The following post comes from Kagan, a media research group within S&P Global Market Intelligence. To learn more about this research, please request a call.
While virtual reality, or VR, seems to be on the minds of most executives in the entertainment and technology sectors, could it go the way of 3D television, or might it become entrenched in our daily lives like the television and smartphone? Modern VR headsets came on the market with the introduction of Oculus VR Inc.'s Rift and HTC Corp's Vive in 2016. Clearly, there is big interest in the technology, as 2016 alone saw over 12 million VR headsets being shipped. Huge companies such as Facebook Inc., Microsoft Corp., Intel Corp., Qualcomm Inc., and others have entered the market or signaled their intention to do so by providing a platform, producing content, or building hardware. Looking forward, it appears that VR will provide brisk competition for the increasing plethora of devices that demand our attention, becoming a major platform not just for entertainment and gaming, but for other uses as well.
Kagan, a media research group within S&P Global Market Intelligence, estimates that total worldwide shipments of VR headsets may reach a little over 23 million units in 2017, with revenue expected to be $2.29 billion. By 2021, unit shipments could reach as high as 65.8 million, with total revenue estimated to be $17.04 billion. Snap-in VR headsets should ship more units than any other segment, although their low average selling price, or ASP, means revenues are much lower.
Virtual reality is achieved in these devices by using lenses focused on a screen (or screens) within a headset, completely blocking out light from the outside. The resulting effect creates a completely immersive experience ostensibly tricking the brain into believing the virtual environment is real. Virtual reality headsets can be divided into three major categories: snap-in headsets, PC/console headsets, and all-in-one, or AIO, headsets.
Consumer content for VR platforms is coming at an increasingly rapid pace, from professionally produced VR videos and VR live streamed events to games, tours, and more. Gaming has been the initial market driver for VR headsets, though other non-gaming VR experiences have proven popular as well. Entertainment will be the main driver of sales toward the back end of the forecast period. Traditional film and television producers have been experimenting filming VR contents for some time now, trying to figure out how to effectively film content in the medium. Seemingly simple decisions like whether or not to have the camera move through scenes can have enormous implications. Also of concern is how to focus a viewer's attention on specific areas within a VR scene to convey key narrative events. As time goes on though, content makers will most likely settle on a preferred format for presenting VR movies and series.
VR also has many applications in the workplace. Training is the most obvious application and is already widely used around the world. Virtual reality allows physicians, soldiers, police officers, and other professionals to train in dangerous situations without putting anyone at risk. VR can also be used for teleconferencing and telecommuting, allowing remote workers to become more ingrained in the office. VR is also great for visualizing and producing 3D models for architecture, engineering, and entertainment uses.
Broadcast VR should also prove to be very popular. California-based NextVR Inc. has been experimenting with broadcasting live events for VR, including NBA basketball, tennis, concerts, and other live events via an over-the-top app that sits on various VR platforms. Viewers can choose different VR camera angles (or are automatically switched between them), providing an experience that is considerably more immersive than traditional television.
A snap-in headset utilizes a smartphone that snaps into the device, providing its screen and brains. Snap-in units provide a cheap way for consumers to get a taste of VR, starting at price points far below that of other headsets. Snap-in headsets are completely cord free, and can sometimes come with additional sensors in the headset to supplement the smartphone. Alphabet Inc.'s Google Daydream and Samsung Electronics Co. Ltd.'s GearVR are the two most well-known examples of snap-in headsets.
The quality of the rendering of the virtual environment for snap-in units is inherently inferior to PC/console headsets, mostly due to the lack of processing power. Utilizing the smartphone for processing and sensor input also puts an incredible strain on the smartphone and can lead to overheating. Anecdotal accounts have users of Samsung's GearVR stating that they receive an overheating warning after just thirty minutes of continuous usage. Wireless headsets also have problems with control input in the virtual space, relying on input buttons on the headset itself or a connected game controller in some cases, whereas wired headsets are gravitating toward separate motion controllers for each hand to provide user input.
Snap-in headsets, because of their low ASP and ease-of-use, shipped more than 11 million units in 2016. The ASP for 2016 was just above $36, generating just over $400 million in revenue. Most snap-in headsets are from no-name vendors based in China, with the notable exception being Samsung's and Google's offerings. Looking forward, shipments will begin to decline toward the end of the forecast period as AIO headsets are released and PC/console headsets reduce the various barriers of entry found with that type of headset. Shipments are expected to peak in 2019 at 32.2 million units before a forecast decline to over 28.2 million units in 2021.
