#1218 – Defining Immersive Investment

Looking at one of the important territories in the amusement universe and, in Japan, the amusement operation (locally known as Game Centers) business was in the spotlight regarding its reported first quarter financial results.

AI Constructed Brief

The Japanese amusement operation industry, known locally as Game Centers, is undergoing significant transformation. Despite a sharp decline from 87,000 centers in 1993 to 10,000 in 2021, the market has shown signs of growth since then. Major players like BANDAI NAMCO, SEGA, GENDA, and TAITO are adapting to attract younger audiences, particularly Generation Z, with new concepts and competitive socializing developments. BANDAI NAMCO reported a 17% increase in amusement operation sales, while GENDA GiGO Entertainment saw a 15% rise in business profits. Companies are diversifying their offerings, with TAITO announcing plans for “amusement parks” and CAPCOM developing AR attractions. This evolving landscape presents both challenges and opportunities for investors, as established companies compete to redefine and dominate the reemerging market.

The Location-Based Entertainment (LBE) VR sector is experiencing significant market restructuring in 2024, characterized by facility closures, franchise expansions, and strategic pivots. Notable developments include the sudden closure of OTHERWORLD VR facilities and the challenges faced by VR arcade chains like Centre VR and Park Playground, highlighting the sector’s volatility. Conversely, SandboxVR and Zero Latency are pursuing aggressive expansion, with the former planning 280 new franchise locations in four years and already achieving 1.2 million ticket sales. The market is transitioning towards a franchise model, with companies like EVA, TrueVRsystems, and ANVIO VR leading this trend, while investors are increasingly demanding proven business models that demonstrate sustainable revenue and repeat visitation potential. The sector is moving beyond technological novelty, requiring operators to develop more sophisticated, financially viable, entertainment experiences to survive in a competitive landscape.

Full Stinger Report

Japan Game Center Business

The reality of the decline in the business was presented, with data revealed that 2021 saw the reporting of some 10,000 game centers – this contrasting drastically from the 1993 total of some 87,000. While the downfall of the game center business in Japan is significant, the total capitulation of the business is not the case. It was reported that the market size has seen signs of growth since the 2021 count, with several corporations revitalizing their operations and launching new concepts to appeal to Generation Z and the new younger audience not familiar with the traditional game center model. This has even seen some operations turn to Competitive Socializing style developments to attract a new affluent audience.

BANDAI NAMCO revealed a significant increase in net sales and profits across their operation. Along with an increase in digital entertainment sales (rising by 55-percent to $725m), the corporation also reported that the amusement operation for the company saw sales rise by 17-percent ($225m). The increase in amusement sales mirrors the investment by the company in their home market business, including the development of new entertainment facility chains.

This news came as, in September, the new concept called ‘NAMCO’, the entertainment center, was opened in Tokorozawa City, Saitama Prefecture in Japan. The venue represents new design and branding for an amusement space and may be part of a rebranding of the operation’s entertainment chain. The BANDAI NAMCO Amusement operation is building on its facility operation position, as with the new ‘BANDAI NAMCO Cross Store’ concept, along with their ‘VS PARK’ and ‘GASHAPON’ chain. The company hopes these developments will reinvigorate the facility operation business.

Recently we compiled a special feature for our friends at Arcade Heroes, charting the re-emergence of music game systems into the Western market. In this Stinger reportage, we take a closer look at the issues shaping the return of rhythm and dance game systems into the market, and the implications for the amusement trade, and those who support them. One of those products is the music game ‘Taiko Master’ – the drum game first launched in the Japanese market in 2001. It was reported that BNA has, in Japan, some 4,700 units operational with some 900 units in the Oceana scene. The corporation is aiming to have a grand total of 10,000 units placed internationally – all connected on the BNA tournament network servers, and offering continuous competition. The Western version of ‘Taiko Master’ is labelled the “Game Center Version” – and we can expect to know more about a wider international penetration soon.

