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Stinger Report - 11/05/20

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TSR Newsletter  | May 11, 2020
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-- The Stinger Report: Service Message-- 

The Global Digital Out-Of-Home Entertainment (DOE) Sector covered in  The Stinger Report .

Wishing all our subscribers, famlies, loved ones, (and those serving) stay safe and well.

Kevin Williams
Publisher, The Stinger Report (TSR)


Entertainment's Shifting Paradigm

1  |  # 1019

Report Skinny
The latest update on the momentous changes impacting the aspects of the Out-of-Home Entertainment arena globally. In this first part (of this three-part feature), we look at the first impacts on "Location-Based Entertainment", with layoffs and corporate restructuring in the LBE VR scene. We also look at the developments in "Amusement Operation", as well as the "Bowling" scene and "Amusement Hardware & Sales"; then concluding this first part with the major conflict in the "Cinema" industry, all pointing to a "Reset Moment" for various sectors. 
Main Report
The first major upheavals, moving out of the period of enforced isolation and heading towards the slow resumption of (some) businesses, were starting to be observed - manifesting initially in the "Location-Based Entertainment" VR scene.
It was revealed that the original president and CEO of the Arena-Scale start-up, Sandbox VR,had stepped down from his position as CEO, revealed in his social media posting. He had held this position for only seven months, previously being the founding president since the company was founded in Hong Kong in 2017. Having used the tagline "a Holodeck in every neighbourhood", the operation has seen considerable investor interest, including a recent $68m series A supported by Sand Hill Road, Floodgate, Stanford University, TriplePoint Capital, CRCM and Alibaba. This was followed in 2019 with several A-list celebrities making an $11m (strategic round) investment in the operation.
Initially, the operation had opened its full-immersive, backpack VR LBE sites in Hong Kong, Jakarta, Macau and Singapore; but following major investment in 2018, also opened its first Western sites in San Francisco, Los Angeles, San Diego, Vancouver, Chicago, and Austin (which only opened in February). This includes planned construction on Dallas and New York sites, with some 16-locations having been planned for the end of 2020. At the same time, the company signed an agreement with mall operator Westfield, hoping to install their take on LBE VR centres in their malls across the country. Sandbox VR had only recently promoted the development of an SDK that would have allowed third-party developers to create content to be deployed in their facilities. This comes on the back of the launch, last year, of a game experience based on the CBS Television 'Star Trek: Discovery' franchise.
The news of the major upheaval at Sandbox VR was given no real publicity, with the information coming from sources who revealed to The Stinger Report that the CEO position had terminated. He was an executive who had become a prominent face of the operation, following such a high profile rise to prominence after considerable investment. The operation is famous for the reported late-night agreement, signed on a napkin at a local In-N-Out Burgers, with Andreessen Horowitz general partner. As stated previously, the "Perfect Storm" conditions of the global health crisis are forcing the temporary shuttering of all entertainment businesses, and have magnified the fault lines that exist across the major players in this sector. Though many observers had expected that the $82m which the operation had raised to this point, would offer some liquidity to weather the storm. The online statement from the departing CEO just stated that his position had come to a "abrupt end due to COVID"? No further information was available at this time, though sources suggested that large portion of the development team had had to be laid off.
Sandbox VR was one of the newest, but also most heavily invested, entrants into the location-based VR destination venue market. This followed The VOID, Dreamscape and Nomadic, along with several other operations that had germinated across the globe. Questions had been raised at the time as to why such a heavy investment had been made in Sandbox VR, when comparing the experience it offered against other established operations. Although sources suggested that it was the support of online retail giant Alibaba, and Chinese roots that played a major part in its positioning. With the global pandemic, the realities of the business have been brought into sharp relief, with the departure of the leading executive and members of the dev team. The original founder has stepped into the vacant position and it is expected that major announcements on the business's future will be made in the coming weeks.

