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One of the biggest conundrums for many working in the fledgling XR sector is how to make money in the medium.

As part this week’s Cannes XR program, Jingshu Chen, co-founder of VR entertainment platform VeeR will deliver a keynote that seeks to address the issue.

Beijing-based VeeR distributes, produces and invests in narrative VR content, and also operates the ZeroSpace VR cinema chain in China.

Chen’s July 9 keynote, titled “Cinematic VR content distribution and monetization,” comes at a time when the hype around the medium has well and truly popped.

Reflecting on the growing pains of VR, Chen refers to Gartner’s famed “Hype Cycle for Emerging Technologies.” Deals such Facebook’s 2014 acquisition of Oculus led to a “peak of inflated expectations,” which gave way to a “trough of disillusionment” from 2017 amid sluggish headset sales, tech issues, a lack of content and many VR companies retreating from the sector.

But, reckons Chen, VR could now be back on Gartner’s upward “slope of enlightenment.” She cites growing VR headset sales, notably the attractively priced Oculus Quest 2 released last year. Games content, she says, is “taking off.”

Indeed, back in February, Facebook said 60 virtual reality games and apps on the Oculus Quest VR headset platform have generated more than $1 million in revenue. Six titles have generated more than $10 million in revenue on the Quest platform, among them Beat Saber and Population: One.

Analysts Omdia reckon that 2.3 million Quest 2s were sold globally in the last quarter of 2020, and that the headset should be able to achieve 5.1 million sales in 2021.

In its latest report, “Facebook, VR, and the Future of Advertising,” Omdia concludes that VR is shaking off its image as a gimmick and taking small steps towards becoming a mass-market proposition.

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ZeroSpace VeeR

However, Omdia principal analyst George Jijiashvili says household penetration remains tiny – a mere 1.2% across the leading 32 countries. “This could grow to 5% in 2025, highlighting the long road ahead for mass adoption of VR,” says Jijiashvili.

Total VR content revenue stood at just $1.1 billion in 2020.  This sounds impressive, but is “just a drop in the ocean in the context of $168 billion total spend on games in 2020,” explains Jijiashvili. He adds that VR is fighting for users’ attention in a world awash with content, from the likes of YouTube and Netflix through to social media and gaming platforms.

For creators and distributors of narrative VR content, cracking this already narrow market remains highly challenging. Making matters worse, headset manufacturers seem resolutely focused on the gaming market, amid signs that early adopters are largely from the gaming community. VR creators and distributors complain that Oculus, for example, is not “friendly” towards narrative VR, and makes it hard for standalone paid content or for aggregators to launch on the Quest store.

Very few pieces of narrative content have made money because of limited distribution outlets, says Jeffrey Travis, CEO of VR technology and theatrical firm Positron. “A lot of the time, narrative VR content is simply not going to be discovered by audiences, because they don’t know where to find it.” Travis says headset manufacturers’ focus on gaming has meant a “lack of interest in promoting cinematic content.”

Both VeeR’s Chen and Positron’s Travis say that, for now, the big opportunity for content creators lies in monetizing through location-based entertainment (LBE) VR, particularly now that many theatres around the world are opening up again amid successful Covid-19 vaccination roll outs.

Chen says VeeR is investing in building up its ZeroSpace-branded VR cinema chain in China, where it now has 30 outlets. She says the cinemas are attracting broad audiences keen to experience VR storytelling, not just the male game-focused types who have been early adopters of headsets. For example, Chen reports that 55% of LBE VR audiences are female, versus 45% male. She reckons that it will take a few more years for VR headsets to go mainstream. In the meantime, says Chen, “Location based VR cinema is a faster way to get VR content to the mainstream.”

Likewise, Travis says that Positron is seeing growing demand for its theatrical services. The company equips VR theatres with its full motion Voyager VR chair platform, and supports with software and licencing content. It is supplying five new VR cinemas this year in locations such as Melbourne, Houston and Yosemite National Park. Says Travis: “When you look at the projections for XR narrative content, it’s clear that in the short to medium term, the financial return is way higher on location-based entertainment than at home.”