Hi there! My name is Janko Roettgers, and this is Lowpass. This week: The state of VR, and the never-ending Redbox saga.

When news broke last week that Meta may cut the budget of its Meta Reality Labs unit by as much as 30 percent, followed by reports that the company is delaying the release of future headsets, pundits immediately jumped on this to proclaim that the metaverse, and by extension VR, is dead.

“Meta slashes budget as VR dream implodes,” declared IBT, and Bob O'Donnell from Technalysis Research argued that “VR was never the right choice.”

That discussion got muddied by the fact that both Meta and its critics often use the terms metaverse and VR interchangeably. Reality Labs is widely being described as the company’s metaverse unit, although it now makes AR and AI wearables, VR hardware, and the company’s Horizon Worlds metaverse platform. Ever since rebranding as Meta, the company has also described a wide range of bets on immersive tech as metaverse-related, with Meta CTO Andrew Bosworth insisting this week that the metaverse would eventually play a role in everything from VR, AI, and wearables to even robotics.

Meta’s actual metaverse efforts have been focused on its social VR platform Horizon Worlds, which has long struggled to gain traction. Immersive industry insiders I talked to were hardly surprised that the company may cut back on some Horizon Worlds investments. But the reported severity of those cuts, along with suggestions that the company may stop subsidizing VR hardware, had even those insiders worried, with some wondering what all of this meant for the future of the medium.

Adding to these concerns are real issues facing the VR gaming market. Meta closed VR studio Ready at Dawn last year. Toast Interactive, the studio behind the pioneering VR game Richie’s Plank Experience, laid off most of its staff in February. VR game maker Phaser Lock Interactive shut down a month later. Canada-based Archiact and Sony’s London Studio, which had been building games for PlayStation VR, also closed.

I’ve got good news: VR is alive and well. It’s just very different from what we all had imagined it to be.

The best antidote to VR doomsday scenarios is a look at actual device sales: Publicly available data shows that Meta sold at least 120,000 Quest VR headsets through Amazon.com in November alone, once again outselling every major video game console on the site. Some of that can be attributed to a Black Friday promotion that brought the price of the Quest 3s to $250. However, even selling at its full price of $300, the device currently ranks as the 8th-bestselling video game product on Amazon.com, just two spots behind Nintendo’s Switch 2 and ahead of Sony’s and Microsoft's consoles.

Some VR games are also doing exceedingly well. Casual free-to-play game Gorilla Tag surpassed one million daily active users, and three million monthly active users, in June of 2024. At the time, the game had attracted more than 10 million players total and surpassed $100 million in revenue.

“There has never been a larger audience of VR users, led by gamers playing free-to-play games like Gorilla Tag, Yeeps, Animal Company, Ruffnauts, and UG,” Venture Reality Fund’s Tipatat Chennavasin tells me.

Except, those users don’t really look like the ones device makers like Meta, Google, and Apple imagined. Today’s VR users are not the hip young professionals that have long dominated the industry’s ads, nor are they the affluent early adopters willing to pay $3,500 or more for a high-end headset. “[They’re] mostly Gen Alpha,” Chennavasin says. As in: 15 years old and younger.

Meta games director Chris Pruett confirmed as much in his GDC talk this year, calling teenagers “now the most active cohort of customers on our platform.” Pruett also tacitly acknowledged that the company had been surprised by the huge influx of teens that came along with the Quest 3s. When Meta introduced the device in late 2024, it expected sales patterns to be similar to prior VR headsets, with device activation spikes around launch day, Black Friday, and other shopping events.

That didn’t happen. “We were selling plenty of devices, (but) they weren’t being turned on,” Pruett said. “(When) Christmas rolled around, we saw this gigantic activation spike. Like 6x what we saw on Black Friday.” A telling change, according to Pruett: “That was an indication that the audience had started to shift.” Looking closer at the data and the apps that those new users downloaded, the company realized that many of those devices were given as gifts to teens (or, let’s face it: kids) who didn’t have enough money to buy a headset on their own.

