Estimation of Willingness to Pay for Virtual Reality Theme Park

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1 International Journal of Business Policy and Strategy Management Vol. 4, No. 1 (2017), pp Estimation of Willingness to Pay for Virtual Reality Theme Park 1 Yijoong Kim, 2 Heysook Kim, 3 Yonghee Kim and 4 Jeongil Choi 1 1,2,3 Graduate School of Business, Soongsil University, Seoul, Korea 4 School of Business Administration, Soongsil University, Seoul, Korea 1 neio42@naver.com, 2 19gi@naver.com, 3 yh.kim@ssu.ac.kr, 4 jichoi@ssu.ac.kr Abstract With the advancement of information and communications technologies, market related to Virtual Reality(VR) using mobile-based devices has been rapidly expanded. Global companies such as Google, Facebook, SONY and Samsung Electronics have competed for the preoccupancy in the virtual reality market by introducing products and services in the area of game, education, and tourism. Meanwhile, the most active area of the virtual reality ecosystem is Contents among the cycle of Contents-Platform-Network-Device, and various types of virtual reality theme park have been developed with the growth of VR related technologies. In Korea, government and corporations are actively trying to expand the market through cooperation, but it still remains as a kind of promotion to raise awareness of virtual reality in the nation. Therefore, using contingent valuation method, this study aims to estimate value of virtual reality theme park and provide practical insights to corporation, government and related institutions. Keywords: Contingent Valuation Method, Valuation, Virtual Reality, Willingness to Pay 1. Introduction Advancements in information communications technology have facilitated the expansion of a market in virtual reality using mobile-based devices. Global companies are aggressively acquiring virtual reality businesses to construct a content-platform-network-device (CPND) ecosystem and wrestling to win the leadership of the market. This huge interest in virtual reality technology and market by businesses can also be understood through a statistical forecasting of the size of the relevant market. Among various fields of the CPND ecosystem, the most popular area of development in Contents is the entertainment market, which includes games, theme parks, and sports [1]. The development or operation of virtual reality theme parks utilizing such virtual reality contents are underway both home and abroad; a prime example being The Void VEC developed by The Void. In Korea, But the domestic virtual reality theme park lacks a mature profit business model on the virtual reality market and there is little information or networking as of yet. Moreover, it remains a part of a promotion exercise by the government to raise public awareness on virtual reality and vitalize the industry, which is in stark contrast to other countries where private companies are the ones aggressively developing virtual reality services. Based on the above, this study aims to calculate the value of virtual reality theme parks, an area in which the market is developing rapidly, by using the Contingent Valuation Method (CVM), which can estimate an appropriate price based on information acquired from a Article history: Received (January 19, 2017), Review Result (March 21, 2017), Accepted (April 08, 2017) Print ISSN: , eissn: IJBPSM Copyright c 2017 GV School Publication

2 Estimation of Willingness to Pay for Virtual Reality Theme Park simulation on the virtual market, and thereby calculate the value of the virtual reality theme park for businesses and present a justification for the government and related agencies in promoting related business. 2. Literature review 2.1. Virtual reality theme park The most eagerly developed area in contents is the entertainment market, which includes games, theme parks, sports, and movies [1]. Recently, several theme parks in Korea and abroad have developed and launched virtual reality services. These virtual reality theme parks can be categorized into three main types [15]. The first type is a service where users use an equipment which enhances the presence of virtual reality through location recognition and motion-tracking, which reads user movements. Main examples of such equipment are Omnim, Cyberith, and KAT WALK. The second type are riding virtual reality attractions, which enable users to experience riding a roller coaster through virtual reality technology. An example is the Gear VR Adventure launched by Everland, a theme park in Korea, in April The last type is a virtual reality game experience zone where users can experience realto-life games by mapping a virtual screen structured like a cube. A prime example is The Void VEC. The Void VEC is a virtual reality theme park being developed by The Void, a startup located in Salt Lake City, U.S. As per the features of a virtual reality game experience zone, users can experience virtual reality games by wearing a head-mounted device (HMD) and other necessary equipment in a space structured only of walls Contingent valuation method (CVM) Calculating the value or benefit of a non-market good that does exist in the real market requires the estimation of a virtual demand curve. The value of such a non-market good can be computed using direct or indirect methods, including Travel Cost Method (TCM), Hedonic Price Model (HPM), Conjoint Analysis Method (CAM), and Continent Valuation Method (CVM) [4]. Among them, the CVM method is a direct way to calculate the value of a good that does not exist in reality or a non-commodity output which is not actually traded in the market, and estimate its value in terms of benefits to be provided in the future [13]. The CVM method measures the value of a non-market good, or rather, a product, service or convenience facility, based on a survey [7]. The estimation process is less complicated compared to other methods and has the advantage of being able to measure both the demand and use value of the non-market good [6][3]. A particular case in point was when the U.S. National Oceanic and Atmospheric Administration (NOAA) decided to utilize CVM in the calculation of damages at the oil spill in the coast of Alaska, U.S. in This verified the reliability of the CVM method. As a result, CVM is still used to measure not only the value of natural heritage and tourism resources but also the value of various goods [14]. 3. Methodology 3.1. Estimate model The CVM method hypothesizes that a good that does not exist in the real market actually exists, creates a scenario, and by using collected responses, identifies the virtual demand curve and calculates the value of the good [13][14]. The subject of this study, virtual reality theme parks, is a commodity not in operation in Korea yet, and therefore, WTP is estimated 36 Yijoong Kim, Heysook Kim, Yonghee Kim and Jeongil Choi

