THE BRIEF – VR/AR Content Creators Need More Investment

Discussions with VR and AR companies revolve around three main topics: the tech, the markets and the money, but what about the content?

There has been an aggressive amount of investment already plunked down for VR and AR-related hardware and technology, pouring billions into the VR/AR industry. In the last 12 months VR/AR industry had already reached $2 billion in investment.

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Since March investment has remained active, but investment amounts appear to be stabilizing to more realistic amounts in the $3 – 10 million range.

Some of the investments made in the past few weeks include:

The Virtual Reality Venture Capital Alliance is an alliance of venture firms that was announced back at the end June and has grown from the initial 28 investment firms, to now 36 investment firms. Member companies include HTC, Legend Capital, Nvidia GPU Ventures, Sequoia Capital, Shanda, Softbank and the fund has reached $12 billion, up from $10 billion just three months ago.

Back in August HTC also announced their first round of 33 companies they are funding through their separate $100 million Vive X Accelerator Fund including entertainment companies: Action Bunker VR, 7D Vision, LumiereVR; gaming companies Directive Games, Shortfuse, EdSenses, Omnigames, Metal Cat, Glowsticks Games; VR applications CleVR, appMagics, Teemew, SurrealVR), BreqLabs); VR tools/technologies RockVR, Apmetrix, Fishbowl VR, Kaleidoscope VR, Immersv, Wondergate, ObEN; and education/medical Augmented Intelligence, TheMetaverseChannel.

The latest to enter the investment ring is Razer, who announced last week that it has set up zVentures, a $20 million fund innovation in IoT, VR and Big Data solutions. zVentures is in addition to Razer’s $5 million fund for indie games, and $5 million focused on OSVR initiatives.

This current frenzy in investment is not without its downside, as we’ve seen with the recent meltdown of Rothenberg Ventures, once the darling of some of the early VR investments. It was disclosed last week that the firm could now face a possible FBI investigation.

Yet, even with all this funding “opportunity” there is a clear discrepancy in the market. Large game publishers and film studios are biding their time, testing internally, and waiting for more hardware to hit the market. Game developers and smaller film studios have jumped in early to try to gain an early advantage. They have invested in technology, new development, and ultimately have taken on much of the risk in getting content out to market early. From Digi-Capital’s distribution of investments, content (video, games and applications) is making up a small percentage of investments being made.  Investors are still hesitant to invest in the riskier “content” play. The latest breakdown from Digi-Capital shows content (games and video) making up a small portion of the overall investment. Games and video content are what push new platforms into mainstream, yet we are not doing enough to support the ecosystem.

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Recent findings from VRDC’s  VR/AR Innovation Survey indicate nearly 50% of developers are currently paying for their own projects, with 33% of them using existing company funds. Work for hire and clients make up 17% of the development payment, with angel investors and venture capital making up 17% and 13% respectively.

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At DICE Europe earlier last week, Hilmar Petursson, CEO of CCP acknowledged to the crowd of game executives that CCP is now on target to break even in VR after having invested $30 million.This, from a company that’s been in business since 1997, has incredible technical expertise, and a solid fan base already established with EVE Online.

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Many people may not be aware that before starting CCP, Petursson along with others from CCP had started another company, Oz Interactive in 1990 that later became known as Oz.com. Oz.com was an early VRML developer and created Oz Virtual, a 3D world viewer.  Needless to say, they know what they’re doing in 3D immersive experiences.

Nathan Burba, CEO of Survios, a Culver City based VR studio commented in an interview with Fast Company late last week that he believes his company is the first to reach $1 million in sales in a month with the company’s new game Raw Data. Raw Data, released on July 14, is currently only available on the HTC Vive.

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Burda’s comments are consistent with figures from Stream Spy showing there are roughly 39,071 owners of Raw Data @ $39.99 brings the total sales to $1.4 million to date.

Burba also mentions in the article he estimates 20% of all Vive owners have purchased Raw Data which sells for $39.99 (bringing the Vive installed base to roughly 200,000).

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CCP and Survios are seeing early success of their VR content, but we need to see more. Content providers are taking huge risks when the installed base is still extremely small. My deep concern for the coming 12 – 18 months is we need to find better ways to build out more direct investment channels strictly for VR and AR content. Otherwise, at the end of 2017 we will have a sea of failed studios unable to sustain themselves. Marco DeMiroz, a general partner at The VR Fund agrees saying, “Companies need to focus on nimbleness and longevity. Their fundraising must be based on a minimum of 15 – 18 months of cash horizon.”