The VR Arcade industry has evolved since 2016, but the big changes are only beginning. There’s lots of fuel in the growth engine, but not enough companies are making it into orbit. One thing that will help, is more consistency in best practices, and standards to help the industry consolidate and grow. Join me in Vegas in March at the VR Arcade Game and Attractions Summit, where we will discuss an industry association to help move things forward.

I am writing as IAAPA Europe wraps up in Amsterdam. The show was busy, and the floor was packed. Like IAAPA Orlando, it sold out early and amassed a waiting list of exhibitors hoping to showcase their stuff. 

IAAPA’s official post-show statement claims it had the highest number of registered attendees in the region’s history: approximately 17,370, representing 11,529 buying companies and more than 680 exhibiting companies. This year’s event surpassed EMEA’s record for the largest trade show floor ever, taking over 18,000 square meters of the venue space. 

There was lots of virtual reality, escape rooms, and immersive gaming rooms. Immersive entertainment is a hot sector. Companies bragged about how many sites they were in: 50, 100, 200, 250…

Sandbox VR just opened its 51^st location—or was it its 52^nd or 53^rd? I can’t keep track. Zero Latency just opened its 100^th and claims to be opening one new site a week. (By the way, I played its new Warhammer 40K Space Marine VR game, which was truly epic.)

The VR Collective receives dozens of monthly inquiries from people entering the location-based VR Market. Our search traffic is increasing by 10% monthly, and interest in new VR arcades is higher than ever.  We just updated the VR Collective website, which now has free-roam launcher products from over 30 companies featuring over 200 experiences in a dozen genres.

Anyone observing the market would say it’s healthy and growing, so it keeps attracting new operators and suppliers. But if you look below the surface, you might see a different picture.

The VR Arcade business was kickstarted when HTC VIVE launched VIVEPort Arcade in 2015, enabling entrepreneurs to license games and charge consumers by the hour to play legally.  HTC was struggling to get people to try their headsets, so they incubated an industry of VR enthusiasts to set up arcade demo centers. Any entrepreneur could spend $50K on computers and headsets, build some walls (or hang curtains in many cases), and pop up an arcade in a strip mall, a bookstore attic, or an old gas station (all real stories.)

The VR arcade business never made anyone rich, except maybe for HTC and the founders of Beat Saber (good for them!) But for entrepreneurs that wanted a lifestyle business, it paid the bills, at least until the pandemic fucked them. Some held on and emerged afterward thanks to trillions in government subsidies (which are driving the inflation pissing everyone off - how short are our memories?), but the industry has never really bounced back.

The room-scale VR business is now evaporating like a puddle in the Las Vegas summer heat. Locations are closing rapidly (or pivoting to free roam if the owners have the energy and capital.) There’s debate as to why it’s declining so quickly. Many say it’s because so many people have VR at home, even though the cost of a consumer VR system has fallen from $4K to $299 since 2016.

Industry analysts forecast 25% compound annual growth rates for VR gaming. Meta Quest has driven hardware prices down to game console levels. And it’s entirely possible that the same people who were attending room-scale VR arcades got sick of paying $30 an hour when they could buy a headset for $299 and play at home.

But arcade owners must shoulder at least some of the blame.

Those five games, with an average age of 7.6 years, generate 35% of revenue for the entire room-scale VR arcade business. Just pause and reflect on that for a second. You can only get people to pay $30 an hour to play the same games for many years.

Can you imagine if you went to the local theater this weekend, strolled up to the box office, and your options were:

Those were the top movies by box office receipts in 2016. If with the cinema industry’s struggles, theaters understand that new content is critical. That’s why there’s so much tension between cinema owners and studios. Theaters die without content.

Most arcade owners have continued to offer the same content that was popular almost a decade ago. Some might blame developers for failing to give them more options. Like the theater owners who blame the movie studios for a lack of content so they don’t have to be accountable for their lack of innovation. They both also gripe about revenue share, royalty rates, etc.

There are hundreds of titles available on the Springboard and Synthesis platforms. Operators must do a better job of actively programming their locations if they want to be successful over time. I worked with an arcade owner pre-pandemic on a simple experiment. We reduced the number of games offered from 300 to 20 or 30. At the end of each month, we kept five or ten of most popular games and rotate in different titles to fill in the rest. Sixty to eighty percent of the content was fresh every month. It’s easier for people to discover new content this way. It increased repeat visits before the pandemic shut them down.

Streaming services get this. Netflix, Prime, Max and others constantly promote “What’s Leaving This Month.” It creates FOMO and drives engagement.

