Jason Rubin, the Deputy Director of Oculus Content, recently mentioned that "several VR games on the Oculus Store have already generated over a million dollars in revenue." This statement might bring excitement to content creators, suggesting that the golden age of VR content creation could be here. However, a closer look at the current state of affairs reveals that we may not be in the spring of VR content just yet.
SuperData's sales report for the first quarter of 2017 showed that the Oculus Rift sold 64,000 units, which was less than HTC Vive’s 95,000 units. To put this in perspective, Sony’s PlayStation VR sold 375,000 units during the same period. While unit sales generally correlate with the number of users, the success of VR content depends heavily on the user base Oculus manages to accumulate.
Recently, Oculus cut the price of the Rift by $200, making the Rift headsets plus Touch controllers available for just $398. Oculus claims this move aims to make VR more accessible to consumers, emphasizing that "our goal is to popularize hardware by lowering prices." While this aggressive pricing strategy might attract buyers, it also raises questions about Oculus’ ability to maintain profitability and whether this is simply a strategy to clear out inventory following legal challenges.
Back in 2016, after ZeniMax accused Oculus of stealing trade secrets, Oculus implemented a price cut strategy, slashing the price of the Rift headsets and Touch controllers by $100 each. Additionally, the price of the sensors dropped to $59. At these prices, a room-scale VR setup could be had for just $657. Comparing this to HTC Vive’s $798 price tag, Oculus appears more competitive. Some speculate that Oculus' price reductions are an attempt to clear inventory due to legal pressures from ZeniMax. However, this isn't the first time Oculus has resorted to price cuts.
Now, with another significant price drop, Oculus is betting that the lower price will spur a rise in consumer interest and increase its user base. Official statements suggest that this move is justified because "any Rift owner already has plenty of content to enjoy." By driving down hardware prices, Oculus hopes to encourage even more people to buy into the VR ecosystem.
While this discount may indeed lead to a spike in new users, it's important to consider the looming legal threat from ZeniMax. ZeniMax, which previously won a $500 million settlement, is now pushing for even more damages, possibly seeking court orders to ban Oculus hardware and software or demanding Facebook pay 20% of its hardware royalties for the next decade. Even the initial $500 million payout wasn’t enough to fully compensate ZeniMax for its losses, and they’re seeking additional penalties.
Oculus hardware seems to be in a precarious position, with price cuts potentially masking deeper issues. Despite this, as a subsidiary of Facebook, Oculus is unlikely to abandon its platform entirely. The growing user base presents both opportunities and challenges for Oculus, prompting the company to rethink its strategic approach moving forward.
The million-dollar milestone may seem impressive, but it's important to consider the costs behind these achievements. Rubin noted that several Oculus Store games have exceeded $1 million in revenue, but he didn’t specify which titles reached this mark. Given that Oculus' data is not publicly disclosed, we remain unaware of these revenue figures. Furthermore, the development costs for creating such high-quality content are substantial.
For instance, consider the game "Robo Recall," developed by Epic Games. This title employed 15 full-time employees, collaborated with six outsourcing teams for programming and evaluation, and utilized additional outsourced audio and art support. Considering the average annual salary for game developers ranges from $70,000 to $130,000, Epic Games likely spent between $13 million and $15 million on salaries alone. Outsourcing could reduce costs somewhat, but even with 125,000 outsourced workers, this would add another $750,000. Factor in the cost of VR-ready PCs and Oculus hardware for each developer, and the total reaches approximately $3.8 million. These expenses do not include marketing costs.
With actual revenue reaching only $1 million, the return on investment is negligible compared to the $3.8 million development cost. Even if Rubin's statement refers to slightly higher revenue, such as $2 million (as seen with Steam VR's "Job Simulator"), the development costs still far exceed the returns. This situation paints a grim picture for content creators.
Recognizing this imbalance, Oculus has shifted its investment strategy. At last year’s Oculus Connect3 conference, Mark Zuckerberg announced another $250 million for VR content investments. Following Rubin’s announcement about multiple games surpassing $1 million in revenue, Oculus indicated it would adjust its approach.
"We used to invest $100,000 or $200,000 in smaller projects. Now, with our established user base, we don’t need to invest as much in those kinds of projects," Rubin explained. This suggests that some developers previously funded by Oculus may no longer receive external support. New entrants will now compete on equal footing with existing developers.
So, where will this newly allocated funding go? Oculus plans to focus on larger-scale productions, investing between $1 million and $5 million per project. "Robo Recall" is one such example. These larger-scale games carry greater risks since there’s no guarantee of profitability. Without Oculus’ financial backing, titles like "Robo Recall" might struggle to exist in today’s market.
Oculus seems aware of the limitations of relying solely on consumer appeal to sustain long-term engagement. While promoting VR through exciting concepts initially draws users in, Oculus is now shifting its focus toward accelerating the maturation of VR games by supporting AAA-level masterpieces. This strategy aims to grow the user base further by creating high-quality content that encourages purchases and usage.
Without Oculus’ support, smaller developers may need to rely on their own resources to produce higher-quality content and gain market recognition. This shift could ultimately drive the evolution of the entire VR market, but it will require patience and perseverance from all stakeholders involved.
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