Metaverse Observations from the Movies

“We can’t cross a bridge until we come to it; but I always like to lay down a pontoon ahead of time.” — Bernard M. Baruch

Dear Readers,

We will start this week’s newsletter by taking a trip to the movies. Georges Méliès, the French visionary born in 1861 who produced more than 500 films and revolutionized the nascent film industry, is perhaps best known for his short film A Trip to the Moon. Inspired by Jules Vernes novels, this 1902 movie centers on a group of astronomers who travel to the moon via a cannon-propelled capsule and return to Earth with a captured lunar inhabitant. At a time that preceded even the Ford Model T, and alas SpaceX as well, the idea of travelling to the moon lay entirely within the realm of science fiction and was the stuff of wild dreams only. Thanks to Méliès’ genius and his technical wizardry, this film left a deep impression on its audiences, as they were introduced, for the very first time through cinema, to fantasy, and hence to the power of a film to transport its viewer to an alternative world.

Fast-forwarding 120 years, the past couple weeks have seen the wide theatrical release of Belle, Japanese director Mamoru Hosoda’s animated film inspired by the Beauty and the Beast fairy tale. Belle tells a beautiful story about Suzu, a teenager who was turned away from her passion for singing after her mother died while rescuing a child. Suzu is also an introverted, asocial teenager but everything changes when she enters “U,” a virtual world accessible through her phone. Freed from the baggage of real life, she shines, rekindles her love with singing, and becomes a superstar singer and performer. Thanks to “U,” she transcends her self-imposed limits, surpasses her fears, and frees herself from the burdens that weighed her down in the real world to become the best version of herself and realize her full potential.‍

This movie is noteworthy for showing the virtual world in a positive light. Such a feat is very rare in a movie industry that almost exclusively portrays all major technological innovations, such as artificial intelligence, robotics, or social media, in a negative light, to such an extent that many of these themes even form the basis of some horror movies. Belle is therefore quite refreshing in showing the good that can result from virtual reality, avatars, and people’s ability to showcase their sometimes hidden facets through their virtual identities.

In interviews, Mr. Hosoda indicated he only heard about the Metaverse after his film came out, which is credible since it premiered at the Cannes movie festival last July, before Meta’s big announcement and talk around the Metaverse exploded. As he sagely explains, “Us grownups see the internet and we think, ‘This is reality, and that’s not reality,’ but for young people it’s more: ‘This is the real world and that’s another world.’ It’s just as real and just as valuable.”

Financial Markets: Updated Format

We are excited to introduce an updated format for our financial markets section that incorporates some of the feedback we’ve received. Instead of recapitulating global indices as we were doing until now, we will begin to feature individual listed companies that we believe could play a role in the Metaverse, be it by developing it, by hosting it, or by creating the microprocessors necessary to power it.

You can check out this section on our website directly, and receive the regular updates by subscribing to our newsletter!

Privacy and Security: Menace and Opportunity

We could not have foreseen when we introduced the topic of security and privacy in the Metaverse at the end of our last newsletter that it would since jump to the forefront of the news with Meta’s release of Personal Boundary. Following several reports of virtual sexual harassment, Meta unveiled last Friday a new feature that creates the virtual equivalent of a four-feet ‘safety bubble’ around avatars in its Horizon Worlds and Horizon Venues platforms. Virtual sexual harassment, however, is only the tip of the iceberg when it comes to the potential for privacy and security issues to impact the Metaverse and people’s willingness to dive inside of it en masse.

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In order to gather further information on this topic, we attended a very informative webinar last week hosted by New York City-based ClearOPS, the privacy technology company, which aimed to initiate the all-important conversation on the matter. Co-hosted by ClearOPS CEO Caroline McCaffery and Filament CEO Allison Clift-Jennings, both experts in cyber security and privacy questions, the thought-provoking event addressed and introduced various subjects, ranging from technical to philosophical ones. Indeed, in a major evolution since the ancient Greek philosophers debated identity, the Metaverse will allow individuals to create entirely new identities for themselves in a way that goes much beyond what has been possible on social media until now.

While this new opportunity for self-expression and personal agency will be unlimited, it will be associated with many dangers as well. Even though it will be a freeing concept for some with positive effects on an individual level, such as explored in the Belle movie, it will also allow others to exploit the possibility to create entirely digital, hyper-realistic identities for the worse. While such problems exist in social media already, the probability for successful impersonation and manipulation of trust-based relationships is likely to be greater in a virtual world. Our brains will have a much more difficult time distinguishing between authentic and misleading, real and fake, and honest and fraudulent in an immersive experience that is designed for it to interpret as being real.

