Strong Outlook for VR Arcades
SpringboardVR Exec Cites Impressive Recovery Numbers So Far
There’s a lot to this story, so perhaps it’s best to cut to the chase and let readers know that there’s hope and good news for VR arcades, according to Michael Festa, SpringboardVR’s chief business officer. The company provides VR headset management, content distribution, and licensing for enterprise, education and, most notably to RePlay readers, VR arcades and FECs.
Simply put: Players are coming back.
In a recent interview, Festa shared stats showing that prior to the industry’s shutdown in March, location-based VR had just finished its best month ever, February 2020. From that high point, business went off the Covid-19 cliff in mid-March when almost every location they served closed temporarily. As business started to resume in May, SpringboardVR saw week-over-week increases, and eventually reached the point in July where half of their customers’ VR arcades had reopened. By early September, almost two-thirds of them were reopened. For arcades that were back online, customers were playing enough VR to generate 96% of their January consumption figures, and 80% of February’s, which again, was the… Best. Month. Ever.
“What this really communicates is that consumer sentiment is back,” said Festa. “People are ready to spend money on out-of-home entertainment again. If the consumers are back at it, then business and deal flow can resume – and that’s exactly what is happening. If I can tell other industry people anything, it’s that these are real numbers and this recovery is looking strong. Business coming back at effective parity to how 2020 opened? That is huge to me.”
Festa, who joined the company in January of this year, has been working in location-based VR since the days when it really only existed in Asia. Festa, at Survios prior to SpringboardVR, went on to open and manage multiple VR attractions across North America, Europe, and Asia, while at the same time creating what he said was “the largest content distribution network of any VR game developer.” 2016 was also the time that SpringboardVR founders Brad Scoggin, Jordan Williams and Will Stackable were opening a VR arcade of their own called UpwardVR. As was the case in the pioneer days of LBE VR, they shared insights and ideas about content licensing, and in 2017, began working collaboratively, “all very ad hoc,” Festa said. “I didn’t work for them, they didn’t work for me, but we were pushing forward a very small industry. The thinking was, ‘Let’s just have fun, learn from each other and go for it.’”
The very genesis for the SpringboardVR platform, Festa explained, was the founders’ firsthand knowledge of the pain points of running an out-of-home VR arcade. It was difficult to manage the venues, users and bookings. Each independent VR game room had to jump through the content licensing hoops on their own. It was hard to get in touch with game developers across the world and difficult to negotiate fair – not Hollywood-scale – revenue-share rates. SpringboardVR set out to help operators get over those two big hurdles: venue management and content licensing.
“Even before I joined the company, I had always thought of SpringboardVR as a tool that allowed an LBE entrepreneur to become an effective business owner,” said Festa. “It alleviated most of the pain points that made operating a VR arcade logistically and financially hard, and quickly became a way to catalyze that transition from wanting to become a VR arcade operator, to actually being one.”
The Market, Pre-Covid-19
Festa said if 2016 saw the beginning of interest in VR arcades in the West, then 2017 and 2018 saw a “big push of everybody jumping into the market,” adding that 2019 saw “the first major market correction.” “Mom-and-pop” VR gameroom owners were struggling, with many exiting the marketplace.
Festa explained, “Many of these people were VR enthusiasts first, businesspeople second. The standard business model was ‘VR is cool and I want to show people cool stuff’ and that proved to be a very hard position to maintain,” he said. While there was attrition on that side, the better run businesses were experiencing growth and expansion, with some branching out with more franchise and owned-and-operated locations. The operators in the middle of the pack were holding steady.
Going into this year, “For SpringboardVR, February 2020 was the best month we’ve ever had. It was also the best month that the majority of our arcade partners ever had. Things were absolutely cookin’!” he said.
“March is when everything hit the fan,” he continued. “We saw strong numbers through the first two weeks of the month, but as soon as the U.S. announced the European travel ban, that seemed to signal to everyone that it was time to take Covid-19 seriously. Almost immediately, we saw a monumental drop off. What we saw in April was effectively a 99-1/2% reduction in business from February in terms of content consumption and amount of active stations online. For all intents and purposes, the LBE sector shut down worldwide from the second half of March through all of April.”
SpringboardVR sprang into action and did two things to help customers: They waived subscription fees (monthly VR station and user management charges) and they also worked with content creators to either reduce their prices to zero or drastically cut them. SpringboardVR, in turn, cut their distribution fee (their share of the content licensing). They did this for the entire months of April, May and June.
Festa explained that their goal was to keep everyone’s accounts active so arcades didn’t feel rushed to shut everything down and then go through the logistical hoops when it came time to reopen. (Also, while most of their partner VR arcades are in North America, some international locations using their platform – like in Sweden – were never ordered to close.)
While doing all they could to ensure their customers could get through the crisis with as much ease and as little cost as possible, “SpringboardVR made no revenue for those three months,” he said. While they were able to get some financial aid from the government, the process was “slower and more difficult than expected.”
Thankfully, business began to reopen for customers. “What we started seeing from the second week of May was consistent, week-over-week growth through today. This was a good sign, since we needed to start generating revenue again, but did not want to charge any of our partners until we knew businesses were back online and healthy again.”
By July, roughly half of the customers they had in February were back in operation. (For customers who have been unable to open – either due to a landlord dispute, continued government shutdown mandate, etc. – the company has “paused” their accounts. They don’t have to pay subscription fees, but still get emails, updates to the system, and can see what new content is coming online. In other words, they don’t get penalized for being closed.)
During the time SpringboardVR was in shutdown mode, Festa focused on making their VR arcade product better. The development team set up a regional content pricing system, revamped the analytics dashboards for operators and content creators, and redid the commercial license marketplace so it was easier to navigate and presented more information relevant to their businesses, such as end-user game ratings.
“We deployed a host of product updates in July,” he explained. “We were able to roll out new features that our customers had been requesting. It was good because for some time, we struggled as a company to deliver new features in a timely manner to such a rapidly-changing industry. It was well received by our businesses – and we heard this feedback a lot – that we took care of them during the pandemic, and when they came out, we had a product that was going to help them run their businesses better. It felt good to be able to use this time wisely to deliver much-needed features.”
Back to the Beginning…
To return to where we started this article, recent numbers point to not just a “new normal,” but what looks like the “old normal,” says Festa.
“In February, we had just over 550 individual locations around the world that drove a little bit over 5.2 million minutes of content consumption. In August, roughly 350 locations drove 2.7 million minutes of consumption,” Festa stated. “In broad numbers, 60% are back online, 20% are paused while waiting for restrictions to be lifted, and 20% are probably closed for good. The ones that have closed are primarily the mom and pop stores that were able to stay afloat during the 2019 correction phase, but Covid-19 proved to be insurmountable at the end of the day.”
“Now if we take these consumption figures and divide by the number of active VR headsets for each month, we can get a better idea of how active locations are performing compared to the beginning of the year. Right now, the arcades that are open are, on average, consuming 96% of the content they did in January, and about 80% of what they did in February. I think this is absolutely remarkable. To say it in a different way, after going through this pandemic, the arcades that are online are basically at parity with how they opened the year. Some of our customers are actually doing better now than before!”
He continued, “These are very critical stats because they indicate that reopened arcades are actually doing well. That’s huge. In the beginning of Q2, I don’t know that anyone assumed the out-of-home VR industry was going to return to these levels so quickly.”
Festa concluded, “Business in this sector is better than you’re hearing in the news. For those who are still waiting to reopen, this should bring you hope. That’s the message I really want to get across to people.”