#1145 – The New Entertainment Universe

The international media has been fixated on the upsurge of interest in terms such as “the Metaverse” – preaching a new religion of virtual commerce and immersive experiences. Many of these developments have been linked, in many cases, to blockchain activity, as well as the need to experience these environments only in virtual reality. This latest Stinger Report takes a snapshot of these developments, and the implications for the future. 

Metaverse Falling into Focus

The reality of the immersive VR environments being proposed took a hit from continuing criticism. As with the World Wide Web’s aspirations to metamorphosize into the Information Superhighway that would materialize back in the day – only to becoming the open Internet we know today. The dreams of a walled garden for immersive commerce, as a replacement to the internet, has been labelled “Web3” and some are seeing the “Metaverse” as the next chapter for the internet! 

The term “Metaverse” has been appropriated by the previous Facebook social media corporation, who went all in rebranding to Meta with aspirations that their combined $36b investment (since 2019) into the Metaverse and VR would allow them to dictate the scope of this “bold new world” for immersive commerce. But this attempted landgrab has been ruptured by other tech-corporations. While many agree that VR offers great opportunities, many deride the aspirations of a dystopian and soulless approach, and the competency of Meta to build the needed environment.

One of those critics was former OculusVR Kickstarter supporter Valve, who’s chief executive has been dismissive of the concept of the Metaverse, and its validity. While at the same time, the chief executive of Apple – soon to launch their own immersive headset platform (rumored to be called ‘Apple Reality’) – looks more at a Mixed Reality (MR) approach to future commerce and interaction, that is more a mixture of VR and AR applications. At the same time, Meta has pivoted its plans in VR, also looking to invest on MR over VR, with the new ‘Meta Quest Pro’ platform which was launched during their streamed ‘Meta Connect’ event. This new headset, while employing updated optics and slight processor power, builds on from the previously launched and now two-year-old ‘Quest 2’. This new ‘Meta Quest Pro’ is squarely focused on a creative rather than gaming approach. The company is heralding a partnership with Microsoft and looking towards their new ‘Horizon Business’ ecosystem to promote this effort. The creative and productive workspace focus was reflected in a hefty $1,500 price tag for the new platform. 

The ‘Quest Pro’ focus was hoped to entice enterprise and prosumers, with marketing steering it away from consumer adoption – even though it is being demoed in BestBuy consumer retail stores. Microsoft had recently closed its commercial AR headset operation (having originally launched the ‘HoloLens’ series), and is partnering with Meta towards encouraging users to employ their workspace platform on this new hardware. Microsoft had partnered with previous OculusVR once before, departing soon after to build their abortive ecosystem (‘Windows MR’). For Meta, they were betting hard on their own ecosystem, the free-to-play ‘Horizon World’, offering casual areas for individuals to gather and play in VR – even including a recreation of a classic arcade called ‘Questies’. However, adoption has been slow, with sources revealing expectations of 500,000 active monthly users dashed, with latest counts achieving only 200,000.

This compares to rivals such as ‘RecRoom’ seeing active monthly VR users (reportedly) of some 3 million. This was also compounded by the retention of users of the consumer ‘Quest 2’ VR headset, also showing major signs of slowing – as revealed by Meta Reality Labs in their financial reporting. Sales of the ‘Quest 2’ headset have been impacted by the increase in the price, as Meta changed the amount they subsidised the system, and a general slowing of interest in the two-year-old hardware seeing no major new content. In a show of defiance, Meta announced they had blocked access to ‘RecRoom’ for children, stating that the company was applying its safety guidelines, and that VR headsets were “not toys” – and the greater risk to young users was higher. Complaints of young users on this platform, as well as ‘VRchat’ and ‘Horizon World’ itself, seemed to underline another issue with the corporate’s plans for widespread adoption. 

It was later revealed that Meta intended to ban all junior usage across their online ‘Meta Store’ of VR applications from junior accounts, attempting to block all children’s usage – moving the age recommendation to an absolute requirement. Many saw this action as a self-defeating move, considering their dependence on any usage to support numbers. But it was also surmised that this move to underline its policy, to never allow those under 13-year-of-age to use their platform, was also to defend against any danger of liability. The company is showing its efforts to try and negate inappropriate activities exhibited to and from minors within the virtual utopia the corporation envisaged with their metaverse plans (as well as avoiding possible legal action following damaging media coverage). 

