As musicvideos blast from ubiquitous TV screens in Sega GameWorks, a group of teenagers takes to the cyber slopes of Alpine Racer, while others strap themselves into Vertical Reality, a game that lifts them up a 17-foot tower to do virtual battle with simulated villains — and drops them to the bottom if they lose.
Meanwhile, Dad sips a caffe latte at Starbucks — or perhaps something stronger at the sports bar — while Mom flips through racks of clothes at the world’s biggest outlet center. Later the whole family meets up at one of two giant-screen theaters to watch a 3-D documentary before taking in one of 30 feature films. Then it’s on to dinner.
It’s just this type of scenario — coming soon to Ontario Mills in California’s San Bernardino County — that top exhibitors are counting on to lure viewers away from their increasingly sophisticated home theater systems.
Location-based entertainment complexes, as they’re known, have begun to proliferate throughout the U.S., despite the fact that the concept’s potential remains unproven.
LBEs usually combine state-of-the-art megaplexes and a “special-venue” theater, such as Imax or Iwerks, with specialty retail shops and restaurants. They often feature high-end videogame arcades such as Sega GameWorks — a joint venture of Universal, DreamWorks and Sega — that are light years from the dingy arcades that have been a fixture of suburban shopping malls for years.
But a trip to GameWorks isn’t cheap: The average patron drops $20 in a visit. And some have questioned whether GameWorks — or indeed the whole LBE concept — can be sustained once an initial flurry of interest fades.
“During the novelty phase and the summer movie season, these LBEs may draw a lot of people,” said Dominic Marshall, securities analyst at small-cap equity research firm Red Chip Review, “but check back next winter and see how they’re doing.”
In the past, Hollywood has made some disastrous forays into interactive gaming and site-based entertainment. In the early ’80s, Warner Bros. lost nearly $1 billion on its Atari vidgame and home computer unit. More recently, Viacom wrote off its investment in Discovery Zone — a kind of mini-LBE for kids — now in Chapter 11 bankruptcy.
What about moviegoing?
Another key question remains unanswered: Will all of these new entertainment alternatives siphon dollars away from traditional moviegoing?
Not according to exhibitors and developers. “I think that the positive aspects far outweigh whatever minimal cannibalization might occur,” said John MacLeod, senior VP of development and operations at Sony Development.
MacLeod and others said the abundance of entertainment and shopping options creates a critical mass that will make families want to spend four or five hours — and a high percentage of their disposable income — at an LBE.
But does the average family of four want to drop that kind of money on a Saturday afternoon?
“Our research shows that people are going out less often, but when they do go out they are spending more time and money and doing more than just one activity,” said Phil Singleton, president of American Multi-Cinemas.
In fact, Singleton is convinced the new centers will make conventional shopping malls obsolete.
“Because of restricted leisure time, the traditional retail experience is going to give way to a combination entertainment-and-retail environment,” he said.
GameWorks, which opens its doors at Ontario Mills in July, already has christened installations in Las Vegas and Seattle in the past two months, and plans to open a total of 100 sites worldwide by 2002. Industry analysts estimate GameWorks is spending between $10 million and $20 million per site, at an average cost of $300 per square foot.
Meanwhile, exhibitors are paying plenty for bigscreen technology: An Iwerks auditorium costs between $800,000 and $2.5 million, said marketing VP Vito Sanzone. An Imax 3-D venue runs in the neighborhood of $7 million-$8 million, according to Imax vice chairman and co-CEO Richard Gelfond. That compares to $300,000-$600,000 for a traditional megaplex auditorium.
Of course, the potential upside of special-venue theaters also is greater. Given the one-hour playing time of most Imax and Iwerks programs, theaters can schedule up to 12 shows a day. With that timetable, Sanzone said, it’s possible to gross $3.5 million a year in a giant-screen theater.
The per-seat economics are even greater in a ride simulation, where patrons pay up to $5 each for a five-minute thrill.
Product is still scarce for both Imax and Iwerks, however. Edwards’ Irvine Spectrum has been playing the same 3-D Imax title, “Into the Deep,” for 14 months.
But dearth of product, perceived or real, didn’t stop 70 million people from filing into Imax auditoriums last year, according to Gelfond.
Still, Edwards president James Edwards III said the circuit’s main goal in building its three Imax auditoriums is to add value to adjacent multiplexes. “It’s a specialty item which makes the complex unique,” said Edwards, adding that given the cost of building them, Imax theaters are “definitely something that won’t go on every corner.”
In addition to their large screens and 3-D technology, Imax and Iwerks both license equipment for ride simulators — attractions that combine a moving platform and moving seats with a high-octane short film bursting with effects — as does Showscan.