The VR scene, and all aspects of VR in Out-of-Home Entertainment, have been drastically impacted by the close, along with concern regarding the guests' interests in using such intrusive hardware following the enforced isolation. Some sources have been quick to speculate on the business impact. Industry research portal SuperData, was reported as saying the sector will lose 72-percent of revenues compared with 2019. This, however, does not consider the results of business after lockdown - especially considering territories where entertainment venues have started to reopen, an upswing in interest to continue to experience immersive entertainment.
Other aspects of the "Location-Based Entertainment" sector have continued to see development investment. Attraction developer Lagotronic Projects announced the launch of its 'GameChanger-XS' - a media-based Interactive Dark Ride. Players are seated on a rotating platform, which transports the visitors along three interactive media scenes represented on giant displays. It comprises four sections, each facilitating two players, resulting in a claimed capacity of 225 visitors per hour. The announcement of the 'GameChanger-XS' variant comes just as Lagotronic announced they had, after a successful patent application in the Netherlands, successfully been granted in the USA as well (patents in other regions, like Europe and China, are pending). The platform is targeted for FECs, museums, shopping malls, and other leisure venues.
Continuing the spate of new developments in the Interactive Dark Ride sphere of the attractions market, and in the middle of the upheavals across the market, news broke of a new entrant into this scene. BoldMove Corporation announced the launch of their first thrill ride, 'Smash & Reload' - part of the new 'Rogue Rides' range of hardware, this next generation dark ride has a reduced footprint, starting at 225m2, while offering throughput of some 360 people per hour. The attraction has a total ride capacity of 30 people through the hexagon-shaped design. Six players per ride vehicle, traverse multiple screens within the ride arena, spinning 360¬į, with players able to shoot at the screens. This has been developed by BoldMove, a new start-up founded by ex-AlterFace Projects' chief executive, before leaving during the major restructuring and moving on to create the new company, which is partnered with creative teams King Concept, Bon Art Studios, and technology specialists Polymorph and Painting with Light. It will be interesting to see if these kinds of immersive media attractions will offset interest in VR variants, or if it will be a genre of hardware that will continue in its own respect.¬†
Regarding "Amusement Operation", several initial social media-supported crowdfunding campaigns have been started by amusement venues, which have fallen on hard times and need financial support in order to survive. Examples include in Japan, with the Mikado site - a old-school video arcade site that is famous in the gaming community. Due to the health crisis, takings had dropped by 70-percent and the owner had to appeal to the loyal player community for support. Using the crowdfunding site, Campfire was able, over a few days, to rase more than 25 million yen ($233,650) from over a calculated 2,330 backers. While in the USA, the American company Classic Arcade Museum resorted to GoFundMe in order to raise some $25,000 to address fixed expenses and monthly costs, even with their doors closed during the lockdown. It is not known, at this point, how many other entertainment venues will be looking to crowdfunding support in order to keep the lights burning.
Not just the small amusement venues, but also the large chains, have been working to shore up their businesses in the face of the enforced lockdown and suspension of business. Following on from our previous report, Dave & Buster's continued its efforts to secure its 137-venue operation. Following April's $75m share sell off, it was revealed that in May the company had received an additional $100m from the investment firm Jefferies (purchased in stock). This also included an option for an additional $15m in June, depending on conditions. The news of the deal had the effect of causing D&B stock to fall some 15-percent when trading resumed. It is expected that the other entertainment chains in this market will be announcing their own debt plans in the coming weeks.
Several trade associations have started to share information on the best practises. Recently, the AAMA held a few webinars for its members regarding COVID-19 Cleaning Protocols. During this initial information interchange, it was made clear by the association that they wanted to be seen to be able to police themselves, and avoid edicts being forced on the sector by government - a concern for many operators that unproportioned restrictions may be forced on their businesses based on incorrect information.
One of the suggestions that came from the AAMA webinar on cleaning was the possibility of amusement operators implementing a facility for the players of the machine to wipe their playing space down themselves, before and after using the machine - similar to the courtesy seen in health clubs, with the user on the machine wiping off their sweat before the next user. This move is seen as empowering the guests, allowing them to take more agency in their protection, and a promotion of the steps being taken by the operator. Also, the issues of player proximity were touched on. A similar consideration was seen in Japan during the beginning of April, with certain open arcade halls employing social distancing (blocking off adjacent player spaces), and offering "wipe down" cloths.
There has been a danger with the desperation of many to try and return to some normality of business, to strive for a "Magic Bullet" that will solve all issues. Too much reliance is placed on processes. This hope has been played upon by unscrupulous sellers, claiming their products can achieve 100-percent success in eradicating the virus, or the selling of common or garden disco fog machines as disinfection spray devices. There is a need to be careful, regarding how to apply solutions. The same has seen various head thermometers and thermal camera systems being proffered to the industry. But as was stated in a recent IAAPA trade advisory, "A portion of the population that has the disease remains asymptomatic, but contagious. So even when used properly and when producing accurate readings, be aware that no temperature screening system is fool proof in ruling out coronavirus."

