VIRTUAL REALITY THOUGHT LEADER - Fun Train
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PREMIER THOUGHT LE ADER Thought Leader is a series of quarterly industry reports written by Variety’s senior editors exclusively for Variety Premier subscribers. VIRTUAL REALITY Potential and Challenges Ahead for Hollywood By Janko Roettgers, Senior Silicon Valley Correspondent, Variety
V
irtual reality has inspired Hollywood short film “Henry.”
Inevitably, 2016 ended not with the bang
like few other technologies in recent that some in Hollywood and Silicon Valley
history. From directors to senior had hoped for. Headset sales, while not a
executives, anyone who has tried the complete disaster, clearly were below expec-
medium seems to be enamored by it, tations. “We were conservative, but maybe
we weren’t conservative enough,” said Amit
and almost every studio has at least begun to tip Kumar, partner at the Silicon Valley VC firm
their toes in the water. But how big is the potential Accel during the VRTL Summit in Los Ange-
of virtual reality for Hollywood, and what are the les earlier this year.
most significant challenges going forward? Still, Hollywood is far from giving up on
VR. In fact, Warner Bros. Chief Digital Officer
Thomas Gewecke argued during the same
In many ways, 2016 was the year that Hol- event that a slow start doesn’t change the
lywood fell in love with virtual reality (VR). overall hockey-stick trajectory of a success-
The release of headsets from major compa- ful new technology. “We have learned that we
nies like Facebook, Google and Samsung, the are in the really early days,” he admitted, but
$2.3 billion invested in VR last year, and the added: “The potential is huge.”
explosion of creative output from big studios
and small startups alike all seemed to point
towards a momentum matched by few other
ASSESSING THE VR MARKET
technical advancements since the release of
the iPhone 10 years ago. To fully understand the this potential, it’s
helpful to map out the existing market for VR
hardware, as the evolving headset distribu-
IN MANY WAYS, VR IS A NASCENT MARKET THAT HAS tion represents both obstacles and opportu-
UNDERGONE MULTIPLE ITERATIONS IN JUST A FEW YEARS. nities for Hollywood in its quest to reach an
audience for VR content.
VR is in many ways a nascent market that
Fears that VR would be “the next 3D TV” has undergone multiple iterations in just a
— a technology pushed by hardware manu- few years. The technology first made head-
facturers but largely ignored by the masses — lines when Oculus, then still a small startup,
seemed to fade when consumers and tech in- debuted its Rift VR headset on Kickstarter in
siders alike lined up by the hundreds at trade 2012. It got a significant attention boost when
shows and public events to try VR headsets, Facebook shelled out $2.3 billion to acquire
only to come out of dark demo rooms with Oculus in early 2014.
glowing eyes and awe in their faces. However, we have yet to get any actual
What’s more, a first wave of key projects sales data from Oculus about its Rift headset.
seemed to signal a path for Hollywood cre- Just like its competitor HTC, the maker of the
atives to be on the forefront of this new medi- Vive VR headset, Oculus and Facebook have
um, with Jon Favreau jumping head-first into kept mum on unit sales, leaving us at the mer-
creating magical worlds for VR with “Gnomes cy of third-party market research companies
& Goblins,” Fox releasing “The Martian VR Ex- and their estimates.
perience” as a first commercial adaptation of Only Sony has given us a peek at their sales
a major Hollywood blockbuster, and Oculus numbers, announcing in June that it had sold
even winning an Emmy for its animated VR more than one million PlayStation VR head-
2UNIT SALES OF VR HEADSETS 2016-17
Google leads by enabling free distribution from brands, news orgs
Google Cardboard
Gear VR
PlayStation VR
HTC Vive
Google Daydream
Oculus Rift
0 1m 2m 3m 4m 5m 6m 7m 8m 9m 10m
SOURCE: COMPANY REPORTS, SUPERDATA RESEARCH
sets since first introducing the device in Oc- revealed in February.
tober. That’s in part because Sony is thought This raises another important question: Are
to be the market leader: Superdata Research, these cheap headsets actually being used, or
a research company specialized in VR, esti- are they collecting dust in drawers? One of
mates that HTC sold around 420,000 of its the few companies that has actually released
Vive VR headsets in 2016, followed by Oculus usage data is Samsung, revealing in January
with 240,000 headsets. that consumers had streamed more than 10
Clear winners in the current market are million hours of video through their headsets
cheaper mobile headsets, and in particular since the launch of the first Gear VR model in
Samsung’s Gear VR. Samsung announced in late 2015.
