Why Virtual Reality Will Bring Back the Arcade

Josh Taylor
21 min readJun 29, 2015

Arcades were not always places of outdated consoles and nostalgia. They were places of the latest technological innovation in gaming, subject to the creativity of a multibillion dollar industry. The story of their rise and fall is treated as a cautious lesson of progress over arcane technology. But this is where critics are wrong. Virtual reality (VR) will bring the arcade back, because VR needs the arcade to reach its full potential in the consumer market. To understand why, let’s first look at history.

Home Consoles Did Not Kill the Arcade

But video did kill the radio star

The arcades in North America saw a very accelerated rise to popularity and incredible profits in the early 1980s. The arcade and the home console started to rise in popularity around the same time and mutually benefited each other. However, there is a big misconception that the success of the home system was the reason for the failure of the arcade. Arcades failed due to their inability to recover from a gaming crash that had equally negative effects on both the arcade and home console industry. The crash was localized to North America and did not affect Japan, for example, where arcades are still thriving.

Success of the North American Arcade

A tale to make you laugh and cry

Atari founders Ted Dabney and Nolan Bushnell with Fred Marincic and Al Alcorn

The beginning of the video arcade can be attributed to the formation of Atari Inc. by Nolan Bushnell and the subsequent creation of Pong, a coin-op version of the ping-pong game released on the Magnavox Odyssey. The Odyssey was a home console that was released in August 1972, three months prior to the release of the coin-op Pong. Throughout the 70s, arcades began to expand and grow with major players entering the scene such as Taito, Midway (purchased by Bally in 1969), Namco, Nintendo, and Sega. In 1977, the gaming industry would experience a small crash. The golden age of arcades would immediately follow in 1978, marked by Taito’s release of the widely popular Space Invaders. The golden age would come to an end with the North American gaming crash of 1983. By the end of the golden age, the number of full arcades in North America peaked at 10,000. Globally there were 24,000 full arcades, 400,000 street locations, and 1.5 million video arcade games in operation. For reference, McDonald’s currently has 36,000 locations globally. The arcade revenue during the golden age was unprecedented.

Graph generated with data from Electronic Education, The Video Game Explosion, and Silicon Valley Fever.

The arcade reached its peak at $8 billion ($19.6 billion in today’s dollars) in 1982. For reference, in 1982, the pop music industry made $4 billion and Hollywood made $3 billion.

In the 70s and early 80s, arcades were a location to show off the latest innovations before the features reached the home. Home systems were just samples of what the arcades could provide. During the 70s and early 80s the home systems also began their rise to prominence with the Atari 2600 selling 30 million units; compare this to the widely popular Nintendo 64 that sold 33 million units two decades later. The home console market was growing with the arcade and projected to reach around $2 billion ($4.9 billion in today’s dollars) by the end of 1982. There was a mutualistic symbiotic relationship between the arcades and home consoles. People were comfortable playing at home but they would come out to arcades to see the latest improvements in the video game industry. Arcades became a location where people could meet other people with a shared interest in gaming. Socializing was at the core of arcades.

Failure of the North American Arcade

It’s the end of the world as we know it

Excess Atari games that had been dumped in a landfill during the crash.

The failure of the North American arcade is a direct result of the 1983 crash of the North American gaming industry and the arcade’s inability to recover. The main cause of the crash was over-saturation of the market. However, other factors were at play such as the global recession of the early 80s as well as content stagnation in the gaming industry from the major players. The 1983 crash lasted until 1985 and completely destroyed the gaming industry for those two years. This crash brought an immediate end to the golden age of arcades. In 1983, Atari was producing games for arcade, console, and computer platforms and lost half a billion dollars ($1.2 billion in today’s dollars) due to the crash. Losses across the entire industry totaled $1.5 billion ($3.6 billion in today’s dollars). Mattel, the third largest video game maker, left the market. The crash was very painful for arcade owners and in the first year 2,000 arcades closed out of the 10,000 operating in North America. The arcades that remained had severely limited options for content, given that the game industry wasn’t producing good titles and gamemakers were leaving the market. It is important to note that the entire North American gaming industry crashed, including the largely successful home console market. After the crash, many home consoles left the market. The most popular console at the time, the Atari 2600, was no longer being pushed due to lack of development and the 1984 sale of Atari Inc.’s Consumer Division to Commodore Business Machines.

