China’s VR push is about content

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China’s VR push is about content

Hip-hop dancers, military marchers and daredevils in winged suits are bringing China’s Internet titans into the world of virtual reality (VR).

These video stars have joined Korean pop idols and animated fireflies as central players in a $1.1 billion global VR spending spree that’s being fueled by Alibaba Group Holding, Tencent Holdings and Baidu.

The three Web giants are using their money to employ a different perspective on the virtual-reality business than their overseas competitors. Instead of building headsets like Sony, Facebook and HTC, the Chinese companies are positioning themselves as middlemen: seeding dozens of startups and opening their platforms to developers of content and hardware while they wait for a dominant headset to emerge.

“All three of these companies want to focus on creating platform and content,” said Ricky Lin, a Beijing-based analyst at IResearch. “The issue facing China’s VR industry at this point is that it lacks core technology, so they need to hedge their bets.”

The gambit means to capitalize on a domestic VR market expected to grow by 36 times in the next four years to 55 billion yuan ($8.5 billion).

The spending comes as President Xi Jinping tries to bolster the slowing economy through innovation and reducing its dependence on heavy industry. The country began a campaign to support entrepreneurship in 2014 and since has opened 1,600 high-tech incubators for start-ups.

At least 200 start-ups are working in China’s virtual-reality industry, according to iQiyi.com, a Baidu unit. Venture-capital investments in China surged about 50 percent to $12.2 billion in the first quarter, according to London consultancy Preqin.

In that same period, about $1.1 billion was invested in the VR industry, according to California-based Digi-Capital.

“A lot of people think that this industry will mature fast with the push of capital and media,” said Duan Youqiao, who oversees iQiyi’s initiative. “The VR industry right now is like when we were still living in the ages when horses pulled carriages.”

Baidu, Alibaba and Tencent - often referred to collectively as BAT - have a combined market capitalization larger than Israel’s gross domestic product, and they serve 688 million Internet users in China alone.

China’s VR market is expected to reach 55 billion yuan in value by 2020 from 1.5 billion yuan last year, according to Guangzhou-based researcher iiMedia.

The segment with the most initial promise is online video, since about 504 million Chinese regularly use streaming sites, according to government figures. Immersive video and game applications could be the first VR industry to mature, according to China’s Ministry of Industry and Information Technology.

About 6.3 million VR headsets will be shipped worldwide this year, with 40 percent of them going to China, Canalys said May 12. Sony’s PlayStation VR, Facebook’s Oculus Rift and HTC’s Vive will range from about $400 to $800.

“There isn’t a clear leader for VR content in China,” said Jason Low, a Shanghai-based analyst with Canalys. “Local content providers, game publishers and service providers are racing to exercise their influence on the development of VR beyond hardware.”

Beijing-based iQiyi.com is working with more than 300 partners, including listed Beijing Baofeng Technology and Le Holdings (Beijing), on content and hardware. Its streaming app offers VR videos of a woman dancing to hip-hop, military jets streaming overhead, whitewater rafting and a wingsuit flyer jumping off a cliff.

IQiyi plans to build the world’s largest Chinese-language VR service, and a key element is a new app suite that makes its movie and game offerings compatible with any head-mounted devices, it announced May 5.

“VR will become iQiyi’s main business - not a sideline business,” Duan said.

IQiyi is also experimenting with streaming live concerts and producing VR films such as “Iron Fists of the Despicable,” Duan said. Films and TV shows could become more like games in the future, with storylines changing based on user preferences, he said.

The owner of China’s largest search engine also started an artificial intelligence project in April called the “Baidu Verne Plan” after writer Jules Verne. It is led by Baidu’s chief scientist, Andrew Ng, and Chinese science fiction novelist Liu Cixin, author of “The Three-Body Problem,” a Hugo Award-winning book featuring virtual reality.

Alibaba, China’s biggest e-commerce company, is developing VR-related shopping experiences for its 400 million users. The online emporium created 3-D renderings for hundreds of products and will issue standards for merchants to create their own VR-enabled shopping options.

While discussing VR technology at a Beijing forum in March with Mark Zuckerberg, Jack Ma said, “I think about how I can help women and girls shop easier on my site, so they can buy things quicker, easier and nicer. And how can we use VR technology to help sellers to sell their products.”

Virtual reality will comprise about 40 percent of all entertainment content when the industry matures, Alibaba said in a research report without giving a timeframe. Bloomberg

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