Full Immersion: Is There Money to be Made in VR?

The tennis at this year’s St. Petersburg Open, for the first time, was available to watch in virtual reality using Prosense’s VR glasses. Creators of the gadget hope that, in a few years, their technology will help anyone visit any event without leaving the house.

Original article in russian

Vladimir Bakuteev (left) and Stan Glukhoedov have invested 60 million rubles in Prosense (photo by Ekaterina Kuzmina / RBC)

When wearing the glasses, one really feel right there on the court along with the players. To follow the ball, viewers physically turn their heads right and left — if you want, you could turn around and see the audience. The camera stands at a height, and if viewers look between their legs they will find themselves staring at the camera operators.

The images, however, are not of the highest quality and are not in 3D — they are most similar to 360° panorama videos similar to ones seen on YouTube or Facebook, reports Stan Glukhoedov, CEO of Prosense, in an interview with RBC. But in a special zone at the St Petersburg Open it was possible to wear helmets receiving stereoscopic signals from two cameras placed behind the players — this created the impression of three dimensions and contributed to the overall feeling of being present at the event.

Prosense, founded by Saint Petersburg entrepreneurs Stan Glukhoedov and Vladimir Bakuteev, is set to become the Russian pioneer in VR sports event livestreaming. Glukhoedov, who worked with investments in the tourism industry, proposed the possibility of creating a virtual tour around St. Petersburg to Bakuteev. Bakuteev had at that time been running LiveTex, a comprehensive platform for online client service consulting, which he founded in 2010. Together they created Prosense in 2015.

Initially the partners had intended to set up a production company specializing in shooting panoramic video, leading them to gather a team of specialists with a background in innovative film technologies. But, while researching the market, they decided to make a company invested not only in creating video content, but also developing the necessary equipment and software. Glukhoedov says they have already invested 60 million rubles in the company’s R&D department.

Forecasted sales of VR helmets in 2016:
3.5 million units — Samsung Gear VR
2.6 million units — Sony Play Station VR
1.1 million units — HTC Vive and Oculus Rift
Source: Superdata Search

Right on the Court

Development was increased thanks to Gigapano, whose technical director, Stanislav Kolesnik, became acquainted with leaders at Prosense in 2015. Gigapano has been making panoramic, 360° video since 2012 and was involved in the first panoramic film of Lake Baikal, made for the Google Expedition Pioneer Program. It was Gigapano which created ‘stereo rigs,’ devices that mount several GoPro cameras together with modifications for cooling systems and adapted optics. Parts for stabilizing and mounting equipment had to be built by the company, with remaining details and parts produced via 3D printers. The majority of equipment sold on the market didn’t meet the company’s needs and required tweaking — Kolesnik estimates that only 20% of their requirements were covered by existing products.

Prosense bought equipment for the startup and Kolesnik’s team were invited to participate as partners. Gigapano didn’t have the resources for planning, accounting, marketing and lawyers, Kolesnik explains, whereas Prosense had everything necessary for development, innovation and broadcasting.

“Our task was to create a set of solutions, from unique broadcasting systems and cameras to software which would allow for images to merge in real time,” Glukhoedov says. The first successful broadcast was held by the company at the Alfa Future People festival. Livestreaming the sets of various DJs was not available to all participants for free, but was offered at a sponsored guest zone which had ordered VR broadcasts in order to attract viewers.

At Alfa Future People, the broadcast was taken from two two points, including the DJ’s control booth, allowing the audience to be close to the DJ during the concert. According to Glukhoedov, more than 10,000 people went through a zone equipped with just a couple of VR helmets.

The first large-scale, VR broadcast of a sport event was organized by the company at the St. Petersburg Open in September. The semifinals and finals were able to be watched with the Prosense app, a Samsung smartphone combined with a Gear VR headset, or on YouTube.

Modern technology attracts more attention to the tournament and opens it up to viewers watching from the internet, explains Natalia Kanelson, executive director of the St Petersburg Open. “We are living in a period of time when using technological devices, 3D projections, second screen technology and virtual reality are transforming the event industry,” she says. The results of the tournament are still quite modest at the moment — only 5% of site visitors, or 5000 out of 97,500, utilized the VR broadcast button on the day of the broadcast.

Vladimir Bakhuteev and Stan Glukhoedov use ready-made cameras, but mount the cameras on specialized equipment (photo by Timur Ivanov/ RBC)

Western Experience

The idea of broadcasting live sports events in VR was picked up from the American startup Next VR, which has attracted more than $100 million in investments within its 8 years of existence.

Created in 2009 by IMAX director and producer DJ Roller, along with partner David Coal, the startup initially specialized in creating 3D video for television. But when the technology wasn’t initially picked up they decided to start developing a virtual reality streaming project. DJ Roller helped director James Cameron create 3D-cameras which were using for filming 2003’s “Ghosts of the Abyss,” Disney’s first 3D film.

