Manatt Digital Media - March 2015

Manatt, Phelps & Phillips, LLP

In This Issue:

  • Beyond Gaming: Understanding the VR Landscape
  • Virtual Reality Distribution: Business Opportunities and Challenges
  • Five Questions with VR Playhouse’s CEO Christina Heller

In the last two months, Virtual Reality (VR) has become the featured event in the media and in industry events, creating great buzz and excitement around the possibilities for transforming user experiences across all domains. Although it has been more accessible, VR is still in its early stages in terms of user experience, technology and business models. The VR ecosystem is continually evolving and maturing as entrepreneurs, tech, media companies and brands continue to experiment and learn from success metrics and analytics to date. In this edition, we give you an overview of the VR landscape, from the perspective of observers as well as those immersed in the creative world of VR.

Beyond Gaming: Understanding the VR Landscape

By Omar Noureldin

Virtual reality is not new. The technology has been around for 20-plus years but has lacked widespread distribution and consumption due to limiting factors in technology and content. That is changing now.

Currently, the biggest player is Oculus VR—the headset and software developer—made famous by Facebook’s $2 billion acquisition of the Southern California startup. Other hardware companies, including Samsung and Sony, are quickly moving into this space, adding some competition to the mix. At the same time, content developers are rapidly prototyping the impact the technology will have on all sorts of content.

What is virtual reality?

Virtual reality (or “VR,” as it is often referred to) is a computer-generated interactive environment that simulates 360-degree views in multiple dimensions by wearing special headsets. For many years VR environments were hard to sell because they made users motion sick due to slow computer processing speeds and tunnel vision. However, the Oculus Rift headset is being dubbed the first “affordable” device that overcomes these problems (I am very sensitive to motion sickness and have used the Rift without any problem).

Breakthroughs in rapid computer processing and lens manufacturing now allow devices to simulate multidimensional experiences while keeping the body’s sense of equilibrium. For example, Oculus uses new processes to better conform to the body’s sense of movement, and new magnifying lenses expand the scope of vision.

Who are the players?

The short answer is there are a lot and many more coming. In terms of hardware, there is the Oculus Rift, Sony’s Project Morpheus and Samsung’s Gear VR. Google has been making some strategic investments in addition to its DIY Cardboard headgear set.

On the content side, it’s a free-for-all. There are small VR production companies popping up everywhere, and a high concentration of them in Los Angeles. Digital LA recently held a #VRLA Meet-up to demo some of these products. It was also the first-ever VR live-streamed event.

On the Hollywood side of things, the major studios—not wanting to be left behind—have caught on and are investing in some of these VR production companies. More to that point, at Sundance more than a dozen short VR movies were presented and the Sundance Lounge staged a demo room for some of these devices and developers.

Where are things going?

This is a hard question to answer, but one thing is for sure—it’s beyond gaming. Movies are the first obvious choice, but there is (virtually) no limit. Live music events, medical procedures, investment analysis, defense training and aerospace simulations are a few of the areas that are being primed for VR technology.

Another unknown is the use of mobile. All the current headset devices are large, clunky and expensive. It is and will continue to be hard to sell a $300 headset to consume VR content that is still in its infancy, when there is so much standard content available at no or little cost. Thus the advent of mobile VR through devices such as Google’s Cardboard and mobile headset is very interesting. This has the potential to explode because it’s cheap, familiar and readily available.

Many media and technology companies are still adjusting to the brave new world that is digital. The learning curve will be even steeper with VR, so it’s best to understand what is going on early.

Virtual Reality Distribution: Business Opportunities and Challenges

By Omar Noureldin

To understand what the VR distribution pipeline will look like, a stroll down memory lane vis-à-vis online video will be instructive. It took time for the online video ecosystem to develop into what it is today and that was largely because of disjointed and competing distribution platforms in its early years. Anyone with a smartphone, tablet or computer knows YouTube now dominates this space with over 1 billion users, but it took time (and an acquisition by Google, which merged Google’s less than stellar Google Video platform). Still, the vast majority of YouTube’s content is user-generated.

Then there are the premium content platforms, such as Netflix, Hulu and Amazon, all of which have turned the prime-time TV model on its head. First, by reusing content, and now by creating original content. Vimeo is a growing player and has laid its stake in the ground by focusing on high-quality, high-resolution content with a focus on content creators, but is now dabbling in VOD and SVOD models.

So, what does this mean for VR? What is the opportunity? Well, the opportunity is for new digital distribution platforms to emerge that focus solely on VR content. The reason some believe innovation will happen with these new distribution platforms, rather than in giants like YouTube, is because VR distribution will require advancements in packaging and transferring vast amounts of data across existing networks that are not necessarily ready to handle that kind of traffic.

