Premium VR Content — The Chicken And The Egg Problem

Major streaming services to enter Premium VR Distribution

We are only starting to discover the many uses for VR. Among the broad array of potential applications and content types, entertainment is commonly regarded as one of the first to arrive to consumer market.

In its report this January, Goldman Sacks predicts “VR to be bigger than TV in 10 years”. Even if its not to this extent, many agree VR is the next big medium.

Looking back at 2015, even in the absence of an existing consumer market, we saw a large number of brands creating VR promotions, including Patron, Mountain Dew, Porsche, North Face, and many more.

Looking at traditional media, from consumers’ point of view, we can broadly divide entertainment content into two buckets ; free or paid. Free content is paid for by brands or studios that hope to convert viewers into customers. Another form of free content is user generated content, which is usually distributed on free platforms (e.g. YouTube) that make money from ads. Paid content (from the consumers’ POV) is TV shows, movies, interactive experiences and any VOD/Pay-per-view/subscription service you can think of.

When we look at entertainment content in VR, so far most of it is free for consumers. Alongside the branded content mentioned above, we see an early rise of User Generated Content (UGC) in VR.

Early consumer hardware such as the Ricoh Theta S (and newly announced LG & Samsung cameras), and online streaming platforms such as Littlstar, Vrideo, MettaVR and most recently Facebook and YouTube, have pioneered with lowering the barriers to entry for casual content creators, and it is now possible for non-technical people to create 360 videos and distribute them, potentially, to millions of people. While the quality of this content is far from production grade, not only that it’s getting better, but its value is undebatable, with the opportunity to expose more people to unique places and experiences (such as war struck or remote places), as well as social interactions that are pure fun.

River Studios & Rothenberg Ventures’ peep using the Ricoh Theta right

There are several ways to measure the success of such uncurated platforms. Some will survive only if they make money through ads (when the user volume is large enough to move the needle), and some will be a cost center, but will drive engagement (e.g. Facebook), which is valuable looking at the bigger picture.

Still, with all that said, there is a huge unexplored opportunity to create a different kind of entertainment content, one that consumer would be willing to pay premium dollars for.

Netflix’s app on Samsung GearVR. Currently showing 2D content only

Premium VR entertainment content is one that consumers are paying for, either in the form of a Video-On-Demand (VOD) /Pay-per-view model, or through a subscription model.

Currently there is very little if any premium VR content out there for two key reasons that keep a chicken-and-egg dynamic between them.

The Chicken — No Premium Content

The interest around VR is at an all-time high. Many people claim it’s mere hype, but we believe, as our own CEO, Mike Rothenberg, said: “There are people who think it’s hype and then there’s people who have seen VR”. With pre-orders of the Rift pushing delivery to Q4, and almost every crowd-funded project being over backed, the early signals of consumer adoption look great.

In its consumer report from October 15, GreenLightVR found that 55% of consumers reported likelihood of purchasing a VR device in 2016. In May 15, Piper Jaffray estimated that in 2016, Samsung will sell around 5M Gear VRs, 3.5M Rifts by Oculus, HTC will sell 2M Vives, and Sony will sell 1.5M PlayStation VRs, summing to 12M overall.

However, even if all these people had a shiny new Gear VR, Rift or any other device, what would they watch? There is so little premium content out there, mostly either Documentaries or Horror.

Nokia Ozo. Early cinematic hardware coming soon

Here’s why: Telling stories in VR is a big creative challenge. In many ways, we feel like we’ve been thrown back more than 100 years to the early days of cinema, when the “rules” and visual language just weren’t there. The old canvas is now wrapped around viewers’ heads in a 360 degrees sphere, and it is a real challenge to make good use of that space, direct attention and use visual and auditory cues to tell a story.

Finding out how to tell a story in VR takes trial and error, bold creative vision and money. Lots of it. While the equipment and tools for casual 360 videos creations are affordable, high-end tech is expensive and still in development. In the absence of a consumer market that supports premium creators, the need for capital prevents more people to discover and define the new visual language that make sense for this medium.

The Egg — No Premium Channels

Released in 1995, Toy Story grossed $362M globally in theaters. Even if we had created the VR equivalent of “Toy Story”, “Citizen Kane”, or any other masterpiece, today it would gross $0 (or close to it). On top of very little hardware penetration, there is simply no channel or venue for consuming premium content.

“So, do you agree VR is the next medium?”

There is currently no “Netflix” or “Hulu” for VR, although the rumors through the grapevine suggest that it’s in motion. The early bird was the announcement of a curated content platform called “Wevr Transport”, made by WEVR earlier this month.

Solving the Chicken-and-Egg Problem

This dynamic exists since you need one to have the other. Constant stream of great content can only be funded by consumer dollars, but in order to unlock that market, we need a dedicated channel.

Any studio that claims to be “Pixar for VR” doesn’t allude to the fact that Pixar was built in an established market, with an established distribution platform — Cinemas. They knew how many people would be able to watch it (movie goers), how much a ticket would cost, and how much it would cost to market/distribute it. The unknowns in VR are so much greater, since we’re not only building the technology and the creative language, but we’re also building the channels, ticket prices and the entire delivery ecosystem.

Building VR

It took 90 years for Cinema and TV to get there, so we can’t expect everything to be built for VR in a year.

To get out of the chicken-and-egg problem, we must invest in both chickens and eggs without the expectations of immediate returns.

On one hand, studios and funds should invest in the creative vision of directors and writers. For example, large investments in VR Studios, such as the Disney-led $66M investment in Jaunt, Comcast-HTC-Samsung’s $6M investment in Baobab, Formation 8’s $35M investment in NextVR, will pave the way for more runway for premium content creators.

On the other, the entrance of established distribution players, with a large established customer base, such as Netflix, Hulu and Amazon, into the VR space, before waiting for deep hardware penetration, would enable consumer to discover and consume great premium content.

At the end of the day, in order for VR entertainment content to be a viable business, we need to forego short term ROI for long term returns.