attractions are looking at private facility rental, with Colchester Museum in the UK also offering “Bubbles” (individuals that are part of self-isolating family groups) of six the chance to rent out the castle crypt for $77 per head. Some see these moves by venues are as a means to “keep the lights on”, as many of these operations have been reported as saying they will run out of money by the end of the year, due to the fall off in business.

- Cinema Struck a Mortal Blow?

The cinema scene has been in a constant state of flux, along with the announcements of certain theater chains suspending operation over certain parts of the week, or the complete suspension until the new year, continuing the impact of the studios’ migration towards a Video On Demand (VOD) movie streaming approach, to generate some revenue from the stockpile of new releases. This has added to the fractures in the viability of movie theater business returning to any form of normality, let alone survival.

While a trickle of “tentpole” movies broke ranks and look towards a VOD release direct to consumers’ homes, other studios have sat on their hands, delaying major releases until the 2021 season. Most notably, the delay of the James Bond latest release was reported to have been a catastrophic blow to several distributors, so closing their cinema operations until the following year. But one of the momentous impacts to the cinema landscape was delivered yet again by the Walt Disney Company. During October, it announced they would be overhauling their media and entertainment business, focusing [pivoting] on streaming interests. This marked a landmark shift from their motion pictures history of some 97-years. The corporation’s streaming service, Disney+, has seen increased VOD focus of previously scheduled theater releases (most notably with troubled ‘Mulan’, and the announcement of the highly anticipated Disney/Pixar ‘Soul’ exclusive Thanksgiving streaming debut).

Walt Disney shares rose on the news, seeing in some cases a 3-percent rise at the end of trading on the announcement – but within the cinema industry, the news was the latest tectonic blow to strike the heart of a business that seems to be reeling constantly. With this announcement, it is expected that other major studios will both publicly and privately change the course of their distribution efforts – already the VOD/streaming landscape has become a confusing mess of different subscription platforms from major studios and social media services. Previously reported investigation towards the changes in the ownership structure of the cinema business, could also see services such as Netflix and Amazon look towards bricks-and-mortar representation, while the lion’s share of revenue will revert to streaming releases.

Just as we went to the wire with this overview, the next shoe dropped. Not even waiting a month after the Walt Disney announcement to focus on streaming, and film studio MGM was rumored to have been seriously exploring the licensing for streaming its major production of James Bond 25 (‘No Time To Die’) – evaluating options in abandoning plans for a cinema release. The troubled movie had seen scheduling difficulties, moving from November 2019 to April 2020, and then again to November of this year, and finally pushed back further to April 2021. But, according to media sources, the results of the orchestrated bidding war had been inconclusive (with MGM reportedly looking for upwards of $600m), and the studio was staying tight-lipped about its plans going forwards. This news sent shockwaves through the cinema sector, the outcome being a momentous point for a seriously wounded theater distribution sector. Paramount Pictures is already selling its planned movie release ‘Coming 2 America’ to Amazon for an undisclosed amount to avoid possible loss, and this is expected to be followed by other streaming deals.

The future of the cinema business, and what will be provided post-2020, due for momentous reform, is coming just as China officially overtook North America in film ticket sales during 2020. But even the Asian cinema sector is feeling the heat, and some of the larger chains are now looking to restructure their operations to better fight the coming war for domination of the market. CJ CGV announced they would be permanently closing some seven of their multiplex branches, stating this was “…due to the financial burden of COVID-19” (as reported by the Korean Herald) In the statement, the company also confirmed they were looking to close some 40 of the current 119 branches, within the next three years. This is reflected in tickets sales in the country, with the Korean Film Council reporting a 79.7-percent drop in sales for the month of September alone. The Asian cinema sector has already started extensive restructuring of business and is looking to support a new rebuild of cinema properties, embracing much of the new Cinema Entertainment Center (CEC) thinking previously reported.