Ending the year with a new guest post for the site, industry specialist Kevin Williams takes time to look back at the tempestuous history of Gameworks – when Hollywood came to arcades. He sent it in to “bring to light of what has led to [GameWorks’] latest collapse, and the cautionary lesson of its development.” Hopefully we have some positive news this week so as to not end the year on a bad note, but if you’re interested in the history behind the now closed arcade chain, read on. – Adam

GameWorks Las Vegas

Kevin Williams:

The sporadic reporting of the shuttering of the GameWorks chain of entertainment locations, may only receive a casual glance from some today. But the story about the rise of this ambitious entertainment juggernaut, attracted some of the largest entertainment corporations of the 1990s, promising the first glimpse of cross-platform ‘social entertainment’. A concept that had food & beverage in a socially engaging environment, offering amusement and high-tech attractions to immerse the players.

If all that sounds chillingly familiar to what the current entertainment market is offering, then its important to learn the lessons from one of the first operations that tried to build a 150-strong chain of entertainment facilities. GameWorks was linked to big movie properties, along with the latest in immersive technology to draw crowds. We’ll dive into how this was a concept that was too big to fail, then look at how it failed big and failed hard. All this, and how the collapse of that opportunity has taken 25-years to finally conclude, just as the industry rediscovers the concept!

– What Disney Lost, DreamWorks Gained

It is 1994, long before Jeffrey Katzenberg would suffer the humiliation of launching the failure that would become Quibi. At that time he is riding high on the successful formation of DreamWorks SKG, the proto cross-platform animation, music, games, and movie studio. It was at this point that world domination of the entertainment landscape was on his menu, offering the ability to take-on and beat his previous employers the Walt Disney Company.

Disney had been involved in an abortive negotiation with Japanese video game powerhouse SEGA, (then known as SEGA Enterprises). The corporations had been in the final stages of high-level discussions to bring a dream to life for the future of entertainment with an Indoor-Theme-Park concept, based on the ‘JOYPOLIS’ idea but tailored for the Western market. A proposed partnership between the two companies was in the final stages of agreement. Disney saw SEGA’s JOYPOLIS concept as a land shift in amusement attraction venues, defined by the Japanese originator as a ‘Hi-Entertainment Game Series’ – moving far beyond consumer gaming, and creating a social destination (EN-Joint Space).

Exclusive, the 1990 conceptual rendering brief, for the EN-Joint Space attractions!
Source: SEGA

But, as with all high-level negotiations, the outcome often depends on personalities. In a fateful meeting with the two supremos of the respective corporations, Michael Eisner, Disney’s then energetic chief, and the legendary SEGA supremo Hayao Nakayama, those egos clashed. The opportunity of a partnership was dependent on the value each saw in the other – and the egos were just too immense to concede that they needed each other. SEGA had the amusement skills and resources but needed the Western muscle and branding expertise. But neither Eisner or Nakayama-san would concede this, and the negotiation broke apart fractiously.

The damage was irrevocable, no amount of negotiation would get SEGA and Disney back in the room. All seemed lost – and then new opportunities arose.

The House of Mouse during 1994 was not a happy place at this point, with multiple big executive egos striding the halls of their Californian headquarters. While Eisner ruled supreme, there were others chafing at their chains, looking to create their own media empires. Jeffrey Katzenberg had found success with Walt Disney, producing a string of legendary movies for the corporation. As is often the case with successful executives, he began to search for new opportunities within the entertainment landscape, setting his sights on a new operation that would rival his former employers. After an acrimonious parting, (that would see a $250m lawsuit against Disney, eventually settled out of court), Katzenberg would co-found, and become CEO of the new company, DreamWorks SKG.

This new Hollywood corporation would sit astride the digital and conventional media landscape, comprising a venture of leading lights of the then entertainment hierarchy. DreamWorks sought to not only to dominate the movie business, but the music and game industries as well. In looking to create its own entertainment destination, the company gathered a dream team of parties that could bring a wealth of contacts and properties to the table, including the then MCA operating the Universal Studios properties – resources that would prove very beneficial once the operation started. All that was needed at that point was access to the JOYPOLIS game plan.

Inside the Okayama JOYPOLIS site in 1991
Source: SEGA

With this new powerhouse operation looking to take over the world, Katzenberg revisited SEGA, and through shuttle diplomacy, brought President Hayao Nakayama back to the negotiation table on an indoor theme park concept. He would woo the SEGA board with big name celebrities – a common exploit with the company at the time. Part of the star power that DreamWorks used at SEGA was with fellow founder Steven Spielberg, a smart move that would seal the deal. It was now 1995 and negotiations moved along smoothly, the group agreeing to create a joint entity that would see SEGA Japan (through their US divisions) supply amusement hardware, while working with DreamWorks’ new entertainment division created especially for the roll. Thus, GameWorks was born.

