CES: Media Companies Brace For Impact Of VR

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CES: Media Companies Brace For Impact Of VR
December 28, 2016

The gigantic consumer electronics show known as CES has always been a tech-heavy confab featuring the latest groovy gadgets. This year, the Las Vegas conference, which begins in earnest next Tuesday, is squarely betting on virtual reality products and the connected-car to thrill its thousands of paying customers and bolster a tech industry still waiting and hoping for a device that can equal the smart phone, which has generated phenomenal sales for more than a decade but whose growth has since plateaued.

 

There will be no less than 30 panels on Virtual Reality at CES, including sessions on creating short-form content for VR headsets, corporate marketing strategies around VR, and how news, sports and music may be transformed -- and even rejuvenated -- by VR.

 

For a media industry that gets most of its revenue from cable-TV operators around the world, virtual reality has yet to become a major business. That won't happen until the technology -- which creates three-dimensional and 360-degree views of its subjects -- becomes mainstream. 

 

But when it does, virtual reality's success will likely be tied to the content created by those same media companies. For now, sales of virtual reality headsets remain small, even as projections quickly ramp up.

 

In its inaugural tracker of VR, and its close-cousin AR, in which actual real-world objects are enhanced by computer-generated sounds and video, International Data Corporation said it expects worldwide headset shipment to reach 76 million units by 2020. IDC is quick add that shipments are likely to exceed its own estimate "as more affordable technologies and more [original manufacturers] enter the market."

 

In 2017, sales of virtual and augmented reality headsets are expected to reach $7 billion, mostly from video-game enthusiasts rather than from the general population, according to a Dec. 19 report from Bloomberg Intelligence, the company's in-house research group. Further out into 2022, the Indian research firm MarketsandMarkets projects such sales to hit $36 billion. At present, spending in 2016 on virtual reality content worldwide amounts to a tiny $300 million, with hardware sales at about $700 million, according to Deloitte Global. 

 

In preparation for VR's eventual homecoming, major media companies are building businesses that can create content for virtual reality devices.

 

In September, Disney along with TPG Capital, a venture firm, Hollywood's Creative Artists Agency, the German publisher Axel Springer SE and Madison Square Garden (MSG) invested $66 million in Jaunt Inc., a virtual-reality technology and film- making company based in Palo Alto, Calif. that's building a studio in Los Angeles.

 

Jaunt is making many of its videos available for free on its website, although longer-term, it plans to charge for such content. Of particular note is Jaunt's work with Disney's ABC News, including a 360-degree view of a journalist's tour around Damascus, and another around New York Harbor. These examples show some very early signs of how legacy media companies, especially those in newspapers and magazines, might generate new sources of revenue in the not-too-distant future.

 

Time Warner (TWX) , which along with Disney (DIS) and Viacom (VIAB) makes products for the $92-billion-a year video-game business, has been steadily investing in Rocksteady Studios, the Warner Bros unit it acquired in 2010. Rocksteady recently released the VR video game Batman:Arkham, which uses the PlayStation controllers to move through and experience the content. 

 

Not to be outdone, Snap Inc., which owns popular messaging platform Snapchat but bills itself as a camera company, this week acquired the Israeli AR company Cimagine for as much as $40 million, according to the Israeli publication Calcalist. Snap, which could go public in 2017 at a valuation as high as $25 billion, has been in the news a lot lately due to the popularity of Snapchat Spectacles, the $130 sunglasses that take 10-second videoclips, and then send them to your friends, followers and complete strangers.

 

Of course, there's nothing 3-D about Snapchat Spectacles. But that could change, of course. For Snap, which Calcalist said plans to open a development center in Israel in the coming months, virtual reality offers a means to differentiate its products from those of Facebook (FB, which competes more directly with Snapchat via Instagram.

 

But while VR and AR are certain to account for much of the buzz at CES, much of the media industry remains more squarely focused on the more mundane topic of distribution: cable-TV, virtual pay-TV and how to get paid for making television shows and films.

 

For that discussion, a section of the CES crowd will be gathering to talk about a variety of topics that are hardly new but remain essential to understand at a time when traditional notions of television are being blurred by a slew of newer producers of streaming video such as Vice, Buzzfeed and Refinery21.

 

After all, subscriptions to pay-TV are declining. Subscribers totaled 96.8 million at the end of the third quarter, compared with 99.8 million four years ago, according to media analyst firm MoffettNathanson. That might not seem like much now, but for an industry that saw nothing but increases for more than 30 years, the decline marks an historic tipping point.

 

For CES attendees less obsessed with gadgets, there's a session on the challenges faced byHollywood to create content for small and large screens, the Netflix-inspired trend of binge-watching and the omniscience of streaming media

 

But the really cool kids will be elsewhere, playing with virtual reality headsets while waiting for the rest of the world to catch up.

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