What's Behind Disney's Surprising Choice for Virtual Reality Content?

By Markets Fool.com

Disney recently signed a multi-year deal to use Nokia 's Ozo cameras to produce 360-degree content for films, marketing materials, and other purposes. Disney previously used the $60,000 Ozo, which is equipped with eight 2K cameras, to produce VR extras for The Jungle Book .

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Nokia's Ozo camera. Image source: Nokia.

Disney's decision to produce 360-degree content could help Facebook and Alphabet's Google, which have both been urging content creators to share more 360-degree content. Facebook recently unveiled Surround 360, an "open source" 360-degree camera design which lets content creators create their own high-end cameras for $30,000. Google developed the Odyssey, a $15,000 16-camera rig, with GoPro last year. Both tech giants consider 360-degree VR videos to be the next big evolution of streaming video, and mainstream awareness could support sales of VR headsets like Facebook's Oculus Rift.

However, Disney's choice to partner with Nokia for multiple years suggests that the Finnish company could be gaining an early advantage in the narrow market for high-end VR cameras. What does this partnership mean for Nokia, and should rivals like GoPro be worried?

What the Ozo means to Nokia
The Ozo represents one of Nokia's baby steps back into the hardware market after selling its handset division to Microsoft in 2014. The camera was developed from an in-house prototype by Ramzi Haidamus, President of Nokia Technologies, a division that was established to collect patent royalties and license new technologies.

Nokia Technologies licensed its brand and design to Foxconn last year to create the N1 tablet, which enabled the company to collect royalties without shouldering the costs of manufacturing and marketing the device. Last year, spokesman Robert Morlino declared in a statement that Nokia might return to smartphones with a similar "brand-licensing model" after its non-compete clause with Microsoft expires at the end of this year.

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Yet the Ozo is unique because it's the only commercial device that is manufactured and marketed by Nokia. Since the total available market for $60,000 VR cameras is likely limited to a small group of professional filmmakers and studios, Nokia can probably handle the manufacturing process with its dramatically downsized hardware operations. However, even Disney-fueled sales of the Ozo are unlikely to move the needle much for Nokia Technologies, which generates the majority of its sales through patent royalties. Sales from the Nokia Technologies unit rose 170% annually last quarter andaccounted for 11% of Nokia's top line.

What Disney's deal means for other camera makers
The market for high-end VR cameras is still a fledgling one, but Disney's partnership with Nokia might convince other major media companies to follow suit if it produces compelling VR videos. If that happens, cheaper solutions like GoPro's Odyssey and Facebook's Surround 360 could become less desirable to major studios while remaining too expensive for mainstream consumers. Moreover, the Ozo's smaller form factor -- which is roughly the size of a cantaloupe -- could be more appealing to filmmakers than GoPro's and Facebook's larger circular rigs.

Facebook's Surround 360 reference design. Image source: Facebook.

This would be bad news for GoPro, which was likely hoping that the upcoming Odyssey could help it clear out some inventory by selling 16 Hero 4 Black cameras at a time. Meanwhile, its six-camera Omni rig, which can be pre-ordered for $5,000, could lose ground to much cheaper products like Ricoh's $350 Theta S and JK Imaging's $500 Kodak PixPro SP360-4K. Simply put, GoPro's VR dreams could crumble as it gets locked out of both the high-end and low-end markets. Other high-end hopefuls like Jaunt could suffer a similar fate.

But let's not get ahead of ourselves
Nokia scored an early victory against GoPro and other VR camera makers by sealing a deal with Disney, but it doesn't guarantee that the Ozo will become the top choice for professional VR filmmaking. Material costs are constantly declining and companies are still innovating, which means that cheaper devices with better video recording capabilities and a smaller form factor than the Ozo could be just around the corner.

The article What's Behind Disney's Surprising Choice for Virtual Reality Content? originally appeared on Fool.com.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Walt Disney. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Facebook, GoPro, and Walt Disney. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.