A lagging trend of the past few months has been witnessing startups that COVID-19 seemed poised to kill end up scaling back some of those deep cuts and taking off again. Not all spaces have been quite so lucky; in particular, lately we’ve seen a host of location-based virtual reality startups shut their doors.
Virtual reality arcades weren’t exactly crushing it pre-pandemic; the small industry was already a bit of a Hail Mary for the virtual reality market, which has failed to push consumers to adopt headsets on their own and saw arcades as a way to warm up the general public to VR’s role in entertainment. Lackluster consumer interest and the throughput difficulties associated with quickly moving users through experiences were among the biggest challenges facing VR arcades.
This week, following a report from Protocol, Apple confirmed its acquisition of Spaces, a virtual reality arcade startup that had been forced to close its in-person arcades amid COVID-19 and had attempted a pivot to creating virtual environments for video chat software. An Apple acquisition is hardly a mark of failure, but it is unlikely that the company has any interest in reviving the startup’s arcade business.
Earlier this month, The Wall Street Journal reported that the U.S. subsidiary of Sandbox VR had filed for bankruptcy. Sandbox VR has raised quite a bit of money on the promise that they could revamp several industries at once. The idea was that mall operators on the decline would give great deals to some of these startups to set up physical storefronts as a loss leader to bring in a younger generation of consumers, while they could capitalize on mixed reality social media video to bring a level of viral growth to their VR offerings.
In July, UploadVR discovered documents that suggested Disney had terminated the lease of virtual reality startup The Void’s Downtown Disney location following months of COVID-19-related closures.
It was impossible to forecast the current pandemic when many of these investments were being made, but virtual reality arcades had already shown they were far from a sure bet. In late 2018, IMAX shut the doors of the last of its seven virtual reality arcades after investing tens of millions into its VR efforts.
With the future of in-person entertainment unclear, the question is whether virtual reality arcades have any chance of a rebound.
The fact is many of these startups were pushing up against current realities on multiple fronts and were attempting to seriously shift the landscape of 21st century digital entertainment, attempts that seemed daunting from the start.
As massive movie theater chains struggle to see how the pandemic will affect their industries in the long-term, it isn’t surprising that many of these startups have failed to see a light at the end of the tunnel and have shut down operations or been sold off. I suspect investors will be reluctant to back new efforts in this space and that the time horizon of COVID-19 will force current entrants toward pivots that look dramatically different from pre-COVID-19-era business models. (One caveat is that the VR arcade market certainly looks different in the United States compared to markets in countries like China and Japan where virtual reality arcades seem to fit a bit more snugly into popular gaming culture.)
If VR arcades survive or are reborn, it will be due to some pretty massive shifts in consumer behavior and VR adoption.
Virtual reality, as an industry, is in a tough spot. In the United States, it’s essentially only Facebook keeping the space alive in a meaningful way, and the company seems to be barreling ahead in its efforts to build a mainstream future for the technology on its own terms. Earlier this summer, Facebook announced that it was pulling its top-selling title Beat Saber from arcades for good by August. Since the acquisition of Oculus back in 2014, the ecosystem that sprang up around Facebook’s VR efforts has receded meaningfully, leaving the company in a lonely position once again.