Of course, young teens and kids aren’t really the audience that device makers have been targeting, especially as the industry is moving upmarket with high-end XR devices. There’s no better proof point that this mismatch between tech industry expectations and the reality on the ground than Spatial, a startup best known for VR collaboration tools — the kind of metaverse-for-work environments devices like the Apple Vision Pro, Samsung's Galaxy XR headset, and Meta’s short-lived Quest Pro were made for.

Except, Spatial struggled for years to gain traction. “We pivoted 4 times looking for product market fit,” wrote former team member Jacob Loewenstein earlier this year. “The failure was painful, but we … kept pushing through.” 

Then, the company incubated a VR gaming unit and launched Animal Company on the Quest in 2024, targeting the same users who were also flocking to Gorilla Tag. After all those kids unpacked their Quest 3s last Christmas, Animal Company’s user base quadrupled within three months to reach one million monthly users by March. This week, the Quest store lists it as the second-most popular among the top-selling games on its platform.

That’s not to say there are only kids in VR anymore. Fitness apps for adults continue to see a lot of traction, with both Supernatural and FitXR ranking among the 20-most-sold titles on the Quest store. There also continues to be interest in higher-end VR gaming, as the enthusiastic early reception of Valve’s new Steam headset shows. 

But the medium clearly has its biggest momentum with young users whose appetite for meme games and cheap headsets dwarfs the interest in prestige XR devices selling for $1,800 and up by leaps and bounds.

VR isn’t dead, it’s just dominated by kids now — and device makers that ignore this audience shift do so at their own peril.

Ex-employees of Redbox and Chicken Soup for the Soul Entertainment suffered a court defeat this week when a Delaware bankruptcy court dismissed their lawsuit against their former employer and some of its key officers, including former CEO Bill Rouhanna and his wife Amy Newmark.

The lawsuit had been part of a long legal fight that started shortly after Chicken Soup for the Soul Entertainment filed for bankruptcy in the summer of 2024. In the months prior, the company allegedly failed to pay their health insurance premiums and social security taxes despite withholding those contributions from employee paychecks.

Some of the wronged employees later banded together to file a class action lawsuit and a related suit as part of Chicken Soup for the Soul Entertainment’s bankruptcy proceedings, which are ongoing. 

That lawsuit now got thrown out due to filing deficiencies, with the court finding that the plaintiffs didn’t offer conclusive proof that the accused officers played a “direct or active role” in the alleged wage theft. The employees now have 30 days to refile their lawsuit.

The legal decision is just the latest twist in a long-winding saga that began with Chicken Soup for the Soul Entertainment’s acquisition of Redbox for $375 million in 2022. Soon after the acquisition, Chicken Soup for the Soul Entertainment ran out of money, stopped paying many of its vendors and partners, and even struggled to maintain its own car fleet, at one point telling employees to do their own oil changes to save money.

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Disney strikes massive OpenAI deal. Disney is investing $1 billion in the AI company, and is allowing OpenAI to use some of its characters in the Sora video generation app.

Disney to Google: you’re next. On the heels of its OpenAI deal, Disney sent a cease-and-desist letter to Google, accusing Google’s AI models of copyright infringement on a “massive scale.”

Spotify launches music videos in the US. Paying subscribers can now switch to the video when playing supported tracks. Here’s my story about Spotify’s video ambitions from last week.

YouTube TV is trying to become more affordable. YouTube’s pay TV service will launch 10 genre-specific plans, including a sports plan, in early 2026.

Spotify is embracing more AI. The music service is testing a new feature that lets subscribers generate playlists with prompts in New Zealand.

YouTube TV will soon be the biggest pay TV operator. The internet-based TV service will surpass the subscriber numbers of Comcast and Charter in 2027, according to Omdia.

I had the perfect story to end this newsletter with, but then I forgot. Must be that global memory shortage everyone is talking about …

Thanks for reading, have a great weekend!

And many thanks to Flighty for sponsoring this issue of Lowpass.