Ryan Andal (Secret Location): Solving the Complexities of VR Publishing and Monetization

Editor's Notes

• #3: I’m the Co-Founder and President of Secret Location. When we started the company 10 years ago I was the technical director, I’m a bit of an introvert, definitely more comfortable behind a computer than speaking, really in any form. Just the sheer amount of photoshop work it took to make it look like I’m approaching a smile in this picture is incredible. I unfortunately haven’t touched a line of code in 2 years, so I’ve basically lost all of the skill set of a developer, but kept all of the personality deficiencies, so temper your expectations as there will be...
• #4: None of these things
• #5: Some quick background on my company, Secret Location has over 250 awards and nominations for our work over the last decade, including winning the first Emmy and the first Peabody in VR
• #6: And in 2016 we were acquired by Entertainment One, a global entertainment distributor for film, tv, and music.
• #7: Secret Location itself is about 120 people who work exclusively in the VR industry, with our efforts split between content creation and distribution
• #8: Our content brand creates and invests in original content, as well we have a product division that focuses on building technology products to connect creators with audiences.
• #9: I spend a lot of my time at Secret Location working on the fragmentation problem in VR. To explain that quickly at the advent of every new piece of general purpose technology, there is a stage of fragmentation and eventually...
• #10: Consolidation, and to reference a more mature market this is what it looks like:
• #11: A new technology is created
• #12: Market interest grows, so many companies enter the space and compete in the segment
• #13: Some end up getting bought out by their competitors
• #14: Many die
• #15: And what remains is a consolidated market where a handful of players dominate And this is a sign of market maturity and usually a precursor to...
• #16: Market disruption, but I won’t get into that now because AR is a whole different market and we’d need smoke a ton of weed and watch every season of black mirror if we’re going to have that discussion so let’s get back to virtual reality
• #17: What’s important to remember is that VR is still very much a nascent market and that means we’re still at the very beginnings of understanding what uses it has and the impact of it on our society Let me help put that nascency into context...
• #18: Remember a few years ago when there was all of this hype around another general purpose technology, 3D printing, and how it would revolutionize the manufacturing industry, and it was incredibly exciting so you got your hands on your first printer and began printing something and realized...
• #19: It fucking sucked But the thing is, if we gave up on it then we wouldn’t have biotech companies all over the globe inspired by this technology printing things like...
• #20: Human tissue, with the eventual goal of creating living organs
• #21: Or architectural tech companies using it to print low income housing for developing countries. And none of this is perfect mind you, but it’s a step in the right direction. The companies that can take these kinds of general purpose technologies and survive beyond the hype stage are the ones revolutionizing its capabilities. And I’ll tell you a quick anecdote around this.
• #22: Looking at the nascent film era, in the early 1900s independent movie theatres began cropping up all over the country.
• #23: Theatres like the Nickelodeon rapidly expanded as the consumer appetite for watching films grew. But as they grew in order to bring audiences back to their establishments, theatres needed a consistent pipeline of new films to play on their screens. This was the first major distribution problem the industry faced.
• #24: So in 1904 Warner Brothers created the Duquesne Amusement & Supply Company, the first major “film exchange” to solve this problem, allowing theatres to retrieve a steady pipeline of content.
• #25: This practice of having a distributor focussed on large scale supply still exists today with companies like eOne, however in the last few decades we’ve seen a lot of shift in consumer viewing behaviour.
• #26: We went from a completely out-of-home viewing pattern for film to a migration to at-home, largely individual consumption with DVDs, TVOD, AVOD, and now SVOD which is dominated by players like Netflix, Hulu, and Amazon.
• #27: The gaming industry went through a similar transition in the 1980s, what was once an out-of-home arcade based experience where you went out with friends to the arcade, has migrated to individual and at-home consumption with the development of consoles.
• #28: Then began the growth of brick and mortar distribution entities like GameStop, which have now been destroyed by platforms like Steam and the Playstation and Xbox networks.
• #29: Now with VR we’re repeating a similar pattern, but the problem with all of these industries is an overall lack of transparency in the value chain. So let’s take a look at that value chain:
• #30: So this is the typical content value chain, but let’s break down each of the segments
• #31: You start with an idea, maybe that idea is wholly yours and original, or maybe you’ve negotiated for the rights on some piece of source material
• #32: And after you’ve succesfully captured those rights, you go out and find funding, soft dollars, investor dollars, maybe a studio decides to back your production, no matter where that money comes from, its going to come with rights of some kind. If its an investor they want dollars, if its a studio or publisher, they may want to control distribution
• #33: Then if you’re fortunate enough to lock funding then you have to get it made Now you may be able to do it all yourself, or you may need to go to an external production company that charges a lower service fee in exchange for percentage of revenue. Maybe you also want to bring on some major talent on board for voice over or music, but don’t want to pay millions of dollars up front so you negotiate for royalties Then finally you need to get it distributed, and maybe that’s something you do on your own, or you go to a specialized distributor to do that work for you, and they negotiate different exclusive territories (North America, Europe, Asia) and exclusive windows (1st year, 2nd year, 3rd year) for different markets (Theatrical, AVOD, SVOD, TVOD, Broadcast) for your content so that you can maximize the value of what you’ve created, so when you finally reach a consumer that’s willing to pay for your content, when that money comes back each party along that chain will need to ensure that the content is: Protected, tracked, and audited, and each party does that individually for their slice of the pie.
