The pandemic has probably killed VR arcades for good

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A trend of the past few months has been witnessing startups that COVID seemed poised to kill end up scaling back some of those deep cuts and taking off again. But not all spaces have been 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 their biggest challenges facing VR arcades.

This week following a report from Protocol, Apple confirmed its acquisition of Spaces, a virtual reality arcade startup which had been forced to close its in-person arcades amid COVID and had attempted a pivot to creating virtual environments for video chat software.

Earlier this month, The Wall Street Journal reported that the US subsidiary of Sandbox VR had filed for bankruptcy. Sandbox VR 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-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. 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.

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. 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 towards pivots that look dramatically different from pre-COVID era business models. One caveat is that the VR arcade market certainly looks differently 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 adoption shifts.

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 while the company seems to be barreling ahead in its efforts to build a mainstream future for the technology, the ecosystem that sprang up around Facebook’s Oculus has receded meaningfully leaving the company in a lonely position.

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