Michael Grotticelli /
05.10.2010 09:13 AM
As TV shifts to the Internet, media companies struggle over technology and its hidden costs

When Apple’s Steve Jobs published his essay — “Thoughts on Flash”— last week, the computer universe took notice. In essence, Jobs claimed that Adobe System’s widely used Flash technology was no longer good enough to bring video to mobile devices. He said it was going to be replaced by HTML5, which uses the H.264 video codec.

Jobs’ opinion has significant clout, since Flash is not on Apple’s iPhone, now the best selling mobile smart phone in the United States, and the company’s new iPad, a device being marketed as a next generation media viewing device. The iPad sold over a million units in the first 28 days.

This has caused a mass move away from Flash in recent weeks, beginning with YouTube, whose videos are now available in H.264, and including Flip video cameras, HD-DSLRs and Blu-ray discs. Microsoft and Google are also backing H.264.

But H.264 is not free. Depending on how one uses the video codec, license fees must be paid to MPEG-LA, the group who represents various patent-holders that came together to create the standard.

The list includes some heavy hitters, including Apple, Microsoft, Panasonic, Sony, Dolby, Thomson and Toshiba — in all 26 companies or organizations listed as holding H.264 patents. AT&T also has some patents on MPEG-4 it wants license fees for, but it’s not part of MPEG-LA, and those rates have to be negotiated separately.

MPEG-LA offers two licenses: one for codec developers (who make and sell the patented H.264 technology) and one for video content and service providers (who use it to distribute H.264 encoded content). The rates vary significantly; the yearly royalties for distributing an encoder range from free to $5 million, while the royalties for distributing paid content are subject to complex rules about distribution but also range from free to $5 million.

MPEG-LA has said that only the parties at the top and bottom of the H.264 tool chain are generally required to pay royalties; that is, the party who makes the encoder and the party who distributes the encoded file to the end users.

Products that come with an H.264 codec don’t also come with a license to use the codec commercially. In order to distribute H.264 content in a way that makes money, the distributor has to pay for a separate license. Therefore, products like Windows 7, Mac OS X, Final Cut Pro, Avid and modern video cameras aren’t licensed to distribute video for commercial use. They all have fine print somewhere that says they’re for personal and noncommercial use only.

Its language feels aggressive and broad, especially since it apparently conflicts with the MPEG-LA’s general position that only the final link in the chain — the party selling or distributing the video to the end user — has to pay royalties for using the H.264 encoder.

And since broadcasters are one of the main customers for professional video cameras, fine print about “personal and noncommercial” use is unsatisfying. Also, using H.264 to distribute free Internet video to end users doesn’t cost a thing — that is, until at least 2015 when everything can change. After that date, the entire issue is up in the air, and MPEG-LA could start charging a royalty for what’s now free.

MPEG-LA said that using an H.264 video camera simply to shoot video for a commercial purpose does not require a license. The license terms are “worded poorly,” the group stressed.

It also should be noted that the MPEG-LA can’t just run off and do whatever it wants; its decisions are made by the various patent holders it represents, many of whom are also still trying to figure out the economics of video on the Web themselves.

Yet, the very idea of anyone having to pay a license for a video codec has sparked controversy, most of which is centered around whether or not H.264 is “free” or “open,” and whether or not alternative open-source and royalty-free codecs might be more suitable.

By the way, if the H.264 situation gives you a headache, there are other similar licensing organizations for Internet technology. They include HDMI, WiFi, 2G and 3G cell services, USB, CDs, DVDs and Blu-ray discs — all standards managed by similar licensing organizations. Perhaps it’s time to hire a full-time lawyer to deal with these new issues as television crosses into the Internet platform.



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