Defying Reality

by David M. Ewalt

  The first sign that things were changing came from Brendan Iribe, who announced in a blog post on December 13 that he was stepping down as CEO to lead the company’s PC VR group. “As we’ve grown, I really missed the deep, day-to-day involvement in building a brand-new product on the leading edge of technology,” he said. “You do your best work when you love what you’re working on. If that’s not the case, you need to make a change. With this new role, I can dive back into engineering and product development. That’s what gets me up every day, inspired to run to work.”

  Facebook didn’t immediately announce a new CEO, and there was no real reason to believe that Iribe was sidelined because of the Nimble America fiasco. Instead, the change seemed motivated by a desire to restructure the company in order to run separate mobile and PC-based product groups. (On January 26, 2016, Zuckerberg appointed Hugo Barra, a former VP at Google and the Chinese tech company Xiaomi, to run the Oculus division as Facebook’s vice president of virtual reality.) Still, the shake-up didn’t help improve confidence in the company during the holiday season.

  As 2016 came to a close, it became clear that the “Year of VR” had given the technology a somewhat lackluster start. Updated sales estimates from research firm SuperData indicated that the total VR industry shipped 6.3 million devices and earned $1.8 billion in revenue for the year. Low-cost mobile viewers accounted for the bulk of the sales, with the Samsung Gear VR moving 4.5 million units. The midrange PlayStation VR shipped an estimated 750,000 units, less than a third of what SuperData had estimated six months earlier. As expected, the expensive high-end headsets remained largely a niche product, but one surprise was that the Vive was ahead in the market: SuperData estimated that HTC had moved 420,000 units, compared with Oculus at just 240,000. Research firm Canalys was slightly more optimistic, estimating 500,000 Vives sold to 400,000 Rifts, but still, the leader was obvious.

  Life at Oculus didn’t get rosier as 2017 rolled around. On January 9, the US District Court for the Northern District of Texas began a jury trial in the case of ZeniMax Media v. Oculus, the lawsuit alleging that John Carmack had illegally misappropriated trade secrets when he jumped from ZeniMax to Oculus, that Luckey had violated nondisclosure agreements, and that Oculus had exploited ZeniMax intellectual property and then refused to compensate the company.

  The trial lasted eighteen days and featured all the major players in the Oculus saga. Carmack was the first to testify. While he admitted to taking code he had developed from one company to the other, he vehemently denied that he had used it in any way during the development of the Rift or other Oculus products.

  On January 17, Mark Zuckerberg took the stand and echoed Carmack’s testimony. “We are highly confident that Oculus products are built on Oculus technology. The idea that Oculus products are based on someone else’s technology is just wrong,” Zuckerberg said.

  The Facebook CEO’s testimony also revealed some new information about the acquisition of Oculus VR. Initially, Zuckerberg said, Luckey and Iribe wanted $4 billion for the company, but the Facebook team was able to negotiate them down to a $2 billion price tag plus $700 million “in compensation to retain important Oculus team members” and an additional $300 million in incentives—meaning that if Oculus managed to hit those unknown milestones, the final purchase price of the company would have been $3 billion, not the $2 billion initially reported.

  Zuckerberg also testified regarding the company’s admittedly slow sales. “These things end up being more complex than you think up front,” he said. “If anything, we may have to invest even more money to get to the goals we had than we had thought up front . . . I don’t think that good virtual reality is fully there yet. It’s going to take five or ten more years of development before we get to where we all want to go.”

  The following day, Palmer Luckey appeared in public for the first time in months to offer his own testimony to the court. He denied ZeniMax’s claim that he’d violated a nondisclosure agreement, explaining that he’d used their code, with permission, to run programs on his Rift prototypes, but never revealed anything proprietary. “I didn’t take confidential code,” Luckey said. “I ran it and demonstrated it through the headset. It is not true I took the code.”