The crash finally came to an end in 1985 with the introduction of the NES home console in North America by Nintendo. This introduction into the industry reignited the home console market, but there was never any similar factor that reignited the arcade market. Accordingly, arcades continued their slow decline into nonexistence. Many have outlined potential factors to explain the arcade’s inability to recover from the 1983 crash. First, public confidence in the market was at an all time low. The market was new and its meteoric rise and crash seemed like a bubble. However, in 2015 the game industry’s size is estimated to be $88.4 billion and projected to rise to $102.9 billion in 2017, the crash was just an early stumble by an undeveloped industry. Second, arcades require larger and recurring capital investment to maintain than home consoles. Every arcade cabinet was a single game and each cabinet could cost up to $3,000 ($7,000 in today’s dollars). If an arcade owner wanted to make it possible for three people to play Pac-Man, for instance, at one time, that owner needed to purchase three cabinets dedicated to Pac-Man. The arcade cabinet model was simple: given a set price for the cabinet, the arcade owner knew exactly how many plays would be required before (s)he would start to make money on that machine or else they would lose money. Every purchase of a cabinet was a gamble and required a lot of money up front with the hope of a return.

While the arcades were struggling, the NES console, named the single greatest console in history by IGN in 2009, was doing extremely well. After the NES rose in popularity in North America, the prevailing thought seemed to be that this was proof that home consoles had won over arcades. In retrospect, people were comparing an industry that had been destroyed to one of the greatest consoles of all time that launched with Super Mario Bros, named the best video game of all time by IGN in 2005 and 2007. Japan did not see the same game industry crash that North America did and arcades continued to flourish in Japan even with the NES, released two years earlier in Japan in 1983. And because the North American game industry believed that the home console was the future, it became a self-fulfilling prophecy. Major attention was diverted away from the arcade to the home console and Nintendo made the brilliant decision to allow third-party developers to build for its console. So the phrase was passed down and became truth: “The home console killed the arcade.” Instead, this phrase more accurately should be: “The arcades were left to die.” Arcades, left with little option but to reproduce gaming content already available on home consoles, no longer became the draw for new content to customers who could play the same content at home. Independent of the home system, arcades died as soon as they stopped being a window to the future.

Arcades Today

A tale of two cities

Arcades in Japan continued to evolve.

In North America, the status of arcades today is best described as nonexistent. The closest locations to arcades are just nostalgia-themed restaurants and bars. Mostly they are using the arcade portion as a gimmick to differentiate themselves from other restaurants and bars to get people in the door. The machines are outdated, newer machines are poorly made, and, most importantly, they’re just not very fun. Arcade owners fail because they try to literally copy the old arcade model instead of copying the spirit of what arcades used to offer and represent: innovation.

To best illustrate the potential for a revival of arcades, we just have to look at our gaming cousin across the ocean: Japan. In Japan, arcades never died out. According to Brad Crawford, creator of the documentary 100 Yen: The Japanese Arcade Experience,

“Arcades [in Japan] have continued to grow and evolve since their introduction. Multiple floors fill not just with hardcore gamers, but with families and casual players looking for the kind of face-to-face social gaming experience hard to find on this side of the Pacific.”

Arcades in North America had a bad reputation for attracting delinquents but

“When we were speaking with people, they would have similar kinds of memories of arcades having a bad reputation in Japan, of them being dark places where delinquents would go … I think North America and Japan went through the same phase of gaming, but Japan didn’t give up and let it die. They took that negative image and really fought against it.”

