#1108 – Game Space Under Pressure

There are momentous developments across the social media, videogaming and location-based entertainment markets. The time for acquisition, restructuring and more is at hand. Looking beyond the changing perspective of entertainment investment, we see another major acquisition take place and start a bidding war across the sector. 

The Acquisition Game

Only a matter of days after the videogame industry was rocked by the momentous deal by Microsoft to acquire Activision Blizzard and their associate components for $68.7b (as well as the fallout from the Amazon acquisition of MGM Studios for $8.4b), a feeding frenzy erupted in the industry that seems to mark a pivotal point in its history – what some have labelled the “Videogame Consolidation”. However, it may be better to see this as an “Entertainment Consolidation”, as the ripples widen towards creating true multi-media corporations. 

Announced just at the end of January, and fuelling the fire, Sony Interactive Entertainment revealed they had agreed to acquire videogame studio and developer Bungie for the sum of $3.6b. Clearly, the videogame division of Sony, responsible for their content and console releases including the PlayStation 5, and PSVR platforms, was in serious shock from the earlier acquisition by Microsoft of Activision – developer of titles that are a major revenue stream on the Sony PlayStation consoles as well as the Microsoft Xbox series. A need to protect their ecosystem and future content supply chain, sees Bungie as the latest acquisition victim (the studio is well known for its successful ‘Destiney’ and original ‘Halo’ properties, having previous deep ties with Microsoft and Activision). 

Following this latest acquisition deal, it was reported that the entertainment and electronics giant still has allotted funds for further acquisition through 2023. Sony was reported to have some $10b still allocated for possible further purchases. Current investment, so far, has been on shares repurchasing, securing IP, and the assimilation of the Bungie operation. But the company was clear they have plans for at least another major acquisition in the coming months.

As previously reported, this is not going to be the last of the major powerplays for market dominance, and we can expect another high-profile acquisition in a matter of days – if sources are to be believed. The consumer videogames market (separate of independent developers) sees most studios owned by Microsoft, Take2, Ubisoft, Sony, Electronic Arts, Tencent and the Embracer Group. This is an amazing situation, achieved over the last ten years, that sees many of the main studios under one of these corporations with the likes of Nintendo, Valve, Epic Games, Square-ENIX and the rest attempting to defend their turf against assimilation. This is especially so, considering the streaming movie platforms are also including a serious interest in videogame content, so including the deep pockets of the likes of Disney, Netflix, Amazon, and Apple to the mix.

It is important to also add to the possible consolidation funfair taking place, that of alliances and investment deals that circumvent outright assimilation. Undertakings include those such as between Microsoft and SEGA, who have signed a ‘Strategic Alliance’ towards building future technology and the sharing of IP and brands for strategic titles (referred to as a “Super Game”). Meanwhile, Tencent has invested stakes (40-percent) in the likes of Epic Games and other major independents. These moves allow the creation of close alliances and direct the development of these parties, without the need for rolling them fully into the corporation. These can also act as a prelude to closer ties down the road, as well as removing them from the menu of competitors.

The investment in creating a walled garden towards consolidation in controlling the ecosystem was seen to extend into the theme park and amusement scene (as was to be expected). A frenzy of acquisitions and mergers are expected to be compounded by the market moving out of the Global Health Crisis. The latest news emerged that SeaWorld Entertainment had made an unsolicited $3.4b offer to acquire Cedar Fair – a move that would see shares in both operations skyrocket. The offer will now go under detailed review by the board of directors, towards the acceptance of the offer. But for many industries, analysis this is the beginning of a period of high-stakes negotiations from investment corporations, in taking control of the entertainment landscape. The combining of the entertainment venue empires would create a brand-new entity in the market. Cedar Fair represents some 13 locations, while the SeaWorld operation comprises some 12 locations – including the Busch Gardens, Aquatica and Sesame Place sites.    

Not Everything Goes Up

The fallout of the feeding frenzy in acquisitions was also revealed in stark comparison with the developments seen in the VR and AR space. It could be called “the big acquisition” that started the ball rolling on the latest frenzy for VR, and one of the most turbulent moves in the tech scene for many years. It was when then-Facebook (now rebranded Meta) acquired the Kickstarted developer Oculus VR, for an originally reported $2b (later to be revealed in court proceedings as having been more accurately over $3b).