  On February 1, the trial ended with a mixed verdict for both parties. The Dallas jury ruled that Oculus did not misappropriate trade secrets and that Carmack hadn’t done anything illegal. But it also found that Palmer Luckey—and his entire company, by extension—had violated a nondisclosure agreement and infringed on ZeniMax’s copyrights. As a result, the jury awarded ZeniMax half a billion dollars in damages—$300 million payable from Oculus, $50 million from Luckey, and $150 million from Brendan Iribe.

  Despite the financial penalties, Oculus played off the verdict as a victory—the trial proved, the company said, that the Rift was not based on stolen technology. The company also vowed to appeal the verdict, and legal wrangling was likely to continue for years to follow. But even if the decision never was overturned, Facebook didn’t seem particularly worried about the money. Later that day, the company announced its fourth-quarter financial results, saying revenue had totaled $8.8 billion for the quarter, up 51 percent from a year earlier, and well above Wall Street’s expectations of $8.5 billion.

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  Two months later, on March 30, 2017, Oculus VR announced that Palmer Luckey—inventor of the Rift headset, cofounder of the company, and poster boy for virtual reality—was leaving Facebook and ending his relationship with the business that had been so closely tied to his identity.

  Oculus declined to discuss the reasons for Luckey’s departure but sang his praises in a statement released to the media. “Palmer will be dearly missed,” it said. “Palmer’s legacy extends far beyond Oculus. His inventive spirit helped kickstart the modern VR revolution and helped build an industry. We’re thankful for everything he did for Oculus and VR, and we wish him all the best.”

  Luckey also kept quiet, maintaining the media blackout he’d imposed since October. People familiar with the company said he’d been gently pushed out or encouraged to leave on his own. Certainly all his recent troubles were a factor—loss of credibility from the Nimble America fiasco, and embarrassment and liabilities related to the ZeniMax lawsuit. But it’s also clear that the company was growing out of its wild youth and was expected to become a respectable division of one of the world’s biggest businesses. The future of Oculus VR wasn’t sandals and board shorts, it was oxfords and suits—or at least, Facebook being Facebook, $300 sneakers and designer-made hooded sweat shirts.

  In the months following his departure, Luckey kept a low profile and seemed to focus on enjoying his independence and his considerable wealth. In April, the lifelong beach bum purchased the Huntington Harbour Bay Club, a 165-berth private marina near his Orange County hometown, in a deal that cost him more than $34 million. The corporate entities used to complete the transaction were called Zeal Palace and Fiendlord’s Keep—references to two locations in one of his favorite video games, Chrono Trigger.

  In May, he appeared in public for the first time in months to attend Machi Asobi, an annual convention for die-hard anime fans held in Tokushima, Japan. During a cosplay event, he dressed up as Quiet, an infamously sexy female assassin from the Metal Gear video game franchise. Photos from the event show a smiling, laughing Luckey wearing a tactical harness, torn stockings, and a black vinyl bikini top.

  It looked like he was having fun. But he couldn’t stay away from the VR business for long. In June 2017, Luckey announced that he was investing in Revive, a start-up developing software that would allow Vive users to play otherwise exclusive content from the Oculus Store. He also announced he had founded a new VR company, though he wouldn’t share any specifics—just that it was working on “some very exciting things,” and they would be made for more than the Rift.

  “I shouldn’t be remembered as an Oculus person,” he
said. “Just think of me as a VR person. Sony, HTC, other companies. Everything.”

  Chapter 10

  WE’LL USE THE ORGASMATRON

  Jill the babysitter is walking across the kitchen when she notices someone sitting at the counter. “Oh my god!” she squeaks, clutching at the towel wrapped around her otherwise bare body. “Mr. Johnson! I hope you don’t mind I used the shower.”

  Mr. Johnson doesn’t respond. He is, like the babysitter, a character in an adult video, and the actor who plays him doesn’t have any lines. In fact, the audience will never hear his voice or see his face, even though he does have a big part in the movie. This is virtual reality pornography, and every scene is shot from actor Preston Parker’s point of view. He’s standing behind the camera, and only his forearms, resting on the kitchen counter, are visible in frame.

