VR Market Stall Drags on as Focus Shifts to 5G as Likely Game Changer

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5G emerges as a potential game-changer amid a stagnant VR market.

All-in-One Headsets Are Big Improvement but not Enough to Move the Market

Prospects for moving beyond the slow-ramp-up phase in virtual reality and related extended reality categories may have improved with the arrival of all-in-one untethered headsets, but it’s clearer than ever that the market’s hockey stick moment will never come without major improvements in perceived entertainment value.

Notwithstanding ongoing generation of VR content worldwide, consumers remain largely unmoved beyond the niche gaming segment that has been the primary driver behind hardware penetration so far. And even the gamer response to VR has been fairly tepid, despite this being a moment when enthusiasm for video games is greater than ever.

That’s not to say there hasn’t been high percentage growth at rates typical of a new product category, which is occurring with augmented reality (AR) as well as VR. According to Futuresource, the volume of VR head-mounted displays (HMDs) shipped in 2018 jumped 19 percent over 2017 to 26.3 million units with the sales take surging 71 percent to $3.3 billion.

IDC predicts total VR and AR headset unit sales will increase by 54.1 percent this year and continue growing at a 66.3 percent CAGR through 2023, Among VR headsets the leading category is autonomous (untethered) devices, accounting for 59 percent of sales, with over a third of that total attributable to sales of new screen-equipped standalone devices like the Oculus Quest and Pro, Lenovo Mirage Solo and HTC Vive Focus and Focus Plus, the last two of which are targeted, at least for now, to the faster-paced VR uptake underway in enterprise markets.

But how limited an impact the device tech improvements and lower prices are having on the market as a whole is evident in research conducted by ReportLinker, which, following up on previous research, reported in December that VR had actually lost momentum in terms of consumer attitudes, with 62 percent expressing a positive attitude towards the technology compared to 76 percent in October 2017 and 83 percent in January 2017. The number of survey respondents saying they were very familiar with the technology and could explain it to a friend dropped to 23 percent from 36 percent the year before.

These numbers suggest that, important as tech and cost improvements are, VR isn’t going anywhere as a source of consumer entertainment without better content. While VR headset penetration went from 6 percent to 8 percent of U.S. broadband households between Q1 2018 and Q1 2019, according to Park Associates, gaming is by far the most popular application, and even that category is not burning up the world. Parks reports 55 percent of VR headset owners believe content for their devices has remained the same since they bought them, and three percent say it has gotten worse.

Ted Schilowitz, futurist in residence, Paramount
Ted Schilowitz, futurist in residence, Paramount

“Sixty-two percent of US broadband households play video games, and while gamers are a passionate market segment, they can be limited in scope, which has stalled adoption of VR to a wider audience,” says Parks research analyst Billy Nayden. “There has been some notable video content developed for VR, such as Alejandro G. Iñárritu’s short video experience Carne y Arena, which won an Oscar, but overall lack of quality non-gaming content is inhibiting broader adoption.”

At Last a Hit

One strip of silver lining can be found in the fact that the VR gaming lineup now has a genuine hit with the exercise title Beat Saber, named 2018 VR game of the year by Forbes. The game, where users bat away big knives flying at them to the beat of a soundtrack, registered sales topping 100,000 units within a month of commercial release and is now tracking in the top tier among all game titles, including 2D console games.

“There are probably seven or eight other titles that are generating reasonable dollars that would be considered close to a hit level content,” says Ted Schilowitz, who as futurist in residence at Paramount is leading that studio’s exploration of opportunities in VR and other extended reality (XR) categories. “But, really, we only have right now one real hit in VR.”

At this early stage of VR content development this is no cause for alarm, given how low the percentage of hits is in any entertainment medium, Schilowitz notes. Whether it’s movies, TV shows, music or books, “if you want to get in the consumer entertainment business, your chances of succeeding are very small compared to your chances of failure,” he says.

This perspective explains why production houses like Paramount are sticking with VR, AR and mixed reality (MR) content development. Assuming the market base grows to mainstream dimensions, there’s enough payoff potential for the rare hit to make the effort worthwhile, much as is the case with making movies or TV shows. But there needs to be some justification for assuming the market base will reach mass proportions.

Until now the primary rap against VR centered on the technology, including stomach-churning disparities between real and virtual immersive experiences, horrible display resolutions and the inconveniences attending motion-impeding wires and tedious setup processes. Now, however, with release of standalone devices that eliminate some of these drawbacks and minimize others, the focus has swung to content as the primary impediment to wider adoption.

Tech Gains not Enough

Commenting on the state of affairs in a recent Forbes posting, video game analyst Paul Tassi lauds the Oculus Quest as the type of HMD he had been looking for after relegating his previously purchased computer-linked Oculus Rift to the closet years earlier. “Finally, no more pesky wires at all, an entirely self-contained VR headset, plus it came with hand controls that seemed like a key missing piece of the equation,” Tassi writes. “For only $400, despite my clear abandonment of my last VR system, I dove back in.”

