virtual reality: the industry forges ahead - · pdf filevirtual reality (vr) is about to...
TRANSCRIPT
Sean Peasgood, CEO
(416) 565-2805
VIRTUAL REALITY The Industry Forges Ahead
January 10, 2015
Virtual Reality (VR) is about to become mainstream and could
be a $7 billion market by 2018. Samsung has released its Gear
VR head-mounted display to the public, while Oculus and Sony
continue development on “consumer-ready” products.
Microsoft is experimenting with VR, and reports of Apple
looking for a VR developer possibly signals its desire to tap into
the market.
We detail some of the more interesting technologies in this
report and highlight several companies participating in the
market including Sophic Capital client Spectra7 Microsystems
(SEV-TSXV).
Virtual Reality
Sean Peasgood (416-565-2805, [email protected]) January 10, 2014 - 2
Introduction
In our first virtual reality (VR) report, VIRTUAL REALITY: A VIRTUAL GOLDMINE FOR
INVESTORS, we detailed how major technology firms are vying to capture share of the
virtual gaming market, which we estimate could be worth $7 billion by 2018. Samsung and
Oculus (purchased by Facebook for $2 billion in 2014) appear to lead the pack, with Sony not far
behind and recent new additions include Microsoft with Apple toying with the technology.
“In a couple of years from now, we are going to see virtual reality changing the entire gaming
experience.”
Shawn Laydeni, chief executive of Sony Computer Entertainment America
Since publishing our first VR report, we’ve seen more news about non-gaming VR
developments. Entertainment and marketing continue to adopt VR to create immersive
opportunities for target markets. New companies appeared on our radar screens, and many more
articles have been written about the technology and its future applications. We detail new
developments in the VR space (bringing humans into computer generated worlds) as well as the
augmented reality (AR) space (bringing computer generated images, characters, objects into our
world).
Hurrahs for Samsung!
Samsung’s Gear VR is now on sale! This is the second commercial head-mounted display (HMD)
available (the first was Google’s Cardboard). Samsung has priced Gear VR at $199, and consumers
can purchase it at Samsung’s website - but before you rush online to buy one, we remind you that
Gear VR requires a Galaxy Note 4, which isn’t part of the package. To support Gear VR, Samsung
announcedii at CES 2015 that it would expand its Milk suite of entertainment services to virtual
reality for Gear VR users. This represents a major VR milestone, a milestone that could start the
mass adoption of VR content such as gaming, concerts, movies, and marketing.
Source: Samsung
Virtual Reality
Sean Peasgood (416-565-2805, [email protected]) January 10, 2014 - 3
No word on when Facebook’s
Oculus will release its Rift
HMD to the public. Facebook’s
Oculus has development kits
available, but here’s the
interesting thing: Samsung’s
Gear VR is available for pre-
order via Oculus’ websiteiii. Gear
VR is powered by Oculus
hardware, but iFixitiv uncovered
that the Oculus Rift’s display is a
Galaxy screen, complete with
Samsung’s logo. The two
competitors are almost one-in-
the-same.
Oculus has made acquisitions. On December 11, 2014, Oculus announcedv that it had acquired
Nimble VR (formerly 3Gear Systems) and 13th Lab. Nimble VR provides a camera/software
combination that enables hand-tracking. 13th Lab maps and models 3D interiors. No reason was
given to why Oculus made the acquisitions, but we believe first and foremost that the reasons were
to create a more immersive VR experience for the user, allowing her to potentially use her hands
to interact with VR objects, potentially from the comfort of a 3D model of her home. We further
speculate that the end application could part of an futuristic computing platform that uses a VR
interface.
No news on Project Morpheus, Sony’s VR offering for its PS4 gaming platform. In September
2014, Shuhei Yoshida, the President of Sony’s Worldwide Studios, stated that Sony has finished
85%vi of Morpheus’ development. However, Sony may be getting close to completion because
Oculusvii has told Sony not to release Morpheus if it causes motion sickness1. Oculus’s advice is
sage - the first HMD released to the masses has to work flawlessly or else the entire VR industry
could face the backlash of angry consumers and cynical journalists - but the timing of the message
raises the question, “Why now?” Is Sony nearing 100% completion of Project Morpheus?
Google Cardboard is not a gimmick.