When East Meets West, Steven Spielberg and Jeffrey Katzenberg from DreamWorks SKG meets SEGA team including president Hayao Nakayama between the two.
Source: SEGA

Spielberg was no stranger to the world of video games, having worked in the past with Atari Inc. to bring some of his movies to the world of interactive entertainment. That had been met with mixed results (Raiders of the Lost Ark doing well, but E.T. not so much), but with the advance in gaming technology, the concept of marrying a brick ‘n mortar arcade entertainment venue business with both Spielberg’s and Katzenberg’s movie theatre investments was a hit in the making. All that was needed was the right video game partner, even better if said partner already had some experience in constructing similar concepts previously.

– When Hollywood Came to the Arcade

The proposal was simple, DreamWorks SKG would bring to the table its big hitting partners and investors. It would also assemble a “brains trust” of entertainment experts who could work with SEGA towards creating a “Westernized” version of the key elements of JOYPOLIS and develop new content. The resulting unique brand would then be rolled out across a hoped 150-locations (initially starting with an investment for some 30-sites). Using their extensive celebrity contacts, DreamWorks would ensure that the grand openings for the sites would be turned into star studded events. It was an arcade version of Planet Hollywood.

Ironically enough, DreamWorks’ assembled team of “entertainment technology-wizards” included some of the very same Disney executives who had brokered the original aborted SEGA negotiations (minus Eisner, of course). Walt Disney Corporation had suffered an exodus of senior executives around that time, who took on new high-profile positions on the newly formed GameWorks board. While skilled in movies and theme parks, the majority had zero experience with arcade-type operations, bringing along an assortment of baggage and mis-comprehensions of what amusement could offer. At least Spielberg, a self-professed “game addict” (see his appearance at the launch party), had some idea in that regard, which would be used in designing GameWorks exclusive gaming experiences.

The new GameWorks team looked to ‘inject’ their expertise and demands for Western changes into the SEGA creations, which resulted in some additional positive PR. Players of SEGA titles from this period will remember the inclusion brand appearances in AM releases, such as in ‘Scud Race’, ‘Daytona USA 2’, and ‘LA Machine Guns’. Though sometimes this self-promotion could backfire, as the promoted New York Westbury venue would appear in games, but never actually open.

The ultimate product placement as GameWorks branding appeared in their games. 
Source: Daytona USA 2: Battle On The Edge

However, soon it became clear this association was fraught with difficulties, a minefield of conflicting interests. After much friction the GameWorks team would flex their game development skills and roll their own commissioned attractions, instead of leaving that all to SEGA. These concepts included designs like ‘Vertical Reality,’ and the ‘Game Arc’ – all internally referred to as “Signature Games.”

At the same time, designers were working on a zany and off the wall facility layout, designing eye catching areas within the space, building immense multi-screened bar areas supported by “veejays.” Jarringly different from your typical arcade, the physical show set and themed elements were made to encapsulate the amusement machines within, targeting an 18 to 35 young adult audience. It was less of a place for just gaming, and more a stylistic fusion of design over substance. Personified by the new tagline – “GameWorks – Everything good, all at once!”

The branding machine flew into action, and so enamored with the opportunity, SEGA JP spun out its US amusement operation into the new SEGA GameWorks LLC. The whole operation at this point was looking at some 100 facilities rolled out across the Globe in the first two years, that number soon being tempered back to a 30-site model as costs went up.

To prove their concept, the company used their movie-making muscle to their advantage. Universal Studios ‘Soundstage 35’ in Burbank, California, would first be converted into office space for the wizards to craft their scale model concepts. Then the stage would be partly transformed into the full 30,000-sq.,ft., interior mock-up of the planned GameWorks design. This proto-GameWorks came with all of the machines and amenities installed, illustrating the expected $10m install cost for each venue conceived. This would then see a host of VIP guests, investors, and selected media, ushered through the facility concept, showing off the idea and promoting the opportunity to be a part of the roll out. These previews of the concept were partly to gauge reactions, and to placate impatient investors.