Meta has seen significant falls in share prices, as media and industry observers questioned the viability of the claims made, in the size and profitability of the Metaverse, proposed by Meta founder. The company saw a calculated $700b wiped off its value over a period of months, to the point that it was estimated to be worth less than retailer Home Depot. Investors have panicked and their faith in the leadership is evaporating. Questions are being asked about the ability to continue down the path of spending lavishly on the dream of the Metaverse with no near-term plans to turn a profit.

The stagnation of Horizon to ignite large scale interest, and the vast sums spent on the dream of the virtual environment, are being questioned by investors. It was revealed that Meta expected to continue to spend billions on its aspirations, with a promised ‘Meta Quest 3’ platform, this timed aimed at consumers and being launched for late in 2023. At the same time, Meta had to weather the storm of criticism over their streamed ‘Meta Connect’ event, with some of the claimed features being made available for their Horizon environment, such as addressing the lack of legs for the avatar. Much criticized, the promotion of legs in the stream were later revealed to have been created off-line using motion capture and were in fact not yet ready for implementation.

For Meta, much now rides on being able to achieve any of the milestones in their envisaged virtual commerce space. Meta Reality Labs, the last remaining redoubt of many ex-OculusVR staffers, and the driving force behind Horizon and the VR and MR projects within the company (comprising 1,900 staffers), revealed the division had lost some $9.4b in the first nine months of 2022 and they were anticipating even greater losses into 2023. The Meta executive leadership attempted to placate investor concerns, but the company’s Metaverse dream, based on their plans, seemed during this period to be in serious doubt. Many observers are speculating considerable restructuring of the leadership within these divisions in the coming months. 

This speculation comes just as the corporation revealed massive widespread layoffs of more than 11,000 of its staff (13-percent of the worldwide workforce). These cuts were stated to have been done to continue their long-term vision for the Metaverse, to win back young adult users, making them their new “North Star” – as quoted by the corporation’s founder and CEO, when announcing the departures, taking responsibility for them, stating a premature decision to accelerate hiring, made after the pandemic and an unforeseen macroeconomic downturn. This situation is what some are calling the beginning of the “Tech-Job-Apocalypse” – as major social media and IT positions are culled. 

However, investment into the immersive commerce space continues from other corporations, with alternative approaches towards creating “Metaverses” of their own. This was illustrated by special distributed computing start-up Hadean receiving a $30m Series A round of funding from leading investors such as Epic Games and Tencent. The company is involved with the development of distributed “supercomputer” quality processing power – power that could create massive multiplayer games with incredible quality, distributed online. It is this kind of performance that would be needed to achieve the expectations for Web3 proffered by some corporations. 

Hadean is not the only corporation looking at distributed computing game platforms that offer amazing performance. SEGA entered a round of investment to develop what they had originally called “fog gaming” – based on special datacenter, cloud-distribution of the computational processing in games, offering impressive performance that is shared between connected consumer terminals, providing a fully shared or “fog” of competitive power. Initially this was proposed to be part of a new initiative within the then corporation’s amusement venue operation, but after the sale of this operation to GENDA, SEGA has partnered with Microsoft towards developing what has been internally described as their “Super Game” project – a project reported to be using Microsoft’s cloud-distribution platform Azure, standing in for the “fog”. The results of this new platform, scheduled for a March 2026 timeframe, is speculated to generate lifetime sales of at least 100b yen, or about $672m, as stated by the company CEO in SEGA Sammy’s integrated financial report.

It was also revealed that another Japanese entertainment corporation was actively investing in their Metaverse and Web3 aspirations, with new jobs listing and increased resolve to create their own ecosystem. KONAMI announced to the media that they have been conducting research to incorporate the latest technology into their games, towards launching a service for players to trade in-game NFTs through a unique distribution platform using blockchain. This statement was followed by the posting on the company’s job page for developers with Web3 and Metaverse experience to join a dedicated team focused on this business. The company has already experimented with NFTs based on properties – and is now looking to grow this investment.  