Google announcedviii on December 10,
2014 that over half a million consumers had
purchased Cardboard. Developers appear to
have embraced the HMD because the
number of Cardboard apps continues to
grow. And to help fuel Cardboard app
development, Google released a
development kit for both Android and Unity
(a 3D game engine platform). Google even
provides support for third-party Cardboard
manufacturers (Cardboard’s plans are open
source, meaning anyone can make and sell
them).
1 Motion sickness can occur when the HMD’s video refresh cannot keep up with a user’s motion.
Source: Comedy Central
Source: Google
Virtual Reality
Sean Peasgood (416-565-2805, [email protected]) January 10, 2014 - 4
Razer unveils a $199 HMD development kit at CES that it expects to ship in June 2015ix. CEO
Min-Liang Tanx stated the Open-Source Virtual Reality (OSVR) Hacker Dev Kit isn’t meant to
compete against Oculus Rift but complement it. Mr. Tan wants to sell gaming peripherals and
created OSVR to accelerate VR hardware and software gaming development. One way Razer plans
to accomplish this is by releasing every detail of the headset to aid the development community,
even if this results in competitive products.
Microsoft tinkers with VR. At the 2014 Game Developers Conference, Microsoft Game Studios
executive Phil Spencer commented that virtual reality “… is really interesting, and it’s definitely
something we’ve been playing with for quite a while.xi” Microsoft has since been “hush hush”
regarding its VR development activities, and rumorsxii abound that the company will mass produce
an HMD in 2015. This may be more than a rumor, though: VRFocus claimsxiii that developers
working on the next XBOX console have developer kits. And if that isn’t convincing, Microsoft
filed a patent that specifically mentions “The peripheral display may be used for augmented reality,
virtual reality and enhanced vision applications.”
It seems as though new HMDs are announced every day. We haven’t written about all of them,
but consulting firm KZero has an excellent table (Exhibit 1) that concisely summarizes the space.
Exhibit 1: KZero’s Q1/2015 VR/AR HMD Update
Source: KZero
Virtual Reality
Sean Peasgood (416-565-2805, [email protected]) January 10, 2014 - 5
The Apple of Virtual
Reality’s Eye
We know that Apple filed a
patentxiv
for a head
mounted display goggle
system. But we didn’t know
that they were recruiting for
VR opportunities. This post
to the (right) is one of two VR
career opportunities offered
by Apple. Note that this
position requires a
programmer “to enable
development of Apple’s next
generation of products.”
“Game development” is
listed in the description.
Could Apple be secretly
developing their own VR
platform?
Perhaps not. A second
Apple career posting for an
app developer specifically
mentions Oculus Rift and
Leap Motion, a company
developing controllers for
Macs and PCs. It sounds to
us that Apple is definitely
interested in creating VR
apps. Maybe one day they’ll
surprise us with an HMD?
More non-Gaming
Apps Appear
Our first report detailed
how we believed the gaming
industry would embrace
virtual reality, especially mobile gaming. Over the past few months, we’ve uncovered more non-
gaming VR apps than developments in the gaming world. Entertainment is taking a large bow with
HMDs. Jauntxv, a cinematic VR developer for live content, recorded a Paul McCartney concert
that users can download as an app and watch on Google’s Cardboard and Oculus Rift HMDs. The
app places viewers on stage, giving them not only a Blackbird’s eye-view of Sir Paul but also his
surroundings, including the 70,000 pulsing fans.
Apple Recruiting for VR/AR Programmer
Source: jobs.apple.com
Virtual Reality
Sean Peasgood (416-565-2805, [email protected]) January 10, 2014 - 6
I can see for miles! Sixties mod-rockers The Who also jumped onto the VR bandwagon. The band
released an immersive appxvi celebrating their 50th anniversary. Amazing how these “dinosaurs” of
the music industry are amongst the first to embrace cutting-edge technology.
The kids are all right. Following Paul McCartney’s and The Who’s dive into VR, other musicians
decided to take the plunge. Coldplay has teamed up with NextVR to release the band’s Ghost
Stories Reality Concert Experience. Similarly, Jack White has partnered with Jaunt to create an app
to watch certain songs from a Fenway Park concert in Boston.