Exclusive, behind the scenes at Universal’s secretive Soundstage 35 mock-up
Source: @MStutz

This idea was fielded to the then corporate head of Microsoft, Bill Gates – who would support the broadcast launch event, hinting at the future-dream where you could have a cross-over between Microsoft’s Xbox home gaming concept, amusement titles from SEGA, and GameWorks serving as the attraction space. Overall, GameWorks was sold as a concept that could not go wrong, and that the great brains could do “amusement.”  SEGA corporation even saw their SEGA of America console game division attempt to buy their place at the table. Bolstered by glowing VIP reviews of the experience from the (free-to-play) soundstage – funding was greenlit towards the start of construction, and the Seattle facility became the first to open in March 1997. The rollout juggernaut for GameWorks had started and was seemingly impossible to stop.

– Let The Battle Commence

With the collapse of the SEGA agreement, Walt Disney would not abandon its own plans – but seeing the GameWorks hype, would be reinvigorated to launch their shelved amusement design. They would invest over $90m in developing their own interpretation of JOYPOLIS and would assemble their own “dream team” of industry specialists for its development. Calling upon all the skills of their Imagineering operation, Disney and GameWorks would soon be going toe-to-toe with Disney Quest (full coverage on Disney’s venture in the amusement space, can be found here).

For DreamWorks however, things were already unravelling, even after the expensive 1997 MTV: Music Television live (telecast) special promotional event, featuring celebrity A-listers such as Will Smith, Beck, Vince Vaughn and more. It would be only a matter of months into the opening of the first facility that the reality would set in that the core concept of GameWorks was holed below the waterline. This especially came to bear when the target audience started nicknaming the sites “LameWorks.” The grandiose and off the wall concept in how an amusement entertainment venue could be designed and operated had failed to deliver and it was adversely impacting the image and credibility of the assembled parties.

(AH Editor’s Note: You have to love how they were trying to recreate some of the aesthetic seen in dystopian 90’s movies like Johnny Mnemonic, with things like the floating blob of CRT TVs…)

Another star-studded VIP launch, this time for the Las Vegas location, depending on star appeal to the MTV crowd
Source: @ted90909

The main issue behind that feeling was that none of the specially commissioned games by the GameWorks brain trust hit their mark – all proving abject, expensive failures and poorly constructed experiences. Most notably had been the highly ambitious attraction ‘Vertical Reality.’ It was a $400,000 shooting game attraction inspired by ‘Virtua Cop’ – 12-players rising some 24-feet into the air, on special motion seats, shooting the enemies that appeared on the floors of a skyscraper in-front of them. Originally envisaged by Spielberg with the team, the game was so badly received that it had to be completely redesigned and eventually replaced only a matter of months after launching. Other expensive commissions, such as the Game Arc seen in the video above, would suffer similarly ignominious fates, ultimately being removed from the sites.

Likewise, the hope that SEGA Japan would create unique mid-scale attractions specially for the GameWorks locations failed to materialize. Scrambling to get something in place, the GameWorks managers pressed a series of Sega’s Special Deluxe (SDX) attractions into service, hoping it would make up for the stumble in exclusive experience content. These included the famous eight-player, AM1-developed ‘Indy 500’ (an updated ‘Virtua Formula’), along with the venerable ‘R-360’ platform. Venues were also used as the launchpads for new amusement pieces like SEGA’s ‘Top Skater,’ all while management was pulling hardware from their warehouses while wondering how the business model, for this high maintenance venue concept, would work in the evolving amusement trade landscape of the 1990’s.

Vertical Reality, to the left of the eclectic Seattle venue layout
Source: @MStutz

This illustrated the fundamental flaw with the whole GameWorks design – no ability for flexibility had been built into the concept, such was the faith in their vision – there was no ability for change. The operation was reported to have spent some $4m in games per site, and they offered a confused machine mix. This was made worse by problematic pricing that saw attractions charging exorbitant prices to ride. Understanding who GameWorks was aimed at was just part of the problem. Guests reported a feeling of jarring contradictions – real game players complained at the sacrilege of seeing actual classic video games cannibalized just for aesthetics, rather than being used for play value.

It soon became evident that all of those gathered to conceive the amusement game environment had very little knowledge of the fundamentals, as in the needs of the core entertainment center business. So many of the designs felt as if they were created by those not familiar with gaming. The team directly ripped ideas from other competing operations, many sources pointing to the treasure trove of operational concepts (such as the smartcard system), borrowed at the time from SEGA GameWorks partnership with the Playdium Entertainment chain. But no amount of looking at other people’s homework could address the lack of experience.