CARDBOARD-ENABLED APPS HAVE BEEN INSTALLED MORE THAN 160
MILLION TIMES FROM GOOGLE PLAY, THE COMPANY REVEALED IN FEBRUARY.
January that it had sold more than five million Sony revealed in June that it had sold 5.25
units of the device since first introducing it in million VR games globally since the launch of
late 2015. Gear VR currently retails for $100, the PlayStation VR. The average user of So-
but requires consumers to also own a com- ny’s VR headset owns 5 games or experienc-
patible Samsung phone like the Galaxy S8. es, and consumes VR in sessions averaging
In fact, the company frequently gives away 25 minutes. Altogether, Sony has clocked 37.9
headsets to buyers of its high-end phones, million VR sessions to date.
which retail for $700 or more. Absent of any hard data from the other VR
On the other end of the spectrum is Card- headset manufacturers, there are some clues
board, Google’s attempt to make 360-degree that certain devices get a lot more usage than
video affordable for everyone with a smart others — and content producers looking to
phone. Cardboard viewers have been given target certain platforms get help from some
away by the millions by brands and news or- unexpected places, like VR porn distributor
ganizations, with Google estimating that its Badoink. It’s no surprise that a significant
partners have shipped more than 10 million subset of VR headset owners would be en-
units of the affordable viewer. Cardboard-en- ticed to at least experiment with watching
abled apps have been installed more than 160 X-rated content on their devices.
million times from Google Play, the company Badoink told Variety in April that its VR
3APPS AVAILABLE FOR VR HEADSETS HOW TO MAKE MONEY WITH VR
HTC Vive
PlayStation VR Oculus Rift & Touch
Consumers may only have bought a couple
Gear VR Google Daydream = 10 apps million VR headsets thus far, but there are
already a number of monetization strategies
emerging for content owners and producers.
Here are some of the key approaches:
PAID DOWNLOADS. Given the dominance of
both mobile as well as game console-based
virtual reality headsets, it’s no surprise that
business models established on these kinds
of devices are also being explored to make
money with VR. There are plenty of apps for
sale for both mobile and high-end headsets,
and paid downloads are starting to generate
significant revenues for some publishers.
Tilt Brush, a popular Google VR app for
the HTC Vive headset, has sold more than
200,000 copies for $19.99 each on the vid-
eo game app store Steam, according to vid-
eo game analytics website SteamSpy. Job
SOURCE: COMPANY REPORTS Simulator, a game that retails for $29.99, has
sold more than 150,000 copies on Steam, and
porn services see 40 percent of their usage shooting game Raw Data, which is priced at a
from Samsung’s Gear VR headset. 23 percent whopping $39.99, has sold more than 95,000
of consumers opt for a cheap and low-tech copies.
Google Cardboard headset. Oculus Rift and SteamSpy numbers have to be taken with
HTC Vive together account for 25 percent of a grain of salt, as games often receive sales
usage, and PlayStation VR headsets are re- boosts via free give-aways and reduced-price
sponsible for 9 percent of Badoink VR usage. sales. Both HTC and Oculus also run their
own app stores for their respective headsets,
meaning that all these titles likely sold a lot
EVEN WITH ALL THOSE LIMITATIONS, IT’S CLEAR THAT more copies than those tracked by SteamSpy.
THERE IS A GROWING NUMBER OF TITLES BRINGING Finally, Steam only works for high-end PC-
based headsets, and not for mobile devices
IN MULTIPLE MILLION DOLLARS EACH, AND AN EVEN
like Samsung’s Gear VR, or even PlayStation
BIGGER NUMBER OF PUBLISHERS SEEING REVENUES VR.
OF HUNDREDS OF THOUSANDS OF DOLLARS PER TITLE. Still, even with all those limitations, it’s
clear that there is a growing number of titles
bringing in multiple million dollars each, and
Data from mobile app analytics specialist an even bigger number of publishers seeing
App Annie also shows significant developer revenues of hundreds of thousands of dollars
and consumer interest in mobile VR. At the end per title — real money, especially for smaller
of August, Apple’s App Store offered consum- studios that are only starting out in VR.
ers more than 25,000 apps advertised with SteamSpy is currently tracking more than
keywords containing “virtual reality,” “Google 700 VR-only games. Including both free and
Daydream” (signaling interoperability with paid titles, Vive and Rift owners have down-
Google’s Daydream competitor) and “Day- loaded close to 14 million copies of those ti-
dream View,” followed by 6,900 such apps on tles, with an average price point of more than
Google Play. Worldwide downloads for these $12 per game. Altogether, these VR titles have
apps grew 110% year-over-year during the first brought in an estimated $162 million in reve-
half of 2017, according to App Annie. nue on Steam alone.