Automobile marketers realize the power of VR in conveying brands. Audi paired with
Samsung Gear VR to give potential U.K. clients a spin around a racetrack with the new Audi TTxvii.
Similarly, Volvo teamed with Google Cardboard to provide customers with a virtual tour of
Volvo’s XC90 SUVxviii. And to reinforce the message about quality manufacturing, Chrysler xix
created a VR experience that brings consumers into the factory to see firsthand the care put into
every vehicle built.
Travel agency Thomas Cook is piloting a VR initiative that allows clients to experience select
destinations before purchasing vacations. The VR tours include a helicopter ride over
Manhattan, a trip to a resort in Rhodes, and visit a restaurant in Cyprusxx. Should the technology
prove valuable, Thomas Cook could add more content and deploy the technology on a wider scale.
British Sky Broadcasting is searching for VR start-ups. CNBCxxi reported that Sky’s Vice
President of Business Development Hilary Perchard was in San Francisco to build partnerships that
will help Sky as entertainment moves to the web and smartphones. This includes VR, which
Perchardxxii stated “by next Christmas there will be a decent number of early adopters on the market
and the year after it will be really big.”
Paul McCartney Concert recorded by Jaunt
Source: Jaunt
Virtual Reality
Sean Peasgood (416-565-2805, [email protected]) January 10, 2014 - 7
Kickstarter project EON Sports is leveraging VR to improve football player training. The
simulator (see photo above) allows players to run specific plays, react to scenarios, and undertake
drills. And in case some critics may think that this is gimmicky, EON Sports is backed by legendary
player and Coach Mike Ditka of ‘da Bears.
Mozillaxxiii
has created a VR browser called MozVR. Available for download on OS X and
Windows 64-bit platforms, MozVR works with Oculus Rift HMD (only available in developer
kits). The goal of MozVR is to help foster the emerging virtual web; “A VR website about VR
websitesxxiv” is how Mozilla is positioning its browser; a place to “share experimental VR Web
experiences, provide resources, and showcase work from developers in the growing VR web
community. xxv” This is bold new stuff especially given that no company has released a consumer
HMD yet.
Project Tango by Google seeks to extend a mobile device’s physical world beyond its screen’s
dimensions. Tango’s goalxxvi is to give mobile devices a human-scale understanding of space and
motion. Sensors within the mobile device record over a quarter million measurements each second
and use the data to map 3D motion. Applications for the technology could include: creating a
customized game setting, mapping a store’s contents to provide directions to specific products, and
helping the visually impaired to navigate a building. Google offers development kits for
programmers interested in exploring the future of 3D sensing.
Intel’s RealSense technology enables device control with a wave of the hand, a head nod, and
even a wink. In essence, a person becomes the input device for a computing device. Needless to
say, this should foster a community of VR and AR development. Games could be developed for
the platform, or perhaps a word processor won’t require a keyboard as a person types in mid-air.
On another tangent, Intel was the co-lead on a $9.37 million Series A round for Avegantxxvii
.
Glyph (see below) is Avegant’s flagship HMD. An array of 2 million micro mirrors reflect the light
Football simulator Source: EON Sports
Virtual Reality
Sean Peasgood (416-565-2805, [email protected]) January 10, 2014 - 8
from a low-powered light-emitting diode onto the retinas, which mimics how our eyes receives
light reflected from real objects. There’s no need for a screen or external mobile device.
Big Players Turn to VR to Distribute Content
The NBA’s got game! The NBA and Samsung are partnering to bring virtual reality, courtside
basketball to Samsung Milk subscribers. In an interview with Fast Companyxxviii, Jeff Marsilio, the
NBA’s Associate Vice President of Global Media Distribution said, “When the day comes that 100
million or a billion people from mainland China can feel like they're attending a Houston Rockets
game courtside, that's the dream.” So although we may not get full game coverage for some time
yet, it appears as though the NBA is willing to invest in virtual reality to build its audience.
Fox Home Entertainment is betting on VR. According to The Hollywood Reporterxxix, Fox Home
Entertainment worldwide president Mike Dunn believes VR will go mainstream and could possibly
penetrate 25 million households by 2017. And to kick off Fox’s enthusiasm for VR technology, it
plans to present a 3 minute video for Samsung’s Gear VR at CES 2015.