In 2014, the company attracted investments of $5 million and, in February 2015, broadcast an NHL match for the first time in VR, made available through Samsung Gear VR. In the autumn of 2015, $30.5 million was invested in the company by Comcast, Time Warner and The Madison Square Garden Company. The final investment round was closed by the company in August 2016, when $80 million was invested by acting and new investors including the Japanese corporation SoftBank. Investors have assessed Next VR at $800 million.

Today, broadcasts are one of the most popular applications of VR technology, which is why one may expect a bright future for the industry, says Sergey Orlovskiy, founder of the game studio Nival.

TechCrunch has noted that 360° broadcasts and VR livestreaming at sport events will be the salvation for the fans who cannot fly halfway across the world to support their favourite athletes. The 2016 Olympic Games in Rio were themselves broadcasted in VR by NBC and BBC for the first time.

$800 million — the value of Next VR
$700 million — the value of the VR headset market in 2016
$300 million — the amount spent on game content in VR
10 million — the amount of games for VR sold in 2016
Source: Deloitte

The Question of Monetization

According to Deloitte, in 2016 the value of the global VR will exceed $1 billion for the first time, $700 million of which will be made through equipment sales with the other $300 million coming from game content. Deloitte hasn’t estimated revenue from VR sports broadcasting, as for now there is still the question of how to install cameras in ways that will not obstruct the players, as mentioned in the report. Notable growth in small-screen or cinema content is similarly not expected — the sphere is, for the moment, too small and the technology not yet up to speed.

Investment growth: Next VR (month, year/ $mil) Sept 2015–5, nov 2015–30, sept 2016–80. Source: company data

Kolesnik says that panoramic and VR content production, so far, has proved a b2b service. At the moment, the only brands interested in ordering VR advertising content later promote their content through makeshift, cardboard headsets — the cheapest type of VR helmet. Kolesnik believes that, to prompt end users to pay for VR-content, they must be given a wide range of ready made content available for viewing.

Broadcasts by Next VR, Prosense’s inspiration, are still free for end users. But David Natanson, commercial product director at FOX Sports, noted that ‘full-immersion’ broadcasts will give abundant space for sponsorship and advertising content, from attached videoclips and banners to advertising content that’s integrated into the content itself.

Glukhoedov also believes that it is possible to use advertising and product placements during the broadcast itself — advertising content can be overlapped onto the graphical interface and set up according on the user’s behaviour while watching. Additionally, he predicts monetization will occur by selling tickets for broadcasts of particular events, such as concerts.

Prosense currently earns money through advertising, admits Glukhoedov. The average cost of producing one video is one million rubles, but that figure may eventually rise to several million. A standard package costs about 300 thousand rubles and includes a three-hour shoot using two cameras, with video transmitted to YouTube with a minimal graphics processing. A premium broadcast lasting twelve hours, with shooting carried out from three points and transmitted in 3D to a special application (as at St Petersburg Open), costs 770 thousand rubles.

Everything the company earns is invested in the R&D department and employee salaries. Glukhoedov hopes that, by the end of the year, earnings will reach tens of millions of rubles. He also notes that Prosense is planning this year to attract third-party investment, including opening access to foreign markets. But Glukhoedov hasn’t mentioned either the amount or the names of potential investors.

“360° video is a technology with large potential to supply breakthroughs for VR in our everyday lives,” explains Alexander Chachava, managing partner of LETA Capital. In his opinion, a good target for investment would be a company participating in the creation of service infrastructure in the sphere of 360° video. If a company can only supply services, it does not deserve venture capital, says Chachava, and very soon market access will only be open to those ready to spend $3000–5000 on equipment and software.

Prosense stands out from a number of other companies involved in panoramic video

production for the fact that they are aimed at creating their own cameras and players for video reproduction, says Vasiliy Ryzhonkov, director of the Skolkovo funds’ centre for mobile technology. He cannot estimate how compelling Prosense would be for venture investors as, “the company has a very broad profile — they are involved in marketing, creating documentaries, sports broadcasting and, on top of that, in producing equipment. It’s a bit alarming, as the general venture business typically concentrates on a single product.”

The main idea is that, in three or five years’ time, VR will become a mass format for watching sports events, says Vladimir Bakuteev, co-owner of Prosense. Prosense is negotiating with Match TV, which holds broadcasting rights for the majority of sports matches in Russia. Their press office has informed RBC that, as of. yet, there is no official partnership with Prosense.

“Not all modern trends are accepted immediately across all spheres,” says Natalia Kanelson of the St Petersburg Open. Even after having agreed to an experiment with VR broadcasting, she notes that it is better for tournament organizers if people come, physically, to the stadium.

Written by Alyona Sukharevskaya, RBC