4TOP-GROSSING VR TITLES ON STEAM APP STORE numbers for Transport, but WEVR cofounder
Paid downloads are starting to generate sizable revenues for some publishers Anthony Blatt told Variety when the platform
launched that he and his colleagues didn’t
Title Price Units sold Est. revenue foresee Transport to become a breakthrough
Job Simulator $29.99 156,086 $4,681,019.14 success overnight. “There is no hubris here at
the company,” he said. Instead, the goal was
Tilt Brush $19.99 203,756 $4,073,082.44
to help curate premium VR, and condition us-
Raw Data $39.99 101,245 $4,048,787.55 ers to pay up eventually.
Headset maker HTC also entered the sub-
Arizona Sunshine $39.99 75,301 $3,011,286.99
scription space this year with its Viveport
Audioshield $19.99 136,048 $2,719,599.52 subscription service, which gives HTC Vive
owners access to five titles every month for
Virtual Desktop $14.99 143,220 $2,146,867.80
a monthly fee of $6.99. Viveport has a much
Space Pirate Trainer $14.99 136,048 $2,039,359.52 broader focus than Transport, and offers ac-
cess to both games as well as cinematic expe-
The Gallery — Episode 1: Call of the Starseed $19.99 99,769 $1,994,382.31
riences. Titles include Time Inc’s “Remember-
Vanishing Realms $19.99 93,019 $1,859,449.81 ing Pearl Harbor,” Google’s “Tilt Brush” and
Northway Games’ “Fantastic Contraption.”
Star Trek: Bridge Crew $49.99 36,069 $1,803,089.31
Altogether, Viveport’s subscription service
SOURCE: STEAMSPY.COM, AS OF AUG. 21. ACTUAL REVENUE MAY BE LOWER AS ESTIMATES ARE now has a catalog of over 250 titles.
BASED ON FULL RETAIL PRICE. ONLY INCLUDES VR TITLES PLAYABLE ON HTC VIVE AND OCULUS
RIFT. DOESN’T INCLUDE TITLES SOLD THROUGH OCULUS STORE OR VIVEPORT.COM. The company hasn’t released any subscrib-
er numbers either, but Viveport President Ri-
kard Steiber told Variety in August that it has
But SteamSpy data also suggests that, seen steady growth since its launch in April.
with a few exceptions, consumers are most “It’s going really, really well,” he said.
likely to pay $10, $20 or even $30 for a VR- Still, subscriptions clearly do have a chick-
based video game that will keep them busy en-and-egg problem. Publishers may be less
for many hours. Cinematic VR experiences willing to give their crown jewels to services
that they may only watch once or twice may that have thus far only attracted modest au-
be a bit of a harder sell. diences, and opt to instead sell them directly
to consumers. Subscription services on the
other hand will have a hard time growing
AMAZON IS REPORTEDLY WORKING ON LAUNCHING ITS without massive subscriber bases, which re-
OWN VR SERVICE, BUT HAS YET TO SAY WHETHER THAT quires them to have attractive catalogs.
One solution to this problem may be at-
SERVICE WILL BE LIMITED TO PRIME SUBSCRIBERS. taching a VR component to a traditional vid-
eo subscription service. Amazon is reportedly
SUBSCRIPTIONS. Another business mod- working on launching its own VR service, but
el actively explored for VR is subscriptions, has yet to say whether that service will be
which may lend itself better to cinematic con- limited to Prime subscribers. Hulu launched
tent, especially given the fact that consum- its own VR app in early 2016, but isn’t cur-
ers are already used to paying for music and rently restricting it to paying members.
video in this fashion. One of the first VR-only Ads and branded content. In the absence
subscription services with a focus on cine- of big subscription players, studios and start-
matic virtual reality is Transport from Ven- ups alike are often opting for another reve-
ice, Calif.-based VR startup WEVR. Transport nue stream: advertising. Traditional advertis-
offers subscribers access to a number of VR ing is still in its infancy in VR, especially since
experiences for $8 to $20 per year, with titles companies have yet to find the equivalent
including Jon Favreau’s “Gnomes & Goblins,” to a pre-roll or banner ad for the medium. A
Deepak Chopra’s “Finding Your True Self” and number of startups are exploring this space,
Arjan van Meerten’s “Apex,” which recently but few of them have done more than one-off
premiered at the Sundance Film Festival. implementations.
