A Great Show Indeed!
A Look at Trends in Virtual Reality and the Arcade/FEC Business
by Howard McAuliffe, Partner, Pinnacle Entertainment Group
Amusement Expo 2023 was the biggest in history and the most exciting for me personally. I attended both days of education sessions as well as two days on the trade show floor. The show is now geared to multiple related groups in the entertainment industry: arcades, virtual reality, FECs, route operators, laser tag, bulk vending, and for the first time ever the broader billiards industry through the addition of the BCA Expo. I was focused on VR, arcades and FECs and had some very definitive takeaways for each that made the trip worthwhile.
Virtual Reality
The VR space is one of the most intriguing and challenging in the industry. There is a tremendous amount of capital investment in the sector, but making profits in out-of-home entertainment is not simple. Virtual reality-only arcades have had real challenges making profits. These types of facilities are now expanding their offerings to include other attractions and, most importantly, food and beverage. This allows operators to provide higher throughput profit centers, as well as reasons to extend a visit.
Multi-attraction FECs have some challenges around VR though they are somewhat different. Keeping the equipment working is difficult but this is improving as manufacturers better-design headsets and equipment for commercial use.
Profiting from staffed VR attractions is not as simple as generating revenue from unmanned VR games. In fact, there was some buzz that unattended VR, like Virtual Rabbids or Kong VR, is the only profitable option. While I do believe unattended VR has a wider market for profitability and should be included in most arcades, I also believe manned VR systems have their place as an attraction. However, they must be staffed, marketed, and operated as an attraction! The word “attraction” is key because these systems can attract new business to your location, and new business is much more valuable than existing business. This is especially so when you consider that a large portion of unattended VR revenues are cannibalistic to the rest of the game room. In other words, when you add a VR Rabbids to an existing arcade, much of the revenue is simply shifted from other games. If you don’t believe me, let’s set up a test before you buy your next VR game.
VR systems that require staffing are evolving to a better business model for operators. Free-roam systems are getting less expensive, the games better and software is being sold separately from hardware. Think back to early days of Hologate. An operator had to spend $100,000 for the system and then buy games from Hologate exclusively. If you wanted to change to a new system, you had to buy new hardware and software.
The free-roam VR industry is largely consolidating around the Focus 3 headset. This allows operators to build an arena, purchase these headsets and then purchase content from multiple vendors. Vendors like Hero Zone VR will just sell you their software and you can pay by the game sold or a subscription model if your volume justifies it. Locations are starting to build their own free-roam arenas and will buy software from multiple vendors. As the market grows the content will improve, and operators will be able to purchase the hottest games at any given time.
By the way, if you find that your Hologate system’s sales have dipped, there is a Ghostbusters movie coming this winter and Hologate has a Ghostbusters game. It wouldn’t surprise me to see additional tie-ins coming that will allow you to offer Ghostbusters parties and packages that can generate new business.
FEC and Arcade
The family entertainment center business has evolved quite a bit from its origins as multi-attraction, regional, mini amusement parks. The bowling industry has been a major source of growth, the cinema industry is starting to embrace FEC elements and VR arcades should be seriously looking at games and other FEC attractions to add to their VR anchor.
The Amusement Expo reinforced our belief that food and beverage is increasingly important to most locations. A bowling proprietor even did a presentation on using a ghost kitchen to add food sales during the education program. Arcade sales continue to grow, and the arcade business is better than it has ever been for FECs.
Another takeaway from the show is that most arcade operators are making record profits but still leaving money on the table. Card systems are underutilized, game lists are not well thought through, and attention to detail that drives incremental sales is largely ignored or not understood. This means as strong as the arcade business is there is still room for improvement. While the economy may be starting to soften, I see a strong future for strong operators. Those who are not optimized may find the next few years increasingly difficult as the economy softens and competition increases.
I’ve nearly always found value when attending various industry trade shows. This year, Amusement Expo was particularly strong and based on exhibitor and attendee feedback will be even bigger next year. Many vendors lamented needing more space and product. I am certainly looking forward to being there next year as the show grows and our industry continues to evolve.
Howard McAuliffe loves to imagine and implement new products, business models, and ideas, and is a partner in Pinnacle Entertainment Group Inc. He’s an industry veteran who got his start in the business when he was just 16 and has 20 years of expertise in product development, as well as FEC and route operations. Howard’s wife Reem and young son Sami are the center of life outside of work. When he’s not working, Howard can be found enjoying the outdoors, hiking, fishing and mountaineering. Traveling anywhere new or to old favorites like the American West is a passion. Readers can visit www.grouppinnacle.com for more information or contact Howard at howardmc@grouppinnacle.com, he welcomes positive as well as constructive feedback and counterpoints.