3 International Journal of Business Policy and Strategy Management Vol. 4, No. 1 (2017) pp based on responses collected through a set-up scenario. However, this study estimated WTP by using a scenario on theme parks such as that of The Void VEC currently being serviced in the U.S. instead of a small space in which virtual reality contents can be experienced, such as a small game zone. Hanemann [13] defined the following formula on personal utility to estimate the WTP of respondents and conduct CVM through an indirect utility function. ( ) ( ) (Formula 1) In the above formula, ( ) signifies indirect utility function calculated through utility maximization. refers to income, while means economic status. refers to the current status and to the adoption of a new system or rather, when a virtual reality theme park is in service. If the user additionally pays, which is the WTP for the use of the virtual reality theme park, and still acquires the same current utility, this is measured as WTP. Based on this, if the good in this study is represented as A, the indirect utility function of consumers as ( ), and parameter as a personal characteristic variable,, which is the WTP of consumers regarding the good, can be represented in the form of the following formula: ( ) (Formula 2) In the second formula, is an indicator variable. If there is no WTP regarding the proposed good, = 0; if there is a WTP regarding the proposed good, = 1. This can be established in the following formula: ( ) ( ) (Formula 3) Such indirect utility functions give way to the existence of a random factor, which is impossible to observe in a survey. If this random factor is divided into the observable and unobservable, the individual utility is on average ( ) and has a probability distribution of error term. This can be established as the following formula: ( ) ( ) (Formula 4) The random variable WTP is measured not based on a single value but on values from several respondents, and therefore, a single representative value is determined and calculated. Hanemann [13], and Johansson et al. [10] proposed several measurement methods to this end: calculation of the WTP mean value from probability cumulative area, median value and truncated mean Research design In measuring the value of a virtual reality theme park, this study established gender, age, length of education in years, monthly income, and marital status as variables and the proposed amount was offered as an admission fee, which is similar to a one-day ticket to a large-scale domestic theme park. In determining the survey type to measure the WTP, the double boundary dichotomous choice method was selected as it can calculate WTP more accurately compared to other survey types while also acquiring quantitative information from respondents [2][12]. The subject of this study is a service not yet launched in Korea, and unless adequate information on the non-market good and virtual market is provided to respondents, it may be difficult for them to understand the survey, resulting in a distortion of the estimated amount [14]. Therefore, it is important to explain to the respondents and make them understand at the time of the survey about when the non-market good will be traded in the future market. In this context, prior to conducting the survey, this study showed a promotional video of The Void Copyright c 2017 GV School Publication 37

4 Estimation of Willingness to Pay for Virtual Reality Theme Park VEC currently being serviced in the U.S., and explained at length about the virtual reality theme park scenario they must assume will be serviced in Korea at a future date. 4. Empirical analysis 4.1. Data collection This study conducted a survey on 312 respondents from September 12 to December 23, 2016 to collect data, and an analysis was conducted on a total of 306 responses as the remaining six were insufficient responses. The collected data were subject to a demographic analysis using SPSS, and the CVM and WTP estimation were conducted through R Estimating WTP of virtual reality theme park In a bid to estimate the WTP of virtual reality theme parks, variables that can impact the willingness to pay were established, and the WTP calculation model based on these variables were analyzed using the log logit model and method of maximum likelihood. Table. 1 Result of maximum likelihood estimation Coef Std. Error Z- value Pr (> z ) *** Male ** Age Income * Edu Married log(bid) Wald-statistics on 5 DF, P-value: Log-likelihood Signif. codes: 0 ***, **, 0.01 * The estimation results in Table 1 are as follows. First, the proposed amount had statistical significance, and the higher the proposed amount, the lower the WTP. Second, male respondents were found to have a higher willingness to pay compared to their female counterparts. This may be regarded as a natural phenomenon considering that the contents for the virtual theme park subject to this study is games, and previous research show that men are more proactive in accepting new technologies than women [9][11]. Lastly, income had a meaningful impact statistically but had a negative (-) influence on WTP, and it was confirmed that the higher the income, the lower the WTP. This result goes against previous research results that found the higher the respondents income, the higher the WTP [13][5][3][14]. The reason for this may be that because of the characteristics of the contents of the virtual reality theme park, the main users will likely be between teens and thirties [8], and therefore, it may be likely that respondents in their forties and above with higher income may not regard the value of the virtual reality theme park as high as the younger respondents in their twenties and thirties with lower income. As shown in the results in Table 1, the age coefficient is negative (-) but does not have a meaningful impact statistically. This is because respondents in their twenties and thirties out of the total 306 respondents accounts for as much as 80 percent compared to other age groups. 38 Yijoong Kim, Heysook Kim, Yonghee Kim and Jeongil Choi