Herein lies a challenge. High-quality VR content is not mobile friendly … at least not yet … for a couple of fundamental reasons. First, current bandwidth capacities limit the amount of data that can be transferred, and mobile devices are limited in their storage capabilities. Second, mobile processors literally overheat and melt when trying to play high-quality VR content that is more than five minutes long.

Today, the big online video distributors are all about mobile, which creates a disconnect in strategy and focus if they want to move full force into VR. Moreover, YouTube is still trying to figure out how to be profitable in the traditional online video space, so some pundits believe it would not make sense for them to spend a lot of time, money and effort to develop new distribution channels for VR, especially when they are trying to focus on developing their own premium original content, as original premium VR content is a ways away.

Instead, many are predicting a proliferation of VR-focused distribution platforms and companies experimenting with different ways to deliver the content—Vrideo is one of them. They recently hosted a VR Meetup and panel discussion on this very topic in Santa Monica. As discussed earlier, there will need to be technological innovation at every level of distribution—packing, transfer, storage and processing. Do not get me wrong, there is already talk of the big media and online video companies (Google, Amazon, Netflix, Disney, etc.) and telecoms (AT&T, Verizon, etc.) eventually going to war to acquire these smaller VR distribution companies, but it likely will be an M&A war, not a technological advancement war. Google has already invested a whopping $500 million into MagicLeap, which is developing VR technology that merges the real and virtual worlds—augmented reality.

Massive sums of money are being poured into VR, and distribution is one of the keys to unlocking its potential.

Five Questions with VR Playhouse’s CEO Christina Heller

By Mary Ermitanio

Over the last few years, the majority of developments around VR had been focused on gaming. However, the small video-focused community has seen accelerated growth in recent months through new ventures, such as Oculus VR’s new in-house studio Story Studio; new partnerships, such as Samsung’s VR content deals with media companies like Red Bull and the NBA; and emerging VR production companies. VR Playhouse is one of these emerging companies, purely focused on experimenting with and producing VR experiences for existing headsets. Below is an exclusive Q&A with CEO Christina Heller.

1. What is the reason your company exists (and what problem(s) are you looking to solve)?

With major investments from all the big tech players (such as Facebook’s acquisition of the Oculus Rift for $2B), 2014 really signaled the emergence of the virtual reality industry and of an ecosystem based around an entirely new way of seeing the world. There are now many startups launching VR platforms, in addition to the 20 or more VR headsets getting ready to come to the market. But as we’ve seen in so many industries, content is king, and the platforms with the best content will get the most eyeballs. There is currently a dearth of VR content, particularly creative content, that VR Playhouse intends to fill. We create 360-degree immersive virtual reality experiences with a focus on high-level imaging and creative and on answering the question: How can we make the most compelling VR content on every level?

2. How are you different from your competitors?

A lot of VR production companies are simultaneously creating software, hardware and distribution platforms. We are singularly focused on making content. This allows us to pick and choose the products that serve our productions and clients best, and we can focus our energy wholly on doing what we love most—Telling stories and experimenting in VR.

3. Why will you succeed (and what is your single most important ingredient for success)?

Our team’s background spans a variety of fields and disciplines, including theater, film, events and animation, and I think this gives us a huge advantage in some unexpected ways. For instance, theater professionals understand the concept of a 360-degree immersive experience intrinsically. Cinematic VR requires long takes, as you can’t simply cut to a close-up or “B-Roll.” Scenes unfold and play out.

Second, theater artists have enormous creative networks of actors, writers, directors, and production experts. These are people that are used to long hours, overcoming huge challenges, and pulling off technical feats in innovative ways. Our production capabilities are limitless.

The single most important thing we look for when hiring a team member (beyond expertise) is excitement at overcoming challenges. Because there is no handbook for this stuff, and the tools are barely available, you have to be the kind of person that revels in being a pioneer. We are a task-oriented company—People wear many hats, and everyone is treated with respect. Our team is very committed.

4. What makes you unique (and what do you enjoy most outside of building your business)?

I founded this company with my husband. The foundation of this company is the love we have for each other and the love we have for our friends who work with us. For me, there is no separation between our work and that love, and I think that makes me unique. The time we have is very precious and so I want to make sure that that time is spent doing fulfilling work together in a positive and fun environment.

Outside of work, my favorite thing to do is travel. I go on a trip at least once a month—I’m not overly particular about mode of transportation or type of location. All places are interesting in their own way.

5. What digital media trend is most interesting to you (and what is the least)?

Virtual Reality, of course. Within VR I am very excited about brands becoming media companies in their own right. The most innovative VR content right now is being sponsored by forward-thinking brands, which benefits the medium because we are being given the budgets to do things in 360 that have never been done before.

As for the least, how can a trend be uninteresting? Any trend interests me, because at its root, it relates to people. I may not want to devote a ton of time into research about it, but I’ll click the headline.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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