Virtual Reality is still trying to get play

Far from launching a “metaverse,” virtual reality has barely touched what should be the easiest market to crack. Are video gamers finally ready to buckle up?

Sony, at least SONY 0.15%, bets they are. The electronics giant, which sells one of the world’s most popular video game consoles, launched the second version of its virtual reality headset late last month. Dubbed the PlayStation VR2, the new device comes more than six years after Sony’s first attempt to bring VR gaming to the masses.

You didn’t connect exactly. Sony said it sold about five million units of the PlayStation VR between its October 2016 launch and the end of 2019. That’s less than 10% of the number of PlayStation consoles the company sold during the same period.

To be fair to Sony, success in VR has been elusive even for larger companies with deeper pockets. Meta Platforms, Facebook’s parent company, saw sales of its Quest VR headsets fall 20% last year to about 7 million units after a pandemic-driven spike, IDC estimates. The company recently slashed the prices of its headsets — including a 33 percent reduction for its pricey Quest Pro mixed-reality device, barely four months after its launch.

It’s a humbling move for a company that’s rebranded itself to focus solely on the Metaverse. Sony, on the other hand, has more modest ambitions — building a new gaming business. And it’s the right company to do it. Sony’s PlayStation has outperformed Microsoft’s Xbox over the past two generations of consoles, giving the company a much larger footprint. Sony generated more than $24 billion in gaming revenue last year, compared to $15.5 billion for Microsoft, despite the latter company’s much larger overall business.

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Still, even an experienced gamer with virtual reality has a tough road ahead. Market research firm Newzoo estimates that VR gaming accounted for just 1% of total global gaming revenue last year. And while reviewers agree that the new PlayStation VR2 is a significant upgrade from the original, it’s also pricey at $549 compared to the original’s $399 introductory price. That’s also $50 more than the price of the PlayStation 5 itself, without which the VR2 headset won’t work.

The need to be tethered to a more powerful computing device remains a necessity for VR headsets aiming to deliver console-quality gaming. But it’s also an inconvenience that limits their appeal. The relatively small installed base of VR headsets in general also makes it less attractive for large game publishers to allocate significant resources to them. Sony has announced 38 games that are expected to launch for the VR2 by the end of March, although most of these will come from small studios or non-established franchises. Analyst Michael Pachter from Wedbush calls VR games a “chicken and egg problem”. “You need software to move hardware, and the economics of software don’t make sense without a large installed base,” he says. “Sony will have to invest heavily in software to move VR units.”

Investing heavily doesn’t guarantee success: Meta’s Reality Labs segment, which includes its VR business, generated a whopping $13.7 billion in operating loss last year. Sony doesn’t have that much cash to blast it. Nor should it, as the company has successfully made smart bets across its media empire — including its decision to sit out the streaming wars. Its long and distinguished history in gaming suggests that Sony is the one most likely to get VR right. Maybe the second time will be the charm.

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Write to Dan Gallagher at [email protected]

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