The revenue of the global virtual reality (VR) industry is expected to reach $48.2 billion by 2022 according to Greenlight Insights and RoadToVR in their 2018 Virtual Reality Industry Report. Learn how to profit from the fast emerging category of VR entertainment according to Charlie Fink, one of the world’s leading voices in VR and AR, and Ryan Andal, president and cofounder of the award-winning Secret Location studio.
The major players in terms of VR entertainment can be defined as content creators, hardware manufacturers and retailers, i.e., both online retailers and out-of-home entertainment centres. There are also plenty of solution providers that cater to the range of needs that these players have, from content distribution all the way through to software applications that contribute to increasing operational efficiency.
In the optic of exploring the emerging methods of making money with VR in the field of entertainment, we connected with Charlie Fink and Ryan Andal. Fink has been a thought leader in entertainment and technology for over 35 years. He led Virtual World, one of the world’s first location-based VR (LBVR) centres in the early 90s, was a major influence behind the creation of iconic films such as The Lion King, Aladdin and Beauty and the Beast while with Walt Disney Pictures, is a VR and AR speaker and is the best-selling author of Charlie Fink’s Metaverse – An AR Enabled Guide to AR & VR (the sequel of which, titled The World Will Be Painted With Data, is scheduled for release in spring 2019). Andal is president and cofounder of Secret Location, an award-winning VR studio and distributor. Secret Location is the winner of the first Primetime Emmy® Award for a VR project and develops VR content for both at-home and out-of-home consumption. It also proposes a range of distribution solutions to help creators, content publishers and location-based operators and hardware manufacturers alike to monetize their businesses.
Engage with consumers out of home
Nearly 30 years after Fink brought LBVR to the masses, he is excited to see that it is “having another golden moment”. The current LBVR environment is arguably more fragmented than the at-home environment is, as location operators look to invest in VR experiences that can be neither replicated at home, nor offered by competitors.
The experience types, and the hardware that supports them, vary. The categories can best be explained on a high level as in the three following terms: free-roam VR allows consumers to roam around large spaces, with tracked movements and environmental effects in many cases; pod-based VR offers consumers single- and multi-player experiences in a footprint similar to what can be experienced at home and with the ability to sit or stand in the pods; simulator VR offers consumers seated experiences, often with motion seats and potentially other effects.
“VR can’t yet compete with the hours of entertainment that a game console provides at home.”
Fink highlights that VR “can’t yet compete with the hours of entertainment that a game console provides at home”. It is incredibly expensive to produce hours of VR content and there are a limited number of studios that have the funds to do this well at the current time. However, with the expected length of play time for LBVR content being much shorter than in the case of at-home experiences, especially as location operators value high throughput, LBVR enables creators to reach larger audiences at a fraction of the price of that to develop at-home content. This allows creators to “iterate very quickly” and it also benefits their future content development by enabling them to learn how a larger base of consumers interacts with their VR content.
Even for content creators who have been developing for at-home VR audiences, engaging with consumers in the LBVR space is a valuable experience. They can do that by licensing their existing content to locations that operate pod-based VR, thereby ensuring it is optimized for easy consumer onboarding, as LBVR consumers are often new to VR. There is also the opportunity to license content for use in turnkey solutions being developed by hardware manufacturers. VR pods are being manufactured and sold to operators with a dedicated VR title packaged with them as a standalone game offering. Take, for example, Exit Reality’s use of the hit title Beat Saber. For those studios that do not have the resources to take on pitching, negotiating, tracking and invoicing the growing number of these locations and hardware manufacturers, it is possible to hire distributors such as Secret Location or individuals focusing solely on arcade distribution. Also, studios can more drastically customize their VR experiences for the range of LBVR hardware solutions being created, leveraging existing materials from their at-home experience for simulators through to free-roam VR.
Beyond VR: the overall experience
For those early adaptor consumers that have a VR headset at home, chances are they are going to be slightly more forgiving when it comes to the bumps along the overall path to purchase, but this will not last much longer. From the positioning and placement of marketing and communications materials on and off VR retail platforms to the design of the onboarding process in the experience itself, to its UX and UI, each touch point that a consumer has with your IP becomes part of the experience and has the ability to both add to and detract from the overall perception of value. A deep consumer understanding, from as far out as before an experience even enters production, is vital to make the right decisions for its success.
Fink shares that “marketing and understanding consumers” is the responsibility of all parties involved in bringing a VR experience to market. When it comes to LBVR, this understanding must go beyond knowing the optimal path to purchase and type of VR experience that is most desirable; it must also include insight into the overall experiences that consumers want to have before and after VR. This means that operators need to understand how to best monetize what Fink calls ‘downtime’, i.e., when consumers are waiting for their turn to play VR or for their peers to finish their turns. This downtime is an opportunity to entertain people beyond allowing them to watch their peers play VR. And it’s an opportunity for operators to sell other forms of entertainment like pay-to-play non-VR games and high-margin food and beverage items. It will also encourage people to spend more time onsite, thereby contributing to increasing the revenues of operators who should be looking at premium VR experiences in part as unique traffic drivers to venues that propose high-margin tertiary offerings. Andal advises that recognizable IP or engaging and easy-to-understand concepts become even more valuable in this situation, as the VR experience must be at least as desirable to experience as the other options available onsite.
