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In early 2020, Sandbox VR was a healthy business, with 10 virtual reality arcades in North America and Asia. By May 1, every one of them had closed. Revenue dropped to zero and 80 of Sandox’s 100 employees had been laid off. Now, as the company works to reopen and operate safely, those layoffs and lack of operating capital create additional challenges.
Sandbox’s predicament is not unfamiliar to virtual reality centers in the US and overseas. Like restaurants, bricks-and-mortar-retailers, and sporting events, VR shops must revamp revenue models to deal with social distancing and reduced capacities. But they face even greater safety challenges, given the nature of the business, such as allaying guests’ reticence to wearing headsets that others have worn recently.
Location-based VR entertainment businesses based on in-person clientele, particularly those in the gaming and arcade industries will struggle. These companies may face continued rent obligations while simultaneously losing most of their in-person business. Many LBEs are located in tourist destinations (The Void, for instance, has shops in Minneapolis’s Mall of America, the World Trade Center complex, and the Las Vegas Strip) where rent is high and visitors scarce. Restrictions on capacity due to COVID-19 may prevent them from generating enough revenue to cover operating costs, especially if they require greater staffing to handle cleaning.
Randy White, CEO of White Hutchinson Leisure and Learning Group, believes that due to their high levels of proportional debt payments, LBEs must generate over 70 percent of their pre-COVID attendance and revenues just to survive. Barring a vaccine, that may not happen soon.
“All the polls are consistently showing that the percentage of people ready to return to FECs and other type LBEs is too low for the businesses to reach cash break-even in the first month or so after reopening, meaning they wouldn’t be able to pay all their ongoing expenses and debt payments,” White writes. “Also, the 50% restricted capacities for social distancing and reduction in crowd size make it highly improbable to reach break-even. So, the question is, how soon will enough people return to LBEs so they will reach cash breakeven and then profitability?”
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Credit: Morning Consult: https://morningconsult.com/2020/11/10/tracking-consumer-comfort-with-dining-out-and-other-leisure-activities/
While spending on virtual reality games, entertainment and other experiences at dedicated LBE facilities reached $1.5 billion in 2019, Gamedev.net projects “spending this year will be roughly one quarter,” with little hope for rapid recovery. The site estimates that spending in 2023 will still only reach 71 percent of 2019.
So what’s a location-based VR company to do? To reopen safely and attract enough clientele to prosper, they may need to get creative.
Pivot to Survive
Successful businesses will be able to adapt in response to the pandemic. That may mean quickly shutting down on-site client engagements or transitioning some functions, such as marketing and finance, to remote work. It may be natural for LBEs to implement extreme cash-saving measures, but prudent investment will ensure a quicker recovery. I advocate allocating resources in three main areas:
- Customer Communication – Email, direct mail, and other low-cost marketing tactics can reestablish connections with customers and keep them familiar with your establishment. Two-way communication can provide insights about what it will take for customers to return (visible disinfecting, lower prices, etc.) Segment the audience and focus resources on high-value visitors such as club members, large families, locals, annual pass holders, etc.
- Upgrades and New Cash Streams – New adventures and content, additional food and beverage options, expanded gameplay, and other changes will get people excited to return. This is especially important to differentiate between the full-VR, interactive, expansive experiences at the LBE from in-home options.
- Promote Health and Safety – Show potential customers the steps that you are taking to keep them safe. Invest in headset sanitizers, plexiglass shields, and customer flow/queuing facilitators. Implement temperature checks at entrance points. Then tout these investments to allay any fears about returning to your establishment.
Some LBEs may be able to pivot and leverage their technology into new go-to-market strategies. They could target companies interested in virtual shareholder meetings, trade shows, job interviews, etc. Virtual collaboration, meetings, and presentations through VR promise to form a large part of our new work reality. Simulating in-person interaction, which is critical for project hand-off, crowdsourcing, and multi-time-zone enterprises, immersive technology can compensate for travel restrictions and conference cancellations. Businesses unwilling to make large outlays for their own equipment might be willing to rent out VR studios to connect with in-home devices for hosting product training, new employee orientation, and B2B client meetings. LBEs that step into this niche can help claim some of the revenue corporations had previously allocated for plane tickets, hotel rooms, conference center rentals, and other in-person meeting expenses.
LBEs could create mobile units for use at private parties or team-building exercises. Virtual escape rooms would resonate with COVID social distancers afflicted with cabin fever. In the short term, as companies adopt VR for business, team, and client meetings, they may be faced with supply chain bottlenecks that delay delivery of the hardware they need. LBEs could step into the void to provide the headsets and other infrastructure businesses require to conduct virtual meetings.
COVID and shelter-in-place helped generate unprecedented demand for in-home VR. If a vaccine can be deployed relatively soon, consumer interest could bode well for LBEs. Newly-converted VR enthusiasts will be eager to explore the technology in bigger and more immersive arenas than is possible with their home systems. VR Studios, a platform and system-management vendor says “consumers will play for fun, practice, and compete with others casually online from home, and then take those skills and their performance stats to LBE venues for physical, multiplayer, social experiences complete with food and beverage and formal competitions that only an LBE venue can deliver. LBE businesses will have new options for building awareness, maintaining connections to their players at home, promoting in-store events, and driving revenue.”
At least one company is making the home-to-LBE transition easier by allowing players to take their profiles to an LBE venue and continue their stats, and vice -versa. The Player Portal enables players to create a profile and track their scores and global leaderboard rankings whether they play at home or in an arcade using ATOM or FLEX systems.
Working with a law firm well-versed in the challenges faced by VR business and the technologies and relationships inherent in content, hardware, and other areas can help LBEs weather the current storm. Gamma Law specializes in assisting all stakeholders in AR/VR, video games, and other high-tech industries. We can help LBEs negotiate with creditors, content developers, and landlords to make payment arrangements and other agreements that benefit all parties. We work with developers and investors, and may be able to find financing partners and vendors willing to engage in creative solutions to help your company survive and thrive during the coming economic recovery.
Gamma Law is a San Francisco-based firm supporting select clients in cutting-edge business sectors. We provide our clients with the support required to succeed in complex and dynamic business environments, to push the boundaries of innovation, and to achieve their business objectives, both in the US and internationally. Contact us today to discuss your business needs.