Corporate rival SEGA revealed their own figures, seeing in their case a drop in net sales and profits ($710m in net sales). The operation was looking to implement new restructuring following the acquisition of Rovio. The corporation, including the SEGA Sammy pachinko and casino operation, state a decline in business – and the corporation announced restructuring, with the creation of a Gaming Business division. The amusement and toy operation had previously been merged, as reported on at the time. Obviously, SEGA divested their facility operation business, selling respectively to CA and GENDA, but still has partial involvement as the SEGA IP is used in the CA SEGA JOYPOLIS operations – which has just started to push its own concept vehicle with ‘JOYPOLIS Sport’. SEGA Corporation has been promoting the deployment of their IP beyond their videogame and amusement interests – with the buildup to the latest Sonic movie.

The developing Japanese amusement scene, and the return towards a facility-based business, spurred on by the growth of operations such as GENDA, seems to be catching on amongst the old guard. The GENDA GiGO Entertainment operations have been involved in a major rollout of new venues, including a new flagship location. At the same time, the international aspirations of the operation have been evident, with the news that GENDA Europe has been formed, as a compliment to the already established GENDA Asia and USA. In Japan, GENDA also rolled out a more social entertainment version of their brand, underlining the growth of the operation – they reported business profits across their operation increasing by 15-percent. The operation confirms they are advancing with the planned rollout of new venues and also working an active M&A phase of business.

Speaking of the old guard, in a media briefing, TAITO announced they intend to start what they call a “new business” that would move away from the current corporation’s reliance on prize machines. This operation will look towards developing “amusement parks” – what were called “new places to play.” This will not be like the current ‘TAITO Station’ chain of operations. We have already started to see this process with the launch of the previously reported ‘BOOTVERSE’, ‘X-STATION’ and TAITO’s entry into the social entertainment space with ‘EXBAR’ – targeting the new Generation Z audience.

From the information available as of going to the wire, this announcement sparks memories of the Japanese amusement trade’s dalliance with Amusement Theme Parks (ATP). Those with long enough memories will remember that TAITO had been one of the first to develop these mini-attraction venues. Launched in 1993 called ‘TAITO Park: Cannonball City’, the then major amusement factory opened the venue comprising numerous amusement and deluxe attractions. Marketing called it “Super American Entertainment” and reported, at the time it cost $30m to develop. A popular development, TAITO would not go on to open any other variants of this concept, closing the site in 1999. TAITO is owned by Square ENIX.

These developments towards new concept vehicles to drive the evolving Japanese amusement venue business, can be seen from other amusement factories – such as CAPCOM with their ‘Crazy BANet’ concept. The diversification of these operations was reflected in the news that CAPCOM had been in development of a new AR technology attraction that was opening soon, based on the corporation’s ‘Monster Hunter’ IP. The installation (called ‘Monster Hunter Bridge’) will be part of EXPO 2025 held in Japan and plans to offer a unique walk-through attraction. Guests are immersed in the game’s universe, using AR see-though headsets that represent virtual objects and creatures into the physical space. This is one of the latest installations employing this near holographic technology for “Shared Reality” experiences and marks the latest development of an XR project by CAPCOM based on their original IP.

We can expect further development from the Japan’s amusement and social entertainment scene as the market redefies itself to the new reality of the business. There is a need to attract a new audience to their popular entertainment, as well as the need to restructure their businesses towards the opportunities as they present themselves. We are about to see a considerable power struggle to establish a presence in this reemerging market. And we can expect to see the Old Amusement Guard fighting to retain their control over what emerges.

Recently we compiled a special feature for our friends at Arcade Heroes, charting the re-emergence of music game systems into the Western market. In this Stinger reportage we take a closer look at the issues shaping the return of rhythm and dance game systems into the market, and the implications for the amusement trade, and those who support them. We intend to cover more developments in this sector, following the coming Amusement Expo Tokyo – the Japanese amusement trade’s rebranded gathering to take place days before IAAPA Orlando.