Crawford does mention that Japan has an added advantage of small living spaces that often cause people to gather socially outside of the home. People that go to Japanese arcades are typically ages 18–45 and are both male and female. A contributing factor to the success of Japan’s arcades is the social experience of watching people play games that are very talented and learning from them.

There is a lot to VR that can’t be packaged in the home

Deep thought in prose

The home gaming industry has proven in the past that it will pick a common hardware base and force all experiences onto it. People were hopeful that virtual reality (VR) would be different. It’s not. Oculus, Valve, and Sony will all be using a universal VR input controller, similar to the look of the Wii controllers. Major companies want to reach the mass market and maximize profits. This is easily done by providing a common affordable hardware base and focussing on software. Beyond hardware that won’t be packaged in the home, physical space guarantees cannot be made within people’s homes. This means that physical space to move around in will not be programmed into the core of home games. The ability of an arcade to provide a controlled environment with planned space down to the smallest detail is something the home will never provide.


It’s in the extras

A man using the Oculus Touch controllers.

In VR, the more one-to-one correspondence that occurs between the virtual world and the real world, the better the experience will be. In other words, the virtual world should map to the real world as closely as possible. A big problem in the gaming industry is the problem of the lowest common denominator. When developing games, developers have to find certain guarantees about what the player will have access to and generally, to reach the largest audience, developers have to find the lowest common denominator. For consoles the lowest common denominator is the console and controller. For the PC the lowest common denominator is everything required to run the PC + keyboard and mouse. To the PC gaming industry’s credit, they have incrementally increased the minimum requirements of a PC to run certain games. This has helped PCs and harmed console games a little. On the Xbox 360 when playing Skyrim, entering new sections of the world such as houses require a significant wait time while on the PC it is barely there, if at all. While content has marginally improved, the input devices we use have not. Are the mouse and keyboard the best input devices for games? No: it’s just what any computer with a GUI interface has. Is the console controller the best input device for most games? No: it’s just a common interface device that works because you can map many different actions to it. A great example of the lowest common denominator problem is the Kinect. The technology in the Kinect is used to do a lot of interesting research, but it is completely underutilized in games because studios cannot guarantee that every Xbox will have a Kinect and the Kinect is not even available on the PS4 for companies trying to make cross-platform games. Because of this, the Kinect will never serve as an integral part of any major game and will, at most, serve as a hacky add-in.

Graph generated with data from KZero. The trend of peripheral underutilization is predicted to continue with VR.

By 2018, 73% of people of HMD users are still not taking full advantage of VR input systems and therefore are not experiencing the full potential of VR. Imagine your life without interaction with the world or at best poor interaction with the world.

An arcade could take full advantage of peripherals to produce experiences far above and beyond what the base head mounted display (HMD), and the universal VR controllers that will ship with them, can offer. The HTC/Valve Vive will ship with two handheld motion controllers and the Oculus Rift will ship with the Xbox One controller, but will later be followed by Oculus Touch controllers. Both of these universal VR controllers will feel like controllers and will not feel like whatever you are holding in the virtual world. This will lessen the 1:1 correspondence that you feel with the virtual world and lead to a worse experience. Seeing something that you’re holding but feeling something different breaks the illusion. In arcades there is no reason not to have props that are completely mapped between the real and virtual world. In addition to props, other extras beyond an HMD and universal controller can be used such as technologies for movement, better limb capture, etc. Anything that strengthens the illusion of being somewhere else is automatically a better experience.