5 International Journal of Business Policy and Strategy Management Vol. 4, No. 1 (2017) pp The Wald statistics shows that the estimated model is not 0 and is statistically significant. More specifically, it may be analyzed that respondents accept the contingency market of the virtual reality theme park and are willing to pay a certain amount as an admission [14]. Table. 2 Result of WTP estimation Estimate Lower Upper Truncated Mean 35,590 32,922 38,001 Adjusted Truncated Mean 36,994 33,910 40,035 Median 29,733 27,344 31,985 The average WTP for the virtual reality theme park estimated using the double boundary dichotomous choice CVM model was KRW 36,994 as shown in Table 2. The Void VEC that was shown to respondents as an example prior to their answering of the survey is operated at a price equivalent to KRW 35,000 42,000, which is similar to the average WTP calculated by this study. The one-day ticket for a large-scale theme park in Korea is KRW 48,000 for an adult, and consumers showed they are willing to pay a price lower than this price. 5. Conclusion Among virtual reality industry fields with high growth potential, the interest in theme parks based on virtual reality contents is steadily on the rise among consumers, government, businesses and related organizations, and therefore, it is extremely worthwhile to measure its potential value. This study aimed to estimate the WTP of potential consumers in an attempt to assess the value of such a theme park. According to the results of the study, the WTP was lower when the proposed amount was higher, which was a predictable outcome. It was also confirmed that men were more willing to pay for it than women. Lastly, in contrast to previous research results, WTP was found to be lower among groups with higher income, and the final calculation of WTP for access to a virtual reality theme park was KRW 36,994. These results may be expected to be utilized as basic data for the government, businesses, and related organizations that seek not only to provide virtual reality theme park services but also adopt and invest in various virtual reality services based on contents. References [1] B.Y. Jung, The Ecosystem and Implication of Virtual Reality, ICT & Media Policy, Vol. 28, No. 7, pp. 1-23, (2016). [2] H.Y. Kim and S.S. Kim, Estimating the Use of Hwaseong Castle: A Contingent Valuation Approach. Journal of Tourism Sciences, vol. 27, no. 3, pp , (2003). [3] J.H. Cha, Y.S. Cha and K.R. Chang, Evaluation on the Economic Value of Instant Replay System in Korean Professional Baseball League Using Contingent Valuation Method, Korean Journal of Sport Management, Vol. 20, No. 6, pp , (2015). [4] J.S. Lee, K.S. Cho and J.H. Choi, Exploration of Economic Valuation Model for the UX Design using the Contingent Valuation Method: Focusing on the Screen Unlock Interface HCI Korea, Vol. 11, No. 1, pp , (2016). [5] J.Y. Choi and J.H. Yu, Estimation of VMS Traffic Information Value using Contingent Valuation Method, The Journal of The Korea Institute of Intelligent Transport System, Vol. 12, No 3, pp , (2013). Copyright c 2017 GV School Publication 39

6 Estimation of Willingness to Pay for Virtual Reality Theme Park [6] K.H. Park, A Critical Assessment of the Economical Value of Road on Housing Prices Using Contingent Valuation Method: Focus on the Road Construction Plan of 47th of Suwon si-. Environment and Resource Economics Review, Vol. 21, No. 4, pp , (2012). [7] K.J. Boyle and R.C. Bishop, Welfare Measurements Using Contingent Valuation: a Comparison of Techniques, American Journal of Agricultural Economics, Vol. 70, No. 1, pp , (1988). [8] Korea Creative Content Agency, Game User Survey, (2016). [9] M. Dupagne, Exploring the Characteristics of Potential High-definition Television Adopters, Journal of Media Economics, Vol. 1, pp , (1999). [10] P.O. Johansson, B. Kriström and K.G. Mäler, Welfare Evaluations in Contingent Valuation Experiments with Discrete Response Data: Comment, American Journal of Agricultural Economics, Vol. 71, No. 4, pp , (1989). [11] S.K. Byun, Estimating the Welfare Effects of the Digital Radio Broadcasting using the Contingent Valuation Method, The Research of Broadcasting and Telecommunication, Vol. 76, pp , (2011). [12] S.K. Lee and G.S. Kim, A Study on the Economic Valuation of the Hamyang Wild Ginseng Festival Using DB-DC CVM, The Korea Local Administration Review, Vol. 25, No. 2, pp , (2011). [13] W.M. Hanemann, Welfare Evaluations in Contingent Valuation Experiments with Discrete Responses, American Journal of Agricultural Economics, Vol. 66, No. 3, pp , (1984). [14] Y.H. Kim, S.E. Lim and J.I. Choi, Estimation of Willingness to Pay for Smart Home Service by Contingent Valuation Method, Journal of Korean Society for Quality Management, Vol. 44, No. 4, pp , (2016). [15] May 4 (2016). 40 Yijoong Kim, Heysook Kim, Yonghee Kim and Jeongil Choi

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