Virtual Reality (VR) market to break through 1 billion barrier

08 April 2016 8 min. read
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Virtual Reality is set to earn its first billion dollar in revenues in 2016. The large majority of VR devices are likely to cost anywhere between $100 to $500 a piece. Hardware sales are estimated to bring in roughly $700 million, while on the content side game sales is expected to create most of VR’s revenue; estimated at over $300 million this year.

According to Deloitte’s 2016 prediction of the Virtual Reality (VR) market, titled ‘Virtual reality: a billion dollar niche’, the novel market is to reach the billion dollar threshold for the first time in its young history. Although VR is likely to have multiple applications in the long term, both in the consumer and enterprise market, in the short term most commercial activity within VR is expected to happen in the video game market.

In the gaming market, Deloitte estimates sales of roughly 2.5 million VR headsets and 10 million game copies sold, which translates to $700 million in hardware sales and $300 million in content sales. For 2016, the Big Four firm forecast’s that the majority of spending on VR will come from core- rather than casual gamers. The main reason is that initial investment into VR hardware and content remains high compared to existing gaming products. The sales volumes of VR hardware and content will rely heavily on the initial price point of these products as they enter the market this year.

Virtual Reality sales

Only recently has VR been able to reach a point of commercial realisation, thanks to great advancements made in screen and processor technology. Optimal VR experiences require very high resolution screens – ideally over 500 dots per inch; which have only recently become commercially available, and a wide field of view and high refresh rates – ideally at least 75 frames a second; requiring powerful processors. Performance has increased, while price of production has decreased, allowing the VR to become commercially viable in the consumer market, while yet at a high enough price point to keep it a niche market for core enthusiasts.

There are likely to be two leading types of VR devices in 2016: a high-end full feature device with high resolution screens, and mobile VR devices that make use of smart phone screens with large, high resolution screens – higher than the average premium smartphone.

The price point of the full feature devices is estimated at $300 to $550 a unit, with prices in the beginning of the year coming in at a higher price point than later in the year, and expected sales of around 1 to 1.75 million units in volume. The foreseeable issue in sales of the full feature VR devices is that they are designed for use in accompany of latest generation consoles or computers with advanced graphics cards that are needed for the heavy processing power necessary for an optimal viewing experience. The full feature devices will come with a high resolution screen (and with sensors or trackers in many cases) while the accompanying console or computer will provide the processing power needed to operate VR content.

For optimal viewing experiences, most users interested in buying a full feature VR device will need to meet the minimal processing requirement to accompany the VR device either by: already owning a high-end console or computer, upgrading their existing processing devices with an advanced graphics card, costing around $300, or (in the most costly case) buy a new console or computer entirely, starting at $300 and $1000 respectively.

Due to the dependency of full feature VR devices on high-end processing consoles or computers, Deloitte bases their prediction of VR hardware sales at $700 million on the projected sales of game consoles at above 30 million units, and of high-end computers at 7 million units worldwide.

Gaming with VR glasses

The price point of the mobile VR devices is estimated at $100 a piece with an expected sales volume of 1 million units. Similar to the dependency of full feature VR devices on consoles or computers, the mobile VR devices are dependent on smartphones with large, high resolution screens, ideally with greater than 400 pixels per inch (PPI) resolution, which is higher than that for the average premium smartphone. Deloitte expects that VR�ready smartphones will cost $750 and up, and that most purchasers of mobile VR will already be owners of a suitable device.

As for VR content, the researchers expect the most revenue to be generated by games sales, with the price of titles ranging from $5 and $50, projecting revenues of $300 million in 2016. Other than gamers being an addressable market for VR on the consumer side; core gamers are most likely to buy VR devices and accompanying high-end equipment, on the development side gaming also likely is the largest market for VR content.

VR content can be created using CGI (computer generated images) or filmed using special clusters of cameras that collectively capture a 360�degree field of view. In the case of the latter, however, there currently is a lack of professional grade cameras able to capture VR through film. Deloitte anticipates a small range of suitable cameras to launch in 2016, but the cost of purchasing or renting professional grade devices may initially be prohibitive for many projects. CGI content, used widely in the gaming industry, currently faces less challenges in the production and technology behind content creation.

The current challenges faced by capturing VR through film is a key reason why Deloitte projects VR will have a minimal impact in the TV and movie industry in 2016. At present, little content exists in this arena, with the main challenges faced by capturing VR through film being: a lack of professional grade devices on the market able to capture VR through film, the number of cameras needed to capture a 360-degree field of view, finding the right placing of the camera and most intriguing direction of action in the 360-degree field of view, plus the question of how to store, transmit and edit images captured in such high resolution and files of such large data. In this market, content creators are currently still learning how best to create for the VR format.

Oculus rift

Another area likely to adopt VR in the long term, but according to Deloitte will not generate much revenue in 2016, is in the enterprise market. For certain companies, the application of VR is envisioned for activities of sales & marketing or training & education purposes. Some examples of enterprise adoption of VR are in: emergency response; using VR to practice their response to nuclear reactors, healthcare; using VR to train and educate staff, the hotel industry; where VR headsets could act as a virtual concierge showing guests around, teaching; via virtual classrooms, and the military; where VR can be used for both flight simulation and land combat training.

Yet, any company that is considering VR in any regard should have a careful look at the likely addressable market, and cost of making this content available to consumers. In terms of viewership, VR may not convert into mass demand in the short term, as not all consumers will be willing to spend $300-500 of their own money when the devices become commercially available. In which case, the only way consumers will be able to view VR content is at trade shows or industry conferences. In terms of marketing, companies should assess the cost of filming VR in relation to other current marketing mediums - able to offer digital content at a much more competitive price than VR.

Nonetheless, Deloitte does foresee rising revenues in the coming years, stating the possibility that “the industry may generate tens of billions of revenues in the medium term”. Furthermore, the firm's 2016 prediction surmises that “VR’s capability is likely to improve further still over the years as processors improve, screen resolution increases yet further, and content creators learn how to create for the format”. In conclusion, the 2016 prediction ends with the foresight “as with all emerging technologies patience is required.”