While each industry association attempts to come up with strategies towards emerging from the lockdown, it has become clear that along with various trade groups, each country and even State hopes to apply their own interpretation of best practise in the early phases of the recommencement of business. This was best illustrated by the news that, when shopping malls and Family Entertainment Centers (FEC) within these spaces reopen in the United Arab Emirates' main capitals, local government has regulated that facemasks will always have to worn. Also, the local authorities have demanded that all locations operate at a 30-percent capacity to avoid clustering of patrons - this also includes age restrictions on those who can attend (excluding guests aged from 3-12 and those over 60 years of age). These rules are under constant review, but were felt as fitting in the first phase of review.  
Aspects of the business that have worked hard to shore up their businesses include the "Bowling" sector. It was revealed that the major UK chain, Hollywood Bowl, had announced it is to release 7.5 million new ordinary shares through an accelerated book-building process, in order to raise £10.9m to "strengthen the business in the aftermath of the pandemic." Hollywood Bowl operates over 60 UK sites, and has also partnered with BANDAI NAMCO to represent their VR ZONE attraction in several their sites. This is along with more conventional video amusement, prize machines and hospitality components in support of their bowling experience. The Bowling Proprietors' Association of America (BPAA) is reaching out to its membership to share a message to the guests, with a campaign including "Safe, Sanitized, Ready to Roll!" and the "Ready for Some Good, Clean Fun!" campaigns (supported by flyers and signage).
The impact of future business coming from China has been seriously placed in doubt for the Western "Amusement Hardware & Sales" industry. Beyond the concerns of a backlash towards the territory's handling of the global outbreak, there has been a growing concern regarding quality and support of VR and amusement hardware from this market. It was noted that sales agents from several of the key Chinese amusement and VR manufacturers had been heavily posting on social media to attract sales during March. It was reported in the South China Morning post that 460,000 Chinese firms had closed permanently in the first quarter of the year, with the majority related to the impact on trade following the spread of the pandemic and international lockdown of commerce. It was also revealed that the creation of new firms had fallen by some 29-percent during the same period.
There have been suggestions that some Chinese VR manufacturers had hoped to offload the last of their older VR systems into the Western market, feeling that the market was still attracted to their previous immersive platforms. However, with lockdown, most VR arcades and operators have been taking stock, and looking at more modern, locally developed systems, placing these Chinese manufacturers (and especially their Western sales agents) under pressure to clear warehouse space. These manufacturers have started to offer continuing discounted pricing (hoping to retain their commission). However, it is important to remember that this situation was noted before the global health crisis. In The Stinger Report's IAAPA'19 coverage, readers will remember we noted the drop-off of Chinese exhibitors (especially of VR hardware), compared to previous years. The main factors of reliable ROI and suitable game content were driving the buying habits of the then before pandemic market. Looking towards #AfterLockdown, the possibilities of Chinese VR hardware that does not come with service, reliability and strong content, seems slim.