Now, some eight years down the road, the reality of the acquisition and the investment being made to keep on track to Meta’s perceived new metaverse, was revealed. The combined Meta Reality Labs VR/AR operation saw a loss of $3.3b (in comparison to the $2.09b loss for the same time last year) – all this while generating $877m in revenue, consumed by the monstrous loss, was revealed during the quarterly earnings call. This announcement also came while Meta’s social media operation was revealed to the markets, regarding the fact their userbase had been impacted by competitive services like TikTok. The markets reacted strongly to this news, with stocks in Meta free-falling by more than 25-percent just after the announcement. This saw a market value of $240b wiped from the operation in a record loss (the worst in market history), also seeing the founder of the corporation lose billions of his personal fortune.

The controversial rebranding and restructuring of Meta’s investment into the VR and AR landscape has seen the departure of key executives, as well as the retirement of the Oculus brand – which the corporation had paid so much to retain. This is a brand that was beginning to prove problematic, having clashed in numerous legal actions, drawing down its Meta owners. The issue of the amount of loss the operation is willing to endure towards achieving the dream of the founder’s vision in the metaverse, was placed into perspective. Much of the restructuring is addressing pass mismanagement.

The revealing of the $3b loss also turned a light on the business practise regarding the sale of the company’s flagship (and last remaining) VR headset – the rebranded Meta Quest 2. Many industry insiders had speculated at the level of costs that were being eaten by the corporation in achieving the incredibly low sales price of the hardware. This loss leader system was speculated to cost Meta Reality Labs some $499 to manufacturer and sell, for a retail price of $299 (for the standard model). The time the corporation is prepared to offer a loss leader platform may be numbered, with reports that the soon-to-be revealed new Meta VR headset (known internally as ‘Project Cambria’), along with being a higher spec VR system, will also be sold at a full price.

All this impact on Meta is based also on the big players waiting in the wings to reveal their next generation VR entries. Already teasing specs, Sony, with its PlayStation VR 2 platform, is building on its already-installed base of 8m VR console users. But one of the big areas of interest in the markets is the entry of Apple into the choppy waters of VR. The mega-corporation has been secretly working on its own lightweight VR headset (codenamed ‘Project Star’), offering a high-performance platform that is expected to be launched in 2023. While Meta may have hoped they could buy in early and create a walled garden to control the VR space, the reality may be that all they have achieved is to create a landing strip for others to profit from. The founder of Meta had warned investors of a long haul for the company in this space, suggesting annual investment of up-to-$10b – but it seems that already surpassing this amount may be too much for investors to swallow, especially in the face of problematic initiatives.

In attempts to roll back some of their issues, Meta seems to have taken experience from the ‘90s arcade scene. It was revealed, by their marketing team, that their troubled Horizon social VR world-building experience will be seeing the inclusion of a “virtual arcade restaurant” called ‘Questy’s’, where users can hang out. Recently re-structured, Horizon has been going through a troubled birthing process, now split into three offerings (‘Horizon World’, ‘Horizon Workroom’ and ‘Horizon Venues’). With the big launch of this virtual hangout (venue), the company hopes to attract users to a recreation of the physical play space, copying many physical entertainment elements. At the same time, it was revealed that not just VR users, but smartphone users, will be able to navigate Horizon through a special app in development for launch this year, seeming to pivot from some of the VR-only aspirations. As an explosion in investment in physical social entertainment spaces takes hold, whether Meta will be able to draw interest to their virtual recreation has yet to be seen.

The Industry Bites Back

Recently, we have seen a preponderance of online news features proclaiming, once again, the death of the arcade scene, spurred on by the incorrect interpretation of the news of GENDA SEGA Entertainment’s brand change and majority ownership move. Proclaimed, as in some media, “SEGA to Exit Arcade Business”, or even with headlines like the old favourite title, “Arcade is Dead”!

No matter how hard authoritarian news services tried to correct the misinterpretation of the GENDA announcement, even our friends at Arcade Heroes found it near impossible to address the febrile nature of some clickbait columnists. Once again, they wanted the amusement industry to die, and once again they tried to speed up the process. When asked by posters why we think some in the media are fixated on calling the demise of the trade, we broke this down into three areas. The first being that while the consumer videogame pays for promotion and advertising, the amusement trade does not. Secondly, the lack of research, by writers looking for hyperbole headlines to generate clicks. And finally, the feeling of impunity to attack a trade that is felt to have no teeth.