The continuation of corporations looking at the Metaverse bandwagon even entered the vending sector, with the announcement from Asian developer Wow Bao, who revealed their vending machine concept for the Web3 universe. The company is proposing its own NFT-based extension to its existing ‘Bao Bucks’ reward program – with subscribers being able to pay a monthly fee for access to the unique NFT-powered access and sales platform, that will not need a crypto-currency virtual wallet to use. The initiative is planned to kick off the creation of a dedicated Metaverse to support this platform and create a space for commerce. 

This is one of a universe of new initiatives to be part of this landgrab. The linking of these plans to cryptocurrency and NFTs, however, shows the fragility of the business models, as the blockchain commerce sector has seen incredible declines in transactions and vast amounts knocked off the worth of the currency and the virtual items over the last few months. It was reported by Bloomberg, in September, that a staggering sum of $2 trillion was wiped out in the crypto sector over the recent months, causing the sector to reel. 

Consumer VR’s Next Phase

VR seems to play an integral part of many of these Metaverse plans. And while some observers questioned the success of Meta’s own strategy to establish 1-billion VR headset users by the end of 2025 (as promised in a 2018 presentation), other corporates seemed to be doubling down on VR headset investment.

It was reported that China intended to ship 25m VR headsets over the next five years, as part of a greater investment to strengthen their digital economy. This is an effort supported by Chinese government ministries, such as the Ministry of Industry and Information Technology (MIIT) and four other agencies, with party phrases like “use the virtual to enhance the real” – in what is being called the “Chinaverse”. Companies such as PICO had seen considerable interest in their new ‘PICO Neo 4’ VR headset (launched in October), in both consumer and Enterprise colors – even though it had yet to announce plans to launch sales in North America. At the same time, chip manufacturer Qualcomm revealed that the new chipset that powered the ‘Meta Quest Pro’ (the ‘Snapdragon XR2+ Gen 1’), was scheduled to be used by other VR headsets, planned to be launched for the end of 2022. These include products scheduled from Lenovo, PICO, HTC, and others.

One of those others is DPVR (previously Deepoon), a Chinese manufacturer who has had a great impact on the LBE VR scene in their territory with the most ubiquitous ‘DPVR E3C’ VR amusement headset, used by many of the platforms from that territory, such as from Movie Power, 360VR, FuninVR, LekeVR, Owatch, and many others. The company revealed they will be launching their new ‘DPVR E4’ headset and, while it is aimed at the current market, the company is focusing most of its promotion for this platform in the lucrative eSports sector. The system claims to be specially developed to support the burgeoning eSports competition and “elite players” – including the consumer sector. The system will be one of the many supporting the latest Qualcomm architecture. 

These developments came just as Japanese electronics giant Sony revealed the final details of their planned sequel VR platform. The ‘Sony Playstation VR 2’ headset, working with the Playstation5 game console, was revealed to have a $550 price point – slightly higher than original speculation, costing more than the actual price of the PS5 console. But the system would also be launched with over 11 new VR titles available. This platform will be available for February 2023, with pre-orders now commencing. The PSVR2 has generated great interest in the VR community, offering high performance specifications, including Foveated Rendering and Eye-Tracking – all attempting to differentiate the VR offering from Sony as a pure-game high-end centric VR platform, against the more CasualVR mobile processor systems. Sony has invested heavily in IP and game exclusives for their architecture.

There will be now a furious rush to promote and sell the current VR releases for the holidays before the new battleground of 2023 commences. The launch of the new Sony system will be a pivotal point in the start of the new phase of adoption, and it is expected to be matched by other entrants. The divide between Tethered (wired) VR platforms promoting high-end graphical performance from their console and PC base stations, and the Standalone (wireless) VR platforms using mobile processors, will widen. But there are clouds on the horizon, as questions are asked of the actual retention and buying interest from the consumer base (is VR still a niche platform?) This is being raised as a valid question as customers are feeling the squeeze on their disposable incomes under the current financial conditions.