This document provides an overview of virtual reality (VR) and augmented reality (AR), including their definitions and histories. It discusses how VR began in the 1960s and progressed through early prototypes in the 1970s-1990s. The modern era of VR began around 2011 with efforts by Valve, Oculus, and others. The document outlines the growing VR market potential in areas like gaming, film, education and more. Industry projections show rapid growth in VR users, revenues, and category spending over the next few years. It also maps the current VR landscape including studios, capture methods, engines/tools, distribution platforms, hardware types, input methods, and business models.

1. Virtual Reality
Introduction & Market Overview
by Brian Radmin ©BDMI, Nov 2015 1

2. Virtual Reality
(VR)
Experience that simulates
immersive physical presence
in a real or imagined
environment.
What is Virtual Reality?
Augmented Reality
(AR)
Experience that supplements
the view of a live, physical
environment with
digital assets.
©BDMI, Nov 2015 2

3. Beginnings of VR
1962!
1966!
1968!
1977!
1982!
1990!
1994!
Morton Heilig created
the Sensorama, a 3D
display, vibrating seat,
and scent producer.
Ivan Sutherland created
the Sword of Damocles,
widely considered to be
the first VR headset.
Atari Sunnyvale
Research Laboratory,
led by Alan Kay,
founded to explore VR.
Sega introduced
the Sega VR-1, a
head-tracking VR
device.
Thomas A. Furness III
introduced Super Cockpit,
a visual flight simulator for
the Air Force.
Jonathan Waldern founded
Virtuality, a company in the
UK that produced arcade
headsets.
MIT created the Aspen
Movie Map, a hypermedia
experience that allowed
users to take a virtual tour.
©BDMI, Nov 2015 3

4. Modern Era of VR
QUARTER1!
2011!
OCTOBER!
2012!
JUNE!
2014!
MARCH!
2014!
QUARTER1!
2016E!
QUARTER1!
2016E!
!
2016E!
Valve launches VR effort
to create headset with
truly immersive presence.
Oculus crowdfunds
$2.4M, promises a $300
VR development headset.
Facebook
acquires Oculus
for reported $2B.
Google releases
Cardboard, a do-it-
yourself VR headset.
Valve and HTC
plan to release
Vive VR headset.
Oculus plans to
release consumer
Rift VR headset.
Sony plans to release
PlayStation VR
headset for PS4.
P
R
E
S
E
N
T
©BDMI, Nov 2015 4

5. The Right Time for VR
$0
$5
$10
$15
$20
2011 2012 2013 2014
Billions
-
75
150
225
300
2008 2010 2012 2014
More content is
being created.
Hours of Video Uploaded Every Minute on YouTube
Democratized content
CREATION
Widely affordable
DISTRIBUTION
Devices available for
CONSUMPTION
$0
$350
$700
$1,050
$1,400
2000 2005 2010 2015
-
1
2
3
4
2000 2005 2010 2015
Billions
-
0.50
1.00
1.50
2.00
2006 2009 2012 2015
Billions
$0
$2
$4
$6
$8
2000 2007 2014
More money is available
for creating.
Crowdfunding Investments
More people can afford
cheaper bandwidth.
Bandwidth Cost
(per 1000 Mbps)
More people have
access to the internet.
Internet Penetration
More people can afford
computing devices.
Computing Cost
(per 1M transistors)
More people have
smartphones.
Smartphone Penetration
Hours
Sources: eMarketer (Mobile User Forecast), Deloitte University Press (Exponential Technologies to Exponential Innovation), Crowdsourcing (Crowdfunding Industry Report)
©BDMI, Nov 2015 5

6. The Right Time for VR
New technologies are generally being adopted faster.
0 5 10 15 20 25
Virtual Reality
Tablet
Smartphone
Internet
PC
Television
Telephone
?
(1876)
(1938)
(1990)
(2005)
(2010)
(1975)
(2015)
Years
Years from consumer availability to 10% penetration in US
Sources: Technology Review (US Technology Adoption Rates), The World Bank (Internet Users), Asympco (Smartphone Penetration)
©BDMI, Nov 2015 6