• #34: Then finally you need to get it distributed, and maybe that’s something you do on your own, or you go to a distributor like us to do that work for you, and they negotiate different exclusive territories (North America, Europe, Asia) and exclusive windows (1st year, 2nd year, 3rd year) for different markets (Theatrical, AVOD, SVOD, TVOD, Broadcast) for your content so that you can maximize the value of what you’ve created.
• #35: So when you finally reach a consumer that’s willing to pay for your content, when that money comes back, each party along that chain will need to ensure that the content is: Protected, tracked, and audited, and each party does that individually for their slice of the pie.
• #36: In a world where the kind of content can be different and the method of consumption can change, this value chain is still consistent in film, television, gaming, music, and now virtual reality.
• #37: But the birth of this new medium is our opportunity to start in the right direction so that we don’t repeat the same mistakes by looking at the pieces of the value chain as isolated entities. We start by tying everything in that value chain together from ideation to consumption.
• #38: Now before I get into our solution specifically I’d like to talk about the current state of VR, because we’re at a very interesting inflection point in the industry. Its a very fragmented industry. And that fragmentation outlines how different the market segments actually are.
• #39: At home entry and premium Out of home entry and premium And this is what an extremely fragmented market looks like
• #40: 360 Video, Interactive Narrative, Casual Games Single-Player Games, Multi-Player Games Multi-Player Games, Multi-Player Narrative, Motion-Tracked 360 Video Multi-Player Games, Multi-Player Narrative So this is really outlining the different kinds of experiences that need to be tracked
• #41: At home - entry - largely free content At-home premium range from $10-$50 Out of home $5 - $15 per ticket or 25 - 60 per hour Out of home premium 25 - $50 per ticket Here we see a variance in pricing structure which means a variance in business model
• #42: Sponsorship, AVOD, Transactional Purchase Transactional Purchase, In-Game Ads, In-Game Purchase Per Minute ($0.03 - $0.12), Per Month (2X - 5X Steam price), Percentage of ticket (5% - 30%) Packaged as turn key solution Percentage of ticket (5% - 10%) Each segment of the marketplace makes money in different ways which means different methods of tracking those dollars
• #43: And when you look at the major distribution platforms on the at-home side, these are massive companies with open submissions portals, but that doesn’t exist on the out-of-home side We believe this represents a big opportunity in the LBVR space, and in the out-of-home entertainment space in general
• #44: When Valve created Counter-Strike, it was to help solve an internal problem. Every time they would create a patch for their massively popular game it would disconnect their user base from being able to play the game for several days. Building Steam solved this problem for them internally and subsequently ushered a new model for at-home PC game distribution for many other creators in the industry. They understood the issues and the effective disconnect between creator and audience for the at-home consumption of gaming content.
• #45: This overall paradigm shift effectively destroyed companies like GameStop that pushed a retail model around a digital commodity.
• #46: A similar pattern for what happened with Netflix and Blockbuster. Different business models overall but fundamentally solving a distribution problem.
• #47: We as an industry haven’t solved this problem for out-of-home location based entertainment. We didn’t solve it for film, we didn’t solve it for arcades, and we’re repeating that mistake again with the VR out-of-home entertainment space. And arguably its because the out-of-home entertainment space is much more complicated than the at-home entertainment space because it means understanding the unique business models of each of these locations and accommodating them. It also requires a fundamental technological shift for individual and large scale business that run locations, and its a monolithic and archaic industry that doesn’t adapt to new technology well, going to IAPPA and seeing...
• #48: This really highlighted that for me
• #49: So looking again at the value chain I’ll walk you through our own experience and tell you about what we’re going to be doing differently
• #50: We spent some of our own dollars creating a proof of concept for BOTU, then began looking for financing for the property. We locked financing for it, which came with rights obligations including rev share and audit and reporting obligations. Then we released it non-exclusive on Steam, at the time in the industry it was a good idea, but I would definitely not recommend your first point of distribution being within a non-exclusive window, as it devalues your ability to license to the locations that matter pretty much immediately.
• #51: Then we began licensing the title to locations, which literally requires calling up each location, talking to them about your game, sending them keys, getting them to play it, negotiating a price, structuring a licensing agreement with terms and obligations for payment and then finally delivering the build. Now we have a division of the company that can do all of this work for us, and we’ve structured and refined processes in order to be able to do this, but majority of indie creators and frankly majority of larger companies that aren’t well versed in the space don’t have the resources or don’t want to spend the money to do all this work.