The major paradigm shift brought upon the entertainment industry by the global health crisis, was placed in sharp relief by the impacts recorded on the "
Cinema" sector. The trade association representing the cinema sector, the National Association of Theatre Owners (NATO), has reacted to the proposal by US government towards the lifting of restrictions in some States, which would see cinema venues able to reopen as part of what has been called "Phase One" (under the classification of Large Venues allowed to reopen). The criteria for this phase to be enacted - based on the White House plans reported by Boxoffice Magazine - dictates that States and regions would have to satisfy three different qualifying criteria, including seeing declines in documented COVID-19 cases, or a downward trend of positive tests. At the time, the White House provided no indication as to how strictly the criteria for these phases would be enforced or monitored. But it was suggested, during April, that States like Florida, Tennessee and South Carolina were working to lift restrictions, and already bowling venues, as well as cinemas, were starting the process of reopening.
The impact of the global health crisis has already been felt, long before any suspension of the lockdown could be implemented. Already, major shakeups are being seen throughout the leading theater businesses. It was announced in April that CMX Cinemas (a wholly-owned subsidiary of Cinemex), was filing for bankruptcy protection and reorganization under Chapter 11 - this was in order to protect the operation, due to the impact of the pandemic's impact on their business. CMX Cinemas was an example of the move by the movie scene towards a more "experiential" movie theater offering (also described as a luxury movie theater). They had started the process of positioning themselves for the changed landscape in cinema, with an announcement made in March that they intended to purchase the Star Cinema Grill, upscale dine-in movie theater chain.
The acquisition made CMX, the seventh largest North American cinema chain, created a 51-facility operation that employed some 3,000 staff. There is, however, now a danger that this bankruptcy protection could impact the completion of the merger acquisition. Operator of the company (Cinemex Holding USA) was hit with a lawsuit at the beginning of April, seeking to block the player from using the COVID-19 pandemic " a pretext for walking away from" the acquisition of Star Cinema, from its owners. The parent of the operation, Cinemex, is seen as one of the top ten cinema chains worldwide, with 351 sites in some 105 cities globally. As discussed previously, many cinema chains have been attempting to defend their position prior to the impact of the pandemic, investing in offering a better experience, with this operation launching its Cinemex Premium, along with the CMX Cinema divisions, with sites offering luxury seating and first class dining, along with 3D, and 4D experiences.
This chain was not the only operation facing legal action entering April. AMC was sued by a Florida shopping mall (Palm Springs Mile Associates), in Miami Federal, court for failure to pay some $52,153.87 monthly rent on one of their multiplex locations. The suit requested immediate payment and damages of over $7m. The legal action recognized the impact of the global pandemic on the ability to pay, but also stated that it saw this did not trigger the "force majeure" [Act of God] provision of the lease.
A need to redress the combined pressure of the drop in ticket sales, the impact of the lockdown, and the new threat to business, with the end of the windowing of films, saw AMC take the drastic measure no longer play any film from NBCUniversal. This was a reprisal to the movie studio, to fail to respect the Theatrical-Window and release a film previously scheduled for cinema, 'Universal's Trolls World Tour', as a pay-for Premier Video on Demand (PVOD). It went on to see an estimated $100 million return (on par with the 2016 $116 million domestic box office gross for the original Trolls movie). This was a move breaking previous agreements and would be followed by Regal Cinemas (owner Cineworld) also announcing they would no longer screen films from Universal studios. This move is a serious blow to projected earnings, removing scheduled blockbusters such as 'No Time To Die' and 'Fast & Furious 9' from their books.
This petulant hope to stem the situation of studios pivoting towards digital distribution and PVOD release of previous scheduled theatrical releases, by blocking future representation of their movies, did not seem to have worked. In a matter of days following the news, Warner Brothers announced that their eagerly awaited reboot of the popular cartoon series Scooby-Doo, with a brand new, big budget computer-animated motion picture titled 'Scoob!', would not now be released in cinemas but would release digitally on streaming services HBO Max, the WarnerMedia Entertainment service to be launched at the end of May. This movie was the beginning of a new Warner-Universe to relaunch popular cartoon characters and had been a prominent summer cinema release. Likewise, it was revealed that Walt Disney's own streaming service, Disney+, would be getting another previously planned cinema release ('Artemis Fowl'), again abandoning theatrical release.