Editors’ Notes – Some posters on our social media forums have suggested there may be another (fourth) reason for the media attack – and that is an insidious attempt to remove any competition to the use of arcade IP. Killing off the traditional amusement trade would leave a power vacuum for control of very popular properties. We are trying to avoid conspiracy theories in this opinion piece, though we can agree there does seem (from some parties) a thirst to see amusement gone for some reason. If that is a secret attempt to create a personal empire, we will leave that up to our readers to determine if this is the case. 

On numerous occasions, after attacks on violent videogames, or gun attacks, while the consumer videogame industries lobbying has manoeuvred their trade away from criticism, the media has reverted to kicking amusement. Recently, the cinema and restaurant industries’ lobbying groups have defended their positions in the face of lockdown, and regarding claims about viability post-COVID, the leisure entertainment and amusement scene has been inaudible. The scene has been used as a punching bag for doom and gloom, with no serious reporting of the reality of the situation, and a near invisibility of the worth of the industry, or its value to the social scene. But now things have changed.

We have suddenly been seeing editorials that, rather than painting doom and gloom, are charting a sudden growing resurgence in the general public’s interest for social entertainment and the revisiting of family entertainment and adult entertainment venues. At the same time, certain media have been forced to report the new investment being placed in entertainment facility business, and the opening of the doors to new venues. The bounce back of entertainment chains such as Chuck E. Cheese and Dave & Buster’s, from uncomfortable financial conditions, started the ball rolling towards a positive reporting on the entertainment landscape, and with this a difficult position for some writers.   

For some media services, a delicate tap dance must be undertaken to dance round previous incendiary statements about the death of the industry. Some are preferring to just hope their readership suffer the “Goldfish Syndrome” and do not question the editorial pivot. While other media prefer to move the goalposts, claiming what is called Out-of-Home Entertainment is now not the same place as when they covered it in their attack pieces. As we stated in the first point regarding why these media attacked amusement, this has now turned full circle, as the media sees a need to be nice to this new and growing sector, with investment money, which will be buying advertising and promotion. And that brings us to a tale of two industries!

We are at a point where, for all intents and purposes, there are two industries. One representing what is called the “Traditional” amusement scene, and the other which is labelled the “New” entertainment scene. While these “new” entertainment venues still have amusement hardware, and many of the services that the “traditional” amusement scene represents, the new industry offers a distancing from older perceptions and allows for a chance to repackage and resell the concept of Out-of-Home Entertainment as viable. All parties are happy. We get to see new positive coverage and promotion of the business, and the media can separate past comments, claiming “That was then, this is now!”

To better define what is seen by “Traditional” amusement, we can look at operations that have ignored the adoption of social media marketing and connected technology, and still relied on 1990s business practises. We have the usurping of the ‘90s arcade scene aesthetic, with Meta’s “virtual arcade restaurant” experience, called ‘Questy’s’ (mentioned previously), and the zeitgeist for traditional (nostalgia) arcade experiences is still strong – as can be seen by the explosion in new “Barcade” style venues. That said, an industry does not live by nostalgia alone, and the need to modernize and maximize the amusement offering has engendered a new breed of business. In defining the “New” amusement scene, we must look towards the deployment of social entertainment, new technology, ePayment connectivity, and the ability for social media integration with full gamification of the product – from championships to eSports – and  less wedded to outdated practices, while looking at a new commerce landscape.

We have seen how dangerous the infatuation with traditional processes can be, regarding impeding an industry’s growth. The near religious demands to retain old currency handling (wedded to the coin-mech), stifled industry growth. Sadly, it took a pandemic for the industry to reluctantly adopt frictionless, ePayment, and the smart card. This is the same intransigence that blocked the adoption of online play and connected machines, that hampered the adoption of connected competition play, forcing successes like ‘Golden Tee Golf’ to the hospitality scene, only now for the amusement trade to see others benefit from competition gaming, and the ascendance of eSports.

But what will happen to the traditional amusement scene?

Well that is the big question – an association with “old think”, a lack of social media presence and no savvy promotion, will see a reversion of the industry into irrelevance, and we shall see those once-profitable operations leave the market. This will result in a moving on to create a “New” association of operations and suppliers. The sudden investment into social entertainment businesses is a case in point, with those involved in this new investment already looking to hold trade events and conferences of their own, avoiding the already existing traditional trade trappings. 

We stand at a crossroads, exiting one of the most momentous periods in any industry’s history. While others have suffered, the Out-of-Home Entertainment industry looks to be able to stand tall following the Global Health Crisis. But the industry that it once was will never be the same, we cannot go back to how it was. We now face a point where we either evolve and adopt the new; or are replaced and removed by those willing to adapt and be inclusive.