Before long, the GameWorks headquarters would see previously lauded executives exiting the building, followed by a rush to try and course-correct the operation before it was too late. The company would see the creation of a scaled down variant of the original concept, reverting more to an amusement style of presentation – launched as the ‘Stage 35’ concept that would become ‘GameWorks Studio,’ the wizards trying to find the magic they had originally promised. These smaller variants would also rebrand existing ‘SEGA City’ video arcades on the market, but for GameWorks, it was impossible to stop the financial roll-out plans; Plans in serious need of finding a sustainable business model.

Stage 35, a scaled down GameWorks that was grasping to find a winning formula
Source: @ted90909

How broken the model would be was reflected in the disjointed roll-out. Of the over 30 facilities finally opened, the whole concept would implode with poor landlord negotiations seeing astronomical leasing deals – lock-in deals that forced GameWorks to stay – or pay. This was best illustrated by the infamous original Las Vegas site that took extreme negotiations to finally exit. Likewise, the high aspirations of the Global roll-out of the chain would only see the likes of Mexico, Kuwait, and Rio de Janeiro, get short lived sites. Despite the high-profile partnership with SEGA, a GameWorks would never come to Japan, although a venue in Osaka had frequently been on the list of promised future sites. This was a stark example of how fractured the relationship had become between SEGA and DreamWorks; DreamWorks would sell their part in the company in 2001, only a month before Sega would discontinue their flagship home product, the Dreamcast. Dreams seemed to be falling apart on all fronts.

– The Fall Out

All the players of this tale found their entry into the Western amusement scene transformational, to say the least.
For SEGA, the magic was draining from their fingers, with their aloof perception of superiority in the entertainment field having imploded. Sales were decimated by their competition, not helped by high overheads and skyrocketing development costs. The company was hemorrhaging capital and would find itself looking at acquisition – with merger deals eventually collapsing between BANDAI, and then more secretly between Microsoft, (again kyboshed over ego and differences of style). The corporation would inevitably stumble from one crisis to another, resulting in the SEGA SAMMY merger, until finally in 2020, the corporation relinquished its facility business in a partnership with GENDA – and selling its JOYPOLIS business to Chinese Animations (CA).

Regarding the SEGA Western operations, away from the implosion that took place in their console game divisions, the amusement branch passed the time as SEGA GameWorks LLC, before reverting to SEGA with the split as they saw their amusement fortunes go through major changes. Skipping back to 2021, the remaining SEGA amusement operation in Europe and North America would enter a Management Buyout (MBO) with the remaining Japanese parent SEGA SAMMY Group. This would create a brand new operation called SEGA Amusement International (SAI) – that has its own aspirations to open entertainment facilities under a new model. We will report on these developments soon.

The ultimate loser in all this would be the dream of a modernized amusement model in 1997. What was defined at the time as Location-Based Entertainment (LBE) would be decimated by a series of failures by big corporations to inject their brand IP into the mix. Disney would see their aspirations of their own LBE concept ‘DisneyQuest’ only ever open two facilities, and be abandoned ignominiously, (though the original Orlando DisneyQuest would cement itself as a trailblazer with a nearly twenty-year run).

DreamWorks had exited the GameWorks concept in 2001 – taking along with them their conjoined movie and game aspirations. While the animation house had performed well, the movie studio, video game, and music aspects of the business had failed to achieve near any of the ambitious goals set. But their general failure at GameWorks came from the lack of realization that operating an entertainment, restaurant and bar combination was too much for them to comprehend, let alone manage. Divesting themselves of the amusement chain was the least of their worries, however. Most of the wizards and associated brain-trust, also moved on. Some jumped to Sony, who were developing their own LBE concept (‘Sony METREON’), which would also suffer a less auspicious future.

The conflicted game floor of the Seattle facility, not long before closing in 2021
Source: @JulianaNrg

After DreamWorks jumped ship, the chain would continue to stumble from one mess into another. One major issue that would lead to the first bankruptcy was the overlooked Federal law prohibiting alcohol companies running entertainment facilities that serve drinks. Since Universal Studios (at the time part of the Seagram distilling empire) had been involved, they were being pressured by SEGA to exit the partnership. The resulting situation, combined with the other aforementioned issues almost brought the company to an end just a few years after launch. GameWorks exited the ABC (Assignment to the Benefit of Creditors) undertaking, followed by a Chapter 11 reorganization in 2004.

