Making money in VR is hard - subscriptions could be the answer

Platforms like HTC's Viveport give developers more hope
How do you make money from VR?

Virtual reality can build worlds, transport people and transform industries - just don’t expect to get rich off it. The VR industry is either a maturing market or doomed to failure, depending on who you ask, but no one would call it a gold rush.

Yet optimism abounds: this year will see major new headsets from Oculus and HTC arrive, upping the quality and lowering the bar to access. Quest, one of two new Oculus systems, is a totally standalone headset that throws a lifeline to those who thirst for high-quality VR but lack a PC powerful enough to run it on.

Read this: The best VR headsets 2019

Of course if you're flush with Facebook money you have the luxury of investing in technologies that don't affect your bottom line. But what about the countless developers trying to make a success of virtual reality right now?

“It still feels like you’re pioneering,” says Meagan Budgell, one member of a five-strong team behind the swashbuckling pirate title Furious Seas. “With the new headsets coming out it feels like there’s a bit more support for everyone, so maybe it’s a little less volatile, but there are no guarantees. When you’re a small studio of five people, it’s scary sometimes.”

That will probably sound familiar to any indie game developer - VR or not - however the install base of VR headsets is tiny compared to PCs and games consoles.

Making money in VR is hard - subscriptions could be the answer

That's not to say there haven't been some big hitters: Beat Saber surpassed 1 million copies sold in February this year, while Superhot VR has generated more revenue than its original non-VR version. Back in 2017, Oculus said that at least nine titles in its store had made more than $1 million, some of which were independent titles not published by Oculus Studios. Some developers have found a lucrative path forward by striking up deals with Oculus and Sony to offer their games exclusively on their platforms, securing funds for development and the promise of exposure.

We’ve found the casual VR market is not very strong

Others are getting there by hedging their bets on multiple headsets, although a theme across developers I speak to is that the mobile VR market, for all its promises of democratizing the medium, has proven disappointing.

“What we’ve found is the casual VR market is not very strong,” says Darren Hyland, creative director at Virtual Arts Ltd, the studio behind Cargo Racing VR, who told me that the studio has seen more engagement from systems like the HTC Vive and Oculus Rift. “The people who have the headsets, they’re more hardcore.”

Inspired by the success of free-to-play games like Fortnite, they're also exploring in-app purchases. Like other developers I've spoken to, Virtual Arts is emboldened by the promise of new systems to give virtual reality another gust of hype. “I think it's picking up again," says Hyland. "I think over the next couple of years it will get stronger.”

Rethinking the model

Making money in VR is hard - subscriptions could be the answer

There's another reason for optimism right now: a change in the means of distribution.

HTC recently made changes to its Viveport subscription service by increasing developer revenue share to 80/20, up from 70/30, and, perhaps more dramatically, changed the way this revenue is shared across developers.

Whereas before Viveport subscribers were limited to a Netflix-style "locker" system where they could store up to five games a month, they can now have up to 600 titles at any one time. Under the old model, developers were given a fixed amount of $1.25 for every "slot" their game was downloaded to, but not all users filled all slots, and when that happened it wasn’t clear how the revenue should be redistributed. Under the new system, developers will get paid based on usage rather than slots filled. So if someone downloads their game into a slot and plays only that title in one month, the developer will make $10.40.

Making money in VR is hard - subscriptions could be the answer

However, if someone downloads a second game, the revenue will be split in half - and keeps splitting the more games that the user players in the month. This presents a theoretical problem where someone could play 100 games a month and divide the revenue share to a tiny fraction for each game. Viveport president Rikard Steiber admits this is a possibility, but says HTC is betting against it based on user behavior.

“It's not like you read 10 books at the same time,” he says. Which may be true, but there still appears to be a risk that players who want to try out 30 titles a month will significantly diminish the developer’s revenue share. “I can tell you, based on a year and a half of data, that has never happened,” says Steiber. “What we found is that gamers play VR on the weekends primarily, and typically they play three to four games per month.”

What's beyond doubt is that the transition from sale-only model to subscriptions has resulted in good thing for both HTC and VR developers. For HTC, it saw download sales grow 19% over 18 months; subscription revenue grew 590%. HTC predicts that the share across subscriptions and downloads will remain the same in the new model - 15% for downloads, 85% for subscriptions - but with more of the cash flowing into developer pockets.

Time will tell if this strategy plays out. If it does, it could encourage others to follow a similar path.

Where is all the data?

Making money in VR is hard - subscriptions could be the answer

But when you try to follow the money in VR right now, one thing quickly becomes clear: there’s a noticeable lack of data out there. Sony recently announced it had sold 4.2 million headsets, but Oculus and HTC are reticent to share their specific numbers, as are many VR game developers.

“I think the secrecy is two things,” says Joe Radak, who wrote an article titled 'Why I lost $42,500 making a VR game'. “No one really wants to talk about it because it can be turned against them, and also it can potentially hurt their chances with what investors exist within VR.” Then there are the NDAs signed with publishers that stop developers discussing sales numbers publicly.

That’s not specific to VR of course, but it’s noticeably more difficult to find data in this burgeoning medium. When VR "kicked off" again in 2016, it had an estimated market size of 180 million dollars, which was still just 0.2% of the gaming market overall, according to SuperData research.

People were hoping for a bigger splash, and at GDC in March this year, a presentation on VR held by Bjorn Book-Larsson, VP of product at HTC, hit the nail on the head: “The hardware complexity and requirements made VR a much harder sell than the way it was anticipated when it first launched".

Book-Larsson also reeled off some of the biggest obstacles for developing in VR including the lack of established IPs and guidelines, which has resulted in much fumbling in the dark.

But this also means VR has become a hotbed for experimentation and problem-solving. Turning a profit remains the hardest nut to crack, but it feels like 2019 could be the year we start working it out.


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