WEVR has yet to share any subscriber Adobe has been exploring its own take
5VR REVENUE IN 2016 GLOBAL VR REVENUE
Money fairly evenly distributed across devices Dollars are on pace to double next year and again in 2019
$80B
$70B
Mobile
$687m $60B
$50B
Console-based Total $40B
$411m $1.8b
$30B
$20B
PC-based
$718m $10B
$0
’17 ’18 ’19 ’20 ’21
SOURCE: SUPERDATA RESEARCH SOURCE: GREENLIGHT INSIGHTS
on VR advertising as part of its research lab, into a website, or even watched on TV, may
but has yet to productize these efforts. Start- lead to adverse reactions when watched on a
ups like Santa Monica, Calif.-based Vertebrae screen mounted just a few inches away from
have been looking to automate the integra- the viewer’s eyes.
tion of ads in VR apps with software devel- VR viewers are the ultimate captive audi-
opments kits (SDKs) and similar tools, but ence, and any messaging from a brand or ad-
models that make financial sense on the web vertiser is literally “in their face.” In a medium
or in regular mobile apps often require a kind that can already create physical reactions like
of scale that this medium simply doesn’t yet few others — viewers can literally get motion
possess. Perhaps in light of these challenges, sick when camera movement isn’t done the
market research company Greenlight Insights right way — this position comes with a lot of
projected that global VR advertising revenue responsibility.
will only reach $1.6 billion by 2021, compared
to consumer content spending of $6.3 billion. VR FOR PR. Closely related to branded con-
In the absence of ad standards for VR, mar- tent is Hollywood’s use of VR as a medium
keters are often instead looking for branded to advertise its own, existing franchises. Per-
content to reach tech-savvy VR audiences. haps unsurprisingly, almost every studio has
One of the better-known brands to explore done VR and 360-degree video trailers and
this approach has been GE, which teamed specials to promote existing movies and TV
up with VR studio Within and Mashable to shows.
produce “The Possible,” a multi-part VR se- That approach has a number of advantag-
ries exploring cutting-edge technologies in- es. Thanks to rapidly improving camera tech-
cluding hoverboards, robots and space travel. nology, it is getting a lot easier to produce
Each episode of “The Possible” was present- 360-degree 3D footage alongside regular
ed as a “double feature” with a two-minute shoots, using the same sets and assets. Costs
science-themed VR ad tacked on. will be significantly lower than for original
As with ads, brands need to walk a fine VR productions, and the ability to distrib-
line with their involvement in VR, and content ute 360-degree video to audiences without
producers need to be conscious of the unique headsets on YouTube, Facebook and Twitter
qualities of the medium. Something that may also opens up videos to million of additional
feel relatively unobtrusive when integrated eyeballs.
6All of this means that VR trailers, teasers and other physical constraints. The Void has
and behind-the-scenes videos are an effec- already launched a Ghostbusters-themed VR
tive way to explore VR and learn about the experience together with Sony Pictures, and
new medium with its challenges and oppor- is getting ready to open Star Wars-themed
tunities. However, the window to use VR as a experiences at Disneyland Resorts in South-
attention vehicle of its own is rapidly closing ern California and Florida later this year.
as consumers get used to the new medium. The Void co-founder and Chief Visionary
Studios may have been able to get press cov- Officer James Jensen described these kinds
erage for the first few 360-degree behind- of experiences as perfect extensions of mov-
the-scenes videos, but the news value of ie franchises like “Ghost Busters” in a recent
these videos is quickly decreasing. VR for PR, interview with Variety: “These worlds exist
as some critics call it, is rapidly approaching in our imagination. We have created movies
its expiration date. about these worlds, we have merchandise
That’s not to say that a well-done VR fea- from these worlds. And now, The Void has the
turette can’t be used to promote a Hollywood ability to allow you to put on this equipment
franchise. Consumers love to immerse them- and step into these worlds.”
selves in their favorite stories, and anything The Void plans to open dozens of addition-
giving them a chance to do the same visually al locations in the coming months, with CEO
with a movie or TV show they adore can be a Cliff Plumer telling Variety that the compa-
powerful experience. ny eventually wants to operate thousands of
However, there’s a potential flipside: Pro- stages around the world. The company is get-
motional VR videos that aren’t done well, or ting competition from startups like Dreams-
don’t do the medium justice, could feasibly cape, which recently teamed up with 20th
shape the expectation of new users, giving Century Fox for a location-based Alien VR
them an underwhelming introduction to VR experience, and Vrcade, whose technology
that could be harmful to the medium itself. is being used to bring VR to Dave & Busters
That’s why 20th Century Fox Home Enter- locations.
