Commercial Licensing: Success Factor #1
September 24, 2018 | 6 min read
VR Arcade Open Business Plan
Using data from 400+ locations using SpringboardVR, we compiled a list of top VR locations and spoke with their owners to understand what they’ve done to be successful in the VR industry. We also partnered with university researchers to conduct an in-depth 110 question survey of over 150 arcades on our platform. We were able to connect survey results with backend data to see what the top arcades are doing compared to the baseline average. Based on what we’ve learned, we provide some recommendations and best practices on how to run a successful VR Arcade in part 1 of 9 of our “Open Business Plan.”
When the first VR Arcades started in 2016, they faced a dilemma. What to charge for an hour of VR? What to pay for commercially licensed content? Nobody knew. It was a brand new industry, with no solid data. Best-guess spreadsheets, pricing scraping from other early operators, and asking friends what they’d pay were about the only way of finding answers to these questions. Needless to say, it was a rough science. On average, VR Arcades were charging around $50-$60 per hour. It quickly became apparent that at that pricing, they had to spend quite a bit on marketing to get a new customer. And few customers ever came back. Operators realized that in order to win, they needed to price competitively with other out-of-home entertainment options that consumers could spend money on.
Over time, the price point naturally dropped.
To hit sustainable profitability, tightening margins became even more important and operators began taking a hard look at every expense line, including how much they were spending on content licensing.
Fast forward to today, where operators are now looking at the movie industry business model for inspiration. Things like building a core of loyal customers, pricing for weekly or monthly repeat business, and having enough headsets to capture volume on the weekends to make up for slow weekdays are now the primary focus. Because of this shift in business models, we are beginning to see a consistent trend of pricing at closer to the $25 an hour mark.
On the backend, we noticed a significant trend, Operators gravitating to licensing content that was priced at a lower PPM (Price per minute). Consequently, many developers responded by lowering their price, and our average PPM dropped to 6.4 cents.
Nevertheless, it seems many VR Arcade Operators are still struggling to find the right combination of price point, overhead, customer experience, and content to be truly profitable. Some VR Arcades are seeing high utilization rates and growing profit margins and are expanding into multiple locations, while others are still struggling to find the sweet spot.
In this section of our VR Arcade Open Business Plan, we will be diving into content licensing and how, if done correctly, can be a determining factor in making a VR Arcade profitable.
For content licensing costs target 15% or less of the rate you charge hourly.
Content licensing is expensive and if you don’t watch your costs, it can become a problem and prevent you from being profitable. When you think about your content licensing costs, and how that plays into your percentage of monthly revenue, every penny matters.
We recommend you focus on keeping your content licensing cost at 15% or less of what you charge hourly. As pricing (and business models) varies widely regionally, we don’t want to get too prescriptive, but If you charge $25 an hour, that means focusing on games that are 6 cents a minute and under.
($25 * .15 = $3.75 an hour / 60 minutes = $.0625 per minute)
It may seem silly to be so strict about targeting 15% or less, but at just 2 cents less per minute, the average Arcade saves $3000 a year!
Top Titles We Recommend
Like most things, cheaper isn’t always better. Just because a title is 6 cents per minute doesn’t mean it will make your VR Arcade profitable. It still has to be a good game that customers enjoy playing! Below are some great examples of great games that won’t break the bank.
Tip: There are exceptions. If one of your most requested & most played titles is more expensive than the 15% of what you charge hourly, we recommend that you ensure your additional revenue justifies the additional licensing expense.
What Do Other Arcades Do?
Download the 2018 VR Arcade White Paper below, where we provide our top 9 recommendations for running and growing a profitable VR Arcade.
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