  The babysitter, played by Jill Kassidy, walks toward him and takes one of his hands. “What’s wrong?” she asks, looking straight into the camera. “Where’s Mrs. Johnson?”

  You can imagine where it goes from there.

  The first real boom in VR was porn, and adult entertainment companies like Naughty America—producer and distributor of Bangin’ the Babysitter—were leading the way. In just eighteen months after it produced its first VR video, the San Diego–based studio released 108 movies, making it the most prolific producer of VR content in the world. When the company operated a large booth at the annual International Consumer Electronics Show in Las Vegas in January 2017, it was the first adult business allowed to exhibit in nineteen years.

  “The response has been incredible,” said Andreas Hronopoulos, CEO and owner of La Touraine, Inc., Naughty America’s parent company. “Our customers have embraced VR. It’s just so intimate, there’s just nothing else like it.”

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  It should have come as no surprise that virtual reality was being used to produce pornography—the appeal of immersive 3-D video is obvious. And anyone who knows technology would have expected adult entertainment companies to be first movers in the nascent VR industry. After adult content helped popularize new media formats like VHS, Blu-ray, and streaming video, the idea that porn drives digital innovation became a widely accepted truth.

  But what was surprising was how fast the VR porn boon happened and how big it had become. By the end of 2016, the new generation of commercially available VR headsets hadn’t even been in stores for a year. In all of 2016, SuperData estimated that market leaders Samsung, HTC, Google, Sony, and Facebook-owned Oculus sold just over 6.1 million units worldwide. Yet even with relatively few headsets on the market, the percentage of owners who watched virtual reality porn must have been huge. Naughty America said its customers downloaded more than 20 million VR videos in December 2016 alone.

  VR porn consumers were also willing to pay to view. Subscriptions to Naughty America’s website grew 55 percent in 2016; customers paid $25 to access unlimited videos (including more than 7,500 traditional two-dimensional movies) for a month, or $74 for a year. And Naughty America said it converted 1 out of every 167 visitors to VR scene preview pages on its website into paying customers, compared to 1 in 1,500 for traditional scenes.

  As a result, the company was making money hand over fist. Naughty America wouldn’t reveal exact numbers, but said that in the eighteen months since releasing its first VR video, overall revenue had increased more than 40 percent; for all of 2016, VR-driven revenue was up 433 percent.

  Naughty America was founded in 2004 as a subsidiary of La Touraine, which owned and operated a handful of adult websites with names like Tonight’s Girlfriend, My Sister’s Hot Friend, and My Friend’s Hot Mom. Though it initially focused on producing adult movies for sale on DVD, Naughty America became the company’s biggest brand after it embraced streaming Internet video.

  “We try to be an innovator, a first adopter,” said CIO Ian Paul. “Virtual reality had been on our radar for a long time, but always as one of those ‘Oh, man, if only we could’ ideas.” It was only after Oculus VR successfully funded its first Rift headset via the 2012 Kickstarter campaign that Naughty America began seriously investigating the technology.

  Since no one had really made VR movies before, the company had to invent a process from scratch. “It took a lot of experimentation, a lot of investment into R&D, and basically just buying all the equipment that was available and figuring it out,” Paul said. “One of the most basic problems we faced was camera placement—we originally had it too high, and it just felt weird.”

  The company’s exact process was proprietary, but like most outfits making VR video, it was based on a relatively simple setup—two digital cameras rigged next to each other in order to capture binocular view of a scene. Postproduction involved combining the two video feeds into a single file that includes a left-eye and a right-eye perspective; when viewed through a VR headset, the images combined and appear to be a single 3-D picture.

  Naughty America released its first VR movie, Birthday Surprise, in July 2015. “We’ve come a long way in a very, very short period,” Paul said. “I think it’s probably the same story for a lot of companies that are in this space. It’s moving fast.”

