Reality bites: Why Music Is Not Ready For The Leap Into VR

Every November for the past few years, a phrase echoes around the tech industry and, increasingly, the music industry. “This,” it is claimed, “will be the Christmas of VR.”

Virtual reality has been pinpointed as the next leap forward for digital technology. No longer something confined to sci-fi films and novels, VR and its sister technology AR (augmented reality) are actually here and available to all. It will be, its apostles argue, the next phase in the continuum that has already led through Web 1.0 and into Web 2.0/social media. It is the next planet to be colonised.

The hype here really began to take off in March 2014 when Facebook paid $2bn to acquire Oculus VR – a staggering sum of money for a company that was founded less than two years earlier. This effectively set the narrative for everything that was to follow.

A perfect storm was brewing around the technology – with hardware prices starting to fall and adoption predictions starting to sharply shoot upwards. It is not just the obvious sectors like gaming, Hollywood, porn and music that stand to benefit here: VR will change the way healthcare specialists and surgeons work; it will become commonplace in architecture and the automotive business; tourism will also profit by giving customers a virtual taste of where they might travel to next; it can be used in sports training and even as simulators for astronauts.

All of this potential is resulting in bullish forecasting for where the market for hardware (the actual headsets) and software (the content itself) will be in the coming years.

Last year, Orbis Research was projecting the VR industry (hardware and software) will be worth $40bn by 2020; CCS Insight forecast 22m VR and AR headsets/glasses will be sold this year and this would explode to 121m units by 2022; last year, IHS Markit said the VR and AR sector was worth $3.2bn, up 72% from 2016, but $2bn of that was from AR, a sector somewhat skewed by the intense but short-lived Pokémon Go phenomenon; also last year, IDC was predicting that combined AR and VR headset sales will grow from around 10m units in 2016 to nearly 100m in 2021.

The problem here, of course, is that there is often a conflation of VR and AR in these forecasts – the two technologies rolled into one super-category. And, for now at least, AR is doing most of the heavy lifting, especially as it’s more immediately accessible on smartphones and does not need the consumer hardware investment that VR will live or die on.

And this is where the challenge for the music industry lies. The real marketing and revenue potential for it lies in VR, but it is still limping behind AR.

“This is where the challenge for the music industry lies. The real marketing and revenue potential for it lies in VR, but it is still limping behind AR.”

Where does (or should) music fit in here?

As record sales fell post-Napster when MP3s became ubiquitous, concert revenues exploded, in part due to the power of scarcity. But this scarcity was live music’s blessing and curse; only so many people can fit in a room to see a show and that is why the secondary market ran out of control in the way that it did.

Part of the sell for VR-based concerts is that scarcity is no longer a barrier – 20,000 people might be all the O2 in London can accommodate, but theoretically millions of people can watch (and pay to watch) the same show using their VR headset. VR concerts do not just become a promotional tool: they can, if the wind is truly behind them, become a powerful ancillary revenue source.

Yet the uptick in VR software revenue (of which music is just one part) is entirely dependent on the uptick in VR hardware sales. Companies like UK-based MelodyVR are working to drive this part of the tech sector for the music industry by focusing on concerts – in many ways the part most suited to the music industry. Last year it was working on signing deals with record labels and its app went live in the UK and the US in May this year as well as in eight more European markets at the end of June.

Since then, it has been expanding its licensing footprint, striking a deal with Alexandra Palace in London to record and monetise concerts from there and at the end of August it signed multi-year agreements with Sony/ATV Music Publishing Europe, EMI Music Publishing Europe and Solar Music Rights Management. The company is doing it all by the book and wants to work with rightsholders as a proper partner – but everyone is still taxiing, waiting for the live VR world to finally leave the runway.

The hardest nut for everyone in and around music to crack here is monetisation. It has taken a long time to persuade consumers to pay for audio music subscriptions and even then Spotify still has vastly more free users than it has paying users.

“The hardest nut for everyone in and around music to crack here is monetisation. It has taken a long time to persuade consumers to pay for audio music subscriptions and even then Spotify still has vastly more free users than it has paying users.”

The situation is only exacerbated when it comes to video. YouTube has effectively set the price for online music video content at zero, making it incredibly hard to get consumers to pay for concert streaming, even with the added appeal of VR bells and whistles. Companies like LoveLive were trying to sell PAYG video access several years ago but were probably too early to the market and so struggled enormously. Things, if anything, have become harder rather than easier here. As there is an increase in the amount of free video content consumers have access to, there is a corresponding decline in their willingness to pay for that content.

Many consumers still value ‘free’ more than they value extras like mobile caching, improved audio or even VR.

The Netflix moment for music video content is still so far off as to be invisible. People will pay for access to a wide range of content in a single package – as Netflix is showing – but outside of major global sporting events there is miniscule consumer interest in paying for access to one-shot online broadcasts.

There is a wider problem – or, if we are being generous, a serious delay – here as the hype starts to give way to the reality. IDC has just reported that global shipments (that’s shipments, not sales) of VR headsets slipped by 33.7% in Q2 this year compared to Q2 2017.

IDC is putting a brave face on it, calling it a “temporary setback as the VR market finds its legs”. It added, “Tethered VR headsets declined 37.3% in 2Q18 largely because major brands like Oculus and Sony were unable to maintain the momentum established during a period of price reductions in 2Q17.” This starts to get to the heart of it. VR headsets are still going to be considered a niche purchase until there is a dramatic fall in hardware prices.

It, however, almost certainly won’t be like the CD market where the format had slow adoption through the 1980s but exploded when the hardware reached an enticing mass-market price point in the early 1990s, pushing not just sales of players but also sales of discs in enviable symbiosis.

Getting consumers to buy the VR headsets is one thing; getting them to pay for content on those headsets – especially something that might only be watched once like a concert – is a whole other thing entirely. Perhaps sponsored content can step in and offer an initial financial solution, but that would almost exclusively be reserved for a handful of mega-acts. It will be the exception, not the rule.

“Getting consumers to buy the VR headsets is one thing; getting them to pay for content on those headsets – especially something that might only be watched once like a concert – is a whole other thing entirely.”

The VR hysteria is giving way to the slow realisation that things are not growing as fast as the sector would like. Of course, it would be ludicrous to want to kill it completely and claim there is simply no hope for music and VR. As companies like MelodyVR are showing, there are an enormous list of creative things that can be done here – but that is ultimately the problem. The potential for music and VR for now is almost exclusively on a creative level for artists and creators, not a financial level for labels or publishers.

Ironically, the reality of virtual reality is still not living up to the hype.