Tipping Point for Commercial VR

We follow on from the previously reported news of the closure of the OTHERWORLD VR four facilities operated by The Dream Corporation and bankrolled by new investment back in 2021. Although the reason for the sudden liquidation of the operation was not officially revealed, many well-placed sources from the recently laid off staff for the three London, and Birmingham sites revealed a concept that, while looking lavish, failed to hit the key needs of a LBE venue – as in generating a regular revenue from visitation, be that walk-in-traffic, reservations, and/or special group bookings. Add to this the overheads of expensive local licensing fees for the VR content implemented into their concept, technology overheads, and staffing costs. While the OTHERWORLD VR team may claim some 360,000 users over its five years, concern on the actual profitable EBITDAR (Earnings Before Interest Taxes Depreciation Amortization and Rent) seemed to have been proven by the sudden closure.

As one of the many chain LBE VR operations monitored by Stinger Report owners KWP, this sudden closure is not all together unexpected based on leaked information, and could just be the start of a rationalization of the VR facility business – as well as the rest of the location-based entertainment scene, as seen by the impacts in hospitality / Eatertainment sectors as reported in our previous coverage.

Another surprise development in this sector came from VR Entertainment Group, the franchisee in the UK and Ireland of the SandboxVR chain of VR free-roam arena-based operations in the territory. It was revealed that the operation had started a Crowdfunding campaign to raise a target investment, originally setting a £500,000 ($650,000) investment target. The franchise operator of the UK sites was reported, since first opening their London site in 2022 and second site (Birmingham) in 2023, to have surpassed £10m in revenue – with 2024 projected to hit £5m.

In an interesting history call back, this crowd funded deal took place ten-years to the day since the successful free-roaming VR operation Zero Latency started their crowdfunding campaign that started the ball rolling on their now celebrating their 100-facility operation. That the franchisees of the SandboxVR operation would turn to a crowd sourced fund raise, caused many questions. Sources suggest additional funding was needed on top of what would be expected from the facility admission of this franchise.

Regarding SandboxVR, media coverage was seen in media site GameBeat, reporting that the operation was foreseeing a “big expansion” in their franchise business. The operation stated they intended to open 280 new franchise locations in the next four years. The operation had already reached a momentous milestone for the company, opening their 50th venue as well as their first Australian site (37 of which are operated by the company, the rest are franchises). This is a major point for the operation which was first started in 2017 from its Hong Kong roots. The operation had announced, in 2023, they had seen 1.2m ticket sales across their businesses.

Other LBE VR venue chains that previously saw vast amounts of investment have been impacted by changing conditions – from the early days of the VR free-roaming facility scene, with the abortive IMAX VR Arcade and Nomadic VR failures. The implosion of the first VOID operation, and the redefining of the Dreamscape operations, are the tip of the iceberg. There are hordes of other VR free-roaming areas in operation from Western and Asian manufacturers, run as either standalone installations or as a VR attraction as part of a larger site. And not all these venues have been able to raise such lavish investment as many of the more marketed VR chains. This situation is opening the door on the reality that we are about to see in the M&A conditions impacting the rise in VR arena venue adoption, and a restructuring of the market.

For many months before entering 2024, sources close to The Stinger Report had advised that this would be the year of “the great reckoning” in commercial VR entertainment, both in venues and hardware. A culmination of situations had come to pass, and this would be the year when the reality and viability of VR entertainment standalone business would be writ large.

The culmination of situations comprised, initially, the investor call – as those who had funded the smattering of VR arcade chains came for their profits and wanted to see how profitable their investments had been. Also, many of the established early bird VR entertainment spaces had passed the novelty point and were now looking at serious post-COIVD profits. And finally, the “novelty” value had worn off, both consumer VR and commercial, and the experience on offer had to be a serious one, with developers/operators proving they had factored the “repeat visitation” aspect into their business plans. Those who had not were about to have a very rude awakening.

So, upon entering the hardest part of the year for a location-based entertainment venue of any stripe, having to deal with summer weather and vacation conditions – we started to see the heads begin to topple. Obviously, it is difficult to ascertain the condition of these venue businesses until files of closure, or verifiable sources can confirm their situation. We have been sitting on news of several operation closures for several weeks, waiting for confirmation of the sources’ leaks.

