The XR Sector’s Economic Contribution

The market for immersive media has been growing year-on-year and coronavirus lockdowns have seen recognition of how XR content can help health and wellbeing. Post-pandemic economic performance for any sector is uncertain, but it is hoped immersive media and technologies can continue their expansion, especially as more people get used to working and communicating through digital technologies. Here, we explore where the immersive sector was economically before COVID-19 hit.

Benefitting from the largest virtual reality (VR) and augmented reality (AR) sector in Europe, the UK has a head-start in terms of access to the $160 billion worldwide immersive technologies market. With a 78.3% five-year growth rate in UK AR/VR spend, and an estimated £62.5 billion added to the UK economy by 2030 (see Immerse UK and Digital Catapult), understanding the increasing contribution AR/VR spend could make is important.

While the economic contribution of the immersive market is not confined to the traditional creative industries such as gaming and film, we do know that their financial contribution is valuable: gaming brought in £1.35 billion in 2016 to the UK economy and directly employed 16,140 FTE roles, while film contributed £6.1 billion in 2017.

Immerse UK and Digital Catapult’s The Immersive Economy in the UK report shows how immersive technology is used throughout the UK economy, with key sectors identified by the report including architecture and planning, construction, engineering and manufacturing, entertainment, healthcare, and training practices. With the widespread use and appeal of immersive technologies, investigating the breakdown of how immersive companies exist within the wider economy is increasingly advantageous. 

Business growth

As the UK immersive market finds its footing, businesses are starting to grow and embed in established creative ecosystems. Innovate UK estimates that there are 1,000 immersive-specialist businesses in the country, employing 4,500 employees. According to the 200 immersive companies in an Immerse UK and Digital Catapult survey, 24.5% identified as growing start-ups, 12% stated they were scaling upwards, and 20.8% classify themselves as established small and medium enterprises. 

Although a majority of respondents noted that a lack of financial investment was a growth inhibitor, the same study suggests that wider trends identify the immersive sector as being primed for investment. While there has been an increase in funding for AR-focused companies and seed-stage investment, the report identifies that skills gaps across the XR industries are a barrier to growth.

Creative clusters and immersive hubs

As the 2001 Department for Culture, Media, and Sport (DCMS) Creative Industries Mapping reports show, the regional nature of the creative industries has long influenced understanding and performance of the creative economy. While the UK creative clusters (established hubs for the creative industries) are mainly located in London and the south of England, this is not true of the immersive sector. In contrast to previous reports, such as that by Nesta in 2016, it appears that immersive technology businesses are spreading beyond London, with 53% of businesses now outside of the capital. While exercising caution over any direct comparisons between reports and taking into account methodological differences, it is interesting that the immersive sector appears more regionally distributed when compared to the broader creative clusters mapping.

The accepted integration of immersive technology into non-creative industries such as healthcare and construction might explain some of these geographical differences, although such conclusions require further research. Likewise, as explained in the Innovate UK report, other drivers of business success in particular regions, such as access to infrastructure and experts, could factor. 

What is known is that projects such as XR Stories, and coalitions with universities and regional support networks, positively influence the immersive sectors. Read our case studies on how Studio Macguire are turning the real world into playable spaces; how Hive IT are using augmented reality to bring museum archives to life; and how Opera North are reaching new audiences using interactive trailers.

In 2018, Innovate UK found that 253 immersive technology projects, totalling £160 million, were funded by UK Research Councils. Such initiatives can help to establish and strengthen immersive and creative hubs across the UK. 

Research gaps

Research into the economic contribution of the immersive sector is growing, but there remain gaps in sector specific knowledge. For example, further research is needed around issues of inclusivity and diversity within the immersive sector in the UK. More generally, there is also a lack of evidence from regions outside of more established hubs, with areas such as Yorkshire and Humber underrepresented. As projects continue to be funded, research and development extended, and data collection obtained, reports should seek to address these gaps.

If you would like to learn more, please read our work on the skills needed by the XR industries.

This report was prepared by Kelli Kennedy, XR Stories research intern, and Sam Stockley-Patel, XR Stories Research Associate.

Published on 2 September 2020

Filed under: Research, XR Stories