The massive and immediate success of Pokémon Go caught many industry observers on the hop. The smartphone app blends old-school gaming with fairly low-tech augmented reality. Gamers love it as they hunt virtual Pokémon characters in their neighborhood. The phenomenon proves that the right augmented reality (AR) or virtual reality (VR) content can be a hit and generate real revenue.

Pokémon Go launched days before a Media and Entertainment Services Alliance(MESA) Europe event in London this week where my former IHS colleague and VR industry analyst Piers-Harding Rolls presented his verdict: “VR is here to stay.”

“VR is here to stay”

IHS forecasts huge growth in the number of VR devices in consumers’ hands. From four million in 2015, the global install base will reach 17 million by the end of 2016, going on to exceed 50 million by 2020. This market is driven mostly by lower-priced smartphone-based VR adaptors like Samsung’s Gear VR (25% share) and the almost-free Google Cardboard (17% share). Higher-end devices like Facebook’s Oculus Riftand Sony PlayStation VR appeal to gamers.

Google’s Daydream ecosystem also shakes things up as it launches this month, with the promise of disrupting the VR market and establishing more mainstream standards and uptake via Android devices.

Growing Content Market

The market is currently driven by hardware vendors – and gaming is now the big driver of paid-for AR and VR content as Pokémon shows. The market is nascent, but already worth around €500 million in 2016, growing to €1.5 billion next year. VR is also attracting lots of short-form content like movie trailers – and the potential for major live event streaming is round the corner.

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As Pokémon demonstrates, content and IP owners who find the right niche in this fast-growing sector will see huge growth. VR should now be part of any content business’s strategy. To make that possible, VR is now a critical component of content rights and licensing.

VR Meets Rights and Licensing

In fact, VR impacts every aspect of the IP rights and licensing business:

  • To future-proof content as VR becomes more mainstream, it needs to be part of new content creation, acquisition and licensing deals today.
  • VR devices create new platforms and formats for content that need to be part ofwindowing strategy. Should the low-end vs. high-end devices represent different tiers in content license deals? Is VR content on a smartphone covered by existing deals for mobile devices – or is it a completely new category?
  • The close link with entertainment gaming adds rights complexity. Do talent agreements include rights to use likenesses in immersive, VR, interactive formats? Will talent expect a premium level of participations for this new and very different format?
  • Merchandise licensing is impacted as gaming and short-form promotional content dominate VR. This provides new opportunities to grow brands, and license character properties for innovative applications.
  • The technology itself is novel and highly-innovative, already creating technology licensing opportunities around the hardware and software components.

The business models around VR and AR hardware and content remain largely untested, with lots of experimentation going on. It’s still hard to predict exactly where VR is heading – but analysts like Piers are confident that it’s not another “flash in the pan”, and definitely not another 3DTV.

What is certain is that the opportunities in this growing market will be most readily available to those content and IP owners ready and able to license for the new format. That requires the right licensing strategy, the right business processes, and tools sufficiently flexible to adapt and accommodate emerging platforms.