7. GAMES
ADVERTISING
FILM
“Working on game
development, we always try
to create a new kind of
experience, and having VR
technology is almost unfair.”
Shuhei Yoshia
President of Sony PS Studios
“We’re right on the cusp of a
major upheaval of the
entertainment world once [VR]
technology really kicks in.”
Peter Jackson
Director of Lord of the Rings Trilogy
“[VR] is a percepCon changer
for any adverCser that wants
to associate with a new
fronCer in media.”
Mitch Gelman
VP of Product for Gannet Digital
SOCIAL
“[VR] has the potenCal to
be the most social plaEorm
ever. Immersive, virtual and
augmented reality will be
part of people’s daily lives.”
Mark Zuckerberg
CEO of Facebook
Disruptive Potential of VR
EDUCATION
“[VR] is going to be really
important for educaCon.
Because kids don’t learn best
from reading a book or looking
at a chalk board.”
Palmer Luckey
Creator of the Oculus RiO
MUSIC
“I can only do so many
concerts. So to be able to have
more people experience
them through VR…
that would be epic.”
Miley Cyrus
Singer / Songwriter
©BDMI, Nov 2015 7

8. Industry Players React to VR
PLATFORMS
purchased Oculus, VR
headset producer, for
reported $2B
created Cardboard (VR
headset) and Jump (rig and
software for VR video)
developing the HoloLens
(AR headset)
HARDWARE
developing the PlayStation
VR (VR headset for PS4)
developed the Samsung
Gear VR (a mobile VR
headset)
developing the Vive (VR
headset) in collaboration
with Steam
MEDIA
developing two original
video series in VR
produced the VR
documentary film
Millions March
created VR experiences
for the 40th Anniversary
SNL Special
BRANDS
launched a campaign for
Google Cardboard with a
VR app
developed VR
experiences to tour
tropical destinations
created a VR walk-
through of their distillery
©BDMI, Nov 2015 8

9. Games
Hardware
Film
Theme Park
Other
Projected VR Market
0
20
40
60
80
100
2016E 2017E 2018E 2019E 2020E
Millions
console / PC mobile
VR Headset Sales
VR Hardware Revenues VR Software Revenues
VR Revenues by Category
$30B
2020E
nearly $7B cumulative over next 3 years more than $6.5B cumulative over next 3 years
over 200M users with headsets by 2020 $30B in projected revenue in 2020
$0
$1
$2
$3
2016E 2017E 2018E
Billions
$0
$1
$2
$3
2016E 2017E 2018E
Billions
Sources: KZero (Consumer Virtual Reality Report), Piper Jaffray (Next Mega Tech Theme is Virtual Reality), Digi-Capital (Augmented / Virtual Reality Report)
©BDMI, Nov 2015 9

10. Games
Hardware
Film
Theme Park
Other
Projected VR Market
0
20
40
60
80
100
2016E 2017E 2018E 2019E 2020E
Millions
console / PC mobile
VR Headset Sales
VR Hardware Revenues VR Software Revenues
VR Revenues by Category
$30B
2020E
more than $8B cumulative over 4 years more than $7.5B cumulative over 4 years
over 200M users with headsets by 2020 $30B in projected revenue in 2020
Sources: KZero (Consumer Virtual Reality Report), Piper Jaffray (Next Mega Tech Theme is Virtual Reality), Digi-Capital (Augmented / Virtual Reality Report)
$0
$1
$2
$3
2015E 2016E 2017E 2018E
Billions
$0
$1
$2
$3
2015E 2016E 2017E 2018E
Billions
©BDMI, Nov 2015 10

11. Landscape of VR
©BDMI, Nov 2015 11

12. VR Studios
Jurassic World
FILM | COMPUTER-GENERATED
Interact with an Apatosaurus up close and
personal in this companion experience.
Watch Sir Paul McCartney in concert performing
Live and Let Die in a cinematic VR experience.
Paul McCartney
MUSIC | LIVE-ACTION
Volvo Reality
ADVERTISING | BLENDED
Test drive the Volvo XC90 in a
beautiful journey through Vancouver.
©BDMI, Nov 2015 12

13. VR Capture
360 Degree
Stereoscopic
3D Lightfield
Multiple cameras are carefully angled
to form a rig that captures 360° video.
Two cameras are placed at each viewpoint and
slightly angled, capturing different video for
each eye that allows viewers to infer depth.
Lenses capture the intensity and direction of light
in a scene, creating a map of the environment
that lets users look around with 6° of freedom.
©BDMI, Nov 2015 13

14. VR Process & Engines
Editing &
Stitching
CompressionEngines
Software to edit videos and stitch
together footage from multiple cameras.
Frameworks for the creation of
computer-generated imagery (CGI),
game development, and animation.
Technology that reduces file sizes.
Particularly pertinent for VR, where video
sizes can reach up to 1 TB / hour footage.
©BDMI, Nov 2015 14