• #52: Then we worked with a third party company to version it for Playstation which again came with rev share obligations for the skew as well as audit and reporting obligations.
• #53: Now while we initially did all of this work manually, the goal of what we were doing was to eventually move away from having to do any of this manually, and the idea for how to solve that problem came about in an interesting way.
• #54: Every quarter as a company we have a hack week, where we set up a theme or goal and break out into different teams and give ourselves a week to concept, build and showcase our ideas.
• #55: So my team decided to build a rights management tool using blockchain and etherium’s smart contracts in order to accomplish this
• #56: In case these are foreign terms: Blockchain is basically a public ledger where basic transactions are validated by third party miners And smart contracts allow us to create complex transactions to programatically apply business rules or legal agreements.
• #57: And in just 5 days, we showcased our product to the company, and...
• #58: it failed spectacularly, and unfortunately I’m not good enough to bullshit my way out of a failed demo So we ended up losing to a game concept that was actually really good. I’ll show you the teaser they made for it...
• #59: (show video for robutts)
• #60: Anyway we never gave up on the idea and continued to build it in tandem with our manual distribution work. And the more we built it and thought about it, the more we saw how we could tie it into he overall value chain, not just distribution.
• #61: So what we’ve built now and with a select number of our content partners be publicly releasing in the summer we call Vusr Spark
• #62: Its an SDK that you can wrap around your content experience so handle the management of rights from ideation to consumption.
• #63: Initially it will: manage several kinds of rights including financial (who owns what rights to what revenue, and allocate that revenue) playback (who owns what rights to play the content, based on territory, window, and market category) Track all usage And protect the content against those who don’t own rights to it or who’s rights have expired Similar to the ecosystem of tools that exist around platforms app platforms like iOS and Android, opening up the value chain like this has a lot of other major benefits outside of just this initial use case... With a more transparent value chain you can tie into or build
• #64: An Auction Platform
• #65: A Crowdsource Funding Platform
• #66: Transact on cryptocurrency (removing the loss of dollars in transfer from entity to entity)
• #67: I’ll leave you with one final thought
• #68: I had a conversation with Charlie Fink, a brilliant tech writer for Forbes and all around great guy, who recently mentioned us in one of his articles, thank you by the way Charlie. After my last talk at VRLA he came up to me and asked, so where’s this all going, are you competing with Springboard? And I answered, “kinda”, which is the stupidest fucking answer I could’ve given, again, developer, so I’m not great off the cuff like that. Honestly if any of you ever book time with me to have a meeting
• #69: Here are my contact details by the way and you want me to walk you through our entire business plan, just put me in front of a whiteboard and I’ll do it, because quite frankly I don’t care about having any secrets, which likely officially makes me the worst executive at any company. But the truth is, we all have to do a bit of everything at this early stage of market, but I learned very early on in my career when I dissolved my first business partnership to strike out on my own, you can’t do everything by yourself really well. And my hope is to add value in the areas where we are strongest and partner with others in the areas where we are not. I’m not a creative guy, but if I’ve learned anything from my last decade of creating content, its that
• #70: great content can be a very powerful thing And if we can build tools to decrease the barriers connecting creators to audiences then we can enable the next generation of creators to have that power And in an upcoming era of automation and mass joblessness, in an era where too much power is concentrated in too few entities, blockchain has the power to democratize the friction across this value chain, To enable that young generation of creators in the way that Kickstarter did for funding Flash (Rest in peace) and Unity did for Production Steam, the AppStore, or Youtube did for distribution In order for them to reach an audience It can help us tie the individual pieces of the value chain together so that thoe pieces can focus on what they do best, instead of centralizing power on an individual platform. Thank you
• #71: And in an upcoming era of automation and mass joblessness, in an era where too much power is concentrated in too few entities,
• #72: blockchain has the power to democratize the friction across this value chain, To enable that young generation of creators in the way that Kickstarter did for funding Flash (Rest in peace) and Unity did for Production Steam, the AppStore, or Youtube did for distribution In order for them to reach an audience It can help us tie the individual pieces of the value chain together so that thoe pieces can focus on what they do best, instead of centralizing power on an individual platform. Thank you
• #73: To enable that young generation of creators in the way that...
• #74: Kickstarter, indiegogo, and patreon did for funding
• #75: Flash (Rest in peace) and Unity did for Production
• #76: Steam, the AppStore, or Youtube did for distribution In order for them to reach an audience It can help us tie the individual pieces of the value chain together so that thoe pieces can focus on what they do best, instead of centralizing power on an individual platform. Thank you
• #77: Steam, the AppStore, or Youtube did for distribution
• #78: In order for them to reach an audience It can help us tie the individual pieces of the value chain together so that those pieces can focus on what they do best, instead of centralizing power on an individual platform
• #79: Thank you