Location-Based Entertainment - A Multiplier Towards Advancing VR

Eight years ago, I was involved in supply chain discussions about the beta version of Oculus Rift and was able to test virtual reality for the first time. During the simulated roller coaster ride, I promptly experienced motion sickness. Since then, VR technology has been improved (especially in terms of better resolution and lower latency times), and in the segment of home entertainment, the PlayStation VR achieved more than a respectable achievement with 700,000 units sold in the fourth quarter of 2018 (Superdataresearch 2019). Nevertheless, it has become somewhat quieter over the past year with regard to private VR solutions, and a relevant market penetration has not yet been identified.

LBE Is a Trend to be Taken Seriously

Now a new trend is emerging: Location-based entertainment (LBE) refers to virtual reality entertainment services that are offered by commercial providers with a pay-per-use model at high-traffic sites such as malls, movie theaters, and/or amusement parks. As is so often the case, the trend can be traced back to Japan, China, and the USA. The German company Hologate already has 140 installations in operation across the globe, but only nine of them are located in Germany. The financing round of Sandbox VR for USD 68 million in January 2019, supported by the investors Andreessen Horrowitz, Alibaba, and Stanford University (source), illustrates the earnestness of the topic: Originally the Chinese company focused on the development of VR games, but as the market developed (too) slowly, the company decided to focus on VR arcades, i.e., LBE facilities. For the same reason, the VR pioneer Oculus has since expanded its investment pitch to include LBE solutions (greenlightinsights).

How has this trend come about? A survey by the LBE operator Springboard shows that 95% of their customers had never tested VR before. This is mainly due to the complexity of installing VR at home and the prohibitive costs involved. LBE reduces these obstacles by providing physical rooms where everything is already installed, support staff, and pay-per-use pricing models. In addition, the sensory experience is enhanced by, for example, wind machines, temperature adjustments, as well as haptic objects: if a player runs into a (virtual) stone wall in a game, this is also experienced in reality (with foam walls) within the actual LBE room.

There is also a social component: while using VR at home tends to have a socially isolating effect, in LBE, individual players move across the playing field together with their computer backpacks, handhelds, and goggles. It is also possible to participate in team challenges and competitions.

A Global Market of USD 5 Billion Is Expected by the End of 2023

Greenlight Insight (source) estimates the global market for location-based entertainment at USD 1.2 billion in 2018, with a CAGR of 32% expected by 2023. This would expand the market to nearly USD 5 billion by 2023.

To this end, the market can be divided into the following four categories:

• LBE Game Developers - Frequently, games are developed specifically for LBE. They serve B2B customers in the form of LBE operators and LBE turnkey solution providers. Company examples include: Wargaming.net and The Virtual Reality Company
• LBE Hardware OEMs - They manufacture hardware for VR. Usually these games are played with a PC backpack, handhelds, and goggles. They serve the B2C market and, in the context of LBE, B2B customers in the form of LBE operators and LBE turnkey solution providers. Company examples include: HTC Vive, Oculus, HP and Positron
• LBE Operators - They provide LBE on their own premises or in high-traffic areas such as malls, movie theaters, and/or amusement parks. They support B2C customers through LBE installations. Company examples include: Zero latency and SandboxVR
• LBE Turnkey Solution Providers - They offer complete solutions for LBE operators. Company examples include: Hologate and Neurogaming

Some suppliers are active in more than one category simultaneously. For example, THE VOID, operates its own locations in Canada, the USA, and Dubai, develops its own content such as "Star Wars: Secrets of the Empire" in cooperation with Disney, and also offers ready-made solutions.

According to Forbes (source), the installation of a VR playing surface by the German company Hologate costs roughly EUR 85,000. On top of this are operating costs such as staff and rent, as well as the customer‘s expectations to be able to play various and consistently new games. With a current willingness to pay EUR 0.50 per minute for such offerings, it is crucial to generate a high usage rate in order to be economically viable. As a rough estimate:

• VR playing surface: purchase cost of EUR 85,000 for one playing surface from Hologate (for one to four players)
• Personnel costs: EUR 105,000 for three employees at EUR 35,000 each
• Rental costs: EUR 36,000 per 25 square meters of playing space and 50 square meters for office space and locker rooms at EUR 40 per square meter.
• Average playing time of 10 minutes with five minutes changeover time each
• Willingness to pay: EUR 0.50 per minute of play

Other variable costs have not been taken into account in this calculation. To directly amortize the fixed costs of EUR 226,000 within the first year, a daily turnover of EUR 750 per day or 150 guests per day is required per 300 open days a year. With twelve open hours and four game units per hour, an average occupancy rate of more than three players per game must be maintained. Thus, the business is not a sure-fire success. For this reason, LBE will continue to operate at highly frequented locations such as amusement parks, malls, and movie theaters. Pop-up store concepts are also a possibility. The provider IMAX has already had to close down individual pilots. However, one supplier from multiple locations can swap equipment among sites, and suppliers such as Hologate already offer a game catalogue that enables a variation of games being offered, thus allowing longer installation times for individual games so as to improve profitability.

Summary and Vision

As LBE offers a particularly rich customer experience, it has a long-lasting right to exist, not least of all as a teaser for home-based VR applications. The gaming industry has again taken on the role as the innovation leader of an innovative technology. Other industries, such as trade fairs and eroticism, could jump on the bandwagon rather quickly. Furthermore, we see long-term potential for location-based virtual reality in sectors such as sports, culture, education, and science. In January 2019, for example, a VR art project took place at the Saatchi Gallery (source) in London with sound animation, wind machines, scents, and breath sensors – with many more to come.

Is virtual reality also relevant as a technology for your company? In the past, LSP Digital has successfully supported many customers with technology-based business models, ranging from initial market research all the way to business building and investment.

A more detailed table of VR companies: