VR leaders won't emerge for another couple years - Climax

2016 was supposed to have been the "Year of VR" - that clearly didn't happen.

Things do appear to be improving in 2017 with virtual reality getting more attention from Sony at this year's E3, Oculus cutting price, and HTC Vive partnering up with notable giants like Google and Apple. The year is half over, but you'd be hard pressed to get anyone to dub 2017 the "Year of VR" this time.

That shouldn't come as a big surprise, however. New industries take time to mature, and developer Climax Studios doesn't believe anyone making VR titles truly fell for the "Year of VR" hype that's been thrown around.

Climax CEO Simon Gardner commented to GamesIndustry.biz recently: "I don't think anyone who was actually building stuff thought 2016 or 2017 would be the year [it takes off]... Certainly ourselves, who've been involved since 2015, we weren't expecting anything yet. We very much were thinking, 'We know the installed bases won't be there. We know the budgets to make AAA software won't be there, that these things will all be growing over the next [few years] - certainly 2018.' That's what we think."

Gardner believes now is the time to get into VR, before the ecosystem begins to mirror the mobile space where a handful of companies dominate the charts.

"We're probably one of the most prolific VR developers," he said. "We've launched 10 different SKUs on various platforms."

Climax has jumped into VR/AR with the full knowledge that revenues won't exactly pad the company's bottom line. It's a trade-off to have a chance at becoming one of the leaders of the space as it matures.

"Unless you've got backing from someone, it's hugely risky," Gardner acknowledged. "So you've got to decide if it's three friends and they put their lives on hold and say, 'We're just going to do this and somehow we'll survive,' you can do that. And you can put products in the market. The barrier to entry is still quite low. If you've got a really cool idea, and you can realize it with a very small number of people who are all prepared to sacrifice - that's the critical thing - and not take a salary and just say, 'Alright, we're going to do this,' then you can do it.

"And you've got to be very realistic about what you can expect the sales to be at the other end of that, because the installed bases are still quite small. So do your research on what you think are likely outcomes of return for that year of your life. It could be like us. We've made a strategic view to say, alright, we'll sacrifice revenue for market position, IP, and knowledge.

"Let's be honest... VR and AR, it is the future, but it's difficult to pay the bills with it at the moment... A lot of people will fall by the wayside"

"So we...missed out on mobile big time because at the start it doesn't make sense. By the time it makes sense, you think you're a little bit behind, and then at the end you go, 'Hold on, to go up against Mobile Strike here I need $100 million and Arnold Schwarzenegger.' And I can't do that. We just can't do that. So we have gone the other way.

"We've been careful to not really take any strategic investment in the company. We're still a privately owned company. It seemed tempting to take a bit of money, but then it was like, we don't need to so let's make our own small bets. But really, we're working with hardware manufacturers. They're funding us to build the software. Some of them are quite, let's call it open, to business models and the way those deals can be structured, which enables us to, after years of exclusivity, to put those IPs, which we then own, onto other devices.

He continued: "So, for us, it's a great position to be in. Historically, we never had any IP because we were work-for-hire. And now we've got seven IPs we own. And we've done that in the space of two years. And that's amazing. It really is. And the opportunities for us to push those IPs out into Asia on all the devices out there and things like that. Suddenly, you're going, like, 'We're empowered to do that. That's our decision. So shall we do it or not?' And those are the sort of things we're looking at now. That really is a new world for us. We are becoming a publisher and realizing quite how lacking in knowledge we are on that side. We've got smart people though. They're learning fast. We'll be making strategic hires for jobs we never thought we would hire."

Climax's bread and butter has always been work-for-hire projects, and obviously given how the return on investment in VR/AR is quite low still, the company isn't about to abandon that crucial part of its business, nor is it about to cease traditional games development.

"Here's the big caveat," Gardner remarked. "We're doing all of these exciting things, we're doing AR titles on Tango. We've launched our first one. Our second one's in development. But alongside that, we still do traditional development. We still do engineering work because, let's be honest, VR and AR, it is the future, but it's difficult to pay the bills with it at the moment... A lot of people will fall by the wayside, but our intention is to keep going the way we are but also to do other work. We've got Surf: World Series and Riftstar Raiders, two multiplatform digital console projects.

"We're also working very closely with Amazon building example code for other developers. So each of their demos was produced by us. That's kind of like hardcore engineering and development work, working with a new technology and producing example code of how they'll be able to use that in the game. We've done things like that before. We've worked with technology companies on things that aren't games but it's very solid engineering stuff. We continue to do that. Games code is very well suited to tackle other kinds of projects. Their ability to optimize and get the best out of things, that's always a very useful skill."

"The biggest risk is because the technology's so new, nothing's staying still long enough to get an installed base"

For a company of Climax's size, Gardner doesn't believe it's wise (or fair to his employees) to take a gamble by jumping into VR/AR whole hog. Other engineering work may not always be hugely illuminating but it keeps the paychecks coming in for staff, and that's hugely important. There are too many stories of mid-size studios collapsing or failing to meet payroll - if the games industry wants to attract the best talent, companies need to operate with business sense.

"If your business model is moonshot - we form a business, we do this, if it fails, we walk away - that's a valid approach and a lot of people can do that. I don't think there's anything wrong with that," Gardner noted. "I think, with Climax's history, the size of it, we're 100 people in Portsmouth. We're 20 people in Auckland in New Zealand. That's not an approach we can take anymore. We're beyond that. We're too mature as a studio to think, 'We're gonna bet the farm and who cares?' We've got an obligation to our staff and the rest of it. That's just not something we're going to do. But also - I think it's interesting - the VR and AR thing has breathed new life into [the industry]. Certainly at our studio we're able to try new and exciting things. The teams are much smaller and their budgets are smaller."

Budgets are still somewhat small but are very quickly growing in the VR space. For mobile VR games, Gardner has witnessed the escalation first-hand. "I think it's fair to say the budget started around a couple hundred thousand dollars. They rapidly went to half a million dollars. We're certainly up in the $2 million [range] now... and I think next year they'll go higher than that," he said.

On the premium high-end PC VR side, of course, things are starting to approach the level of AAA development, which is hard to support given the low installed bases.

"[Those budgets are] certainly more than $5 million. Those AAA games people are looking for, they're going to be a significant investment," Gardner said. "They can't not be. Just to make characters walk on the screen and do things involves 20 people. There's so much. You can't just say, 'Well, we'll have a character walk.' And then when it stops, turns, picks something up, suddenly you get a branching tree of work that has to be done to enable that to happen, from animation to VFX to the actual code in front of you. So it's inescapable."

The other problem at this end of the VR/AR technology curve is that new things start getting developed before the previous tech has a chance to make a real dent in the marketplace.

"The biggest risk is because the technology's so new, nothing's staying still long enough to get an installed base before they're off to a new thing and then the [next] new thing. I'm aware of things coming down the pike that are really exciting but, you think, of course, the installed base is back to zero," Gardner said.

VR has proven very interesting for a lot of developers, but like many other industry veterans, Gardner's more intrigued by AR. "I think [VR] has a particular use and it has a particular place you will use it," he said. "I'm still more excited, in a way, about AR and the possibilities of that. We've done some work on HoloLens. We took one of our other AR products and just put it on the HoloLens just to see, but I find the appeal of AR is just so much more compelling because I think it's going to touch everybody's life."

"We've still probably got a couple years of the 'anyone can win here' and then those companies that do succeed, they'll probably have their IP bought up by bigger companies"

"The critical thing to me is, and I've talked at a couple conferences now, I think it's about friction. If you've got the device on and it's always on, there's no friction. You don't even have to pull your phone out and head up to look at LinkedIn. It's just up there running when you come in. It's a scary future, but you walk in the room, I'm looking at you, it does the facial recognition on LinkedIn. Your LinkedIn profile comes up and tells me when we last met and what we talked about. Maybe a criminal record if I subscribe to that. Who knows? But people without that are going to be at a major disadvantage.

"Of course, the more information you're putting out there, the more problems you've got. If it's always on, always running, you've got to solve the heat dissipation problems and the battery. But they will. It's bound to happen. It's just whether it's three years, five years, or ten years. But I think everyone will want those devices. You won't need a phone. You won't need a computer. You won't need a TV screen, because you can put them anywhere in the world."

In the meantime, while Climax dabbles in AR, it continues to push ahead with self-publishing VR titles. There's almost a Wild West atmosphere in the space at the moment. It's unclear who the winners will be, but there's territory up for grabs. "We've still probably got a couple years of the 'anyone can win here' and then those companies that do succeed, they'll probably have their IP bought up by bigger companies," Gardner said.

"Those leaders will emerge in the VR space. That might be completely new companies that step in and do that, or it might be the existing Activisions and people like that that just go, 'We need to be there. The easiest thing for us to do is just to buy our way in'. It's a valid strategy. There's absolutely nothing wrong with doing that. They've got the money to that that. Maybe that's a sensible thing to do."

At the end of the day, Gardner says his team is driven by the excitement and new possibilities that VR offers. When creative individuals are given a new palette to play around with, it's hard to resist.

"You know what? It's fun. The people who work for us, they're techy people, they're gamers, they like all this stuff. And it's nice to be able to do things that are new," Gardner said. "Certainly with VR and AR, you really are learning new skills. It's not just more of the same but prettier. This is new gameplay. You can look all around yourself. You can shoot in every direction. These are new things that historically we've not done. That is exciting. It kind of motivates people, refreshes them."