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Moreover, because digital currencies will be deeply intertwined with the Metaverse because we are economical beings after all, there will be serious financial incentives for harmful behavior to become an integral part of it. It is crucial, therefore, for the future ability of the Metaverse to revolutionize our lives, that security and privacy are not relegated to the background, only to be discussed when harassment and theft make headlines. Dealing with these matters head-on is necessary to convince the world of the positive attributes of the virtual world. Luckily, we are very early in the development of the Metaverse, so there is still plenty of time to incorporate privacy, security, and governance matters in its foundation. Meta’s quick introduction of Personal Boundary is a good step, even though it is imperfect, and other such safety mechanisms should be pondered already. As Vasu Jakkal, corporate vice president of security, compliance, and identity at Microsoft, expressed, “Security needs to be designed into the Metaverse. We have one chance of getting this right.”

Metaverse 201: User Behavior

The culmination of the past few weeks’ series on the five main elements of the Metaverse, as described by Jefferies, is user behavior. After having explored the building blocks that need to be developed to achieve the utopian vision of the Metaverse — its technical infrastructure, virtual platforms, interoperable character, and the pick and shovel intermediaries — the set will be staged for users, for the world in fact, to come to the table and enjoy the festive meal that is the Metaverse.

It will take time, without question, for people to come to this table and eat. Not because the food is not good, but because, at first, the menu will be quite limited, the wait times will be long, and the service will feature hiccups, spills, and even strands of hair that fall into the food. With time, however, experience will make things better, diners will start spreading the word, the dining room will overflow, and construction will be launched, in fact it will never end, to increase the seating capacity and the complexity of the dishes served.

A big unknown is the speed of the Metaverse’s adoption. As the above chart indicates, there is reason for optimism, since the rate at which technologies reach widespread adoption has increased with time. While it took around 80 years for electric washing machines, introduced in the 1920s, to reach 80% of U.S. households, it took less than 15 years for the cellphone to be adopted by as many people. Even though the realization of the utopian vision of the Metaverse is likely decades away, it will take less time for the global population to discover the joys of virtual reality, via workrooms, games, and also concerts at first, than it did for them to discover the pleasure of saying goodbye to the tedious task of handwashing clothes.

This is evidenced both by the sheer amounts of money that have started pouring into virtual goods, including NFTs and real estate, and surveys and recent corporate actions on the matter. A recent study conducted by YouGov found that 44% of U.S. workers are willing to work in the Metaverse. To meet that demand, some companies, such as Accenture, are already investing heavily, as with its procurement of 60,000 Oculus Quest 2 headsets to help it train its new hires. We are impatient to join you at the table and break virtual bread together at a meal that is so exquisite that even Louis de Funès could not commend it enough.

Elsewhere in the Metaverse

• Ferrari is setting up a department for digital services dedicated to exploring opportunities presented by the Metaverse. Its CEO, Benedetto Vigna, indicated that “it’s important to look into new technologies that could help our brand.” Beyond seeking to benefit from hype, it also signals acknowledgment that digital twins could help it with consumer-facing aspects of the business. In the longer-term, we are wondering if the all-time great Niki Lauda could be brought back to life to race in his perfected 312 T2 inside the Metaverse?
• Microsoft reportedly shut down its Hololens 3 AR headset project. This development indicates uncertainty as to the company’s future AR strategy, particularly as it comes right after its announcement of the 2023 Activision acquisition. Speculation as to the reasons behind this pivot point to internal disputes. Senior designers and management are said to be debating whether they should develop a proprietary AR hardware device in-house, or focus on developing a software to license to hardware makers to create a sort of Windows for AR headsets. We wouldn’t mind as long as the user interface is better than Android’s.
• California-based Spire Animation Studios, a new company founded by Ratatouille producer Brad Lewis, announced it has raised $20 million, led by Fornite owner Epic Games, that will be channeled towards the creation of Metaverse-integrated movies. As its CEO, P.J. Gunsagar, summarized, “Meta-distribution, where audiences engage with stories before, during and after film release, has disruptive potential.” We hope they don’t unleash rats, even ones that went to French cooking schools, into the Metaverse.
• British sports betting and gambling company Entain, of Ladbrokes fame, announced the March launch of Ennovate, an innovation lab to develop immersive sports and entertainment experiences for the Metaverse. Funded with an initial £100 million investment, Ennovate will also be partnering with Verizon, British Telecom, and Theta Labs. What are the odds that this project will successfully pioneer new Metaverse applications?

Looking Ahead

In the next few weeks, we will begin turning our attention to some of the key technologies that are critical components in the realization of the full vision of the Metaverse. Spoiler alert: these include 3D modelling and 5G.

We hope you enjoyed this newsletter. We are delighted to see that our work is continuing to receive a warm reception and that our community of readers continues to grow. We would be thrilled if you joined it! You can do so for free by subscribing on our website: metaobservations.com.

Thanks for reading, until next week,

The team at MetaObservations.

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Disclaimer: This newsletter is distributed for general informational and educational purposes only and the opinions expressed therein are not intended to constitute investment advice.‍