But it turns out overcoming the tech issues isn’t enough, even for someone in what has been VR’s content sweet spot. After playing the “cream of the crop” in VR games, Tassi reports that, for a dedicated gamer these are just “minigames,” essentially gimmicks “to show off what you can do in VR, but only baby steps for the concept” with not “enough high-quality VR games to go through a catalog that will last you more than a couple of weeks.”

Beyond games, he adds, “[t]here is no VR social media of any significance. There is very little VR media period, as apps like VR Netflix are literally you just sitting on a virtual couch, watching a flat TV playing Netflix shows at low resolution. Hilariously, the one industry that seems to be booming with VR expansion is pornography.”

As previously reported, the conviction across the production community that there’s a future in VR content remains strong enough to draw ever more players into big spending on VR-optimized studio facilities and high-budget projects that extend the technology into dramatic and documentary programming and live sports and concerts. In Paramount’s case, the new futurist studio agenda encompasses enterprise as well as entertainment applications, Schilowitz says.

“We’re looking at new ways to produce content using game engines, real-time graphics, etc. with a focus on next-gen devices,” he notes. With 25 different devices to work with, including 13 that are “secretive coming to market in the near future, we’re seeing new things that are showing more and more benefits.”

On the enterprise side, Schilowitz is spending “a good amount of time” with companies looking at enterprise applications for VR and MR “on a very, very robust basis,” given how readily VR tools fit as a flexible, cost-effective replacement for legacy simulation systems used in design and training. He cites an example he witnessed in a recent visit with executive teams and researchers at “a very large” automaker.

“I was seeing at least 30 or 40 valid day-to-day use cases where they’re using VR and MR equipment, mostly commercial products with slight modifications to reach industrial goal sets, but mostly the stuff you’d buy if you were a high-end gamer,” he recalls.  “They’re using these simulation tools on a very, very regular basis to lower costs, increase efficiency and increase iterations. They can very quickly experiment with things where they used to have to hand build things or build things in a kind of custom 3D printed world and try things out. Now they can change things around using game engines almost instantaneously.”

Market Expansion Strategies

HTC, too, is aiming to seed VR development as broadly as possible, not only targeting its new tetherless HMDs, the Focus and Focus Plus, to enterprise applications but also fostering an open VR development platform through a partnership with Qualcomm Technologies while encouraging consumer usage with a variety of HMD-agnostic options for accessing its large content catalog. “When we look at our product strategy, we’re not really hoping any one segment in particular takes off,” says Vinay Narayan, vice president of platform strategy at HTC’s Vive unit. “We’re really focused on enabling an ecosystem that’s evolving as a user experience.”

Goals are tuned to realistic expectations that VR and the other XR modes represent a long-term play with incremental gains over many years before a mass market materializes. “This means abandoning the killer app mentality, at least for now,” Narayan says. “Killer apps really need an existing infrastructure. We’re really here to build that infrastructure and a platform to allow that to happen but also to drive revenue and ROI.”

Under terms of the deal signed with Qualcomm in March, Qualcomm is pre-integrating the Vive Wave mobile-optimized operating system into its standalone XR HMD and 5G smartphone reference designs, which will allow OEMs using Qualcomm’s Snapdragon mobile chipsets to quickly bring Wave-enabled devices to market. This makes a lot of the proprietary functionalities developed by HTC for its HMDs available to other manufacturers, enabling the broadest possible device base for developers creating content to run on the HTC OS, Narayan notes.

Moreover, he adds, use of the Wave OS ensures backward compatibility with all Wave-based standalone devices as HTC and OEMs bring new, more advanced Wave-based devices to market. “Developers now have a platform for development today that they can deploy on many other types of headsets further on,” he says, noting the strategy is a “game changer” for a market that has been restricted by closed hardware-content ecosystems.

Meanwhile, within the existing consumer base for its tethered Vive HMD line, HTC has taken a more aggressive approach to driving user engagement with its hosted Viveport catalog of VR content, making the Viveport Video app available as a free download for Steam and Oculus HMD users as well as Vive users. The firm is also offering unlimited access to premium Viveport content through its Viveport Infinity subscription service at $12.99 per month or $99 for a full year.

The 5G Factor

A major spur to intensifying development activity is the widely held expectation that 5G mobile service will become the conduit for bringing VR services to the masses. Not surprisingly, both Verizon, which, as previously reported, has been operating the Envrnmt seedbed for shaping VR experiences, and AT&T, through its WarnerMedia unit, have launched content development initiatives in the XR space.

