Virtual Reality Gains Attention but Not Sales
January 10, 2017




At the 2017 CES immersive products took center stage as the virtual reality hype machine running was running full tilt. Service providers are well advised to stay tuned with enough resources devoted to understanding what it would take to get involved if they want to avoid being blindsided when the time comes to get serious about delivering VR services. Certainly content producers aren’t taking VR lightly, notes Tim Bajarin, president of Creative Strategies, a consulting firm that advises content creators on the use of new technologies. “All the companies we talk to see VR as an opportunity,” Bajarin says “Hollywood directors are getting into this. Steven Spielberg has invested in the Virtual Reality Company. They’re all waiting for a product that will sell in the millions. Goggles that people will accept on a mass-market basis are probably years away.” Indeed, notwithstanding heavy advertising and other marketing efforts by some of the major players, the fact is 2016 didn’t measure up as the predicted breakthrough year for consumer acceptance. And despite CES demos that are teeing up VR applications in everything from mainstream games and entertainment to porn and industrial use, the measured approach to content development signals a slower-than-expected uptake by VR gear buyers is discouraging a pace of content rollout that would serve to drive more gear sales, raising the likelihood of an extended run for the usual chicken-and-egg conundrum.


That doesn’t mean, as some have suggested, that VR will go the way of 3-D TV. As the enthusiastic purveyors of reports predicting the emergence of a multi-billion-dollar VR market note, VR has transformative potential in how content is produced and consumed as well as how business-related tasks are executed that 3-D never had. Moreover, even as VR cuts users off from interaction with people in their immediate vicinity, there is a social component to the technology that may well be the primary reason Facebook spent $2 billion on its purchase of VR equipment maker Oculus. At an Oculus developers’ conference, Facebook CEO Mark Zuckerberg wowed attendees with a demonstration of what a Facebook VR experience will look like. Wearing an Oculus Rift headset he met with co-workers, played cards and engaged in other activities in virtual space to demonstrate, as he put it, that VR is “the perfect platform to put people first.” Zuckerberg said his company has already invested $250 million with the content development community to drive VR content development and expects to funnel another $250 million into the effort, with an additional $10 million devoted to a new fund for educational applications. A year ago, Goldman Sachs predicted VR and augmented reality, which brings digital imagery into a viewer’s field of vision, together could generate anywhere from $80 billion to $182 billion in hardware and content revenue by 2025. In August IDC issued an even more aggressive prediction, suggesting global VR and AR revenues would each $162 billion in 2020. But by year’s end it was clear 2016 VR HMD (head-mounted display) sales were not as robust as expected, which was inadvertently underscored by Best Buy in a pre-CES email promotion touting all the great new things to be featured at CES that are now available on Best Buy’s shelves. 4K/UHD TVs, new smart phones and much else were mentioned in the promotion; VR wasn’t. SuperData said Sony was on track to sell about 745,000 units rather than the previously predicted 2.6 million. Its predictions for the other major players, HTC’s Vive, the Oculus Rift and Samsung’s Gear VR, were unchanged at 450,000, 355,000 and 2.3 million, respectively. The heavily advertised Gear VR, offering a less immersive experience tied to use of Samsung smartphones lodged in the HMD to generate images, costs much less than the others at a listed price of $100. Expectations that the Sony PlayStation VR, priced at $400 for use with PlaysStation4 consoles, would do better than the Oculus and HTC displays was based in part on total costs insofar as the base of over 40 million PlayStation4 owners needed to spend just $400 to obtain a VR experience. With the purchase price of the PlayStation4 starting at $300, the Sony VR experience could be obtained at $700 by people who don’t own the console, with the added benefit of gaining access to all the non-VR benefits of owning the console, whereas buyers of the Rift at about $600 and Vive at $800 needed to have a high-performance PC, which adds another $1,000 or more to the cost. In addition to costs, dearth of content was widely seen as a drag on sales, which, as previously reported, was the mantra at the beginning of 2016. But an impressive and growing range of activity focused on development of content beyond gaming as 2016 progressed suggests things could improve in the year ahead. For example, NextVR, producer of the aforementioned VR sports events and others such as the U.S Tennis and Golf Open tournaments for Samsung’s Gear, has expanded its reach to include the new Google Daydream View, a recently introduced $79 HMD for use with smartphones, and promises to add what could be better viewing options in conjunction with use of the higher end HMDs in the months ahead. NextVR has also begun producing one NBA game per week for VR viewing at no extra cost for holders of the NBA League Pass. Motion picture studios have been getting their feet wet with VR clips promoting movies such as Martian, The Blair Witch Project, Assassin’s Creed, episodes of Star Wars and many others. Doug Limon, director of the Bourne movie series, has created a VR episodic series titled Invisible, and Disney released a short VR video that puts people on the back of a dragon appearing in the remake of Pete’s Dragon. There are also a number of startups devoted to VR content productions that have been drawing significant investment funds, such as Within, Lucid, Immersv, VirtualSky and Vertebrae. Verizon thinks this be enough to draw a significantly larger market of users, so the company has built an end-to-end AR/VR platform utilizing Amazon Web Services’ EC2 GPU and CloudFront resources to support content creation, hosting and delivery.  Another entity getting into the cloud-based VR distribution business is NeuLion, which has built an international business providing OTT video management, distribution and monetization support for content owners, including major sports entities such as the NFL, NBA, Univision Deportes and Euroleague Basketball. In a partnership with Nokia that utilizes that firm’s OZO VR camera and player SDK, NeuLion is offering content owners an end-to-end integrated platform enabling a single stitched live video feed from OZO cameras to NewLion encoders for packaging and distribution to consumers worldwide. The question for network service providers is whether any of these developments merits serious investment in a VR service business. “VR is on the radar of almost every mobile, cable and media client we work with, and the most frequent question we get is whether this makes sense for their business right now,” says Jefferson Wang, senior partner at Interactive Broadband Consulting Group (IBB). In a recent survey of over 1,000 U.S. consumers who say they are interested in VR, IBB found that just 31 percent had actually tried the technology. For network operators that have a retail store presence, there’s an opportunity to provide that experience in demos that can lead to subscriptions to a VR service, Wang notes. “Initially, IBB predicts that the VR market winners will be companies that can break down the barriers to entry with an end-to-end play,” he says.

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