MPEG LA Proposes H.264/MPEG-4 License Fees

November 20, 2003
A license fee structure, proposed this week for the latest MPEG iteration contained a red flag that may give Microsoft a leg up in the realm of compression technology. The proposal, put forth by patent licensing firm, MPEG LA, called for usage fees in addition to one-time hardware and software royalties for H.264/MPEG-4 Part 10, or AVC.

One source estimated the usage fee alone would cost broadcasters around $10 million a year.

The AVC algorithm represents the most recent, and some say the most efficient, advance in MPEG compression technology. The current industry standard, MPEG-2, allows broadcasters to squeeze a high-definition AV signal through a 19 Mpbs pipe. Sources familiar with AVC said that in many cases, it's twice as efficient as MPEG-2. While the MPEG-2 standard will not change for primary broadcast video, sources said, AVC's substantial technical improvement makes it attractive for cable and DBS operators, DVD makers, and to broadcast E-VSB. (E-VSB potentially allows for simultaneous delivering of dual, over-the-air HD signals.)

MPEG LA's fee proposal was met with disappointment, but not surprise, by those in the video-delivery business. The licensing body previously set forth a similar fee structure for MPEG-4, which was an improvement over MPEG-2, but one not nearly as efficient as AVC.

"In terms of compressing TV, it didn't offer a compelling improvement to performance, so no one adopted it," a source familiar with the algorithm said.

The AVC standard did not just happen upon the digital TV scene. Before it was dubbed "AVC" by MPEG LA, the algorithm generically known as H.264 was under consideration by the Advanced Television Standards Committee, as a standard for E-VSB, several sources confirmed. However, because license fees had not been determined, approval languished.

Enter Microsoft with Windows Media 9. Microsoft hit the video compression arena with a bang earlier this year when it opened the specification for WM9. Opening a specification generally leads to wider adoption of a given technology, but it also gives competitors a chance to make compatible software and devices. Microsoft releases are traditionally proprietary, hence the company's stranglehold on the browser business. However, opening the WM9 spec placed the technology in a position to be adopted as a standard, which would give it far greater distribution than were it to remain proprietary.

The WM9 license fee consists primarily of a 10-cent royalty on encoders and decoders, compared to 20 cents under MPEG LA's proposal for AVC. However, while licensing WM9 does not require usage fees, there are other issues that don't leave the MPEG LA proposal completely dead in the water. One is that it requires users to cross-license any part of their own intellectual property that may have a bearing on WM9. Another is that it only indemnifies users for the dime royalty, so that if a successful patent suit is brought to bear, users would be out right alongside Microsoft.

Not all of the 120 or so AVC patent holders agree on the inclusion of a usage fee. MPEG-2 generates an estimated $300 million a year on one-time royalty fees alone. VIA Licensing, a firm in competition with MPEG LA, previously proposed a licensing structure for H.264 that included no usage fees. Sources indicate that one of the major manufacturers among the patent holders is demanding a usage fee, hence the proposal from MPEG LA.

The usage fees proposed by MPEG LA, which would kick in Jan. 1, 2006, include 2 cents per title for each PPV, VOD and video downloads longer than 12 minutes. Subscription video delivered by DVS, cable or Internet would be priced according to the size of the system, starting at $25,000 a year for systems with 100,001 to 250,000 subscribers; $50,000 for 250,001 to 500,000 subscribers, $75,000 for 500,001 to 1 million subscribers and $100,000 for anything above 1 million.

For broadcasters who transmit AVC-compressed content, the fees start at $10,000 a year, per market, in markets with more than 100,000 households. Internet broadcast fees are waived through 2010, after which they parallel over-the-air fees. Usage fees then cap at $3.5 million for 2006-07; $4.25 million for 2008-09; and $5 million in 2010, when initial licenses expire.

"Many companies believe that these patents should be freely available to move this transition along," said one source involved in the development of AVC. That, he said, is unlikely because the amount of work that went into it.

For the time being, both the MPEG LA and the VIA licensing proposals are under review by the patent holders, he said.

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