With high bandwidth, extremely low latency and positioning of processing facilities at network edge points, 5G operators expect to support so-called split-rendering that will enable a new generation of XR content to rely on cloud-based CPUs for heavy processing. This will make it possible to greatly reduce the form factors and costs of standalone devices to the point that deeply immersive experiences with six degrees of freedom can be rendered on eyeglass-size headwear.

Interestingly, where today network streaming of VR content is viewed as a separate, less-than-ideal way to deliver experiences to end users compared to downloading files to local storage, 5G will make network delivery intrinsic to XR experiences. Prospects that content will be able to exploit these capabilities opens a new world of possibilities for developers.

Verizon’s immersive content studio RYOT has spawned a Los Angeles-based “innovation studio” to foster development of VR, AR and even holographic content that will be able to leverage the split-rendering capabilities of 5G. A core goal is development of photorealistic computer-generated animation that can be delivered with interactive engagement in real time, enabling live broadcasts that combine live and CG action in ways that are out of reach today.

RYOT is using traditional photography together with architectural surveying techniques, lidar (light detection and ranging) scanning and depth-sensing camera technology to capture and digitize static three-dimensional objects, people and spaces. The new facility houses an array of synchronized video cameras, lighting and sensors that can be positioned around an individual or group to help generate 3D, holographic representations that can be experienced in multiple immersive formats.

Paralleling its efforts through RYOT, Verizon has teamed with Walt Disney Studios to explore the possibilities of 5G connectivity and entertainment. Disney’s StudioLab is a film lot facility operating over the past year to support exploration of multiple technologies.

As for AT&T, so far its forays into VR have been less extensive than Verizon’s, but there, too, the emphasis is on development of content that capitalizes on 5G. WarnerMedia’s new Innovation Lab, based in New York City, is tapping its own intellectual property together with AT&T’s home-grown capabilities in artificial intelligence, Internet of Things, VR and AR to develop new advertising formats as well as primary content. The company says these efforts will be relying in part on data and insights gained through AT&T’s 300 million plus consumer relationships.

One of the initiative’s first partners is the NBA, which has been the most active North American sports league on the VR front. The partnership underscores how important live sports coverage is to the range of applications that the VR sector is counting on to drive consumer engagement.

As previously reported, there have been stumbles along the way, but the user experience when it comes to getting a live 3600 view of the action from multiple vantage points keeps improving. Recounting his experience watching an NBA playoff game this year, Fast Company reporter Jeff Beer headlined his article with this line: “I watched the NBA Playoffs in VR, and it’s going to change how you watch sports.”

Underscoring Intel’s progress with its TrueView VR platform, which uses multiple panoramic camera pods generating up to a terabyte of data per hour to create immersive views, Beer says the director’s view option “seamlessly and automatically shuffles me between camera angels as the play flows up and down the court.” Along with freedom to pick other camera angles, viewing options include, to the right of the field of view, a real-time player-by-player stats board and, to the left, a selection of game highlights.

In addition to providing NBA coverage with ten regular season and eight playoff games broadcast by TNT, the Intel unit has covered some Premier League soccer matches in England and has VR deals with Spain’s soccer league and Major League Baseball. Meanwhile, other platform providers are bringing VR to these and many other sports as well, including golf tournaments, NASCAR races and tennis matches.

Pro league sports games are in the mix as well. For example, working with HTC, MLB has developed a Home Run Derby game that allows players to swing at virtual balls with virtual bats. The game, which MLB is deploying in 20 ballparks in hopes of generating eventual home use, employs HTC’s new Vive Pro Eye tracking system to enable users to make game menu choices just by looking at a selection.

There has also been significant progress with other types of content development. For example, NBCU’s SYFY network has introduced VR and AR experiences through the recently announced Eleven Eleven service. The scripted format, blending storytelling and gaming, places users in the center of action on an island planet where characters have 11 minutes and 11 seconds to thwart an extinction event.

A unique and somewhat dramatic example of ongoing commitment to content development occurred in the U.K. this spring when the government, through its Industrial Strategy program, earmarked £33 million for fostering VR and AR development. One funded project, spearheaded by the London VR studio Maze Theory, is a VR reality drama game based on the popular program crime series Peaky Blinders that uses AI to enable characters’ responses to game players’ gestures, words and body language.

But, in a sense, all the current content under development for near-term release can be seen as placeholders that can keep momentum going until 5G locks in at massive scales. That’s several years away, but once it happens, the perspective on what VR and its sister categories have to offer will change dramatically, says Paramount’s Ted Schilowitz.

“Things that we thought were impossible on all-in-one Qualcomm chipsets will become possible,” he says. “When we can port processing off board in conjunction with streaming from the network into devices, the devices can be effectively weightless. That’s the long-term strategy we’re looking at. It’s a great opportunity for the telcos.”

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