At this point, only SEGA’s US operation remained within the original GameWorks orbit, but this would once again find itself in trouble by 2009, when the worldwide economic situation of the time would lead Sega to pull the rug on the operation, shuttering 50% of the remaining locations, and forcing a total rebranding with the removal of the SEGA brand from the name. With Sega’s departure, the writing was on the wall.  Restructured SEGA Entertainment USA (owned by newly formed SEGA SAMMY group) would acquire the assets and claim a rebranding / relaunch, but this was a pipedream. The new management looking at the previous thinking as “Old Co” (old GameWorks company), admitting that their aggressive strategy had been a bust by this point.

That all said, the company still survived, albeit in a form far removed from the original vision. The brand still had some staying power to it, even receiving media recognition, with the game ‘The Last of Us: II’ having one of the game’s action scenarios take place in an abandoned re-creation of the GameWorks Seattle store. They would go on to see conversions, numerous management buyouts, and the selling off all but seven venues. Now with the last owners of GameWorks, ExWorks Capital – who was reported by the Verge to have previously raised $17m to acquire the operation, put a strong focus on ESports with the locations, opening up PC LAN centers to compliment the arcade. This began with the troubled GameWorks Schaumburg facility and spread out from there:

A GameWorks eSports lounge.
Source: GameWorks

As a poster child for the company, the Las Vegas GameWorks location had surprisingly proven a success, drawing in the desired crowds after moving out of the Vegas Strip site in 2012. The new site was unencumbered by previous poor design choices, providing a fresh concept that favoured more the aforementioned eSports flare, along with amusement and F&B styling.

Unfortunately, all this was not enough to pull them back from the brink. While the amusement sector was enjoying a robust boom up through 2019, the Global Health crisis and related economic fallout caused any cracks to widen in the weaker operations. As reported on social media and confirmed by Arcade Heroes, ExWorks Capital unceremoniously decided this past week to close the remaining GameWorks locations, bringing this legacy of Hollywood & LBR amusement to a sad end. Even sadder was the poor communication to the staff, employees only learning of the closure through news on social media.

Though there is one glimmer amongst the wreckage.

– Towards Tomorrow

While GameWorks itself failed to live up to it’s vision, many fundamental concepts it brought to the table inspired others in the world of FECs.  Those that worked on GameWorks, or were associated with the grandiose concepts, would find themselves working for the new generation of “Eat, Drink & Play” operations that were inspired by the MTV-style play model. Dave & Buster’s, Main Event, and Scene75 would be just some of the operations that would benefit from executives and methodology associated with the early imaginings revealed at Soundstage 35. As it is, the modern FEC owes much of its present existence to what GameWorks started.

All hope is not lost for the locations themselves either. The Schaumburg site sits only a few blocks from another tempestuous opening, with NAMCO USA’s poorly received ‘PAC-MAN Entertainment’ LBE site. This is a site recently in the news as it has been acquired by GENDA, and now totally re-branded as ‘ENTERRIUM.’ It shows that with the right management in place, a location can get a second (or third) life to it. Some GameWorks locations are hoping to do just that, looking at separating themselves from the failed business operation of the previous company and going it alone. Expect to hear news of the re-emergence of several of these chain stores, under brand new management, or as part of acquisition deals.

Fundamentally, no matter how some tried to reinvent the concept, the flaws of the original design had hampered what is now proving to be a growing trend for social entertainment. GameWorks vision may have been proven to be a difficult concept – but it will take the 2022 business to deliver on the grandiose promises of DreamWorks’ original team (with chilling similarities to what Katzenberg would suffer in regards to the rise and fall of Quibi).

GameWorks, some 25-years previously, proved you must know what the audience wants – not force what you think they want, on them!

So now the the big question must be: Is now the right time for branded entertainment venues?

Bio :
About the Author – Kevin Williams is a widely-respected specialist on entertainment and technology. A regular presenter at international conferences, Kevin is also a regular speaker at the Foundations Entertainment University (FEU) and the Amusement360 events, bootcamps for LBE and FEC investors. He also holds the role as one of the senior judges of the VR Awards.

Kevin’s consultancy KWP Ltd specializes in helping international clients develop immersive and interactive entertainment. Kevin has recently become Co-Owner and Technology Director for Spider Entertainment, a Global leader in Out of Home Entertainment for retail destinations and beyond. Along with advisory positions with other entrants into the market.

Kevin is publisher of the Stinger Report, a-must-read for those working or investing in the amusement, attractions, and entertainment industry. Along with this, he is also a prolific writer with regular columns for the main trade publications in this market, while presenting numerous conference sessions on the sector and its global impact. He is also the co-author of the only book on this aspect of the market – currently working on the next edition, scheduled for publication soon. Kevin can be reached at [email protected]

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