“When it comes to LBVR, this understanding must go beyond knowing the optimal path to purchase and type of VR experience that is most desirable, to also include insight into the overall experiences that consumers want to have before and after VR.”
Be on high alert for problems that need to be solved
We are at the stage where everything from content formats to business models are still being ideated, transformed and refined. “There is a significant difference in how Secret Location is monetizing content this year versus how it did last year,” says Andal. “We got more aggressive with maximizing the sales of our owned titles across all major HMDs and through licensing to LBEs to try to circumvent the industry’s existing fragmentation. And we are now sublicensing third-party titles to a range of locations and technology partners.” Secret Location even conceptualized and developed new distribution products this year. Andal explains that “as both creators and distributors, we are aware of the problems that still need to be solved to push this industry forward.” By being aware of such problems, for example the lack of content protection and reliable real-time sales insights, his company developed Vusr Spark—the industry’s first blockchain based rights management platform which won the Advanced Imaging Society’s Technology Award this year.
Other companies active in LBVR are aware of the significant lack of content suitable to meeting the needs of operators and consumers. So they are developing content as well as hardware to create unique experiences that cannot be replicated at home. But Fink warns that companies should not extend beyond their area of expertise. For example, hardware manufacturers are not necessarily going to create the most competitive VR content. When money is spent on creating content, it is not being spent on refining the hardware solutions. In such cases, develop relationships with other companies such as partner studios, to offer the most competitive turnkey solutions to the problems that still need to be solved.
Price to profit
With a relatively small but growing base of at-home VR users and the need for creators to share LBVR profits with operators, hardware providers, distributors and so forth, some studios are feeling the pressure to accept low pricing for their content. Fink, however, insists that it is vital to offer competitive pricing without undervaluing the offer.
When major VR headsets like the Oculus Rift and Samsung Gear first shipped, a lot of content, funded by the headset manufacturers themselves, was being given away to incentivize adoption. This obviously is not a sustainable model. Secret Location recently released a cinematic VR experience named The Great C, based on a short story by prolific sci-fi writer Philip. K. Dick. Despite most cinematic VR being offered for free, the strong sales of the title, that comes with a US$5.99 price tag, proves that it is worth going to market with price points that are higher than the norm. This VR phase has not been around long enough yet to define its optimal pricing. The same goes for pricing LBVR, where consumers are willing to spend upwards of US$50 for just about a half-hour of certain forms of VR. The industry needs to have the confidence to set pricing in such a way that all players profit and leverage strong marketing and strategic promotional offers to incentivize trial. Andal highlights that this relatively nascent industry is filled with early adopters, and early adopters are usually willing to spend the most on new offerings.
Pricing models for both consumers and business-to business customer relationships vary and continue to evolve. At-home consumer pricing can range from a simple pay-to-own experience at home to subscription and hybrid subscription models like the offers made by Viveport to premium VR headset owners. LBVR consumer pricing can range from tickets for individual experiences to tickets for unlimited game play across all games available at a venue within a set period of time. Pricing models for business-to-business relationships are even more diverse, ranging from per minute licensing to upfront payments for unlimited content use during a set period and revenue share options with minimum guarantees, etc. For content creators, the key to fairly negotiate each opportunity is understanding what the end consumer will pay (and for how long), the unique model that the LBVR operator has signed on for with the hardware manufacturer, and how the offering may scale.
“It is vital to offer competitive pricing without undervaluing the offer.”
Make scaling a priority
Fink sustains that you need to scale fast in order to make money with VR. Right now, VR hardware manufacturers are not able to scale as fast as companies producing computers, for example, and the industry will soon move toward more standardization which will allow for a more easy funding of content and reduce the content gap that many manufacturers are suffering—especially in the LBVR space. The new Oculus Quest headset may be the solution to scaling free-roam VR content more easily, highlights Andal.
The best way to scale right now is threefold: develop content, pricing and partnerships that allow you to scale fast. In addition to Secret Location’s development and distribution of premium content to a range of hardware and operator partners, Vertigo Games is also growing its focus to scale. For example, it recently launched a separate company called Vertigo Arcades. This expands their impact on the VR industry from being primarily a content development studio to also taking on distribution and working with LBVR partner Nomadic to launch custom content for them, using the IP of Arizona Sunshine—already a proven hit in another VR format. Make the most of your investment in the development of the characters, worlds and storylines of your VR content by extending its use across multiple SKUs for at-home and out-of-home offerings. Price in a manner that is competitive and develop relationships with the right IP holders all the way through to operators and hardware manufacturers that will award you with the greatest reach.