VR will reappear at Sundance in 2015. Nine VR experiences are scheduled to appear at the
festival’s New Frontier program, which focuses on innovation in filmmakingxxx. This isn’t the first
time that the festival has presented VR content; in 2012, Nonny de la Peña’s Hunger in Los Angeles
utilized Oculus HMDsxxxi.
360º Cameras for VR Content
Whether for gaming, navigation, or marketing, 3D camera companies are racing to create
VR and AR content. We apologize for missing some of these companies in our first VR report;
our focus was on VR’s market opportunity, HMD manufacturers at the industry’s forefront, and
how gaming represented VR’s greatest potential. Like television, radio, and blogs, content is king,
so we discuss some of the leading companies developing the hardware and the content that will
help make VR a mainstream technology.
Avegant's Glyph
Source: Avegant
Virtual Reality
Sean Peasgood (416-565-2805, [email protected]) January 10, 2014 - 9
In August 2014, Jaunt, the
company providing the Paul
McCartney concert app, received
a $27.8 million round of series B
financing, bringing the company’s
total financing to $34 million.
Google Ventures participated in the
series B, as did British Sky
Broadcasting (a prior existing
investor.)xxxii Jaunt’s latest camera,
seen right, has 28 cameras capable
of capturing 3.5 gigapixels per
second. Jaunt is also creating
content beyond Paul McCartney; it
has three other properties, all
available for Google Cardboard and
Oculus Rift HMDs.
Not to be outdone, FIGURE
Digital has created Panopticam
(right), a 5 kilogram sphere
encasing 36 cameras. Judging by
the content on FIGURE Digital’s
website, it appears the company is
targeting corporate marketing.
“FIGURE Digital is pioneering the
use of virtual reality for companies
and brands looking to create truly
mind-expanding experiences. Using
the very latest cutting-edge VR
techxxxiii,” says the company. Tesco,
Marks & Spencer, and Abbott
Pharmaceuticals are clients.
Samsung is moving beyond Gear VR and into cameras with Project Beyond. The camera’s 16
full-HD cameras capture 360º of action at one gigapixel per second. According to Samsung’s Think
Tank Team websitexxxiv, the goal is to take the cameras around the world to beautiful locations.
Gear VR users will have access to the content and can teleport to places they have always wanted
to see. A reviewerxxxv of a Project Beyond demo noted that the experience is immersive, and it’s
possible to have a 360º view. However, Project Beyond is a stationary camera that cannot fulfill
the temptation to step into the scene and interact.
Matterport has a vision to bring 3D to mobile devices. The company already has a consumer
3D camera that they sell for $4,500, but it plans to leverage Google Tango and Intel RealSense’s
vision of embedding 3D sensors in mobile devices by creating an app that will enable people to
create, share, and interact in 3D worlds
FIGURE Digital's Panopticam Source: WIRED.co.uk
Jaunt's latest 3D camera Source: WIRED
Virtual Reality
Sean Peasgood (416-565-2805, [email protected]) January 10, 2014 - 10
Companies
Almost every day, we hear about new VR companies. The VR universe is expanding, and
admittedly, we missed several companies that we should have featured in our first report. We could
easily double the length of this report with the new companies that have cropped up – we’ve barely
written about the hardware companies in Exhibit 2. Instead, we focus on the stories that are doing
something different. But by the time we publish this report, the entire VR landscape will have
changed again.
AWE is simply awesome! The Toronto-company has a portfolio of AR engines that allows
developers to fill the world with characters. AWE too is focusing on the mobile experience and has
a patent pending on its TIME TABLET software, which creates 3D interactive characters. TIME
TABLET works across Android, iOS, and Windows platforms, which will help it reach a broad
audience of AR enthusiasts.
Exhibit 2: KZero’s VR Hardware Universe Update for Q4, 2014
Source: KZero
Virtual Reality
Sean Peasgood (416-565-2805, [email protected]) January 10, 2014 - 11
Hyve-3D creates immersive VR experiences without the need for HMDs. It is a collaborative
tool that allows users across the globe to interact. The interface is a half hemi-sphere, 3D sketching
environment that translates 2D drawing planes into 3D space. Users manipulate the planes via
tablets. On November 10, Bloomberg interviewed Hyve-3D; you can watch the video here.
