News & Insights
Blumberg Capital portfolio news, startup growth resources and industry insights
Why Virtual Reality Won’t Disrupt Gaming and Entertainment (At Least Not in the Way Everyone Thinks)
Sep 20, 2016
By Evan Brown
Ever since Facebook announced its plans to acquire the VR headset maker Oculus VR in March 2014, the tech world has been buzzing about virtual reality. Companies are racing to create their own branded VR experiences, industries are discussing how to integrate VR into their core products, and thought leaders are pondering how virtual reality headsets will affect face-to-face interactions. With the commercial release of the Oculus Rift CV1 (Consumer Version 1), Sony’s upcoming release of the PSVR, and Google’s announcement of the Daydream platform, VR buzz will only continue to increase. And while opinions differ with respect to both when VR will reach mass adoption and how this adoption will affect our world, almost all VR evangelists and researchers agree that gaming and entertainment will be the first two industries disrupted.
In discussing his interest in virtual reality, renowned director Peter Jackson commented in an interview with Variety that “We’re right on the cusp of a major upheaval of the entertainment world once that technology really kicks in.” And in a 2015 report on VR and its potential, investment bank Piper Jaffray contends that by 2025 gaming will be the largest VR application. A similar report by Goldman Sachs concludes, “the videogame use case will likely take center stage in 2016.” Looking farther out, Goldman and Digi-Capital both believe that gaming will dominate total VR revenue share.
Why Are People So Focused On Gaming?
It makes sense that people are so focused on VR consumer entertainment (gaming and videosMost VR creation tools today are plugins to existing 3D Game Engines such as Unreal and Unity, and the vast majority of VR developers either have backgrounds in game development or in 360˚ film production. In large part, this connection is due to the extraordinary computing power currently necessary to run high-end VR. While mobile VR is constantly improving (and will continue to improve with the Samsung Gear 2 and Google’s soon to be released Daydream platform), essentially the only machines powerful enough to run an Oculus Rift or HTC Vive are gaming computers, with premium graphics cards and processors. Most of these 13 million computers are owned by gaming enthusiasts, so it is not surprising that VR pundits would focus on video games. In part to accommodate these gamers, HTC has partnered extensively with game-development studio Valve and it’s accompanying software distribution Steam, which developed SteamVR to specifically accommodate VR demand.
Finally, when most people think of VR the entertainment industry is the first thing that comes to their minds because game demos and short films are the VR experiences most readily available and most often demonstrated. Due to the VR-ready PC bottleneck, the general public’s VR experience is mostly limited to 360˚ videos on Google Cardboard, or quick, five-minute demos at different meetups and conferences. Games and videos make for excellent demos because they can be made arbitrarily short, they do an excellent job showcasing VR’s different capabilities, and they appeal to a wide base of consumers (unlike medical VR applications, for example, which may only pique the attention of surgeons). Looking past the demos, however, reveals an industry less ripe for disruption by virtual reality than many others.
Beyond The Demos
Consumer entertainment may be the most obvious entry point for virtual reality, but examining the supply and demand of this content reveals that creating meaningful disruption in these industries will actually be quite challenging.
The biggest unsolved question with respect to virtual reality remains:
“When will it reach mass adoption?”
Keeping this in mind – it is hard to imagine VR film and gaming adding enough value to incentivize the average person to spend a $1,000+ on premium VR hardware. And while low-end mobile VR experiences can be mind-blowing for those who’ve never experienced virtual reality, they are simply not good enough to excite gamers and TV-enthusiasts once the novelty wears off.
This is, in part, because current forms of entertainment are so advanced. There are countless game designers who deliver fantastic console and PC gaming experiences. Similarly, there is no shortage of movie and TV directors and producers who have mastered the art of creating and sharing 2D videos. This ability to deliver expected quality, so critical to the entertainment industry, has not yet been developed in VR. This is likely because, creating for VR is extremely difficult.
Not only does VR-ready content have to run at extremely low-latencies and fast frame rates, but it also must be loaded in full 360˚ and account for players who expect full interactivity to accompany the incredible immersion they’re experiencing. There are also no established controller design standards: while most console controllers look more or less identical, the same cannot be said for VR input devices. All of these factors combine to make the creation of high-quality VR entertainment content extremely difficult and therefore expensive – hence the proliferation of short demos and the lack of high quality, triple-A VR titles.
In its current format, VR is also not particularly conducive to individual ownership and consumption at scale. Unlike many videogames, VR games in head-mounted displays cannot be played for hours on end without inducing some form of nausea, and unfortunately the more accessible the headset, the worse the simulator sickness. It also remains unclear exactly how VR for entertainment will enter the household. People know how and where they watch TV or play videogames – the same cannot be said for Virtual Reality. VR gaming in the house will require modifying human behavior – you can’t plop down on a couch in your living room and play EVE: Valkyrie (an issue which ties back into the lack of an industry-standard for input devices).
It might be a while before we start seeing omnidirectional treadmills in living rooms around the world (the Virtuix Omni is pictured)
VR entertainment faces the chicken and egg problem encountered by so many new technologies: Content creation studios will not see solid returns on VR investments unless millions of headsets have been sold, but consumers will be reluctant to buy expensive headsets as long as the available content is no more fun or addictive than their Xboxes, Wiis, and TVs.
If Not Gaming, Then What?
Fifty years ago, when computers were in their infancy and too expensive for individual consumers, they were shared between users who purchased time slots on them. Distributing the cost of running an Oculus Rift or HTC Vive across multiple users, rather than immediately attempting to sell directly to consumers via a one-to-one B2C model like that seen in mobile phones or laptops today, may also be the best way to get VR off the ground floor. If so, B2B-focused VR applications like training employees, treating phobias, or showing real-estate properties may be more appealing and fiscally feasible. A doctor, manager, or realtor can distribute the initial fixed cost of buying a Rift and a VR-ready computer across many patients, employees, or customers, each of whom receives a clear value-add for which they’re willing to pay. For example, extensive research has shown that this new technological platform has the ability to create and mimic real life experiences in a way that has never before existed. When a patient needs an x-ray, he doesn’t typically purchase an entire x-ray machine. Why, then, shouldn’t VR be introduced into doctors’ offices to help multiple patients overcome their phobias?
Virtual reality is an unbelievably powerful tool that has the potential to generate new and previously unimaginable realities, while creating such a strong sense of immersion that people forget they’re in a virtual environment. When thinking about where VR will have the greatest impact, both in the short term and the long term, it is important to remember that VR can change lives in more meaningful ways than making games more fun to play and TV more fun to watch.
Evan Brown is a senior studying computer science and economics at Harvard University. He researched artificial intelligence and virtual reality as a summer 2016 research analyst at Blumberg Capital in San Francisco.
Digi-Capital is an investment bank and consulting firm focused on AR/VR
EVE: Valkyrie is a launch title for the Oculus Rift and was shipped with every CV1 pre-order.