Today, most VR arcades are pivoting to free-roam. It’s a better and more social experience; people cannot do it at home. The capital expenditure required to set up a free-roam arena has fallen, too. If an operator is willing to suffer the increased friction and labor of using Meta Quest headsets, they can set up a 6-player system for less than $5K. Or they can splash some cash and set up with the VIVE Focus from HTC for about $10K.

You can see why so many budding entrepreneurs want to open arcades. They buy their kid a Quest for a few hundred bucks. They see how incredible VR is, and they quickly do the math. “Honey, I’m cashing out the IRA and opening a VR arcade!” 

I’ve spoken to dozens (hundreds) of these people over the last year via the VR Collective as they attempt to navigate the landscape and figure out what they don’t know. They’re now showing up at my regular free Ask Me Anything webinars. Feel free to check out the next one on Wednesday, at 8 AM Pacific, 11 AM Eastern, and 4 PM GMT.

At the same time, the entry costs to game development have plummeted, and the tools to create VR games have gotten easier. Any 12-year-old can learn to program in Unity. Roblox has built a billion-dollar business on the backs of kids programming games for its platform. And new AI tools are making low-or no-code programming possible. It’s only going to get easier to make VR games in the next few years (not good ones, but that’s another post.)

So now we have dozens of companies selling free-roam VR systems. And there’s a steady stream of new entrepreneurs entering the business to keep it propped up. But the market is way too fragmented. There are way too many suppliers for them all to make money.

In the next year there will be consolidation. In any market there’s always room for 2 strong players. Being third is tough (ask me about Ecast some day). Being 12^th can be brutal. The smart suppliers will set aside their entrepreneurial egos, combine forces, and become bigger. There’s no reason to have 30+ launchers in the market, all with 80% of the same functionality. It’s a wasteful use of developer resources.

We also don’t need 30 different zombie wave shooters. Consolidation allows companies to create efficiencies on the development side and leverage combined distribution.

A couple of years ago, I predicted the free-roam VR market would enter this phase, which would be painful for developers. The whispers in the hallways at IAAPA Europe confirmed that we are in the teeth of it right now. Unfortunately there’s more pain to come.

The good news is it’s already easier in some areas due to emerging standards. The VR arcade industry has standardized a few critical technologies, making life easier for operators. Inside Out tracking has eliminated external cameras. Standalone headsets running the Qualcomm Snapdragon XR2 chipsets make software easier to port between headsets, leading to choice and interoperability.

However, some key areas still desperately require standardization. Arena sizes and dimensions are the most critical now.

In the VR Collective Free Roam directory, there are currently 18 different arena sizes. 92 experiences fit in a 6X6 meter space (360 square feet), and two require 5X7 (350 square feet) meters. Those two games could easily have fit into the 6X6 footprint. Those two games would be available to a more extensive operator base. Conversely, operators who built a 5X7 foot space don’t have access to 92 other games that take up essentially the same amount of room. This is repeated across a lot of different sizes. Here’s another one:

8X8 should be a standard. Then, there would be 43 games available to all the operators with that size arena. Instead, some are suffering with 6 or 8, and the developers of those don’t have access to the larger pie.

Setting standards is the domain of an association.

I discussed this with my friend and immersive entertainment guru Kevin Williams last week in Amsterdam. We explored the possibilities of existing associations that could take on the VR Arcade industry, including VRARA, IAAPA, BACTA, AAMA, and several others. We also considered whether forming a new association makes sense for the industry.

Last year, the AAMA formed a VR subcommittee which put out a standardization survey. When asked where standards would help, the number one response was experience categorization. I listed 16 categories for free-roam VR on the VR Collective Website to cover everything. Some categories have only one title, which suggests I could have done a better job. Categorization is always a challenge. I spent a decade in the music industry, and debates about which genres to assign to certain songs and artists could grow quite heated.

Ultimately, it’s up to you to decide. This year, we will set aside some time for this conversation at the VR Arcade and Attractions Summit. I’ll invite some VRARA, IAAPA, and AAMA executives to discuss what’s possible.

I also invite you to join the new VR Collective Community Circle. It’s a space where we can share ideas, best practices, and communicate outside of social media. I recognize there’s a large and well run VR Arcade Community on Facebook, but I and others believe a place that the community can own that isn’t subject to the algorithms and opaque policies of a social media (read: advertising) network could be a good thing. It’s a new space, so bear with us as we build it out, add content and moderators, and ultimately let it take on a life of its own.

Let’s try to move the needle this year and unite the industry to organize for greater collaboration. I will make everyone’s life easier. I’ll do my part to organize the conference. All you need to do is show up.

Stay immersed,

Bob

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