Leap Motion has developed a 3D hands-free controller. Unlike Intel’s RealSense, which is
integrated into the computing device, the Leap Motion Controller is an external device that plugs
into a Mac or PC. Controller is available now at a price of $99.99. To spur app development and
use of Controller, Leap Motion has offered $75,000 in prizes via its 3D Jam contest. Developers
have accepted Leap’s challenge; check out this Pokémon VR entry for 3D Jam.
Next Galaxy (NXTA:OTC) has a platform, CEEK, that it wants to use to build meeting places
of the future. The plan is for CEEK to bring people together at live events such as concerts,
sporting events, or business meetings via AR and VR. Content is already in the works; Next Galaxy
announcedxxxvi that it will work with Grammy Award winning producer Teddy Riley to create a
Michael Jackson VR experience.
A Way to Invest in a Possible $18 Billion Industry (by 20182)
We recommend that investors seeking to invest in VR should consider Spectra7 Microsystems
(SEV:TSXV), a Sophic Capital client. Spectra7 is neither a HMD manufacturer nor a VR game
or app developer. What it does is create the smallest sized interconnect chips that support HDMI
video and high speed data. The company’s VR7100 DisplayDirect™ VR can condense four bulky
cables (HDMI, USB, audio, and power) into a single, ultra-thin VR cable. Why is this important?
Many HMDs are tethered to a computer or other hardware, and four cables introduce significant
weight and mobility issues. Although less is more in terms of cabling, Spectra7’s VR7100 does not
2 Consulting firm KZero estimates VR hardware revenues to be worth $2.3 billion by 2018. The firm also
predicts about $4.7 billion2 of VR software (games and apps) revenues by the same time. Summing the two
KZero forecasts, we arrive at the $7 billion estimate.
Hyve-3D Environment
Source: Hyve-3D
Virtual Reality
Sean Peasgood (416-565-2805, [email protected]) January 10, 2014 - 12
sacrifice performance. In fact,
the VR7100 provides more
performance in a smaller
package making it one of the
most important components in
VR hardware, in our opinion.
But we’re not the only people
who hold this opinion…
Spectra7 Microsystems’
VR7100 powers Oculus
headsets. iFixit’s teardownxxxvii
of the Oculus Rift uncovered the
chip (right photo) and caused
them to comment that it was “Hot
stuff!” Given that the VR7100 is
part of Oculus Rift, it’s not a
stretch to think it is also designed
into Samsung’s Gear VR, which
Samsung co-developed with
Oculus. This is a reason why we
recommend Spectra7 for
investors who want to invest in
VR: Spectra7’s interconnect
chips will likely find homes in
HMDs. Some HMDs will
succeed; others will vanish; and
Spectra7 Microsystems will win
regardless of which HMDs
consumers’ purchase.
Another reason to consider investing in Spectra7 Microsystems: wearables. We believe the
potential for wearable input systems is large for VR gaming. Gloves, bodysuits, and exoskeletons
will allow interaction with applications; university researchersxxxviii are investigating sound waves
exerting slight pressure on the skin as a way to bring the sense of touch to virtual reality. How does
Spectra7 Microsystems fit into this? The company offers weavable interconnects that can thread
through wearable input systems and deliver real-time 4K-Ultra HD resolution.
