For the past couple decades, Western content professionals have generally displayed a patronizing attitude towards the Chinese entertainment industry and market, determined to ?show the Chinese how it's done.? I relocated to Beijing in 2008 with much the same mindset. However, the onset of the VR Era has resulted in a sea change, with foreign professionals astonished by the pace and penetration of China's advances in virtual reality. China has truly become "The Wild Wild East" with respect to VR, the hottest battleground among global VR markets. Folks from the West who approach China with any pretensions soon find themselves reassessing their assumptions - and reconfiguring their business plans.
According to a recent report by the China Electronics Standardization Institute, the Chinese VR market was worth $236 million USD in 2015. Analysts conservatively expect that China's VR market will reach almost $1 billion USD in 2016, and nearly $9 billion USD by 2020 across HMDs, software, VR cafes, content and commerce. Some analysts - like SocialBeta CEO Xiao Ming Chao - go so far as to predict a Chinese VR market value of over $150 billion USD within five years. As far as current metrics go, Chinese e-commerce giants Alibaba and Taobao reported sales of over 300,000 VR headsets this past July, while Chinese HMD manufacturer Baofeng Mojing sold 1 million low-end VR headsets during the first quarter of 2016 (with a goal of 10 million HMD sales by the end of the year). The number of Chinese consumers who have tried a VR-related device was estimated at 17 million people in 2015, and is predicted to surpass 300 million people by 2020.
Alibaba recently announced that it is developing gesture-driven, VR-enabled mobile payment technology - betting big on the future of VR/AR shopping as it competes fiercely with Tencent for dominance in China's booming digital commerce market. Chinese and foreign players alike are investing heavily in China's VR, AR and MR ecosystem, with a flurry of new VC funds, alliances, incubators and accelerators. Taiwanese consumer electronics company HTC has established a tripod of support for mainland China's VR ecosystem with their Virtual Reality Venture Capital Alliance, Asia Pacific Virtual Reality Alliance and Vive X accelerator. Not to be outdone, mainland Chinese heavyweights such as Shanda, Vectr, Tencent, Baidu, Alibaba, Perfect World, and Xiaomi are all making significant investments in VR and AR.
Chinese VR investment activity is not limited to China -- mainland companies are eager to cozy up to foreign technology and overseas market opportunities. By the end of July, at least nine foreign VR ventures were reported as receiving Chinese capital. Alibaba and the Huace entertainment group have acquired stakes in top-secret mixed reality venture Magic Leap. China's Shanda has pledged $350 million USD to create a VR theme park in partnership with The Void. California-based NextVR recently raised $80 million USD in a financing round including China Media Capital, CITIC Guoan and China Assets Ltd. The previous year, China Media Capital (chaired by former SMG & Oriental DreamWorks boss Li Ruigang) co-led a $65 million USD funding round in Jaunt VR with The Walt Disney Company.
Foreign speakers at Chinese VR conferences often draw wry smiles from the audience when they refer to "crowded" Western HMD markets consisting of a dozen or so companies. China has over 100 VR headset manufacturers and an increasing number of Chinese VR startups building context-specific hardware for location-based entertainment. While most Chinese HMDs are on the lower end of the quality spectrum - and none can compare with Vive or Oculus in latency and performance - it is only a matter of time before the quality gap closes. China is a fast-follower rather than an innovator, and despite the recent surge in Chinese national pride, there remains a preoccupation with precedent from the West. No Chinese manager or official wants to lose face (or their job) by championing a risky, untried venture. But when China gets onto something (be it mobile technology or e-commerce), it's off to the races.
Raymond Pao, HTC's VP of new technologies, stated in an interview with UploadVR that "Oculus is not our competition." Quite true, though perhaps not in the sense Pao envisions when he notes that HTC's "chief concern is to see virtual reality grow into the next great computing platform for the entire world." The real competition for foreign VR players like HTC and Oculus are the Chinese companies who will befriend, analyze, assimilate, outflank, undersell and overrun them. Foreigners are welcome to enjoy supervised play in China's sandbox, but success in China is ultimately earmarked for the Chinese.
Many here in China believe that high-end VR adoption will be driven by VR arcades and location-based attractions, accelerated (as most things are in China) by partnerships with real estate developers. China has a more significant focus on PC-based gaming than other Asian countries, but while gaming is huge in China, it is generally not condoned (officially or at home). Consoles like PlayStation and Xbox were banned until just recently, and most parents regard gaming as a threat to precious study time. These factors, combined with limits on the ability of many Chinese consumers to afford their own high-quality graphics hardware, has led to the explosion of internet cafes in China. Mainland China currently boasts more than 150,000 internet cafes: physical locations equipped with PCs pre-installed with the most popular games. Whether these internet cafes charge by time or by title, they provide an outlet for China's gamers and are now evolving into VR cafes. The average Chinese consumer doesn't have the money or space for "room scale" VR at home, and cultural pressures discourage most young people from carving out VR territory in their family rooms. VR cafes and kiosks provide the answer.
As of this past July, HTC has partnered with Chinese electronic retailers Suning and Gome in roughly 1,000 Vive-powered VR kiosks, with a reported goal of 10,000 by year's end. China's urban consumers increasingly gravitate towards indoor entertainment as people seek to escape roasting summers, freezing winters and poor air quality. Mall-based VR experiences priced at $5 USD and up appeared in first-tier Chinese cities last year, and are now spreading to second-tier and third-tier shopping centers. All told, it is estimated that China currently has nearly 3,000 location-based VR experience zones available to the public. Full-on VR theme parks are also in the works throughout mainland China. SPACES, a Los Angeles-based VR/MR company, is partnering with China's Songcheng theme park group in a $30 million USD joint venture to bring VR experiences and MR stage shows to Songcheng parks across China. SPACES will also enhance Songcheng's popular 6Rooms live streaming site with VR and MR capability.
And therein lies the rub, as China's aspirational VR plans inevitably chafe against the constraints of its regulated media and controlled markets. The good news is that local surveys show that more than half of the VR users in China are willing to spend over $15 USD per month on VR content. Entertainment apps (VR games, 360 videos and 360 live broadcasts) are the most popular, followed by educational and socials apps (VR courses, social VR, VR/AR commerce and VR/AR professional tools). The bad news is that China's State Administration of Press, Publication, Radio, Film & Television's onerous game development regulations and the Cyberspace Administration of China's new requirement for 24/7 monitoring & control of live streaming (to combat apparent social ills including Chinese girls eating bananas online) foster a culture of caution that may start with content but will inevitably spread throughout the entire VR ecosystem, to chilling effect.
China's aspirations to soft power and cultural export are frankly constrained by such restrictions (this is an observation, not a criticism). Ad hoc regulations often curb any Chinese content that becomes too popular - from talent contests to TV dramas with provocative themes or too much cleavage. Chinese content creators and distributors are challenged to be simultaneously innovative, expansive and cautious.
If there is any consolation to foreigners who are awakening to China's looming VR ecosystem, it lies in the fact that China's potential to take VR mainstream before other countries is hampered by a restrictive regulatory environment. China's VR gold rush will go boom or bust based on whether or not this sprouting ecosystem is allowed to thrive. Over-pruning a tree can be worse than not pruning it at all.