By Ben Smith
Why am I circling December 25th on my calendar?
Because Christmas 2016 is judgment day for Virtual Reality.
Many telltale signs point toward Christmas as being a make or break moment for the virtual reality platform to live up to all of the incredibly lofty hype. Here’s what we know about whether VR can go from being a “thing” to being what the online video industry works on everyday:
- The content is happening.
While many people are complaining about nerdy cardboard and goofy goggles, those of us actually watching 360 VR video content are starting to see creative, amazing content created and shared everyday. A small group of creators are starting to experiment with 360 to figure out how to use the platform in unique ways.
Trust me, I get that most of the 360 content right now is still pretty bad. But the quality of content changes extremely quickly with emerging platforms.
When I was helping Google get started with online video back in 2005 (before we bought YouTube!), video content was just as bad, or maybe worse than VR content is today. As part of my work, a small group of us including George Strompolos and I were calling up random people to ask them to send video clips to Google in the U.S. mail (say what?!) so we could put them up for Google Video. Twelve months later, YouTube was acquired for close to $2 billion, and watching videos online was new, but normal. Things change fast.
We also know that professional VR content is happening everywhere. We’re seeing bright young minds in Hollywood like Ben Curtis at Brillstein and many others facilitating VR deals with talent and paving the way for big things to happen. I’m personally getting flooded with 10-20 calls a day from studios, MCNs, and others as to how to approach the medium. The right things are happening.
An important point is that user behavior in other countries is already emerging. No surprise, but China, Korea, and Japan are ahead of us in the virtual reality space! They are embracing the technology and making cool cutting edge videos like this one.
- The incentives are all there.
All of the incentives line up well for everybody involved in the space. VR has become vital for just about every major tech and media company today.
The tech companies need to sell expensive new hardware. The tech software companies have found a proprietary new platform that is completely up for grabs. Premium content companies like film studios see the ability to get DVD prices like it’s 1995 all over again. Nobody is hoping this fails, except for helicopter parents and jealous 3D television nerds.
It’s important to remember that the motor for VR is the developer community and they have just begun focusing on VR as the next big thing. In fact, reports suggest that 44% of all of those working to build VR content have started to do so within the last year. Just 19% have been doing so for more than a year, and 17% for more than two years.
Christmas 2016 is an especially important date for the hardware companies as it will be the first Christmas that Oculus, Sony, Samsung, and HTC will all be widely available and ready for gifting.
- VR startups are generally 6 months into 18 month funding cycles.
Startups tend to work in 18 month funding cycles. In 2015, PitchBook analysts reported 119 VR-related deals totaling roughly $602 million. Knowing that a glut of VR content startups were funded in mid 2015, we can safely assume that VR startups have used less than half of the money they raised last year.
That means that you should expect to see even more glossy VR product and content deals happen in the next 6 months as VR startups will need to show major traction as they start thinking about additional rounds of capital. As revenue and huge user numbers will not be noteworthy yet, bragging about deals with big traditional media companies will be how these startups raise more dough.
Expect things to heat up in more ways than one in August and September as VR startups will be under the gun to raise more capital, especially as the delayed launches of Oculus and Vive means we slowed down by another 3-6 months to generate raise-worthy user numbers.
Using the three points above as a guide, I’d expect to see the VR hype cycle quiet down by June or July of this year. The premium VR companies didn’t help matters by botching launch dates and creating unreasonable expectations. This summer will be real dog days for VR.
Yet everything changes in the fall. Sony’s Playstation VR product is slated to launch and could rescue expectations about VR adoption. Expect major announcements from Apple and Google on mobile VR headsets around this time too.
And finally, by the end of the year, we should see developers and creators have 18 months of VR development under their belts. Eighteen months is the magic amount of time it takes the ecosystem to create and define itself to consumers. If we do the math, this means Christmas 2016 is the big date we should all have circled in our calendars.
With the VR startups in my portfolio, we’ve planned for December 25th as the day we’ll know a whole lot more about how this ecosystem plays out. VR content is set to explode, and December 25th is the day we’ll see how big it’s going to be for us. Christmas 2016 is judgment day.
Keys! What I’m watching:
- Watch for new VR video platforms to emerge. Unclear if the “YouTube of VR” will look and feel like regular old YouTube this time around.
- How quickly do the mobile VR headsets take off? Does Samsung Gear VR help define what’s possible, only to see Google and Apple swoop in once they do?
- Watch the VR app stores. How well does Oculus protect its app store? Or does Android become the place to download VR apps this year?
Ben Smith is an active investor in VR and digital media, and is based in Los Angeles. Ben was an early Google and YouTube exec, and has founded and led multiple venture-backed video startups. Get more of his insights and interviews here.
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