Tapping into video entertainment industry

Goldman Sachs report: The VR video entertainment market is estimated to reach $3.2 bn by 2025

AR/VR technology can fully reflect the human experience and explore it in all its complexity, heralding a new digital era, full of tests and challenges designed to trigger a new Renaissance and spur our creativity and imagination to reach their full potential.

Analysts have concluded that AR/VR can be used to expand a range of industries: video games, live events, video entertainment, retail, education, healthcare, military and engineering. By 2025, 60% of the market revenues will come from the priority areas — videogames, live events and video entertainment, but here we want to focus on the latter.

The Tribeca Film Festival 2016 in New York witnessed Allumette — a 20-minute cartoon produced by Penrose, an unknown studio from San Francisco. The following day all the leading tech media from UploadVR to TechCrunch were buzzing about it. Why so much hype? It was the first fully-fledged VR movie, and it was a huge success. Today, almost every other Hollywood giant is planning its own VR project: Spielberg invested in a startup making short VR movies and promotional videos, Ridley Scott is going to apply VR in his upcoming films, and Alejandro Iñárritu is actually working on a VR movie.

Now to tell the story in numbers. Analysts project VR revenues will surge to $750 m by 2020 and to $3.2 bn by 2025. Almost 25% of VR users will spend money on movies, which is around 24 million people in 2020 and 79 million people in 2025. As the VR video industry is in its natal stages, we may as well assume that at the beginning, such content will be free, but later users will have to pay for subscriptions.

AR also has a huge potential in the video entertainment industry. 3D content has surfaced in sporting events, shows, and other types of video and promises various possible directions of development.

AR/VR will alter the existing video industry, enabling users immerse themselves in imaginary worlds instead of watching from the outside. However, progress is being hindered by several issues, the core issue being the content creation process, which is expensive and rather time-consuming. Let’s see, what solutions the Cappasity platform can offer.

As an example, we will take an AR app, which superimposes animated 3D graphics over a user videostream. The monetization model is freemium: users can select to display a free AR image or pay for exclusive AR images. The demand for images is hardly predictable: the developer has to do lots of market research to achieve a sustainable profit. To shorten the time it takes to get a filter to market and reduce development iterations, the developer pays for the short-term rental of 3D images, embeds them into the app via the Cappasity platform SDK and measures the conversion rates of installs and payments. Then he drops any unwanted content and keeps the most popular images, purchasing them from the content owner. Thus, the developer’s revenue grows while a prudent balance between variable and fixed costs is maintained. Meanwhile, users enjoy abundant entertaining content.