15. VR Distribute
Closed Open
Companies in the distribution space provide platforms
where users can access (stream or download)
content. In regards to being closed / open, they can
be evaluated across three dimensions:
Only available on specific
devices.
Available on many devices, but only
provide specific or curated pieces of
content, and can be fee-based.
Available on many devices
for free, and allow open
uploading of content.
Hardware – can be a closed ecosystem tied to a
specific headset (‘walled garden’) or hardware-agnostic.
Content – can provide premium content (‘Netflix of VR’) or
be open to any user-generated content (‘YouTube of VR’).
Price – can be fee-based (e.g., pay-per-download,
subscription) or free for consumers.
©BDMI, Nov 2015 15

16. VR Display
Mobile Low-End – Best for first, introductory VR experiences
and quick demonstrations.
§ Pros – least expensive, portable, only requires smartphone
§ Cons – basic tracking, limited input (i.e., button)
Mobile High-End – Best for casual consumption and viewing
short-form content.
§ Pros – input included, moderate tracking ability, portable, only requires
smartphone
§ Cons – limited computing power, basic input, can require specific
smartphone
PC / Console – Best for early adopters and hardcore gaming
enthusiasts.
§ Pros – best tracking, most computing power, best content
§ Cons – most expensive, not very portable, requires external computer
Mobile Low-End Mobile High-End PC / Console
Name Google Cardboard Wearality MergeVR Samsung Gear VR Oculus Rift PlayStation VR
Price ~$20-30 ~$69 ~$129 $200 $350-450 $300-400
Display requires smartphone
requires
smartphone
requires
smartphone
requires Samsung
S6 or Note 4
integrated integrated
Computing requires smartphone
requires
smartphone
requires
smartphone
requires Samsung
S6 or Note 4
requires gaming PC
(~$1000)
requires PS4
($399)
Tracking requires smartphone
requires
smartphone
requires smartphone /
integrated
integrated integrated integrated
Input button on headset not included included touchpad on headset included included
©BDMI, Nov 2015 16

17. VR Input / Output
Hands
HapticFeet
Input that uses hands to interact
with VR environments.
Leap Motion
$80
camera
Nod Backspin
$149
controller
Virtuix Omni
$599
treadmill
KOR-FX
$150
vest
Tactical Haptics
$160
hand controller
Perception Neuron
$200
glove w/sensors
Input that uses feet to move
within VR environments.
Stompz
$150
foot strap w/sensors
Output that recreates the sense of touch
by applying motions, forces, or vibrations.
©BDMI, Nov 2015 17

18. VR Business Models
Integrated
The modern era of VR is still in its infancy. A majority of companies in the space are pre-product / pre-revenue, and are frequently
pivoting and repositioning. This state of flux guarantees that new business models will continue to emerge in the future.
The studio model
includes companies
that create VR
content. Some
produce their own IP,
while others work
primarily as
contractors.
The hardware model
includes companies
that produce physical
consumer goods for
VR. They can make
cameras, headsets,
and input / output
devices.
The middleware
model includes
companies that
develop software and
technology for the
creation and
distribution of VR.
The aggregate model
includes companies
that distribute VR
content. They can
take the form of apps,
app stores, and web
destinations.
The integrated model includes companies that operate two or more of the business models shown above.
Pros:
§ many want to create VR
but lack expertise (in
high demand)
Cons:
§ not very scalable
§ relatively low barrier to
entry
Pros:
§ potential for defensible
technology
§ large potential market
Cons:
§ capital intensive
§ many competitors
§ manufacturing risk
§ research & development
risk
Pros:
§ very scalable
§ potential for defensible,
differentiated offering
§ ‘picks and shovels’
approach
Cons:
§ research & development
risk
§ difficult to predict the
needs of content creators
Pros:
§ large potential market
§ very scalable
§ control relationship with
end-consumer
Cons:
§ difficult to differentiate
§ dependent on content
creators
§ threat of winner-take-all
market
Pros: Cons:
§ diversified business
§ many competitors
§ potentially unfocused
§ control more of the user experience and ecosystem § extremely capital intensive
©BDMI, Nov 2015 18

19. Augmented Reality could be $120B business in 2020
$0 $20 $40 $60 $80 $100 $120
AR
VR
Billions
Hardware Commerce Data Voice Film/TV Enterprise Adspend Consumer Games Theme Park
Projected AR Market
AR vs VR Revenue
(2020E)
AR is expected to dwarf the VR market by 4x in 5 years. The wholly immersive nature of VR limits
its usage to seated or physically closed experiences (to prevent users from bumping into things),
making it primarily suitable for gaming and video consumption. AR, however, allows users to
interact within real-world environments. This functionality expands AR’s applicable reach to
many other verticals, giving it the potential to disrupt the smartphone / tablet industries.
Source: Digi-Capital (Augmented / Virtual Reality Report)
©BDMI, Nov 2015 19