Multiple legal actions, and breaking of previous agreements, indicates a feeling by the trade towards the hope that the post-pandemic marketplace may instigate a new reorganization of how previous businesses were undertaken, what some have called the "Reset Moment". This reorganization is seen to also reflect a need for landlords to restructure terms. For the cinema sector (as well as other sectors), the aspiration is to clear their growing debts and restructure the payment system, achieving a percentage deal with movie producers, rather than the current agreements. While at the same time, the movie studios look towards breaking the restrictions between launching on cinema and the time to release for home view. PVOD is seen as a better way for studios to get their money back.
It is rumored that North American cinemas (before tax) pay 60-percent to the studios from their ticket sales, with distribution taking 10-percent. Leaving the remainder to the cinema, along with their take from food and drink. The lease on property, staffing, stocking and transactional fees, have eaten into this 30-percent and, under dwindling tickets sales, leading up to the health crisis, there had been calls for a restructuring of the relationship. The question has to be, as the movie studios are equally in a painful "shutdown" situation, will they be interested to negotiate, or will the idea of controlling their own cinemas (removing the chains from the equation), once again be considered? This will obviously be a difficult situation, as the Supreme Court, in 1948, ruled against film studios distributing movies and owning their own theaters, in an antitrust ruling, but new third party actors could facilitate this under the current conditions. But at the same time, the ignoring of the Theatrical-Release-Window and looking at PVOD release of movies, could also totally upturn the cinema sector (especially considering the 80-percent revenue for the studios).
The fast-moving nature of the impacts of the current pandemic, on key sectors like cinema, was seen with news coming in as this report was being compiled. Adding their name to the mix, IMAX, in reporting first-quarter earnings, also revealed its plans moving forward, stating that it is planning to open in China early in June, and that the corporation was planning to open its US theater business at the beginning of July. It will also be implementing a smaller share of revenue and marketing impetus, planned to "nudge" audiences to utilize off-peak show times. IMAX will be using its Chinese operation to create a "playbook" on how best to screen movies to a post-pandemic audience, with social distancing and theater policies which will be repeated across its Western holdings. The quarter earning report revealed a net loss of $49 million (from a profit of $8 million the previous year), seeing a 56-percent drop in sales as the pandemic shuttered their 1,526 commercial theater business (as well as their film distribution and service support operation).
IMAX is also looking to try and establish a means to support its business by broaching into investments in the LBE scene, such as the failed VR arcade (IMAX VR) project, and subsequent investment in Dreamscape, but also into the consumer sphere. The operation had also been looking to establish unique presentations through their large format film operation, continuing this investment and, during the height of lockdown, IMAX banked on its future with the announcement of an agreement with Sony Pictures Entertainment, to provide over 100 movie titles, over the next 12-months, that will be on the new IMAX Enhanced program. This is a pro-consumer streaming platform that offers remastered 4K HDR content and DTS audio technologies through selected consumer electronic brands (developed in partnership with Xperi Corporation) - illustrating the paradigm shift being experiences in the cinema world. 
The perception of turning the mundane cinema and entertainment facility visit into a more unique experience (#Experiential) has gained ground in the face of calculating how the "new normal" will impact future business. Investment towards creating a compelling experience has been driving cinema businesses pre-pandemic, with the creation of 4DX, unique reclining cinema seating, dining and drink services, and the creation of boutique and VIP cinemas, all looking at quality experiences over quantity cinema screens. The future of the megaplex and multiplex cinema chains (the multiplex first originated successfully by American Multi-Cinema (AMC) in 1962, and would go on to lead to the even bigger megaplex, first seen in 1988), is about to be severely impacted, as seen with the "retail-apocalypse". The key difference is that this, and other entertainment, will have to focus on what they offer which cannot be emulated from online, consumer-based activity - promoting the #Experiential, along with #Social and #Unique.

The next part of this fast-moving coverage follows shortly.

The Next Stinger Report Issue Arrives:
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