The final frontier

Dedicated space in VR leads to the optimal experience. Freely moving adds to the 1:1 correspondence. Nothing feels more like walking than walking. Currently the HTC/Valve Vive allows the user to move in a 15’ x 15’ (225 ft^2) area, but that is not a realistic amount of empty space to assume people have in their homes. If there is a powerup to pick up, do you have to move your couch that’s in the way to get it? Dedicating a space to VR will also require the purchase of a computer for the main living area of the home which typically has the most space. The Virtuix Omni may be a better option but it doesn’t even feel like walking. If the Omni is improved to feel like walking, it will still require space dedication (16 ft^2) in people’s homes. Space has never played a large role in video game experiences until VR and now that it’s a factor, it will be subjected to the lowest common denominator problem in games. Developers will not be able to make any guarantees about space and the lowest common denominator will be that the player has a place to stand and sit. Also given that there are multiple HMD makers with different features some of the features will be guaranteed to be underutilized, given developers’ attempts to reach the largest audience by programming for the intersection of all the HMD features (i.e. the lowest common denominator). Good VR requires interaction and good interaction requires space.

Many thought that the defined borders of cities would become less important with the rise of digital communication, but instead, the opposite has become true. Virtually all growth of the U.S. population is happening in metropolitan cities. From 2012 to 2013, metropolitan areas grew by 2.3 million people. Micropolitans — cities with around 50,000 people — grew by 8,000 people. Everywhere else dropped by 35,000 people. In 2013, 85.4 percent of Americans lived in a metropolitan area. Areas with populations of more than 1 million collectively grew more than twice as fast as areas with less than 250,000 people. Metropolitan cities’ populations are growing and as a result the price of housing is going up. Because the price of housing is increasing, apartment sizes are starting to decrease to adjust. A lot of people will not be able to devote much space in their apartments for entertainment anymore and instead they will start to look for entertainment locations to gather socially, as we saw happened in Japan.

Arcades are defined spaces. They can be designed from the top down to the smallest detail. Each player will be given the appropriate amount of space to maximize the experience. That space will always be dedicated to VR experiences and it does not have to also serve as a living room in someone’s house. Local Multiplayer becomes easily solved without facing problems like occlusion or multiple computer purchases. Space also carries a cultural significance that is lost in the home. With all of our technology, we have not been able to replicate human-to-human interaction through digital communication. In an article on the benefits of physical space, David Brooks cites a study where,

“Two University of Michigan researchers brought groups of people together face to face and asked them to play a difficult cooperation game. Then they organized other groups and had them communicate electronically. The face-to-face groups thrived. The electronic groups fractured and struggled.”

Specifically within the gaming industry, Twitch has created an opportunity for people to communicate and come together over a shared interest in games. This is a deeply human need that we possess to socialize and group. Twitch would not thrive as it has if this need didn’t exist. However, like all other digital communication, it is falling short of the real thing. In a Verge article, Laura June says,

“[Nolan Bushnell]’s animated, and adamant that our culture has ‘lost something,’ in the disappearance of all the ‘informal clubhouses’ as he calls them, public hangout spots for young people.”

Controlled Environment

We will control the horizontal, we will control the vertical

Many problems with the gaming experiences at home, even from current non-VR games, comes from the lack of a controlled environment. A controlled environment can completely solve the lowest common denominator problem and an arcade can provide a controlled environment. In a controlled environment, the temperature can change based on game factors adding a heightened realism. The lighting can be set to an optimal level to limit bleedthrough on HMDs. The weather can be controlled to solidify the illusion. The amount of free space can be guaranteed to developers and fully utilized in the game. Input devices will be made to provide realistic and accurate props with perfect 1:1 correspondence. The real world environment can be physically deformable to perfectly map to a more interesting virtual world.

A VR arcade is viable now and would serve a crucial role

A thoughtful essay on the time wasted on introductory paragraphs

There is a lot of hype within the VR community about the incredible speed at which VR will take off. VR will most likely see steady growth like other introductions of new hardware into the market. VR is expensive and given the early stages that it is in now, VR will continue to see innovation and high prices for the foreseeable future. Arcades can and should facilitate the adoption of VR and provide a cheaper way to experience the best VR possible. The current gaming industry in North America is purely a home market but this is limiting the possible games and experiences that are available and limiting the socialization of a community.

iPhone Fallacy: “VR will probably see steady growth”

Stop drinking the hype juice

There exists an iPhone fallacy in the VR industry, and it is used to justify VR becoming as ubiquitous as the iPhone within a short period of time. People using the iPhone fallacy will say, “The iPhone only came out in 2007 and now it’s everywhere.” While this is a nice soundbite, it is a misleading oversimplification. The iPhone provided an immediate replacement to multiple things that already existed on the market.