Restructuring and changes in business marked several names. For example, as seen with Centre VR, having opened originally in 2017 and operating two facilities in Bournemouth and Enfield within the UK, and now owned by The Lockey Escape Room Group, a Bournemouth escape room operation. The UK had been a hotbed of early VR arcade operations that had looked to grow into chains. Although the US market was the real epicentre of VR arcade evangelism, and we were about to see the continuing of the toppling take place across the pond. Examples include VReality – operating a Florida 2,000-sq.ft. facility in a local mall.

The tempestuous nature of VR facility operation is best illustrated by corporation Park Playground – seeing success in their European rollout, they have hit a speed bump with their UK operation, Park Playground VR UK. This operation saw the opening of two venues, the first being in Birmingham, opened in December 2022, and the second in Leeds, opened in 2023. These venues followed the VR playground model and had received publicity, but then, suddenly, the company’s website stopped taking bookings, and the two UK sites went dark, with local news discussing the closing of the sites at the beginning of August.

The UK franchise sites were part of the 11 European VR LBE chain, as Park Playground reported to have partnered with leisure operators such as Center Parcs Park, to supply their LBVR experience. The sudden closure of the two sites saw around five members of staff losing their jobs. It would take a few weeks before it was revealed that the Park Playground found a new partner to work with in the UK, reopening the Leeds venue soon after, and working towards reopening the Birmingham site. This slight speed bump did not reflect what was happening with the European operation, seeing growing success, opening its first Immersive VR franchise in Porto, Portugal. In an article for TheBusinessDesk.com, the operation cited that, following the UK closures, they were focusing on European business. However, they were also working with UK partners to bring their experience back to Britain again.

We seem to have reached a major tipping point for the peripheral VR arcade scene, in the same way that, in 2018, we saw a spate of high-profile LBE VR operations achieve much investment and equally high promotion, then implode in ignominy. Operations such as IMAX VR Arcade, Nomadic VR, Survious VR, HUB Zero, and The VOID, for example. All had received serious investor support, and all imploded after failure to establish a workable business model – failing to learn the lessons of location-based entertainment business operation. Rather, they hoped that the novelty of technology and throwing cash at a problem would work.

In this climate, the VR arcade sector has now pivoted towards a franchise business. Examples of the investment towards this kind of approach was seen with companies such as EVA (Esports Virtual Arena), which started offing franchises in 2019, with a reported 32 franchised companies. Meanwhile, TrueVRsystems launched their first franchise offering in 2018 with some 10 franchised sites. ANVIO VR started in 2016 with some 40 franchised sites. Moving further into the sector, Arena Space launched in 2017 and with some four franchises sites operational and another four self-operated sites. Other examples include WARPOINT VR Parks, which started in 2019 and started franchising the following year, with some 209 reported franchised companies – claiming some 1.5m players each year.

The need to have constant content updates to feed the monster of VR LBE was illustrated by Zero Latency VR – the corporation, covering some 70 locations, announced the rollout of their next VR arena game release. The eagerly anticipated ‘Space Marine VR’, developed in partnership with War Hammer 40k, saw release at the end of September across their franchise network. The market is moving towards a more focused franchise model, also seeing the creation of reliable service and support of the key components that drive the sector.

One of the prominent VR headset providers for this aspect of the sector is HTC. The company has partnered with IFIXIT – announcing the new “HTC VIVE Repair Hub”. This operation supports current and legacy headsets. At the same time, other VR headset manufacturers are offering commercial entertainment platforms that hope to define the next phase of investment into this sector – operations such as DPVR and PICO. We will have a rundown of the latest developments in the consumer VR headset sector soon.

Speaking of developers who have invested heavily into IP and immersive entertainment, including VR, and the news was revealed that Layered Reality – famous for their ‘War of the Worlds’ and ‘Gunpowder Plot’ immersive experiences in London – had signed an investment deal worth £1.75m ($2.3m) with Channel 4 Ventures. This is a deal that will see the immersive entertainment operation’s work reach a TV audience through placed advertisement on the channel. Layered Reality has been defining their next series of experiences in development, including the announcement of their ‘Elvis Evolution’ immersive experience – which is in development in partnership with the estate of the music legend. And this partnership with Channel 4 will secure promotion of these and other experiences operated by the company.