Spectra7's VR700 inside the Oculus Rift, Source: ifixit.com
Spectra7's VR7100 facilitates dramatic cabling reduction
Virtual Reality
Sean Peasgood (416-565-2805, [email protected]) January 10, 2014 - 13
Acronyms Used in this Report
4K horizontal resolution of 4,096 pixels
AR augmented reality
CES consumer electronics show
HDMI high-definition multimedia interface
HMD head-mounted display
OSVR open-source virtual reality
Ultra HD ultra-high definition
VR virtual reality
Virtual Reality
Sean Peasgood (416-565-2805, [email protected]) January 10, 2014 - 14
References
i Tim Bradshaw, Sony executive heralds a revolution in virtual reality, The Financial Times, November 30,
2014 ii Samsung, SAMSUNG Expands Milk Services to TV, Web and Virtual Reality, January 5, 2014 iii http://www.oculus.com/blog/oculus-mobile-sdk-now-available/ iv iFixit, Oculus Rift Development Kit 2 Teardown, March 19, 2014 v Oculus VR, Nimble VR, 13th Lab, and Chris Bregler join Oculus, December 11, 2014 vi The Wall Street Journal, Sony Dreams of Profit With Morpheus Virtual-Reality Headset, September 19,
2014 vii Stuart Dredge, Oculus warns Sony to solve motion sickness before launching a VR headset, theguardian,
November 4, 2014 viii Google Developers Blog, Google Cardboard: Seriously Fun, December 10, 2014 ix Razer x Sean Hollister, Razer Has Its Own $200 Virtual Reality Headset, January 6, 2015 xi Mitch Dyer, GDC: Microsoft Has Worked on VR 'For Quite a While', The Verge, March 21, 2014 xii Aaron Lee & Joseph Tsai, Microsoft rumored to make head-worn gaming device in 2015, DigiTimes,
December 18, 2014 xiii Jamie Feltham, Developers Confirm Work on Xbox One VR Kit , VRFocus, December 19, 2014 xiv Apple, Inc., Head-mounted display, United States Patent and Trademark Office xv Jens Christensen, Jaunt’s First Cinematic VR Content is Now Available, Jaunt, November 20, 2014 xvi http://thewho.com/immersive-app-celebrating-hits-50-3d/ xvii Chris Hall, Audi deploys Samsung Gear VR headsets to add virtual reality to Audi TT launch, Pocket-
lint, November 14, 2014 xviii Steve Hall, Volvo Creates Virtual Reality Tour Of XC90 SUV, Marketing Land, November 14, 2014 xix Rae Ann Fera, Chrysler Reveals The Finer Details Of Car Production In Virtual Reality, Fast Company,
November 21, 2014 xx Victoria Woollaston, Try before you FLY: Travel agent uses virtual reality to let holidaymakers explore
their dream destinations, Daily Mail, November 28, 2014 xxi Ari Levy, Sky scours Silicon Valley for virtual reality start-ups, CNBC, December 3, 2014 xxii Ibid xxiii http://mozvr.com/downloads.html xxiv Mozilla, Mozilla Launches MozVR.com to Help Bring Virtual Reality to the Web, November 9, 2014 xxv Ibid. xxvi https://www.google.com/atap/projecttango/#project xxvii PRNewswire, Avegant Closes Extended Series A Round of Funding Led by Intel Capital and NHN
Investment, November 4, 2014 xxviii Jason Feifer, Inside The NBA's Plan To Give Every Fan A (Virtual Reality) Courtside Seat, January 5,
2014 xxix Carolyn Giardina, CES: Fox Is Bullish on Virtual Reality, But Is It the "Real Deal" for Hollywood?,
January 2, 2015 xxx Angela Watercutter, VR Films Are Going to Be All Over Sundance in 2015, December 4, 2014 xxxi Ibid. xxxii Jaunt, Jaunt announces $27.8 million funding to scale its cinematic VR technology, August 21, 2014 xxxiii http://www.figuredigital.com/ xxxiv Think Tank Team, http://thinktankteam.info/beyond/# xxxv Nathan Ingraham, Samsung announces Project Beyond, a 360-degree 3D camera that creates virtual reality worlds, The Verge, November 12, 2014 xxxvi PRNewswire, Next Galaxy to Create VR Concert with Grammy Award Winner and Acclaimed Michael
Jackson Producer Teddy Riley, December 4, 2014 xxxvii iFixit, Oculus Rift Development Kit 2 Teardown, March 19, 2014 xxxviii Darrell Etherington, Sound Might Be The Key To Touching Objects In Virtual Reality, TechCrunch,
December 3, 2014
Virtual Reality
Sean Peasgood (416-565-2805, [email protected]) January 10, 2014 - 15
Disclaimers
The particulars contained herein were obtained from sources that we believe to be reliable, but are
not guaranteed by us and may be incomplete or inaccurate. The opinions expressed are based upon
our analysis and interpretation of these particulars and are not to be construed as a solicitation of
offer to buy or sell the securities mentioned herein. Sophic Capital Inc. (“Sophic Capital”) may act
as financial advisor, for certain of the companies mentioned herein, and may receive remuneration
for its services. Sophic Capital and/or its principals, officers, directors, representatives, and
associates may have a position in the securities mentioned herein and may make purchases and/or
sales of these securities from time to time in the open market or otherwise.