tainment President Mike Dunn told Variety And then there is Imax, which has opened
late last year that the studio was looking to VR experience centers in New York and Los
build actual products, and not just teasers, for Angeles, and plans to operate a total of 10 lo-
VR consumers. “We see VR as a new media cations by the end of the year. Imax is using
opportunity, not just a promotional vehicle,” these first centers as a kind of field test to
he said. evaluate the potential of location-based VR. If
successful, the company may open thousands
of locations around the world, and spend mil-
IMAX HAS OPENED VR EXPERIENCE CENTERS IN NEW lions of dollars to finance and co-produce VR
YORK AND LOS ANGELES, AND PLANS TO OPERATE A experiences for its locations. “We are off to
a very promising start,” Imax chief business
TOTAL OF 10 LOCATIONS BY THE END OF THE YEAR. development officer Rob Lister told Variety
recently.
LOCATION-BASED VR. There is anoth- Location-based VR is a great opportunity
er model to monetize VR, and it is one that for Hollywood, if only for the fact that it can be
Hollywood has long been familiar with: tick- used as a way to get actual products to main-
et sales. A number of startups, and even big stream consumers that don’t have spent an
players like Imax, have begun to invest in arm and a leg on a high-end VR headset yet.
building out facilities for location-based VR There are still some issues that are typical for
entertainment, ranging from simple arcades nascent markets — not all players will achieve
to mini amusement parks. scale, or even survive, and not everyone has
Utah-based The Void has been a pioneer fully-functioning development tools yet.
of this nascent industry, and launched stages The upside is that location-based enter-
in multiple cities for VR adventures that allow tainment is a proven business model, and
consumers to walk around to explore virtu- there’s some potential that location-based
al worlds without being tied down by cables VR could eventually make up for declining
7theater ticket sales, or at least keep the- developed for its HoloLens augmented reality
aters as entertainment locations relevant to a headset and integrated it into so-called mixed
tech-savvy audience. VR-focused market re- reality headsets made by partners including
search company Greenlight Insights recently Lenovo and HP. Devices like these promise
estimated that location-based VR will bring in to eventually offer VR experiences that inte-
$1.2 billion by 2021. grate the real world, which could afford Holly-
wood studios the ability to truly bring movie
characters into their fans’ living room.
It may take some time for new headsets
WHAT’S NEXT IN VR TECHNOLOGY
and applications to reach traction. In the
VR development isn’t standing still, and con- meantime, there’s some good news for any-
tent producers should anticipate several sig- one concerned about lagging headset sales.
nificant advancements of the technology Both HTC and Oculus have significantly re-
over the coming years. Most notably, both duced the price of their VR hardware. While
Facebook and Google have been working on consumers previously had to spend as much
ABOUT THE AUTHOR next-generation headset projects that take as $800 for a headset and controllers, and
some of the features of higher-end virtual re- just as much for a PC capable running VR
ality and marry them with the convenience of experiences to boot, these headsets are now
wireless solutions. available for as little as $400, making VR sig-
First results of these efforts will be avail- nificantly more affordable.
able before the end of the year, thanks to a
partnership between Google and two hard-
ware manufacturers, HTC and Lenovo. Both
CONCLUSION
companies are set to introduce so-called
standalone VR headsets that run without the Virtual reality was caught in the hype cycle
Janko need for any additional hardware, be it exter- when consumer hardware first appeared on
Roettgers nal PCs, game consoles or phones. The Day- shelves in early 2016. A little over a year later,
SR. SILICON VALLEY dream-branded standalone headsets will also we are starting to get some real data from
CORRESPONDENT offer some of of inside-out tracking, which early adopters that shows continuing inter-
Roettgers has will allow for more immersive VR experiences est in the medium, and willingness to spend
been covering the than currently available on Google’s existing real money on VR entertainment. Hollywood
intersection of media mobile phone-based Daydream headset, as should follow these trends closely and con-
and technology for well as Samsung’s Gear VR. Facebook’s ef- tinue to participate in driving the medium
nearly two decades,
forts, which go into a similar direction, aren’t forward. However, studios also have to set re-
most recently for
expected to ship before 2018 at the earliest. alistic expectations for VR, and view its proj-
GigaOm before joining
Variety in 2015. He has
At the same time, a growing number of de- ects as long-term investments until audience
worked as a freelancer vices is aiming to combine VR with augment- numbers scale up further.
for a wide range of ed reality, which promises to overlay digital In other words: The nascent VR business,
European publications objects over the real world. Microsoft has tak- just like watching VR experiences, sometimes
and radio services. en some of the augmented reality technology requires a strong stomach.
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