The first VR arcades started popping up in China in 2015. Internet cafés had been all the rage for the last decade, and local entrepreneurs figured virtual reality was the next tech trend. Enter the virtual reality experience store.

In 2017 estimates suggested that 35,000 VR experience stores opened in one year. The explosion of new stores led to price wars, eroding the perceived value of the experience and leading to widespread closures. Operators complained that players would only come if the prices were below the point at which the business was viable. The tight margins led to rampant piracy to maintain costs. These pirated copies of games contained many flaws, eroding the customer experience.

It’s hard to get statistics on how many VR stores remain in China. But as the boom and bust cycle was playing out there, the US market was beginning.

HTC VIVE announced VIVEPORT Arcade, which licensed games for arcade owners using the VIVE headset. Franchises emerged like VR Junkies and Control V. Other companies, like Private Label VR, Springboard, and Synthesis, developed software platforms to help entrepreneurs manage their VR arcades. Even big names got in on the act. Startups claimed to be “the IMAX of VR”, so IMAX said, “why not us?”.

IMAX VR’s flagship in Los Angeles, circa 2016

The problem with VR arcades is that they look easy and fun.
But the business models that emerged were inherently flawed. Arcades offered an all-you-can-play model where a customer took over a 10×10 booth and paid for 30 minutes to an hour of play. Successful arcades of the past sold gameplay by the experience. A quarter got you three balls on your favorite pinball or five lives in Defender. Your skill determined how long you played. The more you play, the more value you derive from your purchase. Which drove repeat play.

VR arcades, on the other hand, turned into fancy computer rental businesses. Operators charged fifty cents per minute of playtime, or $30 an hour. On the surface, this looks appealing. A PC-based VR gaming rig might cost about $5000. At that rate, it only takes 166 hours to pay for itself. If a business owner could rent each one for just 20 hours a week, they’d get their money back in eight weeks. Eureka!

But factor in licensing, labor, rent, and customer acquisition costs, and the margins evaporate. Most VR arcade owners bought themselves a sub-minimum wage job if they were lucky. If anyone had taken a trip to China, they would have figured that out and saved themselves the misery.

But there’s a light at the end of the tunnel.

Arcade 2.0

In the early days, there were free-roam arcades like Zero Latency and The VOID, and room-scale arcades, like Control V and IMAX VR. The business models for all of them were dubious. Nobody had cracked the code to create a predictably repeatable, profitable business. In the last couple of years, there’s been a movement to combine free-roam and room-scale into a more diverse product offering.

One of the challenges of free-roam arcades is their limited capacity. Zero Latency, for example, can only handle 16 customers per hour. This requires a price per player of around $40-50. With an experience lasting about 25 minutes, it’s not enough to become a destination occasion on its own.

The Park Playground in Belgium was among the first to integrate room-scale single-player experiences with free-roam multiplayer, offering an hour-long plus experience.

The Park Playground in the Netherlands

Players book their arrival time in advance and start with a beverage at The Park’s simple café. Their host then guides them to their first experience, where they select from a limited library of single-player room-scale games. After about 15 minutes, the group gathers around a station dedicated to Richie’s Plank, where they laugh and cajole each other as they attempt to overcome their fear of heights.
Then the host takes them for their free-roam adventure, where the group picks from one of their half-hour exclusive multiplayer games. When they’re done, players return to the café for another drink, reflecting on their shared experience.

The Park curates a 60-90 minute experience that, despite the isolating nature of VR, is inherently social. It’s long enough to make it a destination occasion. The typical Park Playground has two free-roam areas of about 1000 square feet, each capable of handling six players. They also have between 8–12 single-player stations, and Richie’s Plank can hold six players taking turns. With the café capacity, The Park’s occupancy is easily 40 people at a time, charging 35 euros per person. And they manage to cram that into 4000 square feet.

The Park is a franchise spun out of Telenet – the giant media conglomerate in Belgium. With about a dozen locations in western Europe, they’ve developed one of the most promising business models I’ve seen in the VR arcade industry.

Sandbox VR is another franchise company to watch in this space. They’ve been snowballing post-pandemic with 30 locations in North America and sites in China and the UK. I spent a half day with the London franchisee shortly after they opened to learn more about their business model.

The London site is a global flagship. Located near Soho, it occupies the old post office building. With six VR “stages”, a robot bartender, and lots of lounge seating, it feels more like a nightclub lounge than a VR arcade. There’s a second-floor loft with another bar and a meeting room. It’s designed for small groups and corporate events. Their target is for food and beverage sales to make up 70% of their revenue.

The robot bartender at Sandbox VR in London

EVA, short for Esports Virtual Arenas, recently opened its first US location after expanding to nearly 20 sites in their home territory of France. EVA features a massive free-roam footprint with two 5000 square foot arenas in each facility. Two teams of up to five players battle it out in a realistic VR version of Call of Duty. While their esports business model is worth further exploration (on page 34), the scratch kitchen and full bar serving up gourmet steaks and craft cocktails might point to a growing trend in location-based entertainment. Food and beverage have become the number one anchor attraction.

There was once a narrative that alcohol and VR didn’t mix, but like many things that held VR back in its early days, that was a myth. Redline VR in Chicago is another example of a full bar combined with a virtual reality arcade. Founder Aaron Sawyer offers players a complete craft beer, wine, and specialty cocktails menu.

While Sandbox VR and EVA can cost over $1 million per location, and The Park will set you back a cool $350K with just a light café model, nothing stops entrepreneurs from creating their versions of VR Arcade 2.0.

With the industry standardizing on the HTC VIVE Focus 3 headset, more and more developers are creating free-roam games, licensing them directly to operators or through arcade distribution networks like Springboard VR and Synthesis.

Nick Wallace owns Free Space VR in Brisbane, Australia. He recently converted his entire arcade to Focus 3, using Wi-Fi 6E streaming to replace all the cables. Free Space VR features 12 single-player stations and two compact free-roam arenas. The first features the Phenomena VR Esports Arena, and the second is running Vertigo Games free-roam games like Arizona Sunshine and the new After the Fall game. Each arena is about 1000 square feet and fits up to four players.

Nick Wallace of Free Space VR in Brisbane

The space efficiency of the room-scale games is critical to the capacity of the business. Free-roam games average one player for 250 square feet, where room-scale gets them into 100 square feet or less. A well-optimized arcade will balance room-scale and free-roam, and price them accordingly.

Some VR arcade operators are considering adding unattended games to the mix. Where a PCVR game with a Focus 3 and Wi-Fi 6E streaming might cost $5000 per station, the least expensive VR arcade cabinets from a major US manufacturer cost about 3 times that. But when you factor in the higher price per minute and the labor and space savings, it can make good business sense.

I recently visited a Zero Latency location on the Gold Coast in Australia. They offer two single-player multi-game stations in their lobby and four driving simulators. While they’re not fully unattended, they don’t require dedicated staff. I wouldn’t be surprised if the best VR shooters like Zombieland Arcade Fever and VAR BOX start finding their way into the free-roam locations to generate additional per-capital spending and to increase the variety and length of experiences for customers.