The iPhone was a combination of the iPod and a cell phone, and largely rode on the coattails of these two ubiquitous pieces of technology. The first commercially available hand-held cellular mobile phone was the Motorola DynaTAC 8000X in 1984. The AT&T FlashPAC started the portable digital music player market in 1996. Both cell phones and portable music players saw slow gradual adoption. The iPod was released in 2001 and was received well and was largely successful due to the ease of use of the iTunes software. However, the iPod also saw gradual growth because it was originally only available on the Mac and added Windows support in 2003. The iPhone should really be seen as a continuation of the iPod line, as shown by the immediate decline in iPod sales following the iPhone’s release.

Graph generated with data from Statista. Notice that when the declining iPod and the rising iPhone figures are calculated together, the iPhone’s rise to popularity is less astonishing.

The cost of an iPod and a phone matched the cost of an iPhone. It was a simple choice for most people to make because it was an immediate replacement of the ubiquitous cell phone and the iPod that was rising in popularity at that point for a comparable cost.

VR HMDs will not see an immediate replacement in the market like the iPhone did. The price will probably range from $200 — $400. VR HMDs should be thought of as digital interfaces. The current two main digital interfaces that could be replaced in people’s homes are TVs and computer monitors. The HMD will not replace either one, and here’s why. The average household contains 2.58 people and that means that to replace a TV, each house, on average, would need to buy 2.58 HMDs and a special, powerful computer to run each one. To replace every computer monitor, it would probably require an upgrade to the computer to meet the more intense graphics demands of the HMD. A new computer to run an HMD will probably cost around $1,200 and the price to upgrade a current computer could come close to the cost of a new one, depending on the age of the computer. The average computer built for word processing and internet browsing will not meet the requirements of HMDs.

Beyond cost being much higher for HMD market replacement, the HMDs will not be able to meet the demands of current T.V. and computer usage. The average person in the U.S. uses TVs for 2.45 hours per day and a desktop/laptop for 1.72 hours per day, totalling 4.17 hours per day. VR HMDs are not comfortable at this length — they get hot and some users experience nausea and other cybersickness symptoms with extended use. Gear VR currently tells users to take at least a 10–15 minute break every 30 minutes, although 30 minutes is still a long time with an HMD on. Applying this to the average hours in front of a screen per day totals 1.39–2.09 hours of breaks interwoven into your experience. What happens to movie viewing?

The marketing firm KZero forecasts the cumulative HMD unit sales from 2014–2018 will be 56.8 million.

Just as the arcades facilitated the transition into the home of the video game consoles, arcades today could provide a similar transition for VR. Trying VR for the first time will be much cheaper at an arcade as opposed to buying a VR system. After trying VR in an arcade, people that wouldn’t have joined the VR community may be swayed and invest in their own system. Because VR is so new, arcades can fill the role of innovation hot beds by testing VR practices on an immediate group of users. This will benefit both arcades and home systems. As Japan has proven, the arcade’s and home console’s success aren’t mutually exclusive.


Shit ain’t cheap

The cost of a new system is the obvious barrier to mass market adoption of HMDs, and it is a worry of HMD makers. Oculus’ VP of Product, Nate Mitchell, said in Oct. 2014:

“I think the truth is though, with the [Oculus] Rift at least, even though you’re spending $350 on the devkit you do need a high-end computer to be able to power it, right? Because of the displays and everything else. And that really becomes the gating factor. Because if everyone can afford the $350 headset but then you need a $2,000, or a $1,000, computer that’s a huge cost. So that is one of the biggest challenges we have, moving into the consumer market. And something we’re worried about.”

