Nokia (NYSE:NOK) recently unveiled Ozo, a 360-degree camera designed for filming virtual reality content. The camera is roughly the size of a cantaloupe, weighs about six pounds, and sports eight image sensors and microphones that capture content in different directions. It then outputs VR video in standard formats, which can be viewed on headsets like Facebook's (NASDAQ:FB) Oculus Rift.

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Nokia's Ozo. Source: Nokia

This represents a huge leap forward for VR filmmaking since VR content is usually filmed with multiple cameras attached to spherical rigs, then stitched together with software before it can be viewed. GoPro (NASDAQ:GPRO), for example, recently announced a spherical rig for its action cameras, and acquired French start-up Kolor for its video-stitching app. It also built a 16-camera spherical rig for content creators on YouTube.

Nokia's Ozo leapfrogs over those clumsy solutions with an all-in-one VR camera. Unfortunately, the device won't be cheap. It's expected to cost in the "mid-five" figures and sold to film studios rather than consumers. Nonetheless, the Ozo has already attracted the interest of VR filmmakers. Jaunt VR, a VR film studio that is developing its own camera, has signed on as one of Nokia's first partners for the device.

The business of virtual reality
The virtual reality market could grow from practically nothing today to $30 billion by 2020, according to research firm Digi-Capital. That growth is expected to be fueled by the arrival of more VR headsets, which could encourage the development of more VR games and films.

Today, mainstream consumers can try out VR content with Google's DIY Cardboard headset or Samsung's Gear VR add-on for its newer Note and Galaxy devices. Last November, Samsung also unveiled a prototype 360-degree camera that can stream VR content in real time to a Gear VR headset.

Later this year, HTC and Valve will release the higher-fidelity Vive headset, followed by Facebook's Oculus Rift and Sony's Project Morpheus in 2016. If enough people buy these devices, more VR games and films could subsequently hit the market.

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Oculus Rift. Source: Oculus VR

The business of VR films
To spur the development of VR films, Facebook's Oculus launched the Oculus Story Studio, a VR film studio, in January. The studio's debut film was Lost, a five-minute animated feature from former Pixar animator Saschka Unseld. Henry, the studio's second animated film, premiered on July 28.

In recent years, the Sundance Film Festival has also showcased more VR content. Back in 2012, Nonny de la Peña's Hunger in Los Angeles used an early prototype of the Oculus Rift to place the viewer in the middle of a food line outside of a church. This year at Sundance, Birdly turned a viewer into a bird flying over San Francisco while Project Syria put the viewer in the middle of a terrifying rocket attack. These projects highlight the ability of VR films to create feelings of fantasy and empathy, which conventional films arguably can't capture.

Hollywood studios have noticed this rising interest in VR content. 21st Century Fox is releasing several VR "experiences" through its Fox Innovation Lab this year, the first of which was a companion short film to Wild. Annapurna Pictures, which produced Her and Zero Dark Thirty, also recently established a division for VR films.

What does this mean for Nokia?
For Nokia, the Ozo represents another experimental step back into hardware. After Nokia sold its handset division last year, many people thought that the company would focus entirely on its telecom equipment business, Nokia Networks. But surprisingly, Nokia licensed its design and brand to Foxconn for the new N1 tablet earlier this year. It also hinted that it could eventually return to smartphones with licensed devices after its non-compete clause with Microsoft expires at the end of 2016.

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Source: Nokia

When the Ozo launches in late 2015, it probably won't generate much meaningful revenue for Nokia. But if VR headsets prove popular and demand for VR cameras rises, Nokia could gain a first-mover advantage in that fledgling market. Looking further ahead, smaller and cheaper versions of the Ozo might even help Nokia take a bite out of GoPro's action camera market.

Leo Sun owns shares of Facebook. The Motley Fool both recommends and owns shares of Facebook, Google (A shares), Google (C shares), and GoPro. 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.