PC/console headsets provide the best VR experience for consumers, but require a separate video game console or PC to be tethered to the device. PC/console headsets usually contain specialized screens that are specifically geared for VR applications. Gyroscopic sensors are often embedded in the headset as well, though in the future specialized cameras on the front of the headset may be able to replace those sensors. Some headsets are already sporting cameras on the front to enable things like hand tracking and augmented reality capabilities. The most well-known examples of PC/console headsets are the Sony PSVR, Oculus Rift and Vive.
PC/console headsets still require a pretty powerful computer to connect with. At the moment, a PC that meets the minimum requirements for the Oculus Rift and HTC Vive headsets will cost roughly $800 (excluding monitor, keyboard and mouse). In addition, the price of the headset itself is also an issue, as the ASP for 2016 was just over $550. However, the price for compatible PCs is slated to decline over time as improvements in VR rendering reduce the performance requirements and the cost of compatible graphics processing units, or GPUs, reduces.
PC/console headsets are currently connected to PCs and consoles through a wire (or wires) in order to transmit video and data as quickly as possible. That requirement leaves these headsets at a big disadvantage compared to wireless devices. This will most likely change during the forecast period as high-speed wireless link technologies such as WiGig and others mature and become incorporated into the headsets to provide a wireless link.
Sony Corp.'s PSVR is the exception to the trend of pricey headsets in this segment. The PSVR can hook up to either the Sony PS4 or PS4 Pro, which start at $220 and $399, respectively, after removing the cost of bundled games. The PSVR headset itself costs $399. With the lower cost to get up and running, Sony shipped an estimated 660,000 units in 2016, the highest number in this segment.
Microsoft is set to change the PC/console segment dramatically in 2017. The cross-platform availability of Windows Holographic, supporting both AR and VR headsets with an optimized version of Windows 10 for AR and VR applications, could dramatically upend the market. Windows Holographic will implement voice and gesture controls, spatial mapping, and the application programming interfaces, or APIs to control them in conjunction with the core Windows services (Edge browser, Windows Store, UWP, etc.) in third party AR/VR devices like the Oculus Rift or HTC Vive. These devices already use the PC version of Windows 10 as the basis for their platforms, but opening up Windows Holographic will allow users to interact at an OS level in an AR/VR environment and provide a common user interface, or UI), and APIs for developers to work with to create their own applications.
In addition, Microsoft will be releasing a new console later this year called Scorpio, which will support Windows Holographic headsets beginning in 2018. The price of the new console will most likely range from $399 to $499, which may be steep for some. The new console is quite powerful and should be able to offer improved visuals and faster rendering over Sony's PS4 Pro.
Headsets compatible with Windows Holographic from Acer Inc., HP Inc., Dell Inc., Lenovo Group Ltd., and others are expected to be released in late 2017/early 2018. Prices for these headsets will start at $300, which is expected to significantly affect the ASP for this segment in 2018. The ASP in this segment is expected to decrease from $550 to just over $368 from 2016 to 2017. Incumbents Oculus and HTC are showing no plans of releasing new devices in 2017, but should slightly lower the prices of their headsets later this year to better compete.
Total shipments of PC/Console headsets were quite robust for their first year, with over 1.4 million shipped in 2016. Sony leads this segment, but HTC and Oculus also have significant shipments at the moment. Looking forward, this segment will see some stiff competition from the forthcoming AIO segment that should impact shipments significantly. Shipments of PC/console headsets will still be very robust until the AIO segment gets off the ground. Shipments could reach roughly 25.9 million in 2021, though by that point growth in this segment will have slowed somewhat.
No AIO headsets have been released to the market as of yet, though many of the parts needed are coming together, and shipments are anticipated to begin in 2018. AIO headsets are inherently wireless and do not require connecting a separate computing device. Many of the test units seen at trade shows and conferences utilize smartphone screens, processors and batteries, though more VR-specialized components will be utilized on the final products.
Because of their dedicated VR components, AIO headsets will provide a much better user experience than snap-in headsets, but will not be able to match the power of PC/console headsets. Despite the high ASP for AIO headsets, they should still be able to compete well with other segments of the market. If you factor in the costs necessary for accessories and computing power, AIO headsets should be well priced at $700.
Because they are all-inclusive devices, AIO units will initially be quite pricey compared with snap-in and PC/console headsets. ASPs should be at the range of a high-end smartphone initially, roughly $700. As VR technology progresses, AIO headsets should overtake the PC/console segment, though not before the end of the forecast period. Shipments will reach over 11 million by 2021, with revenue reaching over $7.7 billion that year.