Can Mom & Pop Game Centers Get with the Franchise?

Electronic Gaming Business, August 27, 2003

As the game industry money tree grows and grows, an endless line of entrepreneurs is sitting beneath it shaking it like mad. The latest scheme to pick some low-hanging fruit is the game center franchise.

Dallas-based GameWyze (www.gamewyze.com) and Vancouver-based GameState Entertainment (www.gamestateentertainment.com) almost simultaneously launched separate plans this summer to franchise their respective game center concepts in the hopes of creating chains of storefronts where video and PC gamers can gather to play networked contests on state-of-the-art equipment.

There are already about 1,000 independent and owner-operated centers in the U.S., and the number has been doubling annually, according to their association, iGames (www.igames.org). GameWyze and GameState executives claim that their respective chains of branded, upscale stores will not only take the format out of its rag-tag "LAN Party" reputation but also create a substantial marketing and sales channel for game companies themselves.

GameWyze opened its own model store for the concept outside of Dallas in November but has filed in 33 states thus far to offer franchises. The company plans to offer franchisees tech support, a standardized design for renting machine time as well as direct selling titles, and relationships with hardware and software vendors. "We want to build a comprehensive business model for multiple centers," says Daniel Powell, CEO. GameWyze is hoping to have five additional centers franchised out by the end of the year and 20 next year. Powell and partner James O'Brien are former IT consultants who think that bringing economies of scale to these stores, as well as giving them a more comfortable, consistent and branded style will help grow the market.

Headed towards a similar goal from a different direction, GameState Enterprises wants to be the investor for now. "We are looking to franchise to people who have existing shops, acquiring the center and offering capital for expanding out," says CEO John Schwartz. GameState plans to acquire 15 to 20 stores in the next six months. The game center industry is fragmented, the GameState business plan argues, and by homogenizing the environment and reducing overall costs through scale, the company envisions its game centers doing for video games what Blockbuster did for movie rentals. The GameState team includes veterans of franchising (including the founder of Molly Maid cleaning services) as well as some who set up gaming centers in Asia, where the format is wildly popular. IBM is already a partner. According to their plan, new stores can enjoy a positive cash flow within a year of opening, and they project profits of $100 million by 2008. "The market fundamentals of the gaming center are quite good," says Schwartz. "There are high margins and growing."

Good Clean Fun

Both GameState and GameWyze want their game centers to be mom-friendly, as non-threatening as a video store. "We want mom to walk in with her child and feel comfortable telling them they can stay to play," says Powell. "They all have Herman Miller Aeron chairs so that even Dad walks in and sees the quality of the equipment."

GameState has similar Mom-approved styling in mind, but it is also erecting a multi-lingual Web site that will allow members to game with others around the world from both inside and outside the game centers. The ideal situation for the game center probably is partnerships or even placement within other entertainment sales and performance venues such as video game stores and movie theaters.

It may take more than Aeron chairs and pan-global Web sites to draw gamers, however. Mark Nielsen, executive director, iGames, an organization of game centers, warns that all of the design savvy in the world can't provide the core of most successful game centers: companionship "The key with this industry that all centers have to understand is that it is about the community. "It's not about having a nice-looking store. The greatest asset is managers and employees. You have to make sure you have the good people who can foster the community."

Can Publishers Relate?

But can publishers be a game center's best friend? As in the live gaming events space, the hardware manufacturers like Intel, NVIDIA, and Shuttle are big supporters of the game center idea while the software side has been slower to grasp the possibilities. Until recently, many game publishers tended to see game centers as competition rather than as partners, and so a major hurdle in the storefront economy has been demonstrating that these centers aren't places where people play games instead of buying them, but places where people get hooked on titles they then buy and proselytize. Powell says some publishers even try to charge him site license fees that amount to more than buying a retail copy for each of his PCs. He has succeeded in negotiating some site-wide discounts, but "we have yet to get a deal where all the stores could sign up for one flat fee, but that is where we are headed."