Virtual reality is starting to see gains in gaming

Noah Smith
Special to the Washington Post

Pandemic-fueled spending into the video game industry appears to be trickling down to virtual reality platforms, signaling a potential uptick for a gaming medium that has lured billions in investments but remains more centered on potential than realized success.

Tuesday, Facebook announced more than 60 games available for the Oculus Quest and Quest 2 made over $1 million since the start of 2020, with six cresting $10 million, including Skybound's "The Walking Dead: Saints and Sinners," which grossed $29 million. Those figures complement sales of the Oculus Quest 2 headset released in October. Facebook, which purchased VR headset maker Oculus for $2 billion in 2014 and renamed it Facebook Reality Labs last year, did not release specific sales numbers for the new hardware, but it said preorders for the Quest 2 were five times higher than the Quest 1, which debuted in May 2019.

"Medal of Honor: Above and Beyond" is playable on Oculus headsets in conjunction with a PC.

The news comes at a time when VR is making gains in the gaming market, aided in part by the overall rise in the gaming industry during the pandemic. The release of Valve's "Half-Life: Alyx," a AAA game developed specifically for virtual reality, coupled with more affordable headsets helped bolster the VR market in 2020, according to recent market analysis.

"If you rewind the clock three or four years, there weren't very many titles that grossed over a million dollars," said Lewis Ward, research director of gaming, esports and VR/AR at the International Data Corporation, a market intelligence firm. "So that's an important kind of benchmark or, you know, an important trend line that does suggest that VR is growing. And [the Facebook announcement] is not the only evidence of that. It's evidence of a recent Facebook surge since the Quest line was announced, but you also see stuff on (PC-based gaming platform) Steam and whatnot, suggesting that more PC gamers are doing it as well."

Ward noted that VR users increased from 1% to 2% of Steam users in 2020, a rate that outpaced Steam's total user growth last year.

"When my hairstylist brings up (VR game) 'Beat Saber' . . . I feel like we've finally broken through this important barrier and have gone to a point where it's an accepted mass market technology, like any other consumer electronics devices," Mike Verdu, vice president of content for Facebook Reality Labs, told the Washington Post.

VR game spending accounts for a small fraction (0.4%) of the $130.6 billion revenue generated by gaming hardware and software makers in 2020, according to market research firm SuperData. While more top-tier game publishers are launching forays into VR game development, there are few virtual reality titles capable of matching the scope and quality of AAA blockbuster franchises and games such as Call of Duty entries or "Animal Crossing: New Horizons," which constituted the three top-selling games of 2020, according to market analysis firm NPD Group.

Part of the barrier to VR achieving its intriguing revenue potential is the limited user base. According to figures released by the Entertainment Software Association in March of 2020, 73% of the 169 million gamers in the U.S. reported owning a console, while 29% said they had a VR system.

But Facebook's strategy with the Quest 2 appears to be addressing that challenge. Not only did the latest Quest headset increase its performance specifications and seek to offer a more comfortable experience for the headset's users but its price dropped $100 from the first Quest, which debuted at $399. (It notably also added a requirement that Quest users have a Facebook account, a decision that has discouraged potential buyers and led to an antitrust investigation in Germany.)

"The cost of VR headsets has been the number one leading barrier to entry for years," Ward said, noting other deterrents like motion sickness. "It's been number one since we started taking surveys."

According to SuperData, the Quest 2 sold over 1 million units in the fourth quarter of 2020. An increased number of VR headsets in homes would likewise increase the consumer base for VR game and app developers, probably luring additional investment into that area. So too could the success of titles like "Saints and Sinners." In October, Facebook announced that Ubisoft, the makers of the Assassin's Creed and Tom Clancy Splinter Cell series would bring those franchises to virtual reality. Respawn, another prominent game developer owned by Electronic Arts, produced a version of its "Medal of Honor" series playable on Oculus headsets in conjunction with a PC.

"VR has the potential to appeal to not only gamers but also to a wider audience through its capability to provide unique player experiences," said Elizabeth Loverso, vice president of product development at Ubisoft's Red Storm Entertainment. "For hardcore gamers, it offers a more immersive way to play some of their beloved franchises. VR also appeals to a wider, more casual audience by immersing them in a virtual world without the same complexity more traditional games rely on. As VR technology continues to evolve and exciting new games are released we believe more players will discover its potential."

The VR userbase has a ways to go before it can compare with traditional gaming platforms. In late November, market research firm Omdia projected that 1.2 million Quest units would be sold by the end of 2020. SuperData Research, another market analyst firm owned by Nielsen, predicted that 3 million Quest 2 units would be sold in 2021. Sony sold 4.5 million PlayStation 5s in 2020, according to its quarterly earnings report. That console debuted in mid-November.

While Facebook trumpeted the success of the titles in the Oculus store, it declined to share information on the average costs of VR game development, making it unclear if the $1 million revenue figures were truly indicative of financial success. Regardless, Ward noted the number of games topping $1 million in revenue was significantly higher than in previous years and that Oculus was only a portion of the VR market.

Although VR games may have new momentum, some observers, including the man who coined the term "virtual reality" and played a key role in its development, question the ultimate potential of VR gaming, even as they champion the underlying technology.

"Virtual reality has been transforming the world for decades," said Jaron Lanier, an interdisciplinary scientist at Microsoft. Lanier noted VR's use in the development of automobiles, surgical techniques and vaccines, the latter of which uses VR visualizations of molecular interactions. "Gaming is not great for virtual reality, and I don't think it's a tech problem, it's an existential problem."

Lanier said a psychological issue manifests itself in VR because with a console, PC, or mobile game the player "is kind of bigger than the game. Whatever the game, it exists on a screen that's not as big as you. You're the master of a little world. Virtual reality is the opposite, you're inside of it. It's a different situation emotionally, you feel small because you are small," he said.

Chris Busse, president of "Saints and Sinners" maker Skybound Interactive, agreed with some of Lanier's assessments but said VR can provide a positive, immersive experience and that there is also space for more intimate, story-based, individual experiences.

"There's an escapism and an immersion and presence that VR has that you just can't get anywhere else," Busse said.

Five years into the VR process with Skybound, which has also invested in future VR titles, Busse said VR game development is still "early" in its evolution.

"We want to be a part of it," he said.