If there’s any cash left over during an LBE visit, Dave & Buster’s, a combination sports bar/restaurant/video arcade, would be glad to take it off your hands. At its 60,000-square-foot Ontario Mills site, D&B charges between 50› and $3 per game. Patrons can check out batting cages, basketball hoops, an Iwerks TurboRide or a virtual reality shooting range, paying a $5 cover charge on weekends.
At the crossroads
The LBE arrives at the crossroads of two major trends in the exhibition industry, giving exhibitors reason to be bullish about future prospects. First there’s the megaplex boom: Rather than sites with four, eight or even 12 screens, today’s hardtops are housing as many as 30 auditoriums.
At the same time, exhibitors are finding that retail developers now view cinemas as site anchors. “If I’m an exhibitor, all of a sudden, I’m not begging for space in a mall where the anchor is Nordstrom or Macy’s,” said Kevin Skislock, head of equity research at L.H. Friend, Weinress, Frankson & Presson, an Irvine-based institutional investment boutique.
Singleton views motion picture theaters as the top attractions at an LBE, with newer types of venues getting second billing. “Sega GameWorks is a component that will probably benefit in a high-traffic location,” he said. But, he cautioned, “It’s a new project, so it remains to be seen whether or not it can be the total magnet.”
On the other hand, GameWorks CEO Michael Montgomery said project developers view his company’s product not as an auxiliary to motion picture theaters, but as a hook to reel in customers.
“It’s not necessary to be next to a movie theater. Developers see us as an anchor. They know they need the hot concepts like GameWorks in there to make it work.”
All chains are involved
By now, virtually every major national theater chain has embarked on some form of LBE. These range from urban architectural showpieces like Sony Development’s planned Yerba Buena Gardens site in San Francisco, to Cinemark and Wal-Mart’s family entertainment centers, which feature such down-home attractions as miniature golf and roller rinks.
Cineplex Odeon has partnered with GameWorks to develop Cinescape interactive game centers. The projects range from the 18,000-square-foot Eau Claire Market Cinema in Calgary, to smaller 850- to 2,000-square-foot facilities adjacent to or incorporated into standard multiplexes.
“It’s an added dimension of people’s night out on the town,” said Howard Lichtman, Cineplex exec VP of marketing and communications. “We’re looking for a greater share of wallet.”
But while AMC is looking to locate near arcades and other entertainment outlets, the company has no plans to get into the game business itself. “I’m not going to trade off expensive theater space for something that takes up more room and has a lower return,” Singleton said.
Indeed, several major chains, including Regal and United Artists, have had mixed results with their in-theater arcades. UA’s Starport LBEs, operating in retail malls in Indianapolis and four other medium-sized cities, have “made money but not as much as we would have liked,” said Kurt Hall, acting chief operating officer.
“We’re still tinkering with the mix of applications,” said Hall, who notes that while the Sega City videogame component of the Starports has been a success, other higher-overhead applications such as Virtual World and Showscan ride simulators have proved less profitable.
At least one industry analyst believes theater owners should stick to their core business. “Given that for the foreseeable future exhibition should be a good business, why would you devote the finances and management resources to anything but building new and upgrading existing theaters?” asked Stewart Halprin, principal and senior entertainment analyst for Furman Selz.
Even GameWorks’ Montgomery agreed that it will require some vigilance to sustain the healthy revenues realized during the Seattle site’s opening weeks. That site grossed $1 million in cash receipts in the three weeks following its March 16 opening. “Projections were significantly below that,” Montgomery said.
However, Montgomery is aware that a location such as Las Vegas, which draws almost exclusively from the tourist crowd, attracts a different audience from the site in downtown Seattle, which relies more on repeat visits from local residents.
“You have to develop sites in the context of where you are,” Montgomery said. “But a place in Ontario Mills can be similar to a place in Tempe or Dallas. The real exception is something like Vegas, where you have a flood of tourists.”
To appeal to repeat customers, Montgomery said it’s key to change a site’s environment on a regular basis. That includes changing out not just games, but also the center’s musicvideos.
“If people come in Friday night and see one reel (of videos), they don’t want to come back the following Friday and see the same reel,” he said. “The games, video and multimedia add up to an experience. We don’t want people to have the same experience at 2 in the afternoon as 2 in the morning.”
Meanwhile, exhibitors will be waiting and watching to see how GameWorks fares over the next year or so. Said UA’s Kurt Hall, whose circuit operates the eight-screen Showcase theater adjacent to GameWorks’ Las Vegas location: “If anybody can make this work, they can.”