Cal Haverstock is accustomed to customers calling his enterprise awesome.

Running Toronto's biggest high-tech playground can be amusing, with its 200-plus virtual reality simulators, interactive video games and an adjacent 11-acre outdoor midway that includes mini-putt golf, go-cart tracks and a baseball dome with nine variable-speed batting cages.

But, Haverstock will tell you, this is also serious business.

"The competition in the entertainment industry is brutal," says the president and CEO of Playdium Corp., which operates Playdium Mississauga set within 40,000 sq. ft. of neon-lit space filled with the cacophony of adrenaline-fuelled, action-packed games and rides.

Brennan O'Connor, Business Edge
Playdium Corp. president Cal Haverstock says competition is fierce in the entertainment industry.

"We're battling for consumers' entertainment dollars against other bricks-and-mortar arcades and amusement parks and the explosion of home-based GameBoys, Xboxes and PlayStations. To attract customers, we must give them unique and intense gaming experiences," he says.

Randy Higgs and wife Jennifer of Mount Albert, north of Newmarket, are revving up the frequency of their arcade visits. Their favorite haunt: The NASCAR SpeedPark at Vaughan Mills, a 1.2-million-sq.-ft. shopping and entertainment destination north of Toronto.

"We're avid NASCAR race fans and this gives us real insight into what drivers feel on the big track," says Jennifer, a 32-year-old elementary school teacher who has steered her way through most of the SpeedPark's indoor and outdoor racetracks, including the Family 500 (track length 185 metres), Slidewayz (188 metres) and Champions (126 metres). The two outdoor tracks are on five acres sideswiping the mall.

An officially licensed property of the National Association for Stock Car Auto Racing, the 40,000-sq.-ft. SpeedPark is designed to give visitors the excitement of NASCAR by featuring challenging racetracks with mini hotrods that chug along at about 40 km/h. There is also laser tag, a rock-climbing wall, an interactive arcade, official NASCAR merchandise and NASCAR Speedway simulators.

"SpeedPark bridges the gap between family amusement venues and the professional NASCAR racing circuit," says Andrea Tushingham, the mall's director of marketing. From the mall's perspective, the park draws customers by providing an added-value experience, as well as a point of differentiation from other shopping destinations in the region.

For the Higgses, visiting SpeedPark is more than a Sunday outing, it's the closeness they feel to their race heroes at this scaled-down replica. "There's the merchandise: Signed jackets, sweatshirts, jerseys and bumper stickers," Jennifer says. "We're just grown-up kids when we go there."

Although SpeedPark opened more than a year ago and Playdium was founded in 1991, the year after Nintendo released its graphics-glutted Super Mario 3, the all-time best-selling video-game cartridge for the in-home gaming market, the retail arcade trade across Canada is pulling back from its full-throttle heyday of the early 1990s.

The sector is in decline, says Detlev Zwick, assistant professor of marketing at the Schulich School of Business at York University. "The first arcades, the storefront varieties once strung along urban main streets, created a multiplex experience akin to the multi-screen movie theatres. That was fine when it wasn't possible to reproduce the experience at home. The technology of home gaming combined with wide-screen television now fairly equates that offered by location-based entertainment centres (LBEs). It's part of the ongoing home-cocooning trend."

On the plus side, Zwick says, the huge infrastructure of in-home video gaming (pegged as an $11-billion-a-year business) has helped increase awareness of game titles and whet the appetite for game enthusiasts to participate in the communal, theatre-type atmosphere provided by LBEs.

The original goal for Playdium, Haverstock says, was to be the leading sensory-rich, immersive gaming environment LBE in Canada.

The company struck the jackpot in the late 1990s when it owned and operated two LBEs in Ontario, as well as LBEs in the Burnaby, B.C., MetroTown shopping centre and the West Edmonton Mall.

"But as a result of an overly aggressive expansion plan, in which the company raised and spent almost $100 million, Playdium filed for bankruptcy protection in February 2001," Haverstock says. Emerging from protection in late 2001, Playdium Corp., through its principal shareholder, Toronto's Covington Capital, was given a clean balance sheet.

"Playdium closed its (less profitable) LBEs and continues to operate its Mississauga site, considered one of the largest-grossing LBEs in the world," Haverstock says. "Because of the enormous rents and the unsteady customer patterns in malls for our kind of business, we won't go down that road in the future."

Instead, Playdium's games division is expanding its operations into smaller game centres, generally in the 1,000- to 2,000-sq.-ft. games rooms co-located within other entertainment venues, typically the lobbies of movie theatres.

"These locations have arcade formatting and rely upon core theatre traffic," Haverstock says, adding that the strategic fit is key. The theatre chains contribute the real estate space and the traffic flow to the game centres, which attract the incidental pre- and post-movie spend. The centres are equipped with a mix of new and well-maintained older games.

"This approach materially extends the useful life and cash-generating capability of equipment," he says.

The foundation of the contractual relationship between the company and the theatre chains is a revenue-sharing arrangement.

The theatre companies provide the locations and the onsite labour while Playdium is responsible for game acquisition, equipment maintenance, configuration and rotation.

Playdium recently partnered with Texas-based Cinemark USA Inc., one of the largest motion-picture exhibitors in North America with 310 theatres in 33 states and internationally (including Canada).

"We currently service 64 locations with them and will continue to add three to four new locations per year," Haverstock says. "We're also signed up with Famous Players/Galaxy and we have five years remaining in their contract with us. We'll grow with them as they add additional theatres across Canada."

Playdium expects to add three or four new Famous Players/Galaxy locations annually to the existing 68 facilities, he says.

Playdium Mississauga continues to draw in more than 500,000 gamers annually, Haverstock says. "Our core user demographic is the 13- to 24-year-old single male. Serious players are typically within this category. The Playdium experience is often a material component of their entertainment mix and visits tend to be regular and relatively frequent, often several times per month."

This category, he adds, represents about 35 per cent of Playdium's revenue mix: Family visits, typically with pre-teen children after school and on weekends, represent about 25 per cent and group events (corporate, youth sporting organization events, birthday parties) represent a further 25 per cent of the revenue mix. The remainder is walk-by traffic.

"Arcades are definitely an awesome social pastime," Jennifer Higgs says. "It's the noise, the flashing lights, the fun of interacting with other families. For us, they have a pull rivalling the lure of Las Vegas. You don't get this sitting at home in front of a TV or computer screen."

(Jack Kohane can be reached at kohane@businessedge.ca)