Sony Could Be The Best VR Growth Play

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Sony Could Be The Best VR Growth Play
July 5, 2017

Summary

  • * After being under the spotlight at E3 2016, VR was largely downplayed at E3 2017.
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  • * In spite of a tepid response to VR till now, some research firms are extremely optimistic about the long-term prospects of VR.
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  • * Sony made a strong push for VR announcing numerous new gaming titles at E3. Sony could be the best VR growth play.

 

After being under the spotlight at Electronic Entertainment Expo(E3) 2016, VR was largely downplayed at E3 2017. Many of the major VR players settled for low-key presentations, unlike last year's overwhelming scale. The slower than anticipated VR headset sales have not helped their cause either. However, at E3, Sony (NYSE:SNE) made a big push on VR. On the other hand, one of Sony's main rivals, Microsoft (NASDAQ:MSFT), at its Xbox One X launch, snubbed VR. The likes of Facebook-owned Oculus avoided the show while HTC, the maker of Vive headsets, settled for a low-key event.

 

The lack of a strong show by major VR players at E3 2017 could be a hint that the VR hype has not lived up to the early buzz it received and could be heading towards a dead end. But that's not the case if you go by recent reports from some research firms. In spite of a tepid response to VR till now, some research firms are extremely optimistic about the long-term prospects of VR. IDC predicts that VR headsets will grow at a very strong pace, with a CAGR of 48.7% through 2021. AR and VR headsets collectively are expected to increase from "under 10 million units in 2016 to just shy of 100 million units in 2021, with a 5-year CAGR of 57.7%." Another firm, CCS Insight expects "sales of dedicated VR headsets to grow to 22 million units by 2021 - an 800 percent increase over 2017. Market to be worth $7.7 billion by 2021." PWC's study finds that China’s demand for VR headsets will reach 85.9 million by 2021, overtaking the United States' demand for 68 million units. All these reports raise the expectations from this industry, which is still in an early stage and yet to become mainstream.

 

Sony's VR push at E3 2017

 

At the E3 presentation, Sony announced diverse new VR game titles targeting all sorts of users. The horror thriller Inpatient, shooter game Bravo Team and lighter side game Starchild were among the few titles which were revealed. Popular game title Skyrim also is coming to the PSVR. This sort of focus on VR content suggests the company is more serious about VR than other platforms like Vita portable or Move motion controllers.

 

The focus could be justified in the sense that with only two full quarters of sales, it has managed to sell over a million VR headsets till date. In the first quarter of 2017, Sony sold more than three times the number of tethered VR headsets sold by its more powerful counterparts like Facebook's (NASDAQ:FB) Oculus and HTC's Vive. Sony, having shipped 429,000 PlayStation VR headsets in the first quarter, is second on IDC's list after Samsung, which shipped over 489,000 VR units. Samsung has sold the most number of VR headsets but those are screenless viewers. Sony is the market leader in tethered VR headset market. Further, Sony has stated it has been struggling to keep up with the demand. If this is the case then Q3 and Q4 numbers could be much stronger. IDC expects Sony to remain the market leader for some time at least in the VR gaming market.

IHS' head of games research, director Piers Harding-Rolls, has spoken highly of Sony's VR strategy and thinks that PS VR could also be a runaway success like the PS4. Commenting on the company's VR strategy, he states "Microsoft’s reticence to embark on a console based VR strategy until at least 2018 means that Sony has an opportunity to build a comprehensive VR lead during the rest of 2017. While the VR market is still embryonic, Sony’s VR strategy offers it a key differentiator beyond the multi-platform timed exclusive games which represent the traditional battleground between Microsoft and Sony. Sony is bringing its first-party studios to bear here, with a number of titles coming to the platform in 2017." IHS projects the PS4 installed base would hit 69 million units worldwide by the end of 2017. This is a huge target user base for the company's VR strategy. Even a 5% conversion of its projected PS4 user base will mean sales of more than 3 million VR headsets. This would, on an average, bring in $1.2 billion revenue for the company.

 

The advantage Sony has here is that its VR opportunity doesn't end with just VR headset sales. It controls its complete VR ecosystem including headset, game console, and content. So, as VR becomes mainstream it has multiple avenues for generating revenue from the VR opportunity. With Microsoft not coming up with any specific console based VR offering till late 2018, Sony has the edge to create a strong VR ecosystem base and then work on it to take it forward. The company is in pole position to build a massive lead over its main rival Microsoft in the VR space as it has done in gaming console space with PS4. If analyst projections were to hold true and Sony maintains its market dominance in VR headsets, it could be one of the best ways to play the VR opportunity. The larger PS4 user base and expanding support of AAA games for VR make Sony a strong contender to succeed in the growing VR market.

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