The cost of everything needed to run one HMD is around $1,500. This will include the purchase of a new desktop, which fewer and fewer people have been purchasing in lieu of mobile technology, according to the International Data Corporation (IDC). To get local multiplayer, it will require two computers, doubling the price. This cost will provide the bare minimum for VR but if you want to add in walking movement to the game, the Virtuix Omni currently costs $699. Again, local mltiplayer will double this cost. Or even if you just buy one, the Omni requires special shoes and anyone that requires a different size to pick up a new pair for $59. Beyond the initial cost, the field of VR is incredibly new and most purchases will become outdated quickly and require expensive updates to hardware.

The cost of physical hardware is something that an arcade business can cover because of the time rent model on these systems and more frequent use. Arcades will also be able to absorb a higher cost per machine and use technology that would not be released commercially due to the high cost. Even the people that invest in a $2,000+ system for their home will not be using the same level of technology available in the arcades and therefore not providing the best experience. Arcades will make incremental hardware updates to the systems and showcase innovations within VR. Because of the way computers have evolved since the 80s, arcades no longer have to gamble on a game by providing an upfront cost and hoping for a return. Each VR system will be the same and on any system, any game can be loaded and played. The business model now makes sense for arcades, no more gambling.

Current Gaming Industry

Great kid, don’t get cocky

E3 draws a huge crowd of people excited to learn and experience what is next in gaming.

The current game industry has three major platform categories: mobile gaming (smartphone, tablet, and other handheld devices), console gaming (Xbox, PlayStation, Wii), and PC. However, consoles are becoming increasingly similar to PCs and devices like Valve’s Steam Machine could completely merge the console and PC markets. Smartphones and tablets are dominating the mobile games market edging out the previous dedicated handheld devices. Nintendo has already started to develop games for smartphones and tablets. As gaming platforms continue to consolidate to common platforms, the lowest common denominator problem is being reinforced.

Mobile gaming has been successful largely because smartphones provide people with the means to play a game at any point during their day; the tools are in their pocket. For this reason, the mobile gaming market has not widely adopted mobile gaming peripherals like the MOGA controller. The lowest common denominator problem for mobile games is much worse than home games because there is an additional convenience factor. Games made for mobile will most likely be developed to use the touch interface that is shared on all smartphones.

Given that the PC and console platforms are slowly merging, most titles currently released for console are also released for PC, cross-platform games are developed for the inputs that a controller offers. In addition to the inputs a controller provides, the keyboard / mouse combo allows for more and different inputs. Because of that, certain game genres haven’t even made it to console and are exclusively on the PC, for example real-time strategy. More and different inputs leads to more game genres and possibilities within games. The consolidation of hardware and input only serves to limit gameplay.

The gaming community is strong and full of very passionate people. A significant amount of socialization within the community happens online through gaming publications, YouTube, and Twitch. Twitch recently broke 100 million unique viewers globally per month. Video games have become a mainstream part of our culture and yet gamers are relegated to their homes.

The entire gaming industry would benefit from an arcade: the location could serve as a way to push the bounds of gaming, counteract the consolidation of experiences, and solve the lowest common denominator problem. Some successful innovations, which may not have existed without the proof of concept in an arcade, will undoubtedly move into the home. In addition to providing a platform and marketplace for gaming innovations, the arcade will provide the gaming community a place to socialize in person in a way it has never been able to before. Arcades will provide a place for gamers and non-gamers alike to experience the most advanced technology available.

When asked if arcades could return, Nolan Bushnell replied, “Absolutely, it can come back…creativity will bring anything back. There’s so much technology out there which can’t be packaged in the home environment.”

Josh Taylor is a founder of @oasisvr, a startup that is bringing back the arcade as a platform and marketplace for virtual reality innovation. Oasis VR is currently solving the problems addressed in the article above. If you liked this article recommend and share with your friends. Josh welcomes feedback and you can reach out to him at josh@oasisvr.io.