  While Naughty America might have been producing the most VR content in the industry, it certainly wasn’t the only player in the game. Adult entertainment giant Pornhub (a subsidiary of the Luxembourg-based technology and digital content conglomerate MindGeek) contracted with Rochester, New York–based virtual reality porn production company BaDoinkVR to produce videos for its websites. Smaller players included dedicated VR start-ups like VirtualRealPorn.com, as well as an increasing number of solo performers who offered one-on-one live VR videoconferencing to clients.

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  One of the most enterprising small businesses in the space was run by Ela Darling, an entrepreneur who produced—and starred in—original virtual reality porn for her company VRTube.xxx.

  Darling began her career as a pornographic actress when she was twenty-two, and shot her first virtual reality sex scene six years later, using a makeshift studio inside her college dorm room at the University of Maryland. She started it wearing an R2-D2 swimsuit and knee socks—and finished it naked, self-pleasured, and talking to the camera as if it were a real person watching.

  “I’d seen some VR at school,” she said, “and it was really, really cool, and I knew that it was going to be absolutely kickass for porn. But I don’t come from a tech background myself. I didn’t know how to do it. I figured eventually it’ll be ubiquitous enough. But then I was on Reddit one day, and I saw a guy post about how he really wants to do VR porn and they’ve got all the tech and everything, but they just don’t know how to get performers. So I reached out and we connected and shot, and it was great.”

  Darling was a porn actress, but also worked as a camgirl, a woman who strips her clothes off (or takes things even further) while being recorded on a webcam, for paying customers, who watch live over a streaming video connection. So she was acutely aware of the need not just to perform a sex act but to connect one-on-one with an audience member. Virtual reality offered the opportunity to break through the screen, to make a viewer feel like he was actually in the room with her, to make a real connection—emotionally, if not physically.

  “It’s because of the immersion,” Darling explained. “You really feel like you are immersed in that space. You feel connected there, and you feel like you’re in a room with a pretty girl. I actually just had a big group discussion with several of my VR cam performers this morning, and I asked them, ‘What do you think is the difference between your VR customers and your 2-D customers?’ And they all said that the VR people are a lot nicer. That’s something I’ve observed too, because the way our experience works, when you go to my cam site, you’re in my actual bedroom. You feel like you’re actually present in my home, and when you feel like that, you’re a lot less inclined to be a
jerk.”

  “But what if that sense of immersion leads people to stop seeking out actual human contact?” I asked her. “When I talk to ordinary people about virtual reality, half the time their reaction is, ‘Oh my god, VR, that’s gonna turn everybody into zombies.’ If we can make emotional connections and satisfy physical needs with people in the virtual world, will people stop making the effort in the real world?”

  “I hear that too,” Darling said. “People love to jump to this alarmist argument that people are going to stop wanting to have sex with real people, that they’re not going to leave their house, they’re not even going to try to have a real relationship. First of all, nobody owes the world an effort to mate with somebody else. If I decide that it would be the best experience for me to never actually date anyone and just get fulfilled in whatever ways I need, that’s my decision.

  “But furthermore, this is an argument that’s been made for decades, if not centuries. When cult comics were really popular amongst the youth, adults were certain that they were gonna turn children into barbarians. When television started to be really popular, they thought if you spend too much time in front of a TV, then you’re gonna be a mindless zombie. Then the same with the Internet and with chat rooms. I mean, people talked about how Facebook is going to make it so you don’t have real-life friends anymore, and in fact it supplements your real-life friendships. It gives you connections to people who share more than a geographic location with you.

  “I think VR is going to supplement people’s lives in a similar way. If I’m interested in some sex act, I can experience it in virtual reality before I’m looking down the barrel and worrying ‘I don’t really know how to do this.’ I don’t like to push the idea that it’s porn’s job to teach people how to have sex, but it can definitely